LLM Advanced Commercial Property Law 2009 REPAIR AND DISREPAIR OF COMMERCIAL PROPERTY

1. LLM Advanced Commercial Property Law2009REPAIR AND DISREPAIR OF COMMERCIAL PROPERTY Siân Lee

2. Course outline • Workbook • Cases/articles • Blackboard (e-Learning Portal)

3. Introduction • Repairing obligations as between landlord and tenant in a commercial lease • Some selected topics: • 1 - Overview • 2 – Key concepts and case analysis • 3 – Drafting issues • 4 – Landlord’s remedies

4. Repairing Covenants:Overview • Implied obligations • Tenant’s covenant • Design/Construction defects • Amendments to draft covenant • Access by landlord • Landlord’s covenant to repair • Ancillary covenants • Remedies

5. Key concepts • Repair • Dictionary definition? • Disrepair • Renewal • Defect • Inherent defect • Improvement

6. Concepts and cases • Little statutory guidance • Case-based reasoning • Look for judicial distinctions between concepts • Trace themes through cases, rather than expect each issue to dealt with by a particular case • “Fact and degree” arguments • Examples: facts • Examples: drafting • Look at some cases/themes: • Standard of repair • Repair vs renewal

7. Cases • Proudfoot v Hart (1890) • T’s covenant he would keep premises in “good tenantable repair and so leave the same at the expiration thereof” (3 year lease) • T’s obligation to put and keep premises in such repair having regard to age character locality, making reasonably fit for occupation by tenant of class likely to take it.

8. Cases • Lister v Lane and Nesham (1893) • T’s covenant “…well, sufficiently, substantially repair uphold maintain…” • House was +100 years old. Walls bulged due to timber in foundations decaying – resting on boggy soil • Surveyor – not economic to repair without demolition/rebuilding, but this might have been done during term • Held: T not liable, since caused by time/elements on defective construction

9. Cases • Lurcott v Wakeley and Wheeler (1911) • Lister distinguished – if repair of whole impossible, then repair covenant does not carry obligation to renew or replace (Buckley LJ) • Although repair can contain elements of renewal, repair and renewal are distinct concepts. • But repair can include replacementofparts (fact and degree?)

10. Cases • Anstruther-Gough-Calthorpe v McOscar (1924) • Proudfoot distinguished: standard of repair does not apply for long lease (95 year (here) vs 3 year lease) • Applying Proudfoot rule would mean a fluctuating standard of repair – depending on improvements to tenants/neighbourhood (not in question in Proudfoot) • Look at ordinary uses at start of lease…

11. Cases • Anstruther-Gough-Calthorpe v McOscar (1924) (cont’d) • “Repair… connotes the idea of making good damage so as to leave the subject so far as possible as though it had not been damaged. It involves renewal of subsidiary parts; it does not involve renewal of the whole”

12. Cases • McDougall v Easington BC (1989) • Fundamental flaw in design/build remedied by removal of front and rear, roof, windows, doors, interior fittings • T’s appealed first instance decision that works did not qualify as (L’s) repairs. Held: not repairs. • No attempt to reconcile whole body of authority with single statement of principle

13. Cases • McDougall v Easington BC (1989) (cont’d) • Three tests for renewal vs repair (apply separately or concurrently as case demands; take into account nature of premises, condition at start, terms of lease): • 1. alteration of substantially whole or a subsidiary part? • 2. whether wholly different character of building produced or not? • 3. ratio of costs to previous value, and effect on value/lifespan of building?

14. Cases • McDougall v Easington BC (1989) (cont’d) • Here the works gave “building a new life in a different form” – so not simply repairs • Comment • An extreme case upon which to base tests? • How useful are the tests (when to apply – separate, concurrent?) • Do terms of tests give rise to more problems – substantial, subsidiary, character?

