Landlords
who impose repairing obligations on their tenants may fondly believe that this
will ensure that the fabric of their property will be properly maintained, but
life is not like that.
While they
may expect that tenants may not fulfil their obligations, and that resort may
have to be had to legal action, they may not fully appreciate the obstacles
that can still be encountered. A landlord seeking to enforce repairing
obligations is faced with three major hurdles. First, as the law stands, he is
not entitled to seek specific performance against his tenant; thus he is left
to his remedies of forfeiture or damages. Second, where the lease is one which
was granted for a term of seven years or more of which at least three remain
outstanding, he cannot even use these remedies without serving a section 146
notice and obtaining the leave of the court. Finally, where the claim is one
for damages, there is a cap imposed on the measure of damages so that he cannot
recover more than the amount by which the value of his reversion is diminished.
These last two hurdles stem from legislation (the Leasehold Property (Repairs)
Act 1938 and the Landlord and Tenant Act 1927) enacted between the two world
wars and designed to prevent landlords from harassing their tenants with
inflated dilapidations claims in respect of leases which still had considerable
periods to run. While this objective may still be desirable in certain cases,
it is certainly not appropriate where a landlord is seeking to take effective
action against a tenant who is failing to repair a building which is well worth
maintaining.
Not
surprisingly, landlords have sought to avoid these restrictions. It has become
commonplace for commercial leases to contain provisions which, once the tenant
is in breach of his repairing obligations, entitle the landlord to serve a
notice requiring the tenant to comply. If he does not, the landlord can enter
the premises, carry out the repairs and recover the costs from the tenant. Such
a clause appears to overcome all the problems outlined above: the repairs are
actually carried out, there is no need to obtain the leave of the court and the
landlord can recover the full cost of the repairs. (The only price to be paid
is that such a provision exposes the landlord to potential liability to anyone
injured as a result of the disrepair under section 4 of the Defective Premises
Act 1972.) While such clauses appear to be watertight, there has always been a
risk that the courts would not accept them at their face value, but would see them
as mechanisms by which a damages claim was being ‘dressed up’ as a claim in
debt. Until recently, this reservation was well justified since there were
conflicting first-instance decisions on this very point. However, the matter
has recently been before the Court of Appeal, which has resolved the matter in
favour of the landlords.
In Jervis
v Harris [1996] 10 EG 159 the defendant tenant held property under a
999-year lease granted at the turn of the century. Following an inspection of
the premises the landlord served notice on him under a clause of the type
outlined above. When the tenant failed to remedy the disrepair the landlord
sought to enter to carry out the works himself, but the tenant refused to allow
him on to the premises. In the present proceedings the landlord was seeking an
injunction to compel the tenant to allow entry. This turned on whether the
clause in the lease was effective to bypass the statutory requirement to obtain
the prior leave of the court.
The Court of
Appeal was of the unanimous view that the landlord was entitled to succeed.
Millett LJ was quite satisfied that clauses of this kind provide a quite
genuine basis for a claim in debt and that the statutory restrictions applying
to actions for damages were not designed to prevent a landlord from recovering
the cost of repairs where these had actually been incurred. He did not think
that such clauses could be described as devices to avoid the statutory
restrictions, pointing to the fact that here the clause had been imposed in a
lease granted well before the relevant Acts had been passed.
In some
circumstances the effect of this decision will be eminently fair. It certainly
seems right that the landlord of a good-quality building can readily ensure
that it is properly maintained. However, the downside of the ruling should not
be overlooked. The court may have been slightly naive in accepting that such
clauses are not included as devices. Although the clause in this lease could
not have been included in order to avoid the statutory restrictions, it was
almost certainly designed to outflank a landlord’s inability to obtain an order
for specific performance against a tenant. In practice, such clauses in modern
leases are manifestly included in order to avoid the effect of the statutes and
to ensure that performance of the obligation to repair can be compelled. This
is unobjectionable where the repairs are going to be carried out and the fact
that it allows landlords to dictate the cost of repairs untrammelled by limits
on the amount of damages is a consequence which the tenant can avoid by
carrying out the obligations himself.
More
worrying is the case where the demised premises are not worth repairing; this
ruling will allow a landlord to threaten to enter to carry out repairs which
are not an economic proposition and which he does not in truth intend to carry
out. This is the very type of pressure which the statutes were designed to
prevent. The better way forward may have been to rule that these clauses are
covered by statute and to force landlords to test the waters on specific
performance. All the signs are that the rule that landlords cannot obtain such
an order is ripe for reconsideration (indeed, the Law Commission has just
recommended that the law should be changed in this way). It is arguable that
the availability of a discretionary remedy, which could be refused where the
actual carrying out of repairs is inappropriate, could provide a fairer balance
between the parties in cases such as these.
Arbitrators
will be relieved by a recent ruling in which it was held that a request for an
interim payment did not amount to misconduct. The facts of Turner v Stevenage
Borough Council (reported at p94 of this issue) may have a familiar ring.
Parties to a lease where the passing rent was only £3,500 pa were unable to
agree a new rent at review. The matter was referred to arbitration in February
1993 and the arbitrator’s initial expectation was that he could make his award
by the end of June. Unfortunately this was not to be.
Disagreements
over points of law meant that the arbitrator had to take legal advice and by
May 1994 a timetable for the hearing had still not been agreed.
It was at
this point that the arbitrator proposed in a letter to both parties that they
should each pay half the costs to date (some £3,250 each). This produced an
angry response from the tenant’s solicitor and a cheque from the landlord. When
the tenant was informed by the arbitrator that the landlord had paid up, his
solicitor promptly threatened to seek to have the arbitrator removed.
The case on
which the tenant was primarily relying was that of K/S Norjarl A/S v Hyundai
Heavy Industries Co Ltd [1992] QB 863. Here it had been suggested that,
while it may not be misconduct to seek a commitment fee from both parties after
the arbitration had commenced, it would be misconduct to negotiate such a fee
with one party without the agreement of the other. In concluding that the
arbitrator in the present case had not misconducted himself, Mr Grabiner QC
pointed out that he had merely, in open negotiations with both parties, sought
an interim payment at a contractual rate which had already been agreed.
Although the arbitrator had banked the cheque from the landlord, he had
returned the money once it became clear that the tenant was not going to agree
to pay. His actions did not amount to misconduct, nor had he laid himself open
to any imputation of bias. The case should be referred back to him.
