When repair is enough: what Craigard says about remedial costs and replacement

Why this case matters beyond dilapidations

Craigard concerned terminal dilapidations under a commercial lease, but the reasoning is relevant more widely to construction and engineering disputes involving defective plant, remedial schemes and claims for the cost of replacement.

The court drew a clear distinction between work reasonably required to satisfy the relevant obligation and improvements or upgrades which a claimant may prefer to carry out for its own commercial reasons.

What happened?

The dispute concerned a commercial office building in Dartford. The tenant's lease had expired and the landlords claimed damages for breaches of repairing obligations.

A major part of the dispute concerned the building's ageing heating, ventilation and air-conditioning system. The HVAC installation had not been adequately maintained and was out of repair when the lease ended. The important question was what had to be done about it.

The landlords had decided to replace the existing system as part of a substantial refurbishment. A new installation would assist with energy performance, sustainability and the marketing of the building as modern, high-quality office space. The former tenant argued that the existing system could instead have been repaired.

Repair or replacement?

The court found that the HVAC system was out of repair. But that did not automatically establish that complete replacement was necessary.

The landlords had to prove that replacement was required to achieve the condition required by the lease. They did not do so.

HHJ Keyser KC emphasised that the tenant was entitled to perform its obligations in the manner least onerous to it. Where either repair or replacement could reasonably have achieved compliance, damages fell to be assessed on the basis of repair.

That distinction can arise in many construction disputes:

• a roof is defective — does it need replacing or can it be repaired?
• building services do not perform properly — is wholesale replacement necessary?
• cladding, finishes or components have failed — what remedial scheme is proportionate?
• the employer proposes an upgraded system — how much of that cost is attributable to the original breach?
• the original installation is old or inefficient — does that make complete replacement recoverable?

The answer will depend on the contract and the facts, but the remedial scheme still needs to be justified by evidence.

A commercially sensible upgrade is not necessarily recoverable damages

There was nothing inherently unreasonable about the landlords wanting a new HVAC system. The court accepted that replacement could make commercial sense, including for future-proofing and marketing the property.

But that was different from proving that the former tenant's contractual breach required complete replacement.

This distinction matters whenever remedial works overlap with improvement works. An employer may sensibly decide that, once defective work is being opened up, it should install a newer product, improve performance or adopt a more modern design. That may be a rational project decision. It does not follow that the whole cost can automatically be transferred to the party responsible for the original defect.

A remedial claim should therefore distinguish between:

1. work necessary to remedy the breach;
2. work required because of the chosen method of carrying out that remedy; and
3. additional improvement, modernisation or betterment.

Evidence can decide the remedial-cost argument

Craigard is also a useful reminder about expert and contemporaneous evidence. Neither of the building-services experts had been able to inspect the HVAC system themselves and both had to form opinions from third-party material.

The court was not persuaded that the landlords had discharged the burden of proving that full replacement was necessary.

Where the condition of defective work will change during repairs, the opportunity to obtain reliable evidence can disappear quickly. Before substantial remedial work starts, consider preserving:

• dated photographs and video;
• inspection and test results;
• commissioning and maintenance records;
• samples where appropriate;
• contemporaneous contractor reports;
• expert inspection evidence;
• alternative remedial proposals; and
• quotations showing the cost of repair as well as replacement.

A claimant who simply proceeds with its preferred replacement scheme may later face the argument that a cheaper compliant repair was available. Equally, a contractor disputing a replacement claim needs evidence explaining how the alleged defect could actually have been repaired and what that repair would have cost.

The section 18 cap also mattered

Because Craigard was a dilapidations case, the court also considered section 18(1) of the Landlord and Tenant Act 1927. That provision can cap damages for breach of a repairing covenant by reference to the reduction in value of the landlord's interest caused by the breach.

The court ultimately assessed damages payable by the defendants at £648,141.47.

For construction disputes outside the landlord-and-tenant context, section 18 will usually be irrelevant. The broader lesson about causation, proportionality, betterment and proof of remedial cost remains important.

What should construction businesses do?

1. Identify the contractual standard. Start with what the contract actually required, not the preferred remedial scheme.
2. Record the condition before changing it. Once work is removed or replaced, important evidence may be lost.
3. Consider repair and replacement separately. If replacement is proposed, ask why repair would not achieve contractual compliance.
4. Separate remediation from improvement. Identify upgrades, enhanced specification and betterment rather than folding everything into one remedial figure.
5. Obtain evidence on cost. A detailed scope, quotations, invoices and expert evidence are more persuasive than a broad allowance.
6. Explain the decision-making. If replacement really is necessary, preserve the technical reasoning that led to that conclusion.

Why the decision matters

Craigard does not establish that a claimant must always choose the cheapest conceivable repair. It does show that a claimant seeking the cost of wholesale replacement needs to prove why replacement was reasonably required to remedy the breach.

For employers, developers, contractors and consultants, that can make the difference between recovering the cost of the remedial works actually undertaken and recovering only the cost of a more limited repair.