Landlord and tenant – Termination of lease – Breach of covenant – Claimant seeking compensation for termination of tenancy – Defendant counterclaiming for breach of covenant in lease and breach of licence granted to third party – Whether claimant and third party liable – Counterclaim allowed
The claimant was the lessee of land on Langdon Road, Swansea Dock. The reversion of the lease was held by the defendant Welsh ministers. In 2013 the defendant served on the claimant a notice under section 25 of the Landlord and Tenant Act 1954 to terminate the lease. The defendant opposed the grant of a new tenancy and, after an agreed extension of time, the lease ended and the claimant vacated the site in 2015.
In 2019, the claimant commenced proceedings in the county court claiming £42,500 as compensation for the termination of the tenancy, pursuant to section 37 of the 1954 Act. The defendant did not dispute the claimant’s entitlement to statutory compensation.
However, the defendant contended that the claimant’s covenants under the lease obliged it to remove the buildings erected on the site and to reinstate them at the end of the lease. The claimant failed to comply with that obligation, because it left on the site remains of the buildings, which contained asbestos-containing materials (ACMs), The defendant then granted two successive licences to the third party to go onto the site and remove the remains of the buildings and the ACMs. However, some of the ACMs were not removed and were spread widely over the site, which became contaminated with asbestos (GTA) and required expensive remediation works.
The defendant claimed against the third party an indemnity for the cost of the remediation works pursuant to a provision of the licences; in the alternative, it claimed damages against the claimant for breach of its lessee’s covenants and against the third party for breach of its obligations under the licences.
Held: The counterclaim was allowed.
(1) The obligation to remove the buildings on the site included an obligation to remove the asbestos which comprised components of the buildings that had been removed from the structures and buried adjacent to them. Lack of knowledge on the part of the current tenant of the existence of the discarded parts (here, the buried asbestos) could not excuse a failure to comply with the obligation because the current tenant had stepped into the shoes of its predecessors. In any event, the obligation to deliver up the site in good and substantial repair and condition to the satisfaction of the defendant obliged the claimant to remove the asbestos even if it was on the site before the grant of the lease.
(2) Not every occasion of physical damage or deterioration gave rise to a liability under the general covenant. It was necessary to ask whether the consequence of such damage or deterioration was that the premises were not in the state and condition that the covenant contemplated they should be in. That involved first identifying the standard imposed by the covenant, and then comparing it with the actual state of the premises. Once it had been ascertained that the state and condition of the premises fell below the required standard, the next stage was to identify the work needed to put the premises back into the required state. The nature of that work might go outside what the covenant obliged the covenantor to carry out. There was no requirement to repair until the subject matter of the covenant had deteriorated and purely preventative works were not within the scope of the concept. On the other hand, some prophylactic measures might be undertaken as part of the works to remedy deterioration which had already occurred in order to prevent future deterioration of a similar kind: Quick v Taff-Ely Borough Council [1986] QB 809, Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055, McDougall v Easington District Council [1989] 1 EGLR 93, Mason v TotalFinaElf UK Ltd [2003] EWCA Civ 1604 (Ch), [2003] 3 EGLR 91 and Blue Manchester Ltd v North West Ground Rents Ltd [2019] EWHC 142 (TCC), [2019] PLSCS 30 considered.
(3) The covenant in the present lease went beyond repair: it was to deliver up the demised premises in good and substantial repair and condition to the satisfaction of the lessor, The use of the word “condition” showed that the obligation could extend to works that went beyond repair strictly so-called. The mere fact that the demised premises could not be said to be in a state of disrepair would not mean that they were in a good condition. However, the factors against which the differing standards of “good repair” and “good condition” were to be judged were likely to be much the same. The defendant would be entitled to form its own judgment as to what was required to satisfy the appropriate standard, provided its judgment was within the range of views that could reasonably be held. Upon termination of the lease, the presence of the asbestos meant that the site was in a damaged or deteriorated condition; and its removal was reasonably required to satisfy the covenant in clause 2(10) of the lease.
(4) Therefore, the claimant was in breach of both the obligation to remove the buildings and to leave the site in good and substantial repair and condition, by failing to remove the concrete slabs, including the shuttering asbestos and the ACM adhesive, and to remove the GTA. The third party was in breach of its licence by failing to remove the concrete slabs, including the shuttering asbestos and the ACM adhesive and to remove the GTA. The third party’s failure to inform the defendant of the GTA was in breach of an implied obligation in the licence. By failing to inform the contractors of the GTA, the third party was in breach of its obligation to use its best endeavours to prevent the contractors from disturbing the GTA and distributing it over the site; it thereby stood in the same case as if it had itself disturbed and distributed the GTA.
(5) The amount actually expended by the defendant on remedial works had not been challenged and was established on the evidence. The third party was liable to the defendant for the full costs of remediation of the site. The claimant was liable for damages for breach of covenant, the amount to be determined, if not agreed.
James Hanham (instructed by Bryan Cave Leighton Paisner LLP) appeared for the claimant and the third party; Emyr Jones (instructed by Hugh James) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Pullman Foods Ltd v Welsh Ministers
