Defective Premises Act Claims: The Measure of Damages

Andrew Butler KC concludes his three-part series on the Defective Premises Act with an examination of the assessment of damages, drawing together the leading authorities and the key considerations that arise in practice. 

---

In the first two articles in this series, I made some observations about why there are reasons to expect an uptick in Defective Premises Act claims, and what the s.1 Duty requires. In this final article, I am going to consider some of the cases about the measure of damages.

The general approach is beguilingly simple: the aim is to restore the claimant to the position he or she would have been in had there been no breach (see e.g. per Griffiths LJ in Calabar -v- Stitcher [1984] 1 WLR 287). But the authorities show that there is an almost infinite variety of situations which can arise. There is also, in circumstances where the duty is owed not just to the particular Claimant, but to anyone who has or has had (or indeed will have) a legal or equitable interest in the property, a more than usual danger of double jeopardy.

In Calabar, the claim was brought by a residential tenant.  The claimant had acquired the lease to provide a home, and not as a saleable asset. The works of repair had not been done by the time of trial. The Judge ordered the work to be done – so it was necessary only to compensate the claimant for the period while the property was in disrepair. This the Judge did by awarding certain costs she had incurred in decorating (less a discount for betterment), the cost of renting alternative accommodation, and a modest amount for physical discomfort while the claimant had lived at the affected property. He declined to make an award based on the diminution in value of the asset.

 The Court of Appeal upheld this award. In particular, it held that in circumstances where the claimant only ever intended to live in the property, it would be “wholly unreal” to make an award based on a diminution in its capital, or rental value (per Stephenson LJ at 293E). It would have been different, the Court held, if she had brought it as a speculation intending to assign it, or if she had sold it at a loss because of the disrepair.

It should be noted that Calabar is, in fact, a breach of contract case rather than a DPA case per se. But it is not thought that the approach to damages would be any different in a claim under the Act. This was illustrated by a subsequent Court of Appeal case called Bayoumi -v- Protim [1998] 30 HLR 785. Bayoumi was a claim brought both in contract and under the DPA. But the Court rejected a submission that the Act imposed any particular limitations on the level of damages recoverable (see p.791).

 This was a similarly straightforward case, this time involving a freeholder denied the ability to utilise a property because of damp for which the Defendant was responsible. The trial Judge made an award based on the loss of use of the property (£1500 per annum for four years) and also for travel costs incurred in making regular visits to the property to oversee repair works made necessary by the breaches.

The next notable case from a quantum perspective is Bella Casa Ltd. -v- Vinestone Ltd. [2005] EWHC 2807. This is of interest for a couple of reasons. First of all, it is a decision of HHJ Coulson QC as he then was, who of course as Coulson LJ has gone on to become a recognised authority in claims of this nature. Second, it is a variation on a theme, the claimant in this case being a sub-tenant of a flat in London under a lease which was entered into “for occasional use” by a director of the Claimant company who was not resident in the UK for tax reasons.

The property was not usable for a 3½ year period after acquisition. The Claimant claimed loss of use, calculated by reference to interest on the purchase price during that 3½ year period, as well as certain specific items of expenditure (service charge, utilities etc.) which it had met but for which it had obtained no benefit during that period. A preliminary issue was directed as to whether those claims were recoverable as a matter of law, and determined on written submissions only.

HHJ Coulson held that the items on which sums had actually been expended but for which the Claimant had received no benefit might be recoverable, if established by the evidence. But he held that the loss of use claim, as calculated, was “emphatically” not recoverable (para.25). He said, citing Bayoumi, that loss of use could theoretically be recovered in claims under the DPA. But to claim loss of use based on the value of the flat as a marketable commodity, where the intention of the claimant was to live in the flat, was (as it had been in Calabar) “to ask the Court to take an wholly unreal view of the facts”.

Had the claimant incurred actual costs in renting alternative property because it could not occupy the flat in question, those would have been potentially recoverable – but it had not. Nor could the claimant maintain a claim for discomfort and inconvenience, first because it had not occupied the property at all, and second because it was a limited company rather than a natural person. In the circumstances, the loss of use claim was held not to be maintainable.

Bella Casa is an early illustration of the sheer variety of factual scenarios which can arise in a DPA claim. The judgment also contains some interesting observations on differences between loss of use claims in cases involving premises and cases involving depreciating commercial assets (in particular, vehicles), which give rise to different considerations, not least the fact that such assets are priced on the assumption of continuous use.

A further scenario arose in Strange v Westbury Homes [2009] EWCA Civ 1247. Here, it was common ground that defective work had resulted in damage to the brickwork of several properties. The claimants had undertaken the remedial work, but the properties remained blighted. The Court awarded the cost of the remedial work; the residual diminution in value; and an award for inconvenience and distress. This award was upheld. A submission that an award for diminution in value was not appropriate absent an intention to sell was rejected, the Court of Appeal stating:

“The fact that the claimants did not intend immediately to sell their properties did not mean that the assessment of the diminution in value involved a hypothetical exercise and guesswork as to what the market conditions would be at the time when, if that time did occur, the claimants came to sell their properties.”

