England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
MR RECORDER LAYTON QC
CK302391

		Royal Courts of Justice Strand, London, WC2A 2LL
		28th July2006

[Note: 12th October 2006 Addendum to judgment]

Carnwath LJ :

Background

1. The appeal concerns the method by which damages should be assessed for an admitted breach of repairing covenant by a lessor.
2. The appellant is the freehold owner and lessor of a property at 121 Essex Road, Islington, London N1. It comprises a shop on the ground floor with 8 residential flats on the 3 upper floors. At one time he had been the tenant of the shop. He acquired the freehold as part of the settlement of a dispute with his then landlord. The respondent (claimant) is the lessee of Flat 8, under a lease dated 11 March 1982, for a term of 99 years from 24 June 1981. He bought it in December 1999 for £121,500. It is the top floor flat and comprises a bedroom and combined living room and kitchen, with small shower, separate wc and a utility cupboard.
3. The claim was for damages for breach of the lessor's covenant to repair, under clause 4(3)(i) of the lease, specifically disrepair of the roof of the premises. This resulted in damp and water ingress to his flat, and eventually, in December 2002, the partial collapse of the kitchen ceiling, at which point the lessee had to move out. It was accepted that the lessor was on notice of the problem from January 2000. The judge quoted from, and evidently accepted in general terms, the lessees's contemporary account of the impact on his enjoyment of the property. For example, in March 2001, he was writing that water was entering the flat "in 20 different places", and was running down all of the internal walls, and that he had "four buckets permanently positioned in various places within the flat". In spite of a respite due to temporary works in the Summer, by January 2002 he was again complaining of having to keep several buckets to catch leaking water every time it rained. In November 2002, shortly before he left, he was reporting that water was entering the property "in the bathroom, laundry, hallway, living room, toilet, kitchen and bedrooms", electrical appliances had been splashed and "the health and safety implications are horrendous".
4. After protracted discussions with various surveyors, and consultations with the other lessees (who would be jointly responsible for the costs of the repairs through their service charges), major works to replace the roof were carried out from May until September 2004, when the lessee was able to return. Neither party came out of the story particularly well in the judge's eyes. He commented on the lessor's half-hearted response to the disrepair problems until faced with litigation in mid-2003; he did the "minimum he could get away with and failed to get to grips with the issues he needed to". On the other side, the lessee's exasperation with the lack of repair activity led him to be "demanding, unco-operative and at times downright abusive" to the lessor and to others engaged by him.
5. Liability for breach of covenant was not in issue. For the purposes of assessing the damages the judge considered two periods of admitted disrepair:

i) Period 1: 35 months from January 2000 to December 2002, during which the lessee remained in occupation;

ii) Period 2: 21 months from December 2002 to September 2004, throughout which the lessee lived at his parents' home.

The judge awarded the lessee £20,000 by way of general damages for period 1, when he remained in occupation, and £10,000 for period 2, when he was living with his parents.

The judge's reasoning

6. I will attempt in a summary to do justice to the reasoning which led the judge to that assessment (extending over some 16 pages of the judgment). He referred to the leading authorities on the assessment of damages, including Morritt LJ's summary of the relevant principles in Wallace v Manchester City Council (see below). He noted that the lessee held a "responsible but clearly stressful" position as Head of Geography at Parliament Hill School. He accepted that the lessee had suffered effects which were "real and serious", and were such as to "nudge the appropriate level of damages towards the top end of the scale" (para 31). Further the flat was his principal asset of the lessee, and it was proper to take into account –

"… the particular distress involved in seeing one's asset deteriorating before one's eyes" (para 33)

He referred to the evidence of rental value as a "cross-check". He accepted the figure of £1,000 per month based on the lessee's evidence of his own researches, and the judge's own "impression of the rental value of a one-bedroom flat of the type in question in that part of London". This gave rental a figure of £35,000 for period 1. As a further cross-check he estimated that the cost of borrowing to pay for the flat over the same period would have been of the order of £31,000.

7. He noted the lessee's own approach to assessment, based on an estimate of annual value of £14,400 (which the judge described as "unsupported by evidence"^[1]), to which was applied multipliers of 10% and 50% respectively for the periods before and after September 2000, giving a figure of £17,280; to that was added an amount for "stress and depression", resulting in a total claim of £20,000. The judge had earlier rejected the claimant's case that there had been a "step-change in the basis of claim" in September 2000, commenting that there was no evidence "of any particular incident at that stage" (para 8). More generally, he said of the claimant's assessment:

"To the extent that I understand this approach to the assessment of damages, I hold that it is not appropriate, and I reject it."

8. Although he rejected the approach, he arrived at the same figure by a different route, as he explained in para 38:

"In my judgment, the correct approach to this case is to determine a global figure for general damages in respect of the period when the Claimant remained in occupation, to take account of all relevant matters including the reduced value of his flat during that period, the stress, distress and discomfort involved in living in deleterious conditions and the other factors to which I have referred (including the lessor's conduct), and then to subject it to the cross-checks I have mentioned. Adopting this approach I award the sum of £20,000 under this head. Performing the cross-checks, I note that this sum is between half and two-thirds of the notional values I have described for rental and/or for the cost of borrowing."

