Cases - Sunlife Europe Properties Ltd v Tiger Aspect Holdings Ltd and anor
Record details
- Name
- Sunlife Europe Properties Ltd v Tiger Aspect Holdings Ltd and anor
- Date
- [2013]; [2013]
- Citation
- EWHC 463 (TCC); 2 P&CR 4
- Legislation
- Keywords
- Leases - landlord and tenant
- Summary
-
The case concerns 2 properties let to the tenant under 2 full repairing leases for terms of 35 years. Both leases continued beyond their expiry dates pursuant to the provisions of the Landlord and Tenant Act 1954, Part II but ultimately came to an end in 2008. It was accepted that the tenant had not complied with its repairing obligations under the leases.
What was the measure of damages due to the landlord for the tenant’s failure to yield up in accordance with the repairing obligations under the leases?
At trial the landlord produced a costed schedule of dilapidations, and the total damages sought were £2.172m (including 30 weeks loss of rent). The tenant asserted that the remedial works attributable to want of repair amounted to around £700,000. However, the tenant also contended that it was not obliged to pay more than £240,000 being the diminution in the landlord’s reversionary interest under section 18(1) of the Landlord and Tenant Act 1927. The tenant’s argument was that even if it had left the premises in a good state of repair by reference to the standards at the date of the leases the building would not have been lettable without the substantial upgrade and improvement works that the landlord had carried out.
The outcome was that damages were assessed at £1.4m.
To reach its conclusion, the court considered the principles to be applied when assessing the damages to be paid by the tenant, including the effect of section 18(1) of the Landlord and Tenant Act 1927.
The starting point was to consider whether, if the tenant had handed back the premises in accordance with its repairing obligations under the lease, the landlord would have been able to relet or sell the building without significant discount. If that was the case then damages would be the lower of either of the total cost of putting the property back into the state of repair required by the lease (to include the cost of the works and consequential fees, costs and losses) or the difference in value of the building in its current state and the state it should have been handed back in.
If, however, the landlord would not have been able to relet or sell the building without significant discount, even if the tenant had carried out the works necessary under the lease, then it was necessary to look at what the landlord would have to do to be able to relet the premises at a fair market price; in other words, what ‘extra’ work must the landlord do to make the premises lettable in the current market? In looking at that ‘extra’ work, the court must have in mind 2 points. First, that the landlord cannot recover the cost of this ‘extra’ work from the tenant and secondly, that this ‘extra’ work may make some of the tenant’s repair works redundant – and so the landlord has suffered no loss if the tenant fails to carry out such ‘redundant’ repair works (an issue known as ‘supercession’).
The judge said:
'In the context of the facts of this case and in the light of the parties submissions, my conclusions on the law can be summarised as follows:
(1) The tenant is entitled to perform his covenants in the manner that is least onerous to him (see also Riverside Property Investments Ltd v Blackhawk Automotive (2004)). In general, therefore, such performance should be the starting point for any assessment of damages.
(2) The tenant is obliged to return the premises in good and tenantable condition and with the M&E systems in satisfactory working order: he is not required to deliver up the premises with new equipment or with equipment that has any particular remaining life expectancy. The standard to which the building is to be repaired or kept in repair is to be judged by reference to the condition of its fabric, equipment and fittings at the time of the demise, not the condition that would be expected of an equivalent building at the expiry of the lease.
(3) In a case such as the present, where there are covenants against making alterations to the premises, the tenant is not entitled, let alone obliged, to deliver up the premises in a condition that involves any material alteration to the building or the fixtures as demised: the fact that the landlord can consent to any such alteration does not affect the basic obligation.
(4) Accordingly, where the requirement to put and keep the premises and fixtures in good and tenantable condition involves the replacement of plant that is beyond economic repair, the tenant is required to replace it on a like for like or nearest equivalent basis: he is not required to upgrade it in order to bring it into line with current standards (unless required to do so by law or to comply with any necessary regulations). However, as with most obligations in commercial contracts, this obligation must be interpreted in a manner that accords with commercial common sense.
(5) Any claim by the landlord for the cost of repairs is subject to the general rule that: (a) he cannot recover for a loss which, by acting reasonably, he could have avoided, and (b) he cannot recover the cost of remedial work that is disproportionate to the benefit obtained (this is a repetition of the principle in the case of Ruxley Electronics v Forsyth).
(6) By contrast, where there is a need to carry out remedial work as a result of the tenant’s breach of his repairing covenants, the fact that the landlord has carried out more extensive work than was caused by the breach does not of itself prevent him from recovering the cost of such work as would have been necessary to remedy the breach.
(7) Where market conditions at the expiry of the lease require upgrading or refurbishment works to be carried out in order to enable the building to be let to the appropriate type of tenant, a tenant in breach of a repairing covenant is not liable for the costs of any work to remedy the breach to the extent that such work would be rendered abortive by the need to upgrade or refurbish the building (i.e. where there is supersession).
(8) Where the tenant is in breach of his covenant, in the absence of any evidence to the contrary the court is entitled to infer that remedial work is necessary to remedy the breach unless the tenant demonstrates the contrary.'
The court agreed with the landlord that, had the tenant yielded up in a good state of repair the landlord would have only had to carry out 'relatively modest additional works' to be able to 'relet to a tenant of the appropriate type'.
The decision was appealed but the Court of Appeal upheld the High Court decision on 17 December 2013.