That is not immediately straightforward to reconcile with Calabar, which does not appear to have been cited; something may turn on the fact that the case was concerned with freehold rather than leasehold property, meaning that the houses in question were assets which could one day be sold. That distinction is not altogether convincing, however; the lease in Calabar was a 99-years lease which still had a good 70 years to run at the date of trial.

In Harrison -v- Shepherd Homes [2011] EWHC 1811 (TCC), the issue was subtly different again. Here, the properties in question needed piling. The question was whether the homeowners were entitled to the cost of work, or the diminution in value (a slightly lesser amount). The Judge took the view that they were entitled to the latter, for a variety of reasons including the fact that in general the Claimants were wanting to sell their houses and move on, rather than undertake the work. However, he also awarded two sets of costs for minor remedial work as well, having regard to the fact that such work would be required in the following years. A challenge on appeal on the basis that this represented double recovery was rejected.

A further variation on the theme was thrown up by a case which was heard in the Court of Appeal towards the end of last year, Wilson -v- HB (SWA) Ltd. [2025] 4 WLR 114. The Claimant, Mr Wilson, had been the tenant of two flats in an ill-fated development in Cardiff called the Celestia development. The blocks having spent years in disrepair, the developers had finally expressed a willingness to repair them. At that juncture, and with litigation ongoing, Mr Wilson assigned the leases to his children. He then sought to introduce a claim for diminution in value, on the basis that his loss crystallised at the moment he parted with title.

The Court of Appeal rejected Mr Wilson’s appeal, but set out the relevant principles which can be paraphrased as follows

• Where there is defective or incomplete construction work, a claimant is entitled to claim the amount by which the work is worth less by reason of the defects (a traditional diminution in value claim);
• Such diminution in value is usually (but not invariably) best measured by reference to the reasonable cost of reinstatement works;
• A claim for the reasonable cost of remedial work accrues whether or not the asset in question is subsequently sold or destroyed, or if the owners cannot afford to undertake the work;
• In a case where it has been agreed that the original contractor can return to carry out the remedial works, the owners cannot claim the cost of those remedial works as damages;
• But the owner may claim a residual diminution in value, even after the remedial works have been completed;
• In addition, a claimant will normally be able to recover (subject to proof) loss of any rental income and any other special damages which are not too remote and which can be properly identified as flowing from the breaches.

Notwithstanding the great variety of factual scenarios which can arise on a DPA claim, there are at least three questions which are likely always to be relevant.

The first is: have the works been done (and if so by whom)? If the works have not been done, the Court will need to have a clear line of sight as to how, when, and by whom they are to be done, and will need to factor this in to its award. If the works have been done, the Court will need to consider at whose expense they have been done, and to what effect. If they have not been wholly effective in repairing the damage, or if the property otherwise remains blighted, a further award may still be made to reflect that.

The second is: what is the nature of the Claimant’s interest in the property? The heads of damages recoverable are likely to differ, perhaps profoundly, depending on whether the Claimant is a freeholder or a leaseholder, and whether their interest is past or present. Of course, the s.1 Duty is owed to a greater variety of interest holders than merely freeholders or leaseholders; those to whose order the work was done, and anyone who acquires an interest whether legal or equitable (including, for example, mortgagees)  are also owed the duty.

And the third is: to what use was the property being put/to be put? The authorities make clear that awards of damages have to be rooted in the real world. A claim brought by a owner-occupier is likely to give rise to very different considerations to one brought by an occasional occupier, a buy-to-let landlord, a tenant etc. A loss cannot be claimed for a kind of use which would not have been enjoyed even in the counterfactual world of a property which did not fail the statutory test of fitness for habitation.

One of the problems which the Courts are yet to grapple with in any detail in this context is the problem of double recovery. A simple example of this may be seen in the position as between successive freeholders. Obviously if a freeholder (A) suffers loss as a result of a breach of the DPA duty, he may recover damages. But the wrongdoer also owes a duty to the subsequent freeholder (B), and cannot be liable twice over. Which of A or B can recover damages reflecting any diminution in value may depend on the terms of the sale. If A sells at a discount which takes account of the defects, then the loss would doubtless remain with A. By contrast, if B pays full price (perhaps in ignorance of the defects, or in the naïve expectation that the repairs will be done) then A will not have suffered loss, and loss will pass to B. But this is only a simple example. How is loss to be split between freeholder and tenant, or freeholder and mortgagee, or any of these parties and a developer (all of whom are within the scope of the s.1 Duty) could give rise to extremely complex questions, and will need to be decided on a case-by-case basis.