Appellant leaseholder purchasing freehold of building through subsidiary company — Appellant failing to meet repairing obligation as landlord — Other tenants withholding service charges — Appellant liquidating subsidiary company — One tenant taking freehold as unwilling landlord — Appellant suing unwilling landlord for failure to repair — Appellant’s inequitable behaviour — Appeal dismissed
The appellant company owned a number of leaseholds in a building that was in a state of disrepair, and set up a subsidiary company in order to purchase the freehold. The subsidiary company was accordingly obliged, as landlord, to repair and maintain the common areas of the property and to provide services. On the basis that the subsidiary company had failed to meet its obligations, the tenants withheld their service charges payments
The subsidiary company sought to recover payment from one of the tenants, who counterclaimed for damages based on the diminution of value of her leasehold and sought specific performance for the repair of the property. The court found in favour of the tenant, and the appellant subsequently put its subsidiary company into liquidation. Because the premises were left with no freeholder, the court ordered that the freehold be transferred to the tenant, who transferred the head lease to the respondent company.
In a mirror image of the previous proceedings, the appellant claimed breach of covenant against the respondent for its failure to repair, and withheld its share of the requisite service charges. The respondent commenced proceedings against the appellant for recovery of outstanding maintenance payments, and the appellant counterclaimed for the diminution of the value of its leaseholds.
The judge found for the respondent, and held that the appellant’s original failure to meet its obligations had caused material detriment to the respondent. The appellant appealed.
Held: The appeal was dismissed.
The appellant must have been able to foresee the results of its actions and it would therefore have been inequitable for its counterclaim to succeed.
The judge’s findings had been correct. The parent company was still liable to the respondent in respect of the tenant’s original action, and it would have been inappropriate to set off that debt in respect of the subsequent claim. The respondent had failed to make the necessary improvements to the property partly owing to the appellant’s own inequitable behaviour. Additionally, given that the respondent had been an unwilling landlord, it could not have been expected to have made financial provision for improvements to the property.
Romie Tager QC and Simon Sinnatt (instructed by Osler Donegan Taylor, of Brighton) appeared for the appellant; Jonathan Small (instructed by Pickworths, of St Albans) appeared for the respondent.
Vivienne Lane, barrister