9. For period 2, he rejected an argument that the only allowable claim was for the cost of alternative accommodation, which he thought was based on a mis-reading of the judgments in Calabar Properties v Stitcher [1984] 1 WLR 287 (para 41). The lessee had given a list of losses under 8 heads, including (i) moving expenses (£535.50); (ii) storage (at £30 pm) - £510; (iii) rent (at £300 pm) - £6,300; (v) travel expenses - £1,110.10. (The others are not material in the appeal.)
10. Item (i) was not disputed; item (v) (the cost of travel) was accepted by the judge as representing –

"… additional travel costs consequent on the Claimant mitigating his loss by going to stay with his parents rather than leasing property closer to his work." (para 38)

Items (ii) – (iii) were based on an agreement made with his parents dated 16 December 2002, under which he was to make monthly payments of £50 for utilities, and "in the future when I am financially able…" £300 for rent and £30 for storage of the flat contents. The judge found that he regarded himself as "bound in honour" by that letter, and would pay. However, the judge regarded those items as -

"… not in themselves items of loss but rather… an analogue for the measurement of the loss which the claimant suffered for loss of use of the flat." (para 47)

11. He calculated the total of items 1, 2, 3 and 5 as £8455.60, which he described as -

"… an analogue against which the loss suffered by the Claimant for loss of use of the flat, as well as the associated distress and inconvenience caused by the lack of repair to the property can be assessed. The damages are more accurately in the nature of general damages than special damages (with the possible exception of item (i). In nature they are no different from the damages suffered in respect of period 1, albeit they are characteristically measured differently to reflect the somewhat different nature of the loss suffered by the Claimant." (para 51)

12. He described the correct approach as being to determine –

"… a global figure to compensate the claimant and then to cross-check it against the costs incurred by the claimant."

He bore in mind that reasonable alternative accommodation closer to work would have cost some £21,000 for period 2, far more than the agreed payment to his parents. He also thought it right to take account of "such (if any) continuing stress, distress or discomfort… as the Claimant can prove…" The only matter proved under that head was the "increased discomfort and distress" involved in the longer journey to work, with the risk of uncertain punctuality; in addition he took account of the distress caused by "the wasting of his asset" (para 52).

13. He concluded on period 2:

"I also bear in mind the Claimant's duty to mitigate his loss and the need to guard against the danger of compensating the Claimant for losses which he has not suffered – in particular he should not be compensated for the distress and discomfort of living in adverse conditions when, in fact, he has lived in comfort in his parents' home. Doing the best I can in all the circumstances, I assess damages under this head for period 2 at £10,000." (para 53)

Grounds of appeal

14. The grounds of appeal are set out under five heads. Although the awards for periods 1 and 2 are treated separately, the arguments overlap. As I understand them, the issues can be summarised as follows:

i) The awards (equivalent to £6,800 pa and £5,700 pa respectively for periods 1 and 2) were "wholly excessive" and constituted over-compensation;

ii) More particularly, they were excessive when compared to the damages awarded in other housing disrepair cases (which indicate a "tariff" of not more than £3,300 pa "in a worst case");

iii) It was wrong in principle to base the award on a notional reduction of rack rent value, where the flat was the claimant's home and not an investment, and the only rent payable was a ground rent;

iv) There was in any event no proper evidence of the rack rental value to support such an approach;

v) For period 2 it was wrong to treat the expenses of living with his parents as an "analogue" of the claim for distress and inconvenience, where, as the judge found, the only actual distress and inconvenience shown on the evidence were the effects of "a longer journey to work on a railway of uncertain punctuality."

The central issue

15. Notwithstanding those separate points, Mr Letman for the appellant described the central issue as follows:

"Central to this appeal lies the issue whether in assessing the normal measure of damages for breach of a repairing covenant in respect of residential premises, the distress, discomfort and inconvenience for which the tenant is being compensated under the head 'difference in value' should be assessed according to past awards for such non-pecuniary loss or is actually dependant on the market rent of the premises. If the former the maximum level of damages is indicated to be no more than about £3,300 per annum, if the latter the damages are governed by whatever may be the market rent for the property."

It will be convenient to begin by addressing that issue of principle, which is particularly relevant to points (ii) and (iii) above.

16. This issue has been well-covered by previous authority. The usual starting point for discussion of the law in this area is the clear statement of principle by the Court of Appeal in Hewitt v Rowlands (1924) 93 LJKB 1080 (see e.g. McGregor, Damages 17^th Ed para 23-023; Woodfall, Landlord and Tenant Vol 1 para 13.089.2). Having identified the relevant period as that between the giving of a notice requiring repairs and the date of assessment, Bankes LJ said:

"Prima facie the measure of damage for breach of the obligation to repair is the difference in value to the tenant during that period between the house in the condition in which it now is and the house in the condition in which it would be if the landlord on receipt of the notice had fulfilled his obligation to repair." (p 1082 - emphasis added)

17. Much more recently, in Wallace v Manchester City Council [1998] 3 EGLR 38, this court was faced with an argument that, in the light of cases since Hewitt (notably Calabar Properties v Stitcher [1984] 1 WLR 287), there were two distinct heads of general damages, (1) diminution in value, and (2) discomfort and inconvenience; and that separate findings had to be made under each head. This argument was rejected by Morritt LJ (with whom Kennedy LJ agreed). The review of the cases showed that "comfort and convenience and reduction in value of the flat were regarded as opposite sides of the same coin" (p 40G).
18. He concluded with a series of propositions (p 42):

