The TFT Two Step Approach to Supersession

Jon Rowling, Technical Partner at Tuffin Ferraby Taylor LLP (TFT).

Disrepair and Supersession: These two concepts are usually fundamental to a tenant’s dilapidations liability but are much misunderstood. In the second of two articles, Jon Rowling FRICS FCIArb, Technical Partner at Tuffin Ferraby Taylor LLP (TFT), responsible for the dilapidations, service charge and dispute resolution services, identifies how breaches should be remedied, and then outlines an approach which can be used to identify when ‘supersession’ may limit what a landlord should claim:

Part 2: The TFT Two Step Approach to Supersession

In my previous article I concluded with the ‘wrong question’. I suggested that asking whether patch repairs or replacement should be undertaken is usually the question asked if somebody wants to know about supersession. In isolation, it is the wrong question to ask.

The answer to the question is that the tenant is entitled to undertake the remedial works in the most economic manner which would satisfy the obligation. That will normally mean patch-repairing but there will be circumstances when patch repairs are not possible. Perhaps the building regulations require an item to be upgraded or replaced in its entirety; or perhaps spare parts are not available. Under those circumstances the most economic form of remedial works will be replacement. I am going to call these most economic forms of works the ‘Basic Works’.

As we know, not all tenants carry out remedial works before the end of the lease term, let alone the Basic Works. If the tenant doesn’t complete remedial works, sometimes the landlord then carries out remedial works and asks the tenant to pay.

The landlord can normally remedy breaches in more than one way. They can complete the Basic Works, or they can carry out the remedial works in a more expensive or more extensive way. I’ll call these more expensive or more expensive works the ‘Fancy Works’.

Now we are ready to consider supersession:

The TFT Two Step Approach to Supersession:

Step 1: Mitigation

Mitigation is a standard concept in the calculation of damages in contract law. The claimant (the landlord) is obliged to mitigate its loss. If the landlord does not mitigate its loss it is limited to claiming the figure that would have been incurred if the loss had been mitigated.

In our context that means that a landlord should only claim the cost of the Basic Works.

Step 2: Causation

Causation is also a standard damages concept. In broad terms the claimant will have to show that their loss was caused by the defendant’s breach.

In our context, if the landlord has carried out the Fancy Works, was the need to carry out work caused by the tenant’s breach? If so, the breach has caused the loss (and the landlord claims the cost of the Basic Work). If not, the breach has not caused the loss and the landlord claims nothing.

This is usually not a very easy question for a tenant to get answered satisfactorily; landlords will claim that there was causation, tenants will argue that there was not. Perhaps if we think of the question in a different way; if the tenant had completed the Basic Works, would the landlord still have carried out the Fancy Works? If the answer is ‘yes’ there is no causation (because in circumstances where there would have been no breach, the landlord carried out the same works).

An example might help. Question: If a tenant leaves a suspended ceiling in disrepair and the landlord replaces the ceiling, who pays? Answer: Use the TFT Two Step Approach to Supersession: Step 1 (mitigation); what were the Basic Works? (and the answer might be patch repairs or the answer might be replacement of the whole ceiling); Step 2 (causation), if those Basic Works had been completed would the landlord still have replaced the suspended ceiling?

This is all relatively easy if the landlord carries out remedial works of some sort. But what happens if the landlord doesn’t carry out any works; is supersession still ‘a thing’? Yes, it is, but the arguments all become theoretical (for which, read ‘complicated and expensive’).

This is how the arguments will probably play out: The tenant leaves the premises in disrepair; the landlord does not carry out any remedial works; the landlord claims for the cost of ‘the’ remedial works; the tenant argues that any reasonable landlord would not carry out those remedial works but would upgrade the premises to current market expectations; the landlord either refutes that suggestion and/or says that, had the tenant carried out ‘the’ works, there would be no need for any works to be completed; the parties are at loggerheads; time passes, costs increase, tempers fray.

The TFT Two Step Approach to Supersession can still apply: Step 1 (mitigation); agree the scope of the Basic Works. Step 2 (causation) either:

Option 1 (for disrepair claims); the measure of loss is the cost of the Basic Works (plus consequential losses etc) subject to both limbs of s18(1) of the Landlord and Tenant Act 1927. Limb 1 relates to diminution in value so consider whether failure to complete the Basic Works would affect the value of the premises. Limb 2 tells us that, if the landlord proposed to pull the building down or make structural alterations, there is no claim. Or:

Option 2 (for non-disrepair claims); would it be reasonable to undertake the Basic Works? If the answer is ‘yes’ then the measure of loss is the cost of the Basic Works. If the answer is ‘no’, the measure of loss is diminution in value (so, as with limb 1, consider whether failure to complete the Basic Works would affect the value of the premises).

Over these two articles, we have considered the nature and the limitations of a repair obligation and a practical approach to the thorny question of supersession of a tenant’s liability. Both concepts are potentially complex but, in the wrong hands, can easily be made more complicated and more expensive than is necessary.