S.18 Valuations

Simply put, a Section 18 (1) Valuation provides a statutory cap for damages, by calculating the difference by which the value of the Landlord’s interest has reduced due to breaches of the lease’s repair covenants, also known as the ‘diminution in value’ of the landlord’s interest. A S.18 (1) Valuation should only cover breaches of repair, not decoration or reinstatement costs.

S.18 (1) Valuations require two highly skilled surveyors to work in unison; Building Surveyors and Registered Valuers. A valuer must decern the impact on value, or the diminution in value, and the Building Surveyor must distinguish between wants of repair, decoration and reinstatement.

The Valuer must be skilled in determining both the value of the property as-is ‘in dis repair’ as well as the value of the property ‘in repair’ as per the terms of the lease, which may not be the same as the value of the property in ‘good repair’. The difference is the diminution in value. The Landlord can only recover the lower of the cost of doing the works, the repairing liability, or the diminution in value. This is a useful tool to limit the landlord’s claim for dilapidations.

Section 18(1) contains two limbs, firstly an objective limb, and secondly a subjective limb. The first limb (objective) is the landlord’s actual intentions. This means that the landlord’s actual intentions regarding the disrepaired property after the end of the term are not directly relevant to the question of diminution in value of the reversionary interest. Instead, the true diminution in value is driven my market forces.

The second limb (subjective) considers the landlord’s actual intentions. This is also known as “supersession” and prevents the landlord form recovering damages for items of disrepair which would be superseded by their actions. For example, if the landlord was to demolish the building as it had reached the end of its economic life, the tenant would not be liable for items of disrepair.

S.18 (1) Valuations are notoriously complex and require the coming together of a number of experienced surveyors from Building Surveying teams and Valuation teams, supported by Agency colleagues who provide evidence of the market trajectory. At CSquared, we can combine all these areas of expertise to provide robust and reliable S.18 valuations to support tenants and landlords alike.