"First, the question in all cases of damages for breach of an obligation to repair is what sum will, so far as money can, place the tenant in the position he would have been in if the obligation to repair had been duly performed by the landlord. Second, the answer to that question inevitably involves a comparison of the property as it was for the period when the landlord was in breach of his obligation with what it would have been if the obligation had been performed. Third, for periods when the tenant remained in occupation of the property notwithstanding the breach of the obligation to repair the loss to him requiring compensation is the loss of comfort and convenience which results from living in a property which was not in the state of repair it ought to have been if the landlord had performed his obligation (McCoy v Clark^[2]; Calabar Properties Ltd v Stitcher^[3] and Chiodi v De Marney^[4]). Fourth, if the tenant does not remain in occupation but, being entitled to do so, is forced by the landlord's failure to repair to sell or sublet the property he may recover for the diminution of the price or recoverable rent occasioned by the landlord's failure to perform his covenant to repair (Calabar Properties Ltd v Stitcher)."

19. Under the third proposition, he added:

"Thus the question to be answered is what sum is required to compensate the tenant for the distress and inconvenience experienced because of the landlord's failure to perform his obligation to repair. Such sum may be ascertained in a number of different ways, including but not limited to a notional reduction in the rent. Some judges may prefer to use that method alone (McCoy v Clark), some may prefer a global award for discomfort and inconvenience (Calabar Properties Ltd v Stitcher and Chiodi v De Marney) and others may prefer a mixture of the two (Sturolson v Mauroux^[5] and Brent LBC v Carmel Murphy^[6]). But, in my judgment, they are not bound to assess damages separately under heads of both diminution in value and discomfort because in cases within the third proposition those heads are alternative ways of expressing the same concept." (emphasis added)

On its face, that passage on its own seems enough to dispose of Mr Letman's central issue, since it makes clear that "notional reduction in rent" is at least a permissible approach to the assessment of damages.

20. Morritt LJ added some "general observations":

"First, I would agree with the observations of Stephenson and Griffiths LJJ in Calabar Properties Ltd v Stitcher that expert valuation evidence is not of assistance when assessing the damages in accordance with my third proposition. The question is the monetary value of the discomfort and inconvenience suffered by the tenant. That is a matter for the judge….

Second, a judge who seeks to assess the monetary compensation to be awarded for discomfort and inconvenience on a global basis would be well advised to cross-check his prospective award by reference to the rent payable for the period equivalent to the duration of the landlord's breach of covenant. By this means the judge may avoid over- or under-assessments through failure to give proper consideration to the period of the landlord's breach of obligation or the nature of the property." (p 42F)

21. Those comments must be seen in the context of the case, which like many of those to which reference has been made, concerned a secure weekly tenancy from the local authority, where the actual rent may be an imperfect guide to the true value of the tenancy to its occupant. A case closer to the present, in that it involved a tenancy at an open market rent in a more expensive area was Niazi Services v van der Loo [2004] 1 WLR 1254. This concerned a flat in Chelsea. The landlord had a long lease of one flat in a building, and had sublet it on a periodic tenancy at a full market rent of £34,800 pa. He sued the tenant for unpaid rent, and the tenant counterclaimed for breach of the landlord's repairing covenant. The trial judge ordered damages to the tenant of £48,000, the bulk of which was made up of a 40% notional reduction of rent during the 33-month period of disrepair (p 1257). On appeal it was held that he had misapplied section 11(1A) of the Landlord and Tenant Act 1985. This left only certain admitted breaches of covenant in respect of which damages fell to be re-assessed. It was argued for the landlord, that it was wrong to use a notional rent reduction. This argument failed. Jacob LJ said:

"27. But we must still decide what the quantum of damage is for the admitted breaches of the implied covenant. This first involves the appropriate principle. The Judge settled on a global figure based on a notional reduction in rent for the breaches he found. Was it wrong for him to use the notional reduction in rent principle?

28. Mr Cowen submits he was. He submits that the damages for breach of covenant are to compensate the tenant for inconvenience and discomfort of occupying premises in disrepair, not for diminution in rental value, relying upon Calabar Properties v Stitcher [1984] 1WLR 287 at 293 G-D per Stephenson LJ.

29. Mr Cowen is right in saying that he must show the Judge has gone wrong in principle in choosing this method – this Court does not merely substitute one value judgment for another. We are unable to see, however, where the Judge went wrong in principle."

Jacob LJ quoted from Morritt LJ's elaboration of his "third proposition" in Wallace v Manchester City Council, and concluded:

"30. Given that, we cannot see how it can be said that the Judge went wrong in principle in choosing the notional reduction in rent – it was a legitimate option to take. We propose to apply it here, albeit only to the admitted breaches of covenant."

22. It appears therefore that, apart from the misapplication of the section, the court found no error of principle in the judge's approach to damages, notwithstanding that the amount awarded was well in excess of levels of award in other housing cases relied on by Mr Letman. Jacob LJ rejected the argument that there should be little difference between the award in such a case and that for "a tenant in a humbler dwelling". He said:

"This was a high class flat in a very high class neighbourhood. The sub-tenant was paying for and entitled to expect high class standards. The landlords were taking rent on that basis." (p 1263A)

That decision makes it impossible, in my view, for Mr Letman to rely on some general "tariff" applicable in all such cases, regardless of the nature and value of the property.

