Lawbite: Dilapidations Decoded: Repair or Replace, and the Cap on Damages

A landlord’s plans to refurbish do not, without more, reduce its common law dilapidations damages claim, the Technology and Construction Court confirmed on 29 September 2026.

In Craigard v Westbury Homes, the court awarded landlords £648,141.47 in damages against a former tenant and its surety, rejecting the tenant’s “supersession” argument based on the landlords’ refurbishment intentions. 

The landlords could not, however, recover the cost of replacing the whole HVAC system where repair would have satisfied the covenant, significantly reducing the amount recovered. 

The decision will interest landlords, tenants, sureties, surveyors and valuers involved in terminal dilapidations claims in England and Wales, particularly where building services are in issue.

What happened?

The lease of office premises in Dartford expired in July 2023. The landlords served a schedule of dilapidations in early 2024 and pursued the tenant and its surety for c.£1.6m in damages. 

The main battlegrounds at the hearing were the alleged disrepair of the HVAC system, and arguments relating to loss of rent, supersession, and the statutory cap. 

HVAC – Repair or Replace?

The court found that the tenant had breached its repairing obligations by putting off spending money on the HVAC system, and failing to properly maintain it. However, the landlords, who intended to replace the entire system, had not proved that full replacement, rather than repair, was needed to comply with the repairing covenant. The landlords’ claim in relation to HVAC repairs was therefore reduced from £566,089.15 to £163,504.

Loss of Rent

The landlords also sought compensation for rental income said to have been lost whilst the planned works were carried out. The court rejected the claim, finding that this loss would have been incurred regardless of the breaches. The claimed rental loss therefore lacked the necessary causal link with the breaches of covenant and was not recoverable.

Supersession

The tenant argued that the landlords’ refurbishment plans superseded the works required to remedy the tenant’s breaches. The claim for common law damages should, accordingly, be limited to the cost of those remedial works that would have survived the refurbishment.

The court rejected this. At common law, damages are not extinguished because of the landlord’s subsequent intentions, save where the second limb of section 18(1) of the Landlord and Tenant Act 1927 applies. The second limb of section 18(1) provides that the landlord recovers no damages for failing to leave the premises in repair at the end of the lease if the premises would, at or shortly after the lease ends, have been pulled down or structurally altered in a way that makes the repairs worthless. The parties and the court had already agreed that the second limb did not apply in this case.

Statutory Cap

Finally, the court turned to the effect of the section 18(1) statutory cap on the damages claim. The court adopted the tenant's valuer's "shortcut" methodology but rejected his key assumption that a hypothetical purchaser would have replaced the HVAC system. Instead, the court accepted the landlords' valuer's evidence that a purchaser would have been satisfied with a repaired and functioning system, and applied the tenant's shortcut methodology on that basis.

Highlights

• landlords: an intention to refurbish will not, by itself, reduce a common law damages claim, but expect the tenant to test the section 18(1) cap, including its second limb, closely 
• this decision is a reminder that recovery depends on the reason for the works. The landlords’ decision to replace the HVAC system was driven partly by a wish to market the premises as environmentally friendly, energy-efficient offices. That is a commercially sensible strategy, particularly with tighter MEES targets on the horizon. But the tenant's liability is limited to the cost of the cheapest adequate repair, not the cost of an upgrade; a claim for wholesale replacement needs clear evidence that repair will not do. Where the landlord would have carried out the works anyway, consequential losses such as lost rent during the works may also be irrecoverable. Landlords planning ESG-led refurbishments should budget on the basis that a significant part of the cost may remain with them
• tenants and sureties: any deliberate failure to maintain is unlikely to find favour with the court, and planned maintenance throughout the term remains the best protection against a large terminal claim. That said, a tenant is entitled to comply with its repairing obligations in the least onerous way available, so its liability will generally be assessed on the cost of adequate repair rather than the landlord's preferred replacement
• the decision provides a helpful overview of a number of key principles relevant to dilapidations claims, including causation, recoverable losses and the assessment of damages. As such, it is a useful reference point for practitioners dealing with the scope and valuation of dilapidations liabilities