Arbitration — Repairing covenant — Repairs to be taken into account for valuing premises for rent review — Arbitrator holding that tenant obliged to carry out repairs to maintain structural life of premises — Tenant appealed that obligation limited to works needed to maintain shorter commercial life — High Court dismissing appeal — Judgment for landlords
Under a lease dated September 24, 1970 the tenant’s predecessor took a repairing lease of Chester Resort Hotel, Backford Cross, Cheshire, for a term of 99 years from the freehold owners (“the landlords”). The lease contained a rent review clause and a dispute arose to what rent would be payable under the lease for the period of 21 years from June 24, 1991. There was a preliminary issue as to which repairs, if any, were the liability of the tenant under the lease. The premises were to be valued on the assumption that only those items which were the liability of the tenant should be treated as having been carried out.
The expert’s report stated that the estimated life of the original structure, if properly constructed, would have been at least 60 years, but that repairs costing £500,000 would be required to bring the premises up to that standard. Alternatively, it stated that on an estimated remaining commercial life expectancy of 15 years, repairs totalling just over £60,000 would be required. The arbitrator took the view that the commercial life point was irrelevant. It was not open to the tenant to limit itself to the lesser repairs. The repairing covenant obliged the tenant to carry out the more extensive works recommended. The tenant appealed against the arbitrator’s interim award.
Held The appeal was dismissed.
1. The subject of repairs was material to the rent review only as a preliminary issue, ie as determining the condition of the notionally-repaired premises which the tenant was to take for the next 21 years after the valuation date. The fact that commercial premises had been designed and built for a specialised use, which had become totally obsolete would be a strong reason for the court to decide, under the Leasehold Property (Repairs) Act 1938, that a tenant ought not to be held liable for substantial repairs to premises which would inevitably have to be substantially reconstructed, if not completely demolished, before long. However, the 1938 Act was not to be taken into account in determining the notional state of repair for the purposes of the rent review. Accordingly, the arbitrator was correct to treat that point as irrelevant for his purposes.
2. Moreover, if a tenant disregarded his repairing obligations and, as a result, the premises became rundown and commercially unattractive, the tenant could not rely on that fact as lowering the standard of repair required under the tenant’s repairing covenant.
3. The standard of repair required by a repairing covenant was to be determined by the parties’ expectations when the lease was granted; to rely on diminished expectation of commercial life occurring in the course of the term ran counter to that general proposition: see Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716.
4. The arbitrator had not erred in declining to take account of the fact that the premises were badly built and therefore did not have a life expectancy of 60 years because that fact was unknown to the parties’ predecessors when the lease was granted in 1970. He had to decide the nature and scale of repairs to be notionally carried out by the valuation date.
David Neuberger QC (instructed by Titmuss Sainer Dechert) appeared for the tenant; Kirk Reynolds QC (instructed by Watson Burton) appeared for the landlords.