15. Cases/concepts • Looked at themes of • Standard of repair • Renewal vs repair • Look at some leading repair cases, which give rise to some surprising principles: • Ravenseft v Davstone (inherent defects can fall under repairing covenant) • Post Office v Aquarius (basement flooded but property not out of repair)

16. Ravenseft v Davstone • [1979] 1 All ER 929 • Facts: • 16 storey block of maisonettes erected 1958-1960 – looked like a “set of pigeon holes” • reinforced concrete frame with stone claddings; not practice at time to use expansion joints (but stone cladding and concrete frame have different coefficients of expansion); also stones not properly tied in • part of cladding bowed away from frame

17. Ravenseft v Davstone • In 1973 some of cladding was observed to be loose and danger of falling • Plaintiff landlord took responsibility for remedial works (defendant tenant disputed liability but assisted with inspection of works) • (By 1973 it had become standard practice to include expansion joints in construction of buildings like this)

18. Ravenseft v Davstone • Tenant’s repairing covenant was lengthy and tried to cover all eventualities (see case) • Tenant’s argument: • the doctrine of inherent defect applies to tenant’s covenants of repair – • i.e. where disrepair arises from an inherent defect of the demised premises, the result of the defect cannot fall within the tenant’s obligation to repair • Plaintiff: no such doctrine; just ask if works fall within “repair”

19. Ravenseft v Davstone • Judge’s reasoning: • no need to reconsider Proudfoot, since not about standard of repair – here concerned with what falls under “repair” • Note Lister v lane (Lord Esher) – however large words of covenant it is not a covenant to give back a different thing

20. Ravenseft v Davstone • Judge’s reasoning: • Reviewed (old) authorities - e.g. Sotheby v Grundy – question is one of degree for result of inherent defect - partial collapse brings within covenant, total collapse falls outside • Concluded that cases do not support the doctrine that disrepair caused by inherent defect gives tenant complete defence; instead it is a matter of degree… • Comes back to Lister v Lane: whether repair or giving back wholly different thing

21. Ravenseft v Davstone • Judge’s reasoning: • To assist use ratio of cost of works to value of whole premises (see criterion in McDougall) • Cost of works £55K; £50K for refixing stones and £5K for inserting joints; value of building £3m. • Held – tenant liable for full cost of works

22. See also (inherent defects) • Stent v Monmouth (1985) • Creska v Hammersmith & Fulham LBC (1998) • Quick v Taff-Ely (1985) ….. disrepair

23. Post Office v Aquarius • [1987] 1 All ER 1055 • Facts • “highly unusual” • New office building let in 1969 • Defect in structure of basement due to use of porous concrete and defective construction joints; 1979-1984 water table rose and basement flooded • 1984 water table subsided again; basement dry; no damage caused by the defect

24. Post Office v Aquarius • T’s repairing covenant in fairly standard form • First instance: three schemes of treatment considered; waterproofing substantial structural addition; cost twice annual rent (15% value) – not repairs

25. Post Office v Aquarius • L’s appeal that (a) works did not produce wholly different thing (b) substantial additions/alterations/improvements can be repairs if only reasonable way to remedy • Ravenseft referred to: repair can require remedying inherent defect in a building (matter of degree) • Quick v Taff-Ely referred to: disrepair related to physical condition not lack of amenity

26. Post Office v Aquarius • Ralph Gibson LJ: when water entered damage could have been done; this would be disrepair; no such damage proved; since no disrepair, no liability arisen under tenant’s covenant • Proudfoot does not hold T liable merely to improve so as to remove defect • Slade LJ: clear words are needed to impose obligation on tenants to remedy defects in original construction, before they have caused any damage • Landlord’s appeal dismissed

27. Click on this slide to see The diagram of case analysis (the Word document will open in a new window)

28. Drafting • Amendments – commercial lease, repairing covenant, e.g. “Repair and cleaning To put and keep the Property in repair and keep clean neat and tidy”

29. Drafting • Landlord’s amendments? • Tenant’s amendments? • Further instructions?

30. Drafting Issues Anatomy of a lease Parties Definitions/Interpretation Demise/Rent Tenant’s covenants e.g. Repair, User, Alienation, Insurance, Insurance, Alterations, Signage Landlord’s covenants Provisos e.g. Forfeiture Schedules e.g. Rent Review, Service Charge

31. Drafting Issues • Which clauses interact with the tenant’s repairing covenant (and why)? • …………. • …………. • …………. • …………. • …………. • …………. • ………….

