A tenant's covenant to repair is a common feature of most commercial leases. Yet the distinction between repair and replacement or renewal is rarely straightforward, particularly where mechanical and electrical (M&E) plant is concerned. Increasingly, M&E is a fundamental if not, the main and exclusive issue in dilapidations claims that we are advising on.
M&E includes electrical wiring, electrical installations such as fuse boxes, power points etc, lifts, air conditioning plant, fire fighting apparatus and fire alarms.
The issue has become increasingly significant as landlords face growing pressure to improve building performance, meet ESG objectives and comply with tightening energy efficiency standards. Occupier requirements are also driving the market. Equipment may be outdated, inefficient or no longer fit for purpose without necessarily being in disrepair.
The High Court's recent decision in Craigard (Dartford) Ltd and another company v Westbury Homes (Holdings) Ltd [2026] provides valuable guidance on the complex issue of repair vs replacement in the context of a terminal dilapidations claim. It also provides a useful consolidation of the legal principles governing the recovery of damages for breach of covenant.
In this article, we examine the principles governing repair, replacement and renewal in light of Craigard and other case law and highlight the practical considerations for landlords and their advisers.
In Craigard, the judge restated the key legal principles governing the recovery of damages for breach of covenant:
The standard of repair “…is such repair as, having regard to the age, character and locality of the premises, would make them reasonably fit for the occupation of a reasonably minded tenant of the class who would be likely to take them.” Dowding & Reynolds, Dilapidations: The Modern Law and Practice, 8th edition.
The measure of damages at the end of a lease term is the reasonable and proper cost of putting the premises into the state of repair in which they ought to have been left by the tenant i.e. it is the cost of making good the tenant’s breach of covenant.
Reflecting on the judgment of Sunlife Europe Properties Limited v Tiger Aspect Holdings Limited [2013], the judge noted that there are important common law and statutory limitations on the landlord’s recovery of damages for breach of a repairing covenant.
At common law, the landlord cannot recover costs in respect of losses which, by acting reasonably, they could have avoided under the duty to mitigate. They are also not entitled to recover the cost of repairs where that cost is disproportionate to the benefit obtained.
The common law principle of supersession applies where necessary refurbishment or upgrading works carried out at the end of the lease would overtake some or all of the required repairs, limiting damages to only those repair works that would "survive" the refurbishment. The principle of supersession was applied in Craigard.
The primary statutory limitation is section 18(1) of the Landlord and Tenant Act 1927, which caps damages at the amount by which the value of the landlord's reversion is diminished by the breach. The second limb to section 18(1) applies where premises would be pulled down or subjected to structural alterations rendering repairs valueless at or shortly after lease termination; in such cases, no damages are recoverable at all.
Two cases, Fluor Daniel Properties Ltd v Shortlands Investments Ltd [2001] and MSA Properties Ltd v The Drapery Northampton Ltd [2026], were the two pre-Craigard authorities on repair vs replacement.
Fluor Daniel concerned a modern office building with extensive M&E services. By lease expiry, elements of the air conditioning system were ageing, worn and approaching the end of their expected lifespan. The landlord argued that substantial replacement works were required to satisfy the tenant's repairing obligations.
The court held that the fact that equipment had reached the end of its recommended lifespan did not justify wholesale replacement at the tenant's expense. Indicators such as increasing breakdowns and escalating maintenance costs were far more relevant in determining whether there was disrepair.
The judge reaffirmed that a landlord is generally entitled to decide how to discharge the repairing obligations. Provided that choice is reasonable, the tenant cannot object simply because a cheaper alternative exists. However, the landlord cannot carry out works designed to provide benefits extending beyond the tenant's leasehold interest and then seek to recover the entire cost from the tenant.
a repairing covenant does not require a tenant to provide a landlord with a wholly new building or plant
the distinction between repair and replacement remains fundamental
age, obsolescence or failure to meet current standards does not automatically amount to disrepair and
a covenant to repair does not ordinarily require tenants to fund improvements, modernisation or upgrades.
The recent decision in MSA Properties Ltd reinforces the principle that, where more than one method of remedying disrepair exists, the landlord is generally entitled to choose the method of repair provided that choice is reasonable.
The court confirmed that a landlord is not obliged to adopt the least intrusive option and, dependant on the terms of the lease may, in appropriate circumstances, obtain temporary possession of premises to undertake necessary structural or safety works. The tenant's right to quiet enjoyment does not automatically prevail over the repairing obligations.
Craigard built on Fluor Daniel and MSA Properties, applying those principles to M&E systems at lease end and clarifying both the burden of proof and the tenant’s right to adopt the least onerous method of compliance.
The key issue in Craigard centred on the extent to which the heating, ventilation and air conditioning (HVAC) system was out of repair, whether the claimants' intention to replace the entire HVAC system affected the assessment of damages and the extent to which the section 18(1) statutory cap limited the claim.
The court found that the defendants had failed properly to maintain the HVAC system and that this was a calculated failure but held that the claimants had not proved that full replacement, rather than repair, was necessary to satisfy the repairing covenant.
It rejected the defendants' causation argument that the common law damages claim should be limited by "supersession" resulting from the claimants' intention to refurbish, holding this contrary to established law, since the common law does not extinguish damages on account of the landlord's subsequent intentions save where section 18(1)'s second limb applies. On the statutory cap, it preferred the claimants' valuation expert's evidence that a hypothetical purchaser would have been satisfied with a repaired, functioning HVAC system, adjusting the defendants' expert's methodology accordingly.
M&E issues frequently sit on the boundary between repair, replacement and improvement. Specialist dilapidations surveyors and M&E consultants can help establish both whether an item is in disrepair and what constitutes a reasonable remedy.
Service and maintenance records can provide valuable evidence of deterioration, recurring failures and maintenance history, although they are rarely conclusive.
Original manufacturer specifications and lifecycle guidance may be relevant, but they are only one piece of the evidential picture. The end of an anticipated service life does not automatically establish disrepair.
The MSA Properties decision highlights the importance of ensuring that leases contain sufficiently robust rights of access to inspect, maintain and repair retained parts.
Where several repair options exist, the landlord's chosen approach must be objectively reasonable and proportionate in the circumstances.
Landlords should be clear about the difference between what a tenant is legally required to do and what the market may demand. The two are often very different.
Where a landlord intends to replace or upgrade an item regardless of the possibility of repairing the M&E concerned, section 18 and supersession arguments may significantly reduce any recovery.
The regulatory environment applicable at lease expiry may look very different from that which existed when the lease was granted. Landlords need to understand how developments in building safety, sustainability and energy efficiency requirements affect both liability and strategy.
Advances in technology, increasing energy efficiency requirements and the drive towards net zero are creating a growing gap between plant that is genuinely in disrepair and plant that is simply obsolete, and no longer meets tenant’s expectations and market requirements. For landlords, that distinction is becoming increasingly important.
As significant proportions of commercial property stock face major retrofit and sustainability challenges over the coming years, disputes concerning M&E systems are becoming more common. The key question will often be not whether equipment should be replaced, but who should pay for it.
For further information about the issues addressed in this article or contentious commercial property matters generally, please contact Warren Reid or Vanessa Kibble.
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