Allyson Colby looks at a case involving a breach of an obligation to construct a car park at Heathrow Airport
Key points
- The High Court has made an order for specific performance of construction obligations
- The decision is remarkable because the developer will have to take steps to comply before the deadline for completion of the building work arrives
Airport parking is big business and never more so than in Airport Industrial GP Ltd v Heathrow Airport Ltd and AP16 Ltd [2015] EWHC 3753 (Ch), which concerned rights and obligations arising under leases of adjoining properties at Heathrow Airport.
One of the properties had been let to a tenant for 25 years. It was situated beside bare land that was needed for use during construction of a train link between London Paddington and Heathrow. When the land ceased to be needed for that purpose, the site was to be used to provide parking for the tenant. So the tenant’s lease included a covenant that the freeholder would construct a car park when the “Heathrow Express land” became available and, meanwhile, would provide the tenant with parking spaces on an alternative site in the vicinity. All such parking was to be provided free of charge.
The freeholder then granted 999-year leases of both properties to third parties. The lease to the claimant was made subject to the occupational lease. It took effect as a lease of the reversion and included a covenant that the freeholder would construct a car park on the site next door. However, the lease of the land that was to form the site of the new car park placed the responsibility for its construction on the incoming tenant. Meanwhile, the freeholder continued to provide alternative parking for the occupational tenant.
The parties had not set any date for completion of the work and several years passed. Eventually, the claimant began pressing the freeholder to comply with its building obligations. The subsequent legal proceedings involved both the freeholder, Heathrow Airport Ltd, and the tenant of the car park land, AP16 Ltd, because its lease made it responsible for the construction of the car park.
Right to enforce
The court considered that the freeholder should have begun construction within a reasonable time of being requested to do so. It had not done this and was, as a result, in breach of its obligations. This enabled the freeholder to argue that it was not liable to the claimant because the breach had occurred before the claimant took an assignment of the reversion to the occupational lease.
The freeholder reminded the court of the decision in First Penthouse Ltd v Channel Hotels and Properties (UK) Ltd [2004] L&TR 27, that a breach of an obligation to carry out building works is a once and for all breach, and relied on section 23(1) of the Landlord and Tenant (Covenants) Act 1995. This provides that an assignee does not have any rights under a landlord covenant in relation to any time before an assignment.
The judge rejected the argument. He explained that the section prevented the claimant from suing for damages in relation to any period before the assignment, but did not preclude an order for specific performance to remedy the continuing non-performance of the obligations in the lease.
Specific performance
The judge decided that the parties had intended that the car park should be available before the occupational lease expired on 22 October 2016. Was it possible for the court to grant an order for specific performance requiring action before that date, so that the car park could be available as soon as possible after that? A claimant can seek an order for specific performance before a completion date, but none of the authorities addresses this particular point. Nonetheless, on the basis of the discussion in Hasham v Zenab [1960] AC 316, the judge decided that this was possible.
Rainbow Estates Ltd v Tokenhold Ltd [1999] Ch 64 confirms that the court can order specific performance of a contract to build, if appropriate. The court must consider:
- whether the person with the benefit of the contract can exercise rights of entry to undertake the work itself; and
- if the building obligation is contained in a lease, whether the landlord can forfeit the lease and do the work.
Importantly, the court must also ask whether damages would suffice instead. The freeholder in this case had not reserved any rights of entry onto the car park land and the forfeiture provision had been too narrowly drafted to apply. Furthermore, damages would not provide an adequate remedy if the car park was not built.
Conditions
An order for specific performance should sufficiently define what must be done. This posed another problem. AP16 Ltd, a single-purpose vehicle, had paid a premium to acquire its 999-year lease and wanted to construct a multi-storey car park that would enable it to fulfil its obligations, as well as generating income for itself. However, it was unlikely to be able to obtain planning permission and complete the project before the deadline.
A surface-level car park, with a ramp and deck, would provide the requisite number of spaces for the claimant and could be built more quickly. However, this would not leave room for any other scheme, which could render AP16 Ltd insolvent. Furthermore, damages would provide an adequate remedy if provision of the car park were to be delayed. Consequently, the judge decided to grant an order for specific performance by 22 October 2018, giving AP16 Ltd an opportunity to carry out a more profitable development.
Terms and conditions applied. AP16 Ltd would be required to deposit funds to cover any losses flowing from the delay and to achieve agreed planning and construction milestones on time. If it failed to do so, it would have to construct a surface-level car park, with a ramp and deck, instead.
Allyson Colby is a property law consultant
