South Essex Partnership University NHS Foundation Trust v Laindon Holdings Ltd [2016] EWCA Civ 377 concerned a claim for terminal dilapidations in a lease of business premises. The agreement for lease between the parties required the tenant to carry out a substantial programme of tenant’s fitting out works, consisting mainly of the installation of a lift and internal partitioning. The work was to be done by contractors engaged by the landlord, but at the cost of the tenant, and included the lifting, cleaning and re-installation of an existing system of tiled carpeting throughout the building.
Shortly before the end of the term, the tenant wrote to the landlord to say that it planned to replace the tiled carpeting with strips of broadloom carpet of the same colour and specification. The landlord did not object but, when the lease ended, complained that the tenant was in breach of a covenant in the lease requiring the tenant “to repair or replace from time to time the landord’s fixtures and fittings in the premises as …necessary at any time during or at the expiration of the term”.
To whom did the tiled carpets belong? Were they chattels or fixtures? Did the distinction matter? And, if they belonged to the landlord, did their replacement with strip carpeting constitute a permitted alteration in accordance with a clause in the lease permitting the tenant to make internal non-structural alterations to the building without the landlord’s consent?
The Court of Appeal agreed with the trial judge that the tiled carpets were landlord’s fixtures or fittings. The fact that the tenant had paid for the fitting-out works did not dictate to whom the carpets belonged. They had belonged to the landlord before the lease was granted and were landlord’s fixtures or fittings. Furthermore, if they had been glued to the floor, they were to be regarded as fixtures. However, the question of whether they were fixtures or chattels was irrelevant because the tenant had had an unqualified right to make internal non-structural alterations without the landlord’s consent.
The right applied to the building – but extended to the tiled carpets, whether they were chattels or fixtures. Indeed, Lord Justice Briggs considered that it would be a commercial nonsense to construe the alterations provision as permitting the tenant to alter/replace landlord’s fixtures, but not chattels provided for the tenant’s use.
The only sensible interpretation of the alterations provisions in the context of this lease was that they gave the tenant the right to make alterations to any of the landlord’s property within, or forming part of, the building – but not to the structure or exterior. Therefore, the replacement of the tiled carpeting with a strip carpet system was a permitted alteration for the purposes of the tenant’s lease.
Landlords take note. It would not be wise to assume that covenants permitting tenants to make internal non-structural alterations to a building apply only to the fabric – and nothing else. If a lease says nothing to the contrary, provisions like this will extend to the landlord’s fixtures and fittings as well.
Allyson Colby is a property law consultant
