Colliers CRE subsidiary loses Court of Appeal dispute

Deanwater Estates, a co–investment subsidiary of Colliers CRE, has lost a dilapidations dispute in the Court of Appeal in respect of its former Watling Street offices in London EC4. The freeholder, Business Environment Bow Lane (BE), appealed a High Court finding that Deanwater had a defence to BE’s £416k damages claim – for a failure to deliver up in repair – on the basis of an agreement made with the building’s previous owner, Lionbrook Property Partnership. In 1980, the 10,936 sq ft offices at 73 Watling Street, were leased to Deanwater, formerly known as Gooch Webster, for 25 years. However, in 2001, Lionbrook decided to recover possession of the ground and basement floors to enhance its adjacent retail development. Lionbrook agreed that if Deanwater were to surrender that part of the premises, it would be granted a new five-year lease over the remainder and would not face a final schedule of dilapidations at the end of that term. In December 2004, Deanwater exercised a break clause and the lease ended. In February 2005, however, the property was sold to BE, which served a final schedule of dilapidations on Deanwater. Refusing BE’s damages claim in December 2006, Briggs J said that he had found “on the narrowest of balances” that the claim must be dismissed on the basis of the prior collateral agreement with Lionbrook over dilapidations. On appeal, BE’s counsel, Mark Warwick, argued that the judge’s decision was “truly extraordinary” because it meant that the prior agreement had “expressly exculpated the tenant in advance from any and all repairing liability at the end of the lease, however arising”. Allowing the appeal, the chancellor of the High Court, Sir Andrew Morritt CVO, found that there had been no collateral contract and said: “I agree with Briggs J that this case is on the borderline, but I do not agree with him as to which side it comes down on. In my view, [Deanwater] has no defence to the claim based on collateral contract.” Business Environment Bow Lane Ltd v Deanwater Estates Ltd Court of Appeal (Sir Andrew Morritt CVO, Chancellor, and May and Lloyd LJJ) 27 June 2007. Mark Warwick (instructed by Howard Kennedy) appeared for the appellant; Jonathan Ferris (instructed by Michael Conn Goldsobel) appeared for the respondent.