Diminution/Section 18(1) Valuations
Such valuations may be called Section 18(1) (of the 1927 Landlord and Tenant Act) Valuations but the Dilapidations Pre-Action Protocol refers to them as “diminution valuations”. Upon termination of a lease the landlord can only pursue the former tenant for damages. The quantification of damages can be done by the landlord carrying out the necessary work or it can be done by the landlord commissioning a Diminution Valuation to access and quantify the loss without carrying out the work. This is stipulated under the provisions of the Dilapidation Pre-Action Protocol and is a requirement for the landlord to follow.
The diminution valuation must take into account the likely actions of the “hypothetical purchaser” notwithstanding what the actual landlord’s intentions are stated to be. There is no direct link between the cost of work to rectify breaches of covenant and diminution although in many cases the cost of work is taken into account.
Recent cases such as “Sunlife v. Tiger” have confirmed that a tenant’s repairing obligation is limited so that a tenant’s repair may satisfy the requirements of the lease but not the next tenant.
We also have to consider what impact “the market” has upon the property, the tenants obligations relate to the specification as at commencement of the term. If market conditions require refurbishment or improvement work to be carried out then “supersession” will apply to that element of work and the tenant will be under no obligations to carry out repairs.
These and many other factors need to be taken into account when carrying out a diminution valuation.
The former tenant can also commission a diminution valuation either in response to the Landlord’s or as a separate “diminution defence”. We have successfully fought a number of such actions, in some cases where the landlord has carried out and paid for the work.