Morayo Fagborun Bennett considers the principles of disrepair claims and how the compensation freeholders may owe to leaseholders is determined.
A leaseholder with a leaking roof or defective shared heating system faces two questions: Who is responsible for undertaking the necessary repairs to the building and internal repairs to their property and how will it be paid for?
This article considers the applicable principles and the process of determining what compensation a freeholder might owe a leaseholder whose property has been damaged as a result of actionable disrepair. Is compensation based on market rent or actual rent?
First we will consider principles arising in all disrepair cases and then those specifically applicable to leasehold cases.
If a freeholder is in breach of the covenant to repair and as a result the leaseholder has suffered loss, the leaseholder is entitled to compensation in the form of damages.
It should be borne in mind that leasehold claims have a 12-year limitation period under section 8 of the Limitation Act 1980.
When determining the quantum of an award of damages, the court will attempt to place the leaseholder in the position he would have been in if the freeholder had performed the repairing covenants properly.
Unfortunately, the assessment of general damages in a disrepair case is more of an art than a science, which cannot be predicted with any satisfactory degree of accuracy. General damages are notoriously at large. Each case will turn on its own specific facts and the surrounding circumstances. The variation of any one of a number of factors can have a dramatic effect on the quantum awarded.
Authority has been provided by the higher courts as to the quantum of damages for breach of a landlord’s repairing covenant; however, this must be treated as guidance rather than as a measuring stick. The seminal authority is that of Wallace v Manchester City Council (1998) 30 HLR 1111, CA, in which the Court of Appeal set out the usual approach to assessing the quantum of damages in a disrepair claim and set an unofficial tariff for general damages for disrepair being a range of £1,000 to £2,750 per annum. The Court opined that relevant issues were:
- The “loss” requiring compensation is the loss of comfort and convenience arising from living in a property which is not in a proper state of repair (at p.1112 and 1121, per Morritt LJ).
- Such a loss can be ascertained in a number of different ways including a notional reduction in rent (at p.1113, per Morritt LJ).
- If the judge prefers to use a global approach rather than the notional reduction in rent s/he will be well advised to cross-check the proposed award against the rent payable for the disrepair period to ensure proper consideration is given to the landlord’s breach or the nature of the property (at p. 1113 and 1121, per Morritt LJ).
More recently in English Churches Housing Group v Shine  EWCA 434, the Court of Appeal confirmed that the tenant’s rent should be used as the reference point for deciding the quantum of damages. Lord Justice Wall said (at paragraph 104)
“...whilst we equally accept that there will be cases in which the level of distress or inconvenience experienced by a tenant may require an award in excess of the level of the rent payable ...the award of damages for stress and inconvenience should be related to the fact that the tenant is not getting proper value for the rent...”
Following on from recommendation 10 in the Jackson report, in Simmons v Castle  EWCA Civ 1288, the Court of Appeal at paragraph 50 declared that with effect from 1st April 2013, the proper level of general damages in all civil claims for (i) pain and suffering, (ii) loss of amenity, (iii) physical inconvenience and discomfort, (iv) social discredit, (v) mental distress or (vi) loss of society of relatives, will be 10% higher than previously, unless the claimant falls within 44(6) of the Legal Aid, Sentencing and Punishment of Offenders Act 2012. When calculating general damages in disrepair cases, a 10% uplift will need to be added to the final award.
Whilst the above principles apply to all disrepair cases, those that follow apply to long leasehold cases but not social housing ones. In long leasehold cases, the measure for damages is the notional open market rent obtainable for a private tenancy of the property. Working out the notional market rent can itself lead to dispute between the parties. Websites showing comparable properties and the RPI index will provide good starting points.
The Court of Appeal in Earle v Charalambous  EWCA Civ 1090;  H.L.R. 8 set out the relevant measure of damages under a long lease:
- In assessing general damages for breach of a landlord's repairing covenant, there is a distinction between periodic tenancies and long leases; a long lease of a property is not only a home but is also a valuable property asset; distress and inconvenience caused by disrepair to such a property are symptomatic of interference with the tenant's enjoyment of that asset , , .
- If the landlord's breach of repairing covenant deprives the tenant of his enjoyment of his property, wholly or partially, for a significant period, a notional judgment of the resulting reduction in rental value is likely to be the most appropriate starting-point for the assessment of damages; this reduction is not capable of precise estimation and is a matter for the judgment of the court rather than for expert evidence; use of a notional rack rent as a means of assessing reduction in value is appropriate where the property is the tenant's home and is not confined to cases where the property is held as an investment – , , .
- Expert valuations are not necessary and the court is entitled to accept the Defendant’s evidence of the value of the property.
In that case, the Claimant was residing in the Premises and had been forced to move from the Premises. He estimated the rental value at £1,000 and paid his parents £400 per month rent during a 2-year period in which he was forced by the disrepair to vacate the property. The Court of Appeal began from the position that the Claimant was deprived of the entire enjoyment of his property for a 2-year period. The court recognised that he mitigated his loss (rental value or the cost of renting equivalent accommodation) by living with his parents. It held that an award of just over 50% of the rental value for the period when the Claimant was not able to occupy the property was a fair estimate of his loss .
Olinski v Islington LBC Lambeth County Court January 2013 was a long leaseholder case, with Islington as the freeholder. The claimant’s lease started in 2002. There was serious subsidence caused by tree roots. The front bay window and rear extension were pulling away from the main structure and the side of the rear extension was bowed. The partition wall to the bedroom was warped. In 2003 the pillars of the main entrance moved and had to be propped up. There was scaffolding up for nearly 10 years. The claimant was in temporary accommodation in a two-bed flat from 2006 to 2012. The claim settled for £18,044. General damages of £15,544 for a period of 8 years and 4 months, including 6 in temporary accommodation. £2500 special damages. A re-inspection by a structural engineer after 6 months and any further works required were agreed. The council were to indemnify the claimant against the cost of any further works arising from subsidence for a period of 15 years, and would not charge the excess on any further works carried out under insurance to the claimant.
I was recently involved in LB Camden v Olaniyan and Oshibote, Central London County Court, January 2014 which concerned a leasehold property which suffered from water penetration shortly after the leaseholders exercised their right to buy. The claim settled for £40,000 which was approximately 18% of the notional market rent for the 9-year period.
In summary, a leaseholder with an actionable disrepair claim is entitled to compensation for the loss of comfort and convenience suffered, which can be determined by a notional reduction in rent. The appropriate measure of damages is a notional market rent. A 10% uplift will need to be applied to the general damages awarded. The leaseholder may also be entitled to special damages including the second-hand replacement value of damaged items.