Practice Changing Party Wall Case Law – Lea Valley Development Limited v Derbyshire (2017)

This is part of our series on court judgments that significantly changed the way that surveyors administer the Act.

The Background

The owner of 26-30 Muswell Hill, London N10 3TA, a vacant site, planned to construct a block of 12 apartments. Notice was served under section 6 of the Act in respect of the foundations to the development. The owner of the adjoining property, 32 Muswell Hill (a detached converted Edwardian house) dissented to the notice, surveyors were appointed and an award served authorising the works.

The award included the following ‘damage clause’:

“[the building owner shall] Make good all structural or decorative damage to the Adjoining Owners property occasioned by the works… If so required by the Adjoining Owner, make payment in lieu of carrying out the works to make the damage good, such sums to be determined by the Agreed Surveyor”.

The works authorised in the award caused significant damage to the adjoining property and it was agreed in principle between the parties that the adjoining property could not be economically repaired and must therefore be demolished and rebuilt.

The full judgment is available on this link.

Question to be Determined by the Court

Whether any compensation payable to the adjoining owner should be assessed by reference to diminution in value or on the basis of the costs of reinstatement.

The building owner argued that compensation should be determined in accordance with common law principles, which would include diminution in value, and that nothing in the award altered this.

The adjoining owner argued that the basis for compensation has already been determined by the surveyors and confirmed in the award (in the damage clause that I’ve reproduced above).

The building owner’s valuer estimated the diminution in value to be between £488,000 and £1,000,000 while a quantity surveyor instructed by the adjoining owner put the cost of demolishing and rebuilding the property to be £1,952,000.

The Decision

The judge rejected the adjoining owner’s argument, determining that any compensation payable should be assessed using common law principles.

The judge’s view was that the situation which had now arisen (the need to demolish and rebuild) went well beyond the ‘making good’ envisaged in the damage clause and, in any respect, the clause did not clarify how the ‘payment in lieu’ referred to should be calculated.

Despite the validity of the damage clause now being academic (as it did not address the current situation), the judge thought it would be helpful to comment on it as its validity, more generally, had been argued by the parties (and in case he was wrong with his main determination). On this, he preferred the building owner’s argument that the cost of making good should only be a factor in assessing compensation where the right being executed (meaning the work being undertaken) when the damage was caused carried with it an obligation to make good damage.

How the Decision has Changed Procedures

This is another case where the answer was there in the wording of the Act, but surveyors only took notice when it was highlighted in legal proceedings.

Following the case, damage clauses in party wall awards became more specific, either by listing the rights which it applied to or by including the introductory phrase, ‘as required by the Act’.

The rights which do come with an obligation to make good damage are those provided by section 2, sub-section (2) paragraphs (a), (e), (f), (g), (h) & (j) of the Act.

The facts of this case were quite specific and therefore not particularly helpful to surveyors assessing loss or damage caused by works falling within the scope of the Act, but it was helpful to have it confirmed that common law principles apply (see C. R. Taylor (Wholesale) Ltd. and Others v Hepworths Ltd. [1977]).

Final notes

The award clause which was included in the judgement referred to an ‘agreed surveyor’ but, reading around the case, it seems that separate surveyors were appointed by the owners. That may therefore have been a typo.

Talking of typos, the damage clause also referred to ‘… the exiting [sic] fabric and finishes’, highlighting how important it is to proofread formal documents. I’ve felt the embarrassment of having my typos highlighted in court proceedings.

The proceedings were brought under CPR Part 8 which allows a claimant to seek the court’s decision on a question that is unlikely to involve a substantial dispute of fact. There was a preliminary hearing to determine whether the question to be determined was a suitable subject for CPR Part 8. This was effectively an alternative to referring the question to the tribunal of surveyors to determine (who, based on the standard practice prior to this case, would probably have made a different determination). It was also likely to have been more economical than an appeal due to the limited nature of the determination required.

You can review the progress of the works, and see the cracks to the adjoining property, by looking back through the archive StreetView images. The adjoining property was still standing in September of last year.

Written by Justin Burns BSs (Hons) MRICS – Director of Peter Barry Surveyors.

If you require advice on a party wall matter, you are welcome to contact us on 020 7183 2578 or via email.