Landlord and tenant – Repairing covenant – Appellant landlord granting licence to sublet – Sublease subject to same repairing covenants as headlease – Sublessee to keep property wind- and watertight – Third party undertaking in writing to meet any extra expense – Appellant seeking damages for breach of repairing covenant – Whether side letter resulting in diminution in value of reversion – Appeal dismissed
The appellant owned the freehold reversion of two units on an industrial estate. The respondent held a tenancy of the units, subject to Part II of the Landlord and Tenant Act 1954, which expired in January 2002. The lease contained a covenant to deliver up and repair the property and to pay for any dilapidations. The respondent was not permitted to sublet the premises without the appellant’s consent, which was not to be unreasonably withheld.
The appellant granted a licence to the respondent to sublet the units to a third party (P), which covenanted to observe and perform the covenants in the headlease. Prior to the licence being granted, the respondent’s parent company (BVC) gave an undertaking to P, by a side letter, that its obligations to repair would be limited to making the property wind- and watertight. The letter stated that, even if the sublease or the licence to sublet contained any conflicting or contrary obligations, any repairs surplus to the obligation to keep the property wind- and watertight would be carried out at the expense of BVC.
After the expiry of the headlease, the appellant started legal proceedings against the respondent for breach of repairing covenants. P remained in possession of the property under the terms of the sublease in accordance with Part II of the 1954 Act.
Under section 18 of the Landlord and Tenant Act 1927, the appellant was not entitled to damages in excess of any diminution in the value of the reversion caused by the breach of covenant. The appellant accepted that, unless the side letter altered the position, any damage to the reversion was nil or nominal since, as at the date the leases expired in January 2002, a subtenant (P) was in occupation, holding under a sublease, to which Part II of the 1954 Act applied, containing the same or similar repairing covenants, which the appellant could enforce directly by virtue of section 65(2) of the 1954 Act.
The county court held as a preliminary issue that the disputed letter did not affect the value of the reversion. Accepting the evidence of the respondent’s expert, the judge concluded that the appellant was not entitled to damages for dilapidations. The appellant appealed.
Held: The appeal was dismissed.
The question of whether the side letter could affect the value of the reversion depended upon the expert evidence. The judge had been entitled to accept the evidence of the respondent’s expert (L) over that of the appellant’s expert (C) and to conclude that the letter had not adversely affected the value of the reversion in January 2002.
The arrangement between BVC and P, as set out in the letter, could not affect the appellant’s ability to enforce the repairing covenant, and P’s obligation to repair, under the sublease. The letter was either a benefit to the appellant, since it could be seen as encouraging P to carry out works at the expense of a public limited company, or at worst, neutral: Family Management v Gray [1980] 1 EGLR 46; (1979) 253 EG 369 and Crown Estate Commissioners v Town Investments Ltd (National Westminster Bank plc, third party) [1992] 1 EGLR 61; [1992] 08 EG 111 considered.
Furthermore, the judge had been entitled to take limited account of L’s statement that, had he been advising the appellant before it granted the licence, he would have advised it to obtain a guarantee direct from BVC, or to contract out of Part II of the 1954 Act in granting the sublease to P. As the appellant’s legal adviser, L would merely have been advising the appellant, at a time when P was not bound by the sublease, to take commercial advantage of the fact that BVC was willing to pay for at least some of the repairs. That was not the position in January 2002, when the sublease had been executed and the covenants put in place.
The judge had asked the correct question and had answered it without any error of law and there was no proper basis upon which the appeal court could interfere with the judge’s findings of fact.
Robert Levy (instructed by Streeter Marshall) appeared for the appellant; Stuart Hornett (instructed by Addleshaw Goddard, of Manchester) appeared for the respondent.
Eileen O’Grady, barrister
