Section 18 (1) of the Landlord & Tenant Act 1927 limits the landlord’s claim for damages for breach of a repairing covenant. Accordingly, Section 18 Valuations form an integral part of negotiating dilapidations claims and are becoming more and more prevalent in today’s economic climate and our valuation team are expert in its execution. An example case study follows:
Acting for the Maghull Group, we provided a Section 18 Valuation in respect of the “V7 Building” on King’s Business Park at Knowsley. This modern (2003) high specification office building on two includes a double height reception, air-conditioning and raised flooring. The 34,000sqft building and 181 parking spaces are set in landscaped grounds of 3.68 acres.
Let by way of a standard FRI lease for a term of 6 years from July 2004 at £416,500 pa, the tenant vacated on expiration of the term in 2010. During its occupation the tenant added partitioning and other alterations that affected the marketability and reversionary interest of our client, the long leaseholder.
Our remit was to advise in respect of the diminution in the long leaseholder’s reversionary interest caused by the tenant’s failure to comply with its repairing obligations. This valuation went hand in hand with negotiations in respect of a Schedule of Dilapidations prepared by our client’s quantity surveyor.
A formal Section 18 valuation exercise was undertaken, calculating the market value of the property assuming that the tenant had complied with its repairing obligations and comparing this to the market value for the property having regard to the actual condition of the building at lease expiry. Having calculated the market rent on both bases, we applied an appropriate capitalisation – adjusted to reflect the condition of the property; making further allowances for an extended marketing period and associated holding costs including rates, service charge, building insurance and essential repairs that were required to the main reception area due to the tenant’s breach of covenant.
The resultant diminution in value figure was used by our clients to successfully negotiate a settlement of its outstanding claim.