Calabar

23. That leaves the argument that use of a notional rack rental approach is inappropriate for cases where, as here, a property on a long lease is occupied as a home, rather than as an investment, and only a ground rent is in fact payable. For that argument, Mr Letman relies on Calabar Properties v Stitcher, which was such a case.
24. In reading the judgments in Calabar, it is necessary to understand the limited basis of the appeal. The lessee was the assignee of the residue of a term of 99 years at a ground rent. On the lessor's claim for outstanding rent and service charges, he counterclaimed for damages for breach of the lessor's repairing covenant. It was found that the flat suffered from water penetration attributable to the lessor's persistent failure to repair, and that the lessee had been justified in moving to alternative accommodation while the repairs were being carried out. The judge awarded damages of £4,606 based on the cost of redecoration of the flat, and £3,000 for discomfort and loss of enjoyment. He took the view that, in the absence of direct valuation evidence, the cost of internal repair could be taken as representing the difference in value (see [1984] 1 WLR 287, 291C). There was no appeal against those two elements. (Although a claim could in principle have been made for the cost of alternative accommodation, that had not been pleaded, and the court of appeal refused to allow an amendment to include it: p 296D-H.)
25. On appeal, it was argued that, following Hewitt, the judge should have made an additional award "based either on the capital value of the flat or alternatively based on its rack rental", and if necessary should have adjourned for further evidence on that issue (p 289E, 292H). This argument was rejected. The "first objection" was that the judge had made clear that he regarded the evidence of the cost of repair as a sufficient indication of difference of value for that purpose, and had not thought it necessary to adjourn (p 293C-D). That ground of decision causes no difficulty.
26. It is the "second objection" which is relied on in the present context. Stephenson LJ thought that to base the assessment on "diminution in the value of the flat as a marketable asset" was to ask the court to take "a wholly unreal view of the facts." In his view, the reality of the defendant's loss was the temporary loss of her home. He continued:

"If she had bought the lease as a speculation intending to assign it, to the knowledge of the plaintiffs, the alleged diminution of rental (or capital) value might be the true measure of her damage. But she did not; she bought it for a home, not a saleable asset, and it would be deplorable if the court were bound to leave the real world for the complicated underworld of expert evidence on comparable properties and value, on the fictitious assumption that what the flat would have fetched had anything to do with its value to her or her husband. I do not think we are bound by the authority of Hewitt v Rowlands… or any other decision do so something so absurd, and (the second objection) must, in my opinion, rule out any damages for difference in rental value." (p 293D-G).

Of Hewitt v Rowlands, he noted that it was a case of a statutory tenant living in a rent-controlled cottage, and commented:

"What is plain is that, in laying down the measure of damage, the court cannot have had the capital or rental value of the cottage as a marketable asset in mind, because a statutory tenancy is not marketable, and the court was considering the position of a statutory tenant who was still living in the cottage and would lose his interest in the cottage if he ceased to live there…." (p 295D-F)

27. Griffiths and May LJJ agreed. Griffiths LJ also commented on Hewitt v Rowlands. He said:

"Whatever Bankes LJ meant by 'the difference in value to the tenant', the one thing he cannot have meant in the circumstances of that case was the diminution in the market value of the tenancy, for it was a statutory tenancy which the tenant could not sell, and thus it had no market value. In my view the difference in value to the tenant must vary according to the circumstances of the case. If the tenant is in occupation during the period of breach he is entitled to be compensated for the discomfort and inconvenience occasioned by the breach and I suspect that that is what Bankes LJ had in mind when he used the phrase 'the difference in value to the tenant' in Hewitt v Rowlands, for which the judge in this case awarded £3,000. If the tenant has rented the property to let it and the landlord is aware of this, then 'the difference in value to the tenant' may be measured by his loss of rent if he cannot let it because of the landlord's breach. If the tenant is driven out of occupation by the breach and forced to sell the property then 'the difference in value to the tenant' may be measured by the difference between the selling price and the price he would have obtained if the landlord had observed his repairing covenant. But each case depends on its own circumstances and Hewitt v Rowlands should not be regarded as an authority for the proposition that it is in every case necessary to obtain valuation evidence.
   In my view there was no need for any valuation evidence in this case. I repeat that damages in a case such as this should include the cost of the redecoration, a sum to compensate for the discomfort, loss of enjoyment and health involved in living in the damp and deteriorating flat and any reasonable sum spent on providing alternative accommodation after the flat became uninhabitable." (p 299C-F)

28. Stephenson LJ's reasoning in the above passage was subject to criticism by Judge Hicks QC, in Electricity Supply Nominees Ltd v National Magazine [1999] 1 EGLR 130. The case concerned a lease of a substantial commercial building. The tenant claimed damages for breach of the landlord's repairing covenant, based on the difference between the actual rent, and the "rental value of the demised premises in their actual (and defective) state and condition…" (p 131F). There was the trial of a preliminary issue whether, on the pleaded facts, the tenant was entitled to damages assessed on that basis.
29. The judgment contains a detailed discussion of Hewitt v Reynolds and subsequent cases, including Calabar. Although I find the whole judgment persuasive, it is enough to refer to three short extracts. The first is in his discussion of the passage from Stephenson LJ's judgment dealing with the "second objection". Having noted that in the claimant's submissions in Calabar there seemed to have been some uncertainty as to the use to be made of "capital values", as distinct from rental values, he continued:

