Dilapidations Case Law: PGFII vs Royal & Sun Alliance

Dilapidations Case Law: PGFII vs Royal & Sun Alliance. When it comes to interpreting dilapidations obligations at lease expiry, few cases are as influential.

This High Court decision delves deep into how redevelopment intentions interact with a tenant's repairing liabilities, particularly under Section 18(1) of the Landlord and Tenant Act 1927.

For professionals involved in property management, surveying, and legal consultancy, understanding this case is critical to navigating the evolving landscape of dilapidations case law.

The Background: A Prestige City Property in Disrepair

PGF II SA owned a six-storey office building at 34-36 Lime Street, London EC3, in the heart of the financial district. Originally built in 1973 to a high standard, the property was let under a 35-year lease to Kleinwort Benson Ltd (later passing to Royal & Sun Alliance Insurance Plc).

A sublease was granted in 1997 to London & Edinburgh Insurance Company Ltd, with both tenancies ending in June 2008.

Upon lease expiry, the landlords, PGF II, pursued claims for extensive disrepair, most notably regarding the building's curtain walling and internal reinstatement obligations.

Both defendants admitted that repairs were needed, but argued that planned redevelopment works meant little or no real loss had been suffered, invoking the statutory "supersession" defence under Section 18(1).

Dilapidations Case Law: PGFII vs Royal & Sun Alliance - The Key Issues Considered

Judge Toulmin CMG QC outlined several important issues:

How damages for dilapidations are capped under Section 18(1).

The role of common law principles of damages as articulated in Ruxley Electronics v Forsyth.

Whether the landlord had a settled intention to redevelop the property at the lease end.

The concept of supercession — whether proposed works rendered repairs valueless.

Standards of repair expected under the lease terms.

The case thus explored the subtle boundary between a genuine claim for damages and a situation where redevelopment plans nullify or limit a tenant's liability.

The Court's Findings - Dilapidations Case Law: PGFII vs Royal & Sun Alliance

Section 18(1) and Common Law Damages

Judge Toulmin reaffirmed that damages in dilapidations must serve as reasonable compensation. Following Ruxley Electronics v Forsyth, the court must assess whether the cost of repairs or the diminution in value best represents the landlord's loss, taking into account the reasonableness of insisting on reinstatement.

Importantly, Section 18(1) limits recoverable damages to the diminution in the value of the landlord's reversion. If significant structural alterations or demolition were to occur shortly after lease expiry, the repairs could be deemed valueless, preventing recovery.

Redevelopment Intentions at Lease Expiry

The judgment emphasised that a landlord's intention to redevelop must be clearly formed at the date of lease expiry. In PGFII, Judge Toulmin found that although PGF II SA had redevelopment ideas, these plans were not sufficiently definite at the expiry date. Redevelopment was contemplated but not decided — meaning the statutory defence of supersession could not succeed.

The court made clear that mere speculation or preliminary planning for redevelopment is not enough to nullify a dilapidations claim. Only a "clearly informed intention" to redevelop, formed by the lease end, satisfies the requirements to bar or limit a claim.

Supercession and Practical Implications

The landlord's subsequent decision to undertake a major refurbishment — including recladding — was not sufficient to defeat the dilapidations claim. The court concluded that reasonable repairs could have been made without necessarily triggering full-scale redevelopment. The tenant could not argue that their breach should be wiped out simply because of later improvements by the landlord.

The decision also distinguished between "latent development value" and actual intention to redevelop. The existence of potential development opportunity does not, in itself, override dilapidations obligations unless a firm redevelopment decision has been made.

The Standard of Repair

The court confirmed the standard of repair must align with the building's age, character, and location.

In this case, although constructed in 1973, the building's City of London prestige demanded a high but reasonable standard of maintenance — not upgrading to 2008 standards, but repair appropriate to a prime 1970s City office building.

Key Takeaways from PGFII vs Royal & Sun Alliance

This important judgment offers clear guidance to landlords, tenants, surveyors, and property lawyers on dilapidations disputes:

Redevelopment Intentions Must Be Clear - If landlords wish to rely on redevelopment to defeat or reduce a dilapidations claim, they must have decided to redevelop by the lease expiry date. Mere possibility or general business strategy is insufficient.

Damages Are Based on Reasonable Loss - Following Ruxley Electronics v Forsyth, the cost of repair or diminution in value will be the measure of damages, guided by the principle of "reasonable compensation," not punishment.

Supercession Doctrine Applied Strictly - To invoke supercession successfully, landlords or tenants must demonstrate that the alleged repairs would truly have been rendered valueless by imminent works.

Section 18(1) Remains Vital - The statutory cap ensures that a landlord cannot recover more than the real diminution in value caused by disrepair, protecting tenants from over-inflated claims.

Professional Evidence Is Crucial - The case highlights the importance of robust expert evidence in dilapidations litigation — particularly regarding condition, repair standards, and valuation effects.

Why PGFII vs Royal & Sun Alliance Matters

As market dynamics encourage ever more ambitious redevelopment projects, particularly in prime city locations, the decision in PGFII vs Royal & Sun Alliance remains critical.

It prevents landlords from opportunistically using later development plans to deny tenants fair dealing. It also ensures that tenants cannot escape legitimate obligations.

For surveyors and property litigators, it underscores the need for detailed contemporaneous evidence around landlord intentions and the physical condition of premises. For landlords, it highlights the risks of indecision about redevelopment when seeking to preserve or maximise dilapidations recoveries.

At its core, this case balances fairness. Ensuring tenants pay for real breaches of obligation, but not for repairs rendered redundant by properly decided and imminent landlord projects.

If you need expert advice navigating dilapidations disputes, or tailored guidance on dilapidations case law, contact Anstey Horne’s specialist team. We offer experienced support in resolving complex lease-end matters efficiently and commercially.

For more expert insights into Dilapidations Case Law: PGFII vs Royal & Sun Alliance and other pivotal cases, follow our blog or contact our specialist team for advice tailored to your property needs.

Related Resources

Dilapidations Case Law: Ruxley vs Forsyth

Dilapidations Glossary of Key Terms

Understanding Section 18(1) and Diminution Valuations

Supersession in Dilapidations: What It Means for Landlords and Tenants

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