Company – Liquidation – Proof of debt – Claimant leasing premises to company – Company going into voluntary winding up – Defendant liquidators rejecting claimant’s proofs of debt – Whether company’s liabilities under repairing and reinstatement covenants provable – Whether surrender of leases releasing company from liabilities under covenants – Preliminary ruling in favour of defendants
The claimant was the freehold owner of a commercial property, the fifth floor of which was let to T Ltd (the tenant) under four leases, each for a term of years expiring on 30 March 2014. Each lease contained a covenant on the part of the tenant to keep the demised premises in good and substantial repair and condition (the repairing liability). In December 2005, the claimant granted to the tenant two licences to make alterations to the demised premises on terms that, before the end of the lease, the tenant was to dismantle and remove the works and reinstate the premises to their original condition (the reinstatement liability).
In October 2009, the tenant went into creditors voluntary winding up and the defendants were appointed joint liquidators. The tenant, by its liquidators, then surrendered each of the leases under which it held the demised premises on terms releasing the parties from their respective rights and obligations, arising on or after, but not before, the date of the surrender.
Thereafter, the claimant submitted various proofs of debt to the liquidators which were rejected. The claimant applied for an order varying that decision. A dispute arose whether the repairing and reinstatement liabilities had been released under the terms of the surrender. As regards the repairing covenant, it was common ground that the obligation to yield up the demised premises in good repair had been released by the surrender. As regards the obligation to keep in good repair, the claimant calculated its loss by taking into account that the new tenant had been given a rent-free period due to the premises’ poor state of repair.
The registrar directed a trial of the preliminary issue whether the reinstatement and repairing covenants had been surrendered. The defendants contended that there had been no breach of the obligation to reinstate at the time of the surrender because the terms of the leases did not expire until March 2014. In the case of the covenant to keep in good repair, the measure of the claimant’s loss was limited by section 18(1) of the Landlord and Tenant Act 1927 so that the calculation of the damages necessarily involved the assumption that the lease to which the reversion was subject was continuing.
Held: The preliminary ruling was made in favour of the defendants.
(1) The claimant was not entitled to prove for damage sustained in consequence of the failure of the tenant to reinstate the premises as required by the licences. The licences gave to the tenant the full period of the term created by the leases within which to carry out the requisite reinstatement. Accordingly, as at the date of surrender, there had been no breach of the obligation to reinstate. If the works had not been carried out before 30 March 2014, the tenant would have been in breach but that would have been after, not before, the date of surrender. Thus the inescapable consequence was that that potential liability had been released by the surrender and there could be no provable liability in relation to reinstatement: Matthey v Curling [1922] 2 AC 180 considered.
(2) Section 18(1) of the 1927 Act imposed a limit on what might be recovered to “the amount (if any) by which the value of the reversion is diminished owing to the breach of” the covenant to keep the demised property in repair. The ascertainment of that amount necessarily required the valuation of the reversion to the property in its actual state and in its repaired state. A valuation of the reversion necessarily assumed that a purchaser would take it subject to the lease with the benefit and burden of all the covenants and other stipulations it contained for the remainder of the term. Given those statutory requirements there was no room for the application of the principle, established in Bwllfa and Merthyr Dare Steam Collieries (1891) Ltd v Pontypridd Waterworks Co [1903] AC 426, that the court was entitled to have regard to the facts that occurred after the relevant date rather than speculate with respect to the repairing liability.
In the present case, in calculating the amount of the repairing liability, the claimant had not followed the processes required by section 18(1) and the defendants had been right to reject the proof of debt so calculated. Furthermore, the date as at which the valuations were to be made, whether the date of breach or the date of judgment could not alter the requirements imposed by section 18(1). Consequently the alleged debt would not be provable: Gagner Property Ltd v Canturi Corporation Pty Ltd [2009] NSWCA 413; (2009) 262 ALR 691 considered.
Daniel Margolin (instructed by Eversheds LLP) appeared for the claimant; Mark Sefton (instructed by Nabarro LLP) appeared for the defendants.
Eileen O’Grady, barrister
