Landlord to construct buildings under lease agreement — Construction to be in good workmanlike manner with quality materials — Alleged defects in construction — Under lease landlord agreed to ensure defects remedied — Whether lessee could complain of breaches of quality obligation after practical completion — High Court holding that lessee was entitled to bring claim in damages
The plaintiffs occupied factory premises at 2 Cook Way, Peterlee, Durham, under a lease dated June 10 1987 granted to them by the statutory predecessors of the defendants, Aycliffe and Peterlee Development Corporation. The lease was granted pursuant to an agreement dated June 9 1987, which contained a covenant that it should be read as if it had been validly executed by the parties on December 5 1979. The plaintiffs alleged that work on the construction of the premises was defective in particular in regard to the construction of the roof and roof lights of the factory. Therefore they claimed that the defendants, as successor to the corporation, were liable for damages in respect of the defects. The basis of the claim was that the defects arose because the corporation were in breach of their obligations, express and implied under the lease agreement.
The defendants denied that the plaintiffs had any right to sue in respect of the alleged defects either because the corporation on a true construction of the agreement were not in breach of any relevant obligation or because such obligation no longer subsisted following the grant of the lease itself.
Under the lease agreement the corporation were to construct certain buildings and the lessee had agreed upon such buildings being practically completed to enter into the lease. Clause 1 of the agreement obliged the corporation by their contractors to construct the buildings in accordance with certain identified drawings and specifications, which contained little detail of the proposed manner of construction or materials. Clause 2 of the agreement obliged the plaintiffs to enter into the lease in consideration of the corporation performing their obligations under clause 1 on the practical completion of the premises. Clause 3 provided that the corporation should by their contractors proceed diligently with the construction of the premises in a good workmanlike manner and with good quality materials so as to achieve practical completion thereof as soon as reasonably practicable. Clause 15 entitled the lessee to notify the corporation of defects on or after the date of practical completion and obliged the corporation to make good any defect so notified.
It was accepted that clause 3 imposed a duty to proceed diligently such that if the corporation were responsible for delay the lessees would be entitled to claim damages; and since the delay was unlikely to be fully ascertainable until after practical completion, and since the lessees’ obligation to enter into the lease arose on practicable completion, there was no argument but that such claim would survive the execution of the lease. The issue between the parties was whether the obligation to proceed with the construction in a good and workmanlike manner and with good quality material (“the quality obligation”) was such that the lessees could likewise complain of breaches of that obligation after practical completion.
Held The plaintiffs were entitled to bring a claim against the defendants.
1. Though clause 15 provided a machinery for the lessee to require the remedying of defects notified to the corporation, and matching obligation to provide access, it did not deprive the plaintiff of other, even over-lapping rights, to be derived from clause 3 if, as a proper construction of that clause, such rights existed.
2. The quality obligation was an express obligation on the corporation to procure that the work was carried out by the contractor in a good and workmanlike manner and with good quality materials. In so far as work remained to be done or defects to be remedied after practical completion because of a breach of that obligation, that was something remaining to be done under the agreement and not provided for in the lease. Therefore the plaintiffs were at liberty to sue for damages for breach of such obligation, notwithstanding the execution of the lease.
3. By a deed of transfer dated December 31 1987 the corporation transferred the freehold reversion of the premises to a third party. By clause 3(ii) of that deed the transferee was at all times thereafter to keep the transferors and their estate and effects indemnified against all rights and claims whatsoever of lessees and occupiers of the property. There was nothing elsewhere in that deed to displace the plain meaning of the words in that subclause. Accordingly, the defendants could claim an indemnity against the third party in respect of the claims brought by the plaintiffs.
David Blunt QC (instructed by Ingledew Botterell) appeared for the plaintiffs; Mark Raeside (instructed by D J Freeman) appeared for the defendants; Philip Boulding (instructed by Dickinson Dees, of Newcastle) for the third party, Aycliffe & Peterlee Investments Co Ltd.
