High Court Case on Diminution in Value of Leaseholder’s Flat

When the use of commercial premises beneath a leaseholder’s flat was changed from an estate agency to a bar / restaurant, a court has ruled that the leaseholder is entitled to compensation of £105,000.

After planning permission was granted in respect of the change of use, works were carried out, some of them structural, to prepare the commercial premises for their new purpose. The flat tenant was unhappy with the change, complaining of noise and fumes, and eventually sold his property for £470,000.

His damages claim hinged on provisions in his lease which permitted the landlord to carry out works on the structure of, and any development of whatever nature on, the building. Crucially, however, that entitlement was subject to a proviso that such works or development did not lead to a diminution in the value of the flat.

Upholding the flat tenant’s claim, a judge found that the landlord had breached the terms of his lease and awarded him £105,000 in damages. That sum represented the difference between the price he obtained for the flat and what it would have been worth had the downstairs premises remained an estate agency.

In dismissing the landlord’s challenge to that outcome, the High Court found that the judge’s interpretation of the relevant lease provisions made good commercial sense. They were in the nature of a promise by the landlord not to exercise its rights in a manner that resulted in a fall in the flat’s value.

Also rejected were the landlord’s arguments that the provisions were only concerned with the effect of physical works to the building and that there was no breach of the lease in that the diminution in the flat’s value arose from the change of use. The works involved development of the commercial premises, making physical changes to them so as to enable their use as a bar and restaurant.

Dunward Properties Limited v Isaac.