Moorjani v Durban Estates

Damages for landlord default in long residential leases.

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Housing practitioners are familiar with the routine claim for disrepair in respect of short-life tenancies. However, such claims are rarely encountered with long residential leases and whilst they are unlikely to raise any particular problems with liability, they may do so as regards causation and the quantification of damages. This can be seen by considering the two main types of damage sustained.

Firstly, damage to the demised premises themselves. Wallace v. Manchester CC (1998) 30 H.L.R. 1111 advocated the use of the ‘notional reduction in rent’ method for assessing general damages representing what was described in as “the monetary value of the discomfort and inconvenience suffered by the tenant”. Using this method the court discounts the rent payable by the tenant for the period of the damage to reflect the tenant’s loss of amenity. However, almost every long residential lease involves only a nominal ground rent and, in today’s market, the lessee may well have chosen to rent out its property or leave it empty. In such cases, it may prove hard to establish any personal loss of amenity.

Secondly, damage to the common parts. Once again, it is hard to apply a conventional notional reduction in rent approach to such breaches of covenant, where the amenity offered by common parts is only indirect.

Both circumstances were addressed by the Court of Appeal in Moorjani v Durban Estates [2015] EWCA Civ 1252.

D was the freehold owner of a block of flats in Marylebone. M was the long leaseholder. In early 2005 M moved out of the flat and went to stay with his sister in Sudbury Town. Whilst empty, the flat suffered from a series of leaks from the property above (there was no suggestion this was caused by D’s default). Proceedings were brought on the basis that D had breached its insuring covenant and by reason of delay in arranging reinstatement. The proceedings included a separate claim for breach of the covenant in the lease for the landlord to maintain what the judge described as the “dilapidated shabby and dingy” common parts of the building. M returned to live in the flat in 2008. The judge found there had been a breach of covenant in relation to the common parts and that damages should be awarded over three years at a rate of £500 per annum (£1,500). She also found that M’s continued absence was his own choice and had nothing to do with the state of the flat or the common parts. The judge therefore refused to award damages for loss of amenity for the period M was absent from the flat.

M appealed to the Court of Appeal on a number of grounds. The court considered, among other things, (a) the quantification of the claim for the common parts and (b) whether the lessee under a long lease of a flat can claim to have suffered loss arising from a period of disrepair if he chose to live elsewhere for reasons unconnected with the landlord’s breach.

The first issue: common parts

Before the trial judge, research by D had thrown up two comparables where courts had previously awarded damages for the state of common parts in a block. When updated for inflation, these produced awards of £450-513pa. The Judge decided to award M £500pa, but cross-checked this by reference to a diminution in rental value. She calculated that assessing a 1-2% reduction in value was not dissimilar to the global figure of £1,500, which she had decided was the appropriate amount.

The Court said this issue raised “no point of general principle” and endorsed the Judge’s approach.

The second issue: voluntary absence from flat

By contrast, the Court of Appeal said the second issue did raise a point of principle. On appeal, M argued the judge was wrong to conclude that damages were irrecoverable for the period when he was living in Sudbury Town. Briggs L.J. considered a quartet of leading cases on damages for disrepair, but relied in particular on the conclusion of Carnwath LJ in Earle v. Charalambous [2007] H.L.R. 8:

“A long-lease of a residential property is not only a home, but is also a valuable property asset. Distress and inconvenience caused by disrepair are not free-standing heads of claim, but are symptomatic of interference with the lessee's enjoyment of that asset. If the lessor’s breach of covenant has the effect of depriving the lessee of that enjoyment, wholly or partially, for a significant period, a notional judgment of the resulting reduction in rental value is likely to be the most appropriate starting point for assessment of damages.”

Briggs L.J. considered this statement should not be limited to long leases, but applied to any tenancy where the lessee or tenant enjoys a recognisable species of property right, in return for payment, either in the form of a premium, a rack rent or a fair rent. He then reviewed two other cases, Shine v. English Churches Housing Group [2004] H.L.R. 42 and McCoy v. Clark (1982) 13 H.L.R. 87. His conclusions were helpfully set out in five principles at paras 35-40 of the judgment, which can be summarized as follows:

In any claim for disrepair and the like, it is not necessary to prove actual loss: any breach of covenant is an impairment of the rights of amenity afforded to the lessee by the lease and prima facie gives rise to a right to damages.

It is therefore not a fatal obstacle to a claim for damages that the lessee chooses not to make full (or indeed any) use of the premises.

However, residence elsewhere may be relevant to mitigation of loss.

Even if relevant to mitigation of loss, residence elsewhere may well not cancel other forms of loss for ‘impairment of amenity’.

In any event, in some circumstances, the court may quantify damages in excess of the current rental value.

Applying these principles, the Court of Appeal found that the judge had been wrong not to allow any general damages for the period when M lived elsewhere. The Court went on to quantify damages based on a notional reduction in rent approach over various periods.

Conclusions

The judgment in relation to the second issue has obvious significance in an era when many long leasehold ‘buy-to-let’ flats are rented out or not occupied by the lessee. In such cases, the main point in Mansing Moorjani is that a claim for loss of amenity can be sustained even though the lessee chooses not to live in the premises. The explanation of the basis of a claim for loss of amenity also has wider legal application, and Briggs L.J.’s five principles were plainly intended for future guidance. Indeed, it is arguable that these principles may extend beyond the residential world and apply to commercial lettings as well.

However, in practical terms it may well be that the first issue will of more use to practitioners. The Court of Appeal may well have said that its findings on damages for shabby common parts raised no point of principle, but its judgment certainly provides a template for damages in such claims by lessees. This will particularly be the case where the lessee seeks to respond to a claim for arrears of service charges or administration charges. Indeed, the paucity of comparables is such that the trial judge’s ‘provisional’ £500pa figure for general damages may well be a starting point for lessee claims for “shabby” common parts. And there is plainly scope to seek higher figures where common parts are in particularly poor condition or the rack rent is higher than in Moorjani. In many cases Briggs L.J. may well be right that £500 a year is on the low side for such an award. Moreover, the significance is that the damages awarded to the lessee of an individual flat cannot usually be considered in isolation. A lessor of a block of 100 flats faced with a Moorjani common parts claim of £500 per flat faces a potential bill of over £50,000 a year in compensation.

Moorjani may therefore have opened the door for many more significant lessee claims and counterclaims of this kind.