"… unless the contrary was conceded, it is not clear why the concept of quantifying the value to a lessee of quiet enjoyment (with all the attendant amenities and standards of comfort to which she was contractually entitled) in terms of a weekly, monthly or annual sum of money to which rack-rental values would be at least a guide, should be treated as equating the premises exclusively with 'marketable assets'. In an open market rack rents are evidence not only of the return available to investors but also of the value that prospective tenants attach to that enjoyment…" (p 133F)

After further analysis of each of the judgments in Calabar, he concluded that the decision did not require him to depart from what he considered to be "clear principles" or to treat Hewitt v Reynolds as overruled, adding:

"… there are several indications in both of the reasoned judgments that what the lords justices believed themselves to be dealing with, and rejecting, was a claim to reduction in capital value for temporary loss of occupation pending the making good of a remediable breach… as was conceded by (Mr Paul Morgan QC for the landlord) there is ample precedent for the use of a proportion of rack-rental value as a permissible means of quantifying the damage suffered by an occupying tenant of premises in disrepair." (p 133L)

Later he related this approach to the principles stated in Wallace:

"… rack-rents are some evidence, and often sufficiently good evidence, of the value of fully enjoyed occupation to tenants, in which case consideration of diminution of that value can properly start from there and may often helpfully be approached in terms of its proportional reduction. That is also, as I understand it, the sense in which Morritt LJ approved a 'notional' reduction in the rent as a means of assessment of damages for disrepair in Wallace… " (p 136C-D

30. I respectfully share Judge Hicks' doubts about some of the reasoning in Calabar, and I agree with his more general comments on the use of rental evidence. With regard to Stephenson LJ's comments on Hewitt, I accept that it is not easy to discern from the report of that case how the principle was expected to be applied to its own facts (against an unhappy procedural background). But Bankes LJ's statement of the general principle seems to me uncontroversial and authoritative. For the reasons given by Judge Hicks, I do not, with respect, regard Calabar as binding authority to the contrary.
31. Diminution in market value is a familiar basis for assessing damages for wrongs affecting property. That carries no implication that there is to be an actual sale. An assumed sale in the open market is used as a method of arriving at an objective test of value. The assumed sale is of course "fictional". But that element of fiction has never been regarded as open to objection, let alone "absurd", either in principle, or because it may lead into a "complicated underworld" which expert valuers are supposed to inhabit. Where the loss of value is temporary, then rental rather than capital value is an appropriate yardstick (see, for example, in relation to compensation for temporary inconvenience caused by public works: Wildtree Hotels Ltd v Harrow LBC [2001] 2 AC 1, 16G-H). The decision in Calabar, as I have explained, causes no difficulty on its own facts. But insofar as Stephenson LJ was commenting more generally on the use of valuation evidence, his observations were not necessary for the decision, and were, in my respectful view, contrary to well-established principle. I would, however, accept that (in the words of Griffiths LJ):

"… each case depends upon its own circumstances and Hewitt v Rowlands should not be regarded as an authority for the proposition that it is in every case necessary to obtain valuation evidence." (p 299F)

32. Although that is sufficient to deal with the "central issue", I would go further. I do not think that a direct analogy can be drawn with awards in relation to protected periodic tenancies,^[7] still less with the "modest" awards thought appropriate in other areas of the law (see e.g. Watts v Morrow [1991] 1 WLR 1421, 1439G). A long-lease of a residential property is not only a home, but is also a valuable property asset. Distress and inconvenience caused by disrepair are not free-standing heads of claim, but are symptomatic of interference with the lessee's enjoyment of that asset. If the lessor's breach of covenant has the effect of depriving the lessee of that enjoyment, 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 assessment of damages. Generally, this reduction will not be capable of precise estimation; as Morritt LJ said in Wallace, it will be a matter for the judgment for the court, rather than for expert valuation evidence.

