Appellant landlord entering into collateral agreement with tenant – Landlord transferring interest in the property – Landlord seeking release from obligations under tenancy and serving notice upon tenant – Whether landlord released from obligations – Whether obligations amounting to “landlord covenants” or “personal covenants” – Sections 3(1) and 28(1) of Landlord and Tenant (Covenants) Act 1995 – Appeal dismissed
The first defendant (Chesterfield) owned a commercial building in London W1. By an agreement made with BHP in April 1997, Chesterfield agreed to undertake refurbishment works and subsequently to grant a 20-year lease of the property to BHP. Under the agreement, Chesterfield was to be liable to BHP for any defects in the works. Clause 1.1.8 defined “Building Works Defect” as “any physical damage to the demised premises manifesting itself during the defects period or any defect in the demised premises which will result in physical damage to the demised premises manifesting itself during the defects period”. The lease was granted in July 1997. Chesterfield subsequently transferred its interest in the property, subject to the lease, to Chesterfield (Neathouse) Ltd. It then served a notice on BHP, pursuant to section 8 of the Landlord and Tenant (Covenants) Act 1995, in which it applied to be released from the “landlord’s obligations under the tenancy”, with effect from the date of the transfer of its reversionary interest. BHP did not serve a counternotice on Chesterfield objecting to the release of obligations.
In September 1999 fractures appeared in two vertical units cladding the exterior of the property. BHP brought an action claiming that Chesterfield was liable, under the terms of the agreement, to replace all the non-vertical units in the property, on the ground that the use of toughened glass in a non-vertical unit constituted a defect in the property that Chesterfield was obliged to make good. Chesterfield contended that its liability was limited to replacing the two fractured units. In the alternative, Chesterfield argued that it had been released from its liability by operation of the notice. Both Chesterfield and BHP applied for summary judgment under CPR Part 24. The judge concluded that Chesterfield’s liability under the agreement was limited to replacing the fractured units. The judge also found that Chesterfield’s obligations under the agreement took the form of “personal covenants” and not “landlord covenants” for the purpose of the 1995 Act, so that Chesterfield was not released from its obligations by the operation of the section 8 notice.
Chesterfield appealed against the judge’s conclusion as to the effect of the notice. It submitted that the 1997 agreement was a collateral agreement and that the obligations in question constituted “landlord covenants” within the terms of section 28(1) of the 1995 Act, so that, by virtue of section 3(1) of the Act, the burden of those obligations passed to Chesterfield (Neathouse) Ltd on the transfer of the reversion, notwithstanding that the obligations were expressed as personal obligations to Chesterfield.
BHP cross-appealed against the judge’s conclusion as to the extent of Chesterfield’s liability. It submitted that the second limb of the clause 1.18 definition had been fulfilled and that Chesterfield was obliged to remedy the defect by replacing all the non-vertical units of toughened glass.
Held: The appeal was dismissed. The cross-appeal was allowed.
1. The crux of the matter was the definition of “landlord” in section 28(1) as meaning “the person for the time being entitled to the reversion expectant on the term of the tenancy”. It was impossible to read that as meaning only the original landlord. It followed that if that definition was transposed into the definition of “landlord covenant”, what one had was an obligation “falling to be complied with by [the person who may from time to time be entitled to the reversion on the tenancy]”. Therefore, an obligation that was personal to the original landlord was, by definition, not a “landlord covenant”, since it did not fall to be performed by the person who might from time to time be entitled to the reversion on the tenancy. Chesterfield’s obligations under the agreement, being expressed to be personal to Chesterfield, were not “landlord covenants” within the meaning of the 1995 Act, and the section 8 notice was accordingly ineffective to release it from its obligations. The judge had been correct to find as he did on that issue.
2. The first limb of the definition of “Building Works Defect” was directed at physical damage that had actually occurred, whereas the second limb was directed at the existence of an underlying defect that had either caused or would cause physical damage. Under that second limb, Chesterfield’s liability extended to remedying the underlying defect not merely by repairing any damage that had already occurred, but also by ensuring that the defect was remedied so that it would not result in any physical damage in the future.
Kim Lewison QC and Andrew PD Walker (instructed by Dechert) appeared for the appellant; Michael Barnes QC and Jonathan Seitler (instructed by Herbert Smith) appeared for the respondent.
Sarah Addenbrooke, barrister
