Water penetration into basement partly caused by damaged rendering applied to inside of external wall – Whether tenant liable under covenant to keep exterior of building in structural repair
By two leases made in 1932 (the 1932 leases) a six-floor building comprising nos 109-113 Mount Street, London W1, was demised for a term of 999 years. The ground floor and basement were occupied by shops. Included in the demise were a number of vaults designed for coal storage, which lay below ground at the front of the building. Each lease contained a covenant by the lessee to “keep the demised building (both inside and outside) in a proper state of structural and decorative repair”. In 1971 B Ltd, a successor to the original lessees, carried out works designed to extend the existing basement area into the vaults and to create more space for commercial lettings. As a damp-proofing measure, referred to as “tanking”, a waterproof rendering was applied to the inside surfaces of the exterior walls of the enlarged area. However, it was subsequently discovered that two sections (the non-rendered sections) were not so treated; in one place the contractors had used polythene secured by battens and, in another, erected a stud and plasterboard false wall. The resulting ground floor and basement units were then let to commercial tenants.
In 1986 B Ltd concluded a sale and lease-back transaction with a bank, as a result of which the bank became the landlord of the commercial tenants and B Ltd became a sublessee of the remainder of the building for a term of 34 years. By the terms of the sublease, B Ltd was obliged to “keep the exterior of the Building in a proper state of structural and decorative repair in accordance with the terms of the Head Lease “. (Emphasis added.) The plaintiff landlord and the defendant tenant were respectively successors to the bank and B Ltd. In December 1994 the landlord took High Court proceedings, alleging that penetration of water into the basement had put the tenant in breach of the 1986 covenant. On taking a number of preliminary issues, the judge, relying partly on Granada Theatres Ltd v Freehold Investments (Leytonstone) Ltd [1959] Ch 592, ruled that the tenant was liable in so far as the damage was caused by its failure to repair the exterior structure of the building, including the tanking of the basement. The tenant appealed, contending that the internal rendering did not form part of the structure of the building. Fresh evidence was admitted before the Court of Appeal as to the attempted protection of the non-rendered sections – a matter not considered at first instance.
Held The appeal succeeded only in relation to the non-rendered sections.
1. Because of the concluding words of the 1986 covenant, effect had to be given to the wording of the corresponding covenant in the 1932 leases, in particular the reference to both the inside and the outside of the structure. Accordingly, the judge had been right to hold that the tanking fell within the repairing covenant. On the other hand, the temporary expedients adopted in dealing with the non-rendered sections did not become part of the wall or structure.
2. Since the provisions of more than one lease had to be construed, decisions on similar wording were of little assistance: cf Pearlman v Keepers and Governors of Harrow School [1978] 2 EGLR 61 .
3. Per Thorpe LJ (dissenting): The specialist tanking did nothing to contribute to the fundamental function of the “exterior” brickwork, which was to withstand the pressure of the surrounding subsoil. Its only function was to change the use to which the interior space was put. On a common-sense view of the sale and lease-back transaction, that matter was intended to be the concern of the occupying commercial tenants.
James Munby QC and Mark Blackett-Ord (instructed by Philip Ross & Co) appeared for the appellant defendant; Edward Cole (instructed by Needham & Grant) appeared for the respondent plaintiff.
Alan Cooklin, barrister