Specific issues

33. Against that background, I return to the more specific issues raised by the grounds of appeal, summarised above. Points (ii) and (iii) have been covered in my discussion of the "central issue". They proceed on the false basis that a notional rent approach is inappropriate, or alternatively that it has to be tempered by reference to some supposed "tariff" derived from other housing repair cases. In so far as that approach is supported by reference to statements in Calabar, I respectfully disagree for the reasons I have given. Use of a notional rack rent as a means of assessing reduction in value is not confined to cases where the property is in fact held as an investment.
34. As to point (iv), there was no need for other evidence. The claimant was well able to carry out his own researches into rental values of equivalent properties, and the judge was entitled to accept his figures in the absence of evidence to the contrary. Even now, we have been shown no material to suggest that the rent of £1,000 per month adopted by the judge was excessive.
35. The other two grounds turn on the application of the principle to the facts of the case. Even accepting the rental value as appropriate, Mr Letman criticises the lack of clear reasoning to support the figures adopted by the judge. In respect of period 1 he specifically rejected the lessee's own assessment, based primarily on percentages of the annual value, but he then arrived at "a global figure" of the same amount, without any precise indication of how it was calculated. His subsequent "cross-check" against notional value, again without explanation, resulted in a percentage deduction (nearly 60% for the whole period) significantly higher than the percentages used by the lessee (10% and 50%).
36. For period 2, the judge adopted the figure of £10,000, again as "a global figure" without any specific explanation. That sum, it is said, is unsupported by parallels with awards in other cases, or any other evidence. It is clearly excessive in respect of the only specific inconvenience found by the judge, that is, the punctuality and other problems caused by the longer journey to work. Further in treating the agreement with his parents as an "analogue", he has confused the role of special and general damages.
37. On this aspect of the case, I see force in some of Mr Letman's criticisms. For period 1, it is not clear to me why the judge rejected the lessee's approach out of hand. The detail was open to discussion, but in principle it represented a conventional application of the rental value approach. The estimated annual value used in the calculation was within the range of rental values accepted by the judge. The percentages, taken from the lessee's witness statement, were presumably his own best assessment of the diminution in value, as the person most directly affected. According to his statement, the 10% reduction up to September represented "extensive damp breaking out in various ceiling areas"; the higher figure of 50% thereafter represented "extensive damage and water percolating through ceiling". The judge gives no reason for rejecting the lessee's own perception of the scale of the problem, still less for adopting a higher percentage reduction over the whole period than either of the figures proposed by him. It is hard to see why the lessee should be thought to have under-estimated the impact on him.
38. The only specific point made by the judge was to reject the change of percentage in September 2000, because he found no evidence of a "particular incident" at that time. However, as I read the evidence, the lessee was relying, not on a "particular incident", but rather on a change in the character or degree of the damage, from mere dampness to actual water percolation. That appears consistent with the evidence quoted by the judge, at least from March 2001.
39. The only aspect of the lessee's assessment which I would question as a matter of principle was the addition of a further amount to represent "stress and depression". Again this came from the lessee's witness statement (para 23), but there was nothing in my view to support a separate award. The stress of which he complained, however unpleasant, was no different in kind from that of any lessee in his position, and should have been reflected in the assessed reduction of rental value.
40. In respect of period 1, the award of £20,000 was not in my view supported by adequate reasoning, and was excessive when viewed in relation to the lessee's own claim. To that extent I would allow the appeal in relation to that part of the award. I will return later to consider how that should affect the final award.
41. With regard to period 2, I begin from the position that the lessee was deprived of the entire enjoyment of his property throughout this period. Whether one treats rental value as a measure of that loss, or one looks to the cost of renting equivalent accommodation, that would suggest a potential award of the order of £21,000. The lessee was able to mitigate his loss by living with his parents for this period, but that does not mean that the compensatable loss is confined to his transport problems. That would leave him with nothing for the loss of enjoyment of his property for almost two years. Not surprisingly perhaps, the precise legal status of his agreement with his parents was open to question. But the judge was entitled to accept it as some indication of his loss. Although his reasoning might have been more clearly expressed, the overall award of just under half the rental value for this period, during which he had no use at all of his property, was a fair estimate of his loss, and is not open to criticism in principle.

Time needed for repairs

42. Before coming to the form of order I must comment on an aspect which was not in terms relied on by Mr Letman, but seems to me potentially important in arriving at a fair overall view. The judge apparently "cross-checked" his award for period 1 by reference to the rental value for the whole period beginning in January 2000, when the lessor was first put on notice of the problem. The judge seems to have understood it to be common ground (judgment para 6) that, at least for the purposes of assessing damages,^[8] the date of notice should be taken as the starting point. However, he made no allowance for the time reasonably required by even the most diligent lessor to progress from notice of the problem to finding and achieving a solution. In a passage headed "Defendant's activity" (para 15) the judge outlined the attempts made by the lessor to obtain estimates of repair, and to consult the other lessees. Although the judge criticised the lessor's lack of urgency, his account shows that on any view there would have been some delay in achieving a satisfactory repair.
43. This point was touched on in Calabar. Referring to a passage in Green v Eales (1841) 2 QB 255) Griffiths LJ said:

"I take this passage to do no more than draw attention to the fact that the landlord is not in breach of his covenant to repair until he has been given notice of the want of repair and a reasonable time has elapsed in which the repair could have been carried out." (p 298 D-E, emphasis added)

There is a helpful discussion of the issue in Dowding and Reynolds Dilapidations 3^rd Ed (2004) p 22-13 ("Time for performance once notice is given"). The authors suggest that what is a reasonable time will depend on the circumstances, but is likely to include time to find out what is wrong, to take the necessary advice, to prepare specifications, and to select and instruct a builder. Where the cost is to be recovered through service charges time may also need to be allowed for the statutory consultation procedure. Although we have had no arguments on the point, in principle this approach seems to me correct once it is accepted that the date of notice is the starting-point.

44. It does not seem that the judge was asked to make any finding of what would have been a reasonable time for the repairs. However, subject to any submissions, I would find it difficult to ignore such practicalities in order to arrive at a fair substitute figure for period 1.

