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In short: Section 18(1) of the Landlord and Tenant Act 1927 limits what a landlord can recover for breach of a repairing covenant at the end of a lease. The claim cannot be more than the amount by which the landlord’s property is worth less because of the disrepair, even if the repair work would cost far more. It can also reduce the claim to nothing if the building is about to be demolished or substantially altered.
If you have received a schedule of dilapidations with a large figure at the bottom, this cap is one of the first things a surveyor should check. This guide explains what it covers, what it does not, and how it fits into the claims process for London office tenants.
What Section 18(1) says
The section has two parts that work together:
- The value cap. Damages for breach of a covenant to keep the premises in repair, or to leave them in repair at the end of the lease, cannot exceed the amount by which the value of the landlord’s interest (the “reversion”) is reduced by the breach.
- The demolition or alteration limit. No damages are payable if the premises would, at or shortly after the end of the lease, be demolished or structurally altered in a way that makes the repairs worthless.
In practice that means the landlord’s loss is measured by what the disrepair does to the value of the building, not simply by what it would cost to put it right.
A simple illustration
The figures below are made up to show the principle, not a typical case. Suppose a landlord’s surveyor prices repairs to a floor at £200,000. A valuer then compares the value of the building as the tenant left it with its value if the repairs had been done, and finds a difference of £120,000. The landlord’s claim for those repair items is capped at £120,000, not £200,000. If the valuer finds no difference in value, there may be no recoverable damages for those items at all.
How the loss in value is worked out
The cap is assessed by a valuer, usually a chartered surveyor, who compares two values: the property in the condition it was left in, and the property in the condition it should have been in under the lease. The valuation date is normally the date the lease ended. What happens afterwards can be evidence. A landlord who gives a new tenant a rent-free period or a reverse premium because of the property’s condition, or who sells soon after at a lower price, may help show the loss in value, but a landlord who simply carries out major works regardless does not automatically prove one.
Because the answer depends on the market, the building and the lease, there is no standard percentage. This is a specialist valuation and is not something a contractor can give you.
The demolition or alteration limit
If the landlord was going to demolish the building, or carry out structural changes that would make the tenant’s repairs pointless, at or soon after the lease ended, the claim for repair breaches can fall away. The burden is on the tenant to show it. The question is what the landlord genuinely intended at the end of the lease. Merely thinking about redevelopment is not enough: courts look for a firm, settled intention and a reasonable prospect of carrying it out. If you suspect this applies, such as a landlord with a planning application, a refurbishment tender or a sale to a developer, keep the evidence and tell your surveyor early.
What the cap does not cover
Section 18(1) applies to repair covenants. It does not automatically limit other items that often appear in a schedule, such as:
- removing tenant alterations and reinstating the space, for example taking out partitions or reinstating a ceiling
- removing signage, cabling and other fixtures
- complying with statutory or lease requirements
- decoration, unless it is also a repair breach
Those items are generally assessed on the usual contractual basis, which starts from the reasonable cost of the work. This matters for an office tenant, because a large share of many London office claims is reinstatement rather than repair. Ask your surveyor to split the schedule between repair items, where the cap may help, and reinstatement items, where it generally does not. For a closer look at the work involved, see our guides to Cat A and Cat B fit-outs and Cat A reinstatement.
Is there a “Section 18 notice”?
People sometimes talk about a Section 18 notice, but Section 18 does not involve you receiving a notice. What you receive is a schedule of dilapidations and usually a costed demand. Raising Section 18 is something the tenant does in its response, normally supported by a valuation. It is also different from a section 146 notice, which relates to forfeiture of a lease while it is still running.
When and how to raise it
Claims between commercial landlords and tenants are expected to follow the Dilapidations Protocol. Under it the landlord serves a terminal schedule within a reasonable time after the lease ends, often around 56 days, with a costed demand. The tenant’s response is also typically due within about 56 days, and each item should be accepted, partly accepted or disputed with reasons. That response is where a Section 18(1) valuation should be raised. For the sequence in more detail, see our dilapidations timeline.
A practical order of steps:
- Check your lease repairing and yielding-up covenants and note which schedule items are repair and which are reinstatement.
- Ask a chartered surveyor whether a Section 18(1) valuation is worthwhile. It usually is where the repair element is large.
- Check whether the landlord intends to redevelop or substantially alter the building.
- Get the cost of the works priced independently so you have a realistic comparison. See is your dilapidations claim too high? and our cost guide.
- Respond within the Protocol timescale and negotiate on a without-prejudice basis.
Doing the works or settling
Once you know the cap and the real cost of the work, you can decide whether to carry out the works yourself or negotiate a cash settlement. Our guide to settlement versus doing the works covers how to weigh that up, and who pays for dilapidations explains the starting position under most leases.
Where London Dilaps fits in
London Dilaps is a contractor, not a firm of surveyors or solicitors. The Section 18(1) valuation and the legal position are for a chartered surveyor or property solicitor. What we can do is price the works line by line, so you can see which items are real and what they should cost, carry out strip-out and reinstatement to the lease standard, and survey the space for free. See our office dilapidations service for how that works, or request a free site survey and quote.
This article is general information, not legal or valuation advice. Every lease and claim is different, so take advice from a chartered surveyor or solicitor before relying on any point here.