Dilapidations and Valuation Issues arise from Roof Light Case that Landlords, Tenants and Property professionals ought be aware of

Ref. Twinmar Holdings Ltd v Klarius UK Ltd & Ors [2013] EWHC 944

The Technology and Construction Court has established a precedent concerning the methods for assessing the deterioration of roof lights under a terminal dilapidations claim for a full repairing lease. With many industrial and commercial buildings incorporating dozens of roof lights, this could impact substantially not only future dilapidations claims – but valuations, rent reviews and ratings.

The court case arose concerning a property that was constructed in 1993 and was owned by a company called Twinmar.  A company called Claris took a lease for 25 years from 29th September 1993, however, a break clause was exercised causing the lease to be determined on 28th September 2008. 

Throughout the negotiations, the original dilapidations claim was some £400,000 plus the appropriate fees. This was then reduced to approximately £225,000 following a tendering process.  The major issue of dispute was over the roof lights.

The Landlord claimed they were in substantial disrepair and they were entitled to cover the cost of treating the roof lights with a special coating system plus all the associated costs of scaffolding and other related works, the former tenant argued that the roof lights were not in disrepair as they were not leaking and that moss and lichen and other matters had not taken hold. 

The Judge ultimately assessed that the liability for disrepair was not to be measured on the basis of whether or not the existing condition was abstractly acceptable, but instead with regards to putting the property back into the condition it was at the commencement of the lease with further regard, as is always the case, to the class of person who would be expected to take the property at the commencement of a lease.

As these roof lights were new at the commencement of the lease, and bearing in mind that the roof lights had a life expectancy of some 20 years, some loss of translucence or light could be expected after 10 years.

Nevertheless, the amount of loss of light implied and suggested to the judge that, bearing in mind the wording of the covenant – to keep the “whole of the premises…. in good and substantial repair and condition” – the roof lights ceased to be in “good condition” once there had been a visible and significant reduction in their translucence such that the light coming through them had to be augmented by artificial light in weather conditions that would not have required artificial lighting when the roof lights were new.

The light was found to be limited substantially by the abrasion of the surfaces and the wearing away of the original gel coats. The tenant was found liable and the costs for the remedial works, including applying the new coating and all the appropriate health and safety measures, were confirmed as chargeable in the dilapidations claim.

Whilst this ruling will have huge consequences for other terminal dilapidations claims under similar material facts, this could also have potential valuation and legal knock-on issues. 

It might be surmised, for example, that when somebody is taking out a tenancy on something that is substantially lit by natural light through roof lights that are likely to degrade over a period of time, this ruling may increase the expected costs of occupancy over the buildings life span. 

If the life expectancy of these light panels in the roof are some 20 years when a typical lease may be some 15 years in length, it is highly likely that the whole cost of replacing these lights may well be required in a dilapidations case claim at the end of the lease. 

As a consequence, some new leases may end up having this aspect specifically excluded as a pre-agreed contract. For those that continue with a “traditional” full repairing obligation, this addition to the costs of occupation may be allowed for in the valuation process either by reduced rental or some other form of compensatory basis.

It could even be argued that on a lease that has already commenced where previously this issue has not been considered, there may be grounds for a tenant helping to prevent there being or reducing any rent increase at a rent review, ceteris paribus.

If the “putting back in its original state” argument overrules the “reasonable wear and tear” argument there will be long term liability, legal and valuation implications that will need to considered by professionals both of a property and legal disposition.

As an interesting side note, the Judge in this instance commented obiter on the second argument raised by the claimants – ie. that the roof lights were ‘windows’ and thus came under another clause of the lease “to replace and renew and keep clean all windows at the premises”.

The Judge considered that roof lights were not to be considered windows under the material facts. It was axiomatic that windows are typically glass and it was essential that, for any other material to behave like a window, it must behave like glass. Although roof lights admit light, they are not nearly as translucent as glass and on this fact the argument was thrown out.

SRJ/LCB                                                                                   10/07/2013

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