Conclusion

45. For these reasons, I would dismiss the appeal save to the limited extent indicated in paragraph 40 above. I would be reluctant to subject the parties to the cost of a new trial on this limited issue. Bearing in mind that an assessment of this kind cannot be precise, I believe there is enough material before us to arrive at a suitable alternative award for period 1. A fair starting point, in my view, would be the judge's finding of rental value, taken with the lessee's own assessment of the percentage degree of impact. His figures of 10% up to September 2000 and 50% thereafter as such were not criticised by the judge. The judge's own "cross-check" shows that he regarded them as if anything understated.
46. However, this simple approach needs some qualification. First, while the judge did not accept that there had been a "step-change" in September 2000, some account must in my view be taken of the lessee's perception that things got worse over time, although I bear in mind also that his calculation included a separate figure for "stress and depression". Secondly, for the reasons I have given (and subject to any contrary submissions), some allowance may need to be made for the time reasonably needed for repairs in any event. In the absence of clear findings on either point, a fair approach might simply be to disregard the initial period up to September 2000 for the purpose of the calculation. This would lead to an award for Period 1 equivalent to 50% of the rental value from September 2000 until December 2002 (27 x £1,000 x 50%), giving a total of £13,500.
47. Since the approach suggested in the previous paragraph involves aspects on which we have not heard argument, I think we should give the parties an opportunity for further written submissions on that approach before making a final order.
48. Accordingly, at this stage I would hold that the appeal should be allowed in relation to the award for period 1, but otherwise dismissed; and set a timetable (taking account of the impending holiday period) for further written submissions on the final award for period 1, and any other consequential matters (including costs).

Moses LJ

49. I agree.

The Chancellor

50. I also agree.

[Directions: written submissions arising out of paragraph 46 of the judgment, and on consequential matters, to be exchanged and submitted to court by 1^st September 2006; any responses by 15^th September 2006. Liberty to apply on reasonable notice to a single vacation LJ to vary or add to these directions]

Addendum to judgment of 28^th July 2006

		Neutral Citation Number: [2006] EWCA Civ 1090
		Case No: B2/2006/0034

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT
MR RECORDER LAYTON QC
CK302391


		Royal Courts of Justice Strand, London, WC2A 2LL
		12th October 2006

B e f o r e :

CHANCELLOR OF THE HIGH COURT
LORD JUSTICE CARNWATH
and
LORD JUSTICE MOSES
____________________

Between:


	SOTOS CHARALAMBOUS	Appellant
	- and -
	JONATHAN EARLE	Respondent

____________________

PAUL LETMAN (instructed by MESSRS. HENRY Y SMITH & CO) for the APPELLANT
D. FALKOWSKI (instructed by MESSRS. RODGERS & BURTON) for the RESPONDENT
____________________

HTML VERSION OF JUDGMENT
____________________

Crown Copyright ©

Background

51. The appeal concerned the method by which damages should be assessed for an admitted breach of repairing covenant by a lessor. The "central issue", as it was described by the appellant, was whether the judge had been correct in assessing the damages to take account of rental value, or whether he should have treated himself as restricted by reference to a "tariff" based on previous awards. The appellant failed on that issue.
52. However he succeeded in a more limited attack on the reasoning of the judge in arriving at his assessment for period 1. For that period, he had rejected the lessee's own methodology, but had arrived at "a global figure", without any precise indication of how it was calculated. We held that his award of £20,000 for that period was not supported by adequate reasoning, and was excessive when viewed in relation to the lessee's own claim.
53. In order to arrive at a substituted figure of damages, we suggested that the starting point should be the judge's finding of rental value, taken with the lessee's own assessment of the percentage degree of impact. But we added:

"However, this simple approach needs some qualification. First, while the judge did not accept that there had been a "step-change" in September 2000, some account must in my view be taken of the lessee's perception that things got worse over time, although I bear in mind also that his calculation included a separate figure for "stress and depression". Secondly, for the reasons I have given (and subject to any contrary submissions), some allowance must be made for the time reasonably needed for repairs in any event. In the absence of clear findings on either point, a fair approach might simply be to disregard the initial period up to September 2000 for the purpose of the calculation. This would lead to an award for Period 1 equivalent to 50% of the rental value from September 2000 until December 2002 (27 x £1,000 x 50%), giving a total of £13,500. "

54. Since the approach there suggested involved aspects on which we had not heard argument, we gave directions to enable the parties to make further written submissions on the assessment of damages, and on costs.

Damages

55. The gap between the parties on the figures is small. Mr Letman for the appellant is content to accept our proposed figure of £13,500, and the reasoning on which it was based. Mr Falkowski for the respondent accepts our proposed "methodology". He also accepts that for the first nine months from January 2000 the damage was "limited", so that, even if as he says account should be taken of the whole of this period, a "modest" addition of £500 would be sufficient.
56. Mr Falkowski makes two points:

i) Notice of the disrepair should not have been treated as a pre-condition of liability. The date taken by the judge (January 2000) was "equally explicable as being, effectively, the date from which the respondent owned the property" (he having completed the purchase just before Christmas 1999). In accordance with the "general rule" (to which we referred in a footnote) no allowance should be made for the time need to prepare and carry out repairs.

ii) Alternatively, if such an allowance is to be made, four months is sufficient, taking account in particular of the statutory consultation period, which was one month (Landlord and Tenant Act 1985 s 20(4)(d), as it then was).

