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This is about how a diminution valuation simplified using an imaginary claim with only one effective difference between the parties. A pdf of the full article can be downloaded from here, or by clicking the image;
A landlord claims against a tenant in dilapidations. The building surveyors agree everything at the Contractual Claim level, but the two valuers disagree. They do agree that the contractual obligation to repair the WCs and the reception area is superseded: the landlord (and any likely buyer of the freehold) would have upgraded those parts of the building even if they had been in fully covenanted order. The only effective disagreement between the parties relates to the new suspended ceiling the landlord has put in since the lease ended. It was in substantial disrepair, but it was an old-fashioned fibreboard ceiling in a crude, exposed 1,200 x 600 grid, unsuited to the modern LG7 standard of lighting. The landlord has replaced it with a metal tiled ceiling in a modern, hidden 600 x 600 grid, well suited to LG7.
- The landlord says the old ceiling was in such disrepair that he was forced to repair it. The only practical and/or economic way of doing that was to replace it. He was entitled to do this to normal modern standards, and it might have been cheaper than trying to replicate outdated components.
- The tenant says the landlord would have done this even if the tenant had returned the old ceiling to him in covenanted order. The contractual obligation to repair that ceiling is therefore superseded.
The valuers sort of agree the value the building would have had had it been returned to the landlord in covenanted order (Valuation A). They don’t actually agree the number, because of the difference over the ceiling. If the ceiling is the landlord’s responsibility, not the tenant’s (as the tenant claims), then the value of the building with those works not yet done will be a bit lower than if (as the landlord claims) the tenant should have done them.
The valuers also agree that diminution in value follows this difference of opinion.
Surprisingly, even an extremely simple case like this requires a lot of detail. That detail is set out in the PDF.
why can’t life be like this?
There are many complications: leasehold, not freehold; less than FRI; continuing subtenants; refurbishment; disagreements at the Contractual Claim level; other dilution; deeper analysis; multiple futures. None of these affect the basic, simple logic much.
Specialist in landlord and tenant; Long experience of giving expert evidence; Over 40 years of professional property work, as well as property and business management; Direct experience and understanding of property development and investment; Involvement in leading cases in his field; Member of RICS Working Group on leasehold enfranchisement; Member of the steering group of the RICS Dilapidations Forum; Member of the Council of NARA – the association of property and fixed charge receivers; Specialisms within landlord and tenant
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