32. Drafting Issues • “Demised Premises” • Lease of whole • Improvements and additions? • Lease of part (internal demise) • e.g. Top floor/ground floor obligations

33. Drafting Issues • “Demised Premises” • Building up definition of “internal envelope” (e.g. for retail unit): • ……………. • ……………. • ……………. • ……………. • ……………. • HM Land Registry/plans

34. Drafting Issues • Sample tenant’s repairing covenant: “To keep the Demised Premises in good and substantial repair” • Tenant’s amendments? (Click on the slide to view the Word document, which will open in a new window)

35. Styles of drafting What impact does style of drafting have on repairing obligations? • See the covenant in Post Office v Aquarius Properties Ltd [1987] All ER 1055 • Impact of other terms not considered?

36. Styles of drafting • See Norwich Union v BRB [1987] 2 EGLR 137 • Hoffman refers to ‘torrential drafting’ (numerous words have same effect) • See Credit Suisse v Beegas Nominees [1994] 5 All ER 803 • ‘fairly torrential’ – not in good condition whether or not out of repair

37. Styles of drafting • See Welsh v Greenwich [2000] 3 EGLR 41 • Sparse drafting but “condition” had separate effect, adding to “repair” • Social landlord?

38. Click on this slide to see The diagram of case analysis (the Word document will open in a new window)

39. Landlord’s Remedies • What remedies (potentially) does the landlord have available to it in the following situations? • (a) the tenant has not paid the last two months’ rent • (b) the property is in an unsightly and dangerous state of disrepair.

40. Landlord’s Remedies (a) …………………. ………………. ……………………. ………………… …………………… ………………… (b) ………………… ………………. ………………… .. ………………… …………………… ………………… …………………… …………………

41. Landlord’s Remedies • Consider non-payment of rent • Rent deposit? • Guarantor/former tenant? • Landlord and Tenant Act 1954? • S30(1), ground (b) • Action

42. Landlord’s Remedies • Consider non-payment of rent (continued) • Insolvency/statutory demand • Distress • Human Rights implications? • Collection from subtenant? • Forfeiture?

43. Landlord’s Remedies • Consider breach of repairingcovenant • Damages • Usually governed by Hadley v Baxendale (1854) 9 Exch 34 • Recover losses arising naturally from breach; or • Supposed to have been contemplated by parties at time entered lease as probable result

44. Landlord’s Remedies • Damages (cont’d) • Ceiling on amount of damages for breach of repairing covenant by virtue of s18 Landlord and Tenant Act 1927: • Doesn’t apply to covenant to reinstate • Cannot exceed amount by which reversion diminished by the breach • Common elements in damages claim: • Cost of necessary works • Costs of supervision of works • Lost rent during works

45. Landlord’s Remedies • Damages (cont’d) • Ceiling on amount of damages for breach of repairing covenant by virtue of s18 Landlord and Tenant Act 1927 (Cont’d): • If during term, reduction in reversion value a function of unexpired lease (longer the remainder the less the reduction in value of reversion) • If proceedings at end, court may accept cost of repairs as measure of damages (subject to s18)

46. Landlord’s Remedies • Damages (cont’d) • Ceiling on amount of damages for breach of repairing covenant, relevant factors: • Basis of valuation • E.g. 5 storey 1970’s office block in satellite town to city. In disrepair at end of lease. On what bases may it be valued? • ………………… • ………………… • ………………… • ………………… (see Ultraworth case – next slide)

47. Landlord’s Remedies • Damages (cont’d) • See Ultraworth Ltd v General Accident Fire & Life [2002] 2 EGLR 254 • valuation bases • Section18 (1)also provides that no damages available for failure to repair if premises to be pulled down shortly after termination (or works would make repairs valueless)

48. Landlord’s Remedies • Damages (cont’d) • Is it straightforward to sue for damages on breach of repair? • Leasehold Property (Repairs) Act 1938, s1 • If lease granted for 7+ years with 3+ years to run, then • Must serve notice under s146 LPA 1925 and • Tenant has right to serve 28 day counternotice, then leave of court needed by Landlord (see forfeiture)

49. Landlord’s Remedies • Forfeiture • Meaning? • Not an implied right • Commercial considerations? • ………………. • ………………. • ………………

50. Landlord’s Remedies Forfeiture (cont’d) • Generally s146 notice to be served for any breach • Notice contains: • Identity of tenant, premises, covenant, breach, compensation • Options/action depending on whether remediable/irremediable