Under (i), as I have said, he proposes an additional sum of £500. He does not suggest a specific figure under (ii), but does not dissent from Mr Letman's assumption that the corresponding figure would be £250.

57. It seems surprising that this gap has not been bridged by agreement. However, underlying the small difference is a potentially important point of principle, on which further comment may be helpful.
58. In applying a standard lessor's repairing covenant, the law draws a distinction between disrepair in the demised premises themselves, and disrepair in other parts of the building within the lessor's control. In the latter case the "general rule" applies: that is, the covenant requires the lessor to keep the premises in repair at all times, and he is in breach immediately a defect occurs (British Telecommunications plc v Sun Life plc [1996] Ch 69). In the former case, by contrast, there is no breach until the lessor has had notice of the defect and a reasonable time to carry out the necessary remedial works (ibid; O'Brien v Robinson [1973] AC 912). In BT (at p 79), Nourse LJ accepted that there might be other exceptions to the "general rule", for example if the defect is caused by an occurrence wholly outside the lessor's control.
59. In the present case the defects were principally in the roof, and therefore at first sight arguably within the general rule. However, that was not the basis on which the assessment of damages proceeded The judge said:

"There is no dispute between the parties that the Defendant was on notice of the defects from January 2000 and that is the start of the period which I have to consider." (para 6)

In our judgment we interpreted this as indicating "common ground" that "at least for the purposes of assessing damages, the date of notice should be taken as the starting point". Once it was accepted that notice was the starting-point, then it seemed to us illogical not to allow the lessor a reasonable time to respond to the notice by practical action. We see no reason to change that view of the case. Mr Falkowski's first point involves rewriting the judgment.

60. We should emphasise that we were not purporting to make any ruling on the issue. Nor do we propose to do so now. We would add one comment. The BT case, and the earlier cases relied on it, were not concerned with the modern statutory and contractual framework governing residential leases. The lessor's repairing obligation, in a case such as the present, is not free-standing, but is in practice linked to the obligation of the lessees to contribute to the costs so incurred. (Indeed the lessor may be a company owned by the lessees, with no separate assets of its own.) The link is made expressly in the present lease, where the lessor's repairing obligation is "subject to contribution and payment by the lessee as hereinbefore provided" (cl 4(3)). (It is unnecessary to consider the precise effect of that qualification, which seems open to debate.) To protect lessees, there is an elaborate statutory framework to ensure that they are consulted in advance on major works. In a future case, it may have to be considered whether the "general rule" as laid down by BT requires some modification to take account of the practicalities of the modern relationship of residential lessors and lessees.
61. In conclusion, we see no reason to depart from the approach proposed in our main judgment. The figures advanced by Mr Falkowski amount in effect to an admission that, had the lessor dealt effectively with the problem by September 2000, his client would have had no substantial grounds for complaint. In those circumstances we think that the figure of £13,500 as proposed in our judgment should stand.

Costs

62. Mr Letman argues that his client has been successful in securing a substantial reduction in the damages which would not have been achieved without coming to court. He should therefore be regarded as the successful party, and he should be awarded the whole costs of the appeal, or at least two thirds. Mr Falkowski argues that the appeal has failed on all the main points raised by the grounds of appeal, and that in principle the appellant should pay the costs. He accepts that there should be a small discount (which he puts at 20%) to reflect the "minor reduction" in damages.
63. We agree with Mr Falkowski that his client has been successful on all the main issues. The point on which Mr Letman succeeded (the inconsistency in the judge's reasoning) was an incidental issue, touched on in only one paragraph (para 22) out of some 38 paragraphs of argument. On the other had it did achieve a significant reduction in the award for period one, which we think would not be fairly reflected in a reduction of only 20%.
64. In all the circumstances, we think the proper order on the appeal is that the appellant should pay 50% of the respondent's costs. The costs order below will stand.

Note 1   This is difficult to understand, since he had already noted the claimant’s evidence of rental values of £1,000 to 1,200 per month (equating to £12,000 to £14,400 per year) and accepted the lower figure.    [Back]

Note 2   (1982) 13 HLR 87    [Back]

Note 3   [1984] 1 WLR 287    [Back]

Note 4   (1989) 21 HLR 6 CA    [Back]

Note 5   (1988) 20 HLR 332    [Back]

Note 6   (1996) 28 HLR 203    [Back]

Note 7   In passing, I should note a comment of Ralph Gibson LJ in Chiodi v De Marney (1988) 21 HLR 6, 11, where he cited the judgment of Atkin LJ in Hewitt for the proposition that “the fact that the tenant was a statutory tenant made no difference to the assessment of damages of the proper award to be made”. With respect, I think that is reading to much into the words of Atkin LJ , who said simply that the Rent Acts had no bearing on “the actual legal liability of the parties in the circumstances of this case” (p 1082). As I read it that was saying no more than that the legal principles are the same; not that there will be no difference in the approach to assessment on the facts of a particular case.     [Back]

Note 8   Notwithstanding the general rule that the obligation to repair is a continuing obligation, not dependent on notice: see B.T. plc v Sun Life Assurance plc [1996] Ch 69.    [Back]