Market rent — Arbitrator — Valuation — Review date — Asbestos in building — Evidence that asbestos could have been removed prior to review date — Arbitrator refusing to reduce rent to take account of presence of asbestos — High Court holding arbitrator failed to apply correct test — Whether works done under repairing covenant — Matter remitted to arbitrator to be reconsidered
The tenant, the Secretary of State for the Environment, held a lease on Euston Tower, Euston Centre, Euston Road, London NW1, for a term of 49 years from March 25 1970. The lease provided for a seven-year rent-review period at an initial rent of £1,729,200 pa and from March 25 1984 at a rent of £3,710,000 pa, payable in quarterly arrears. The reversion immediately expectant upon the determination of the term was vested in ECI Ltd. The parties failed to agree the full yearly market rent as at March 25 1991 (“the review date”), under the terms of the lease and an arbitrator was appointed.
Expert valuers had the task of quantifying the effect on rental value of the cost of removing asbestos from the premises. The tenant had been aware of asbestos in the building since 1984. The experts agreed that if it had been decided to remove part of the asbestos in 1984 they would have recommended removal of all other asbestos at the same time. On the evidence, the arbitrator concluded that all asbestos should have been removed prior to the review date, so that no change in his valuation was warranted to take account of asbestos removal thereafter. The tenant appealed.
Held The award was remitted to the arbitrator for reconsideration.
1. In determining the the fair yearly market rent for purposes of successive reviews provided for in the lease, there should be disregarded any diminishing effect on such rent of the tenant’s failure to repair the demised premises in breach of its obligations: see Harmsworth Pension Funds Trustees Ltd v Charringtons Industrial Holdings Ltd [1985] 1 EGLR 97.
2. Where the tenant’s obligation under the lease was merely to keep the structure and exterior of the house in good and substantial repair, the covenant would only come into operation where there was damage which required to be made good. If the damage was caused by an inherent unsuspected defect it might be necessary to cure the defect and thus, to some extent, to improve without wholly renewing the property as the only practicable way of making good the damage to the subject-matter of the repairing covenant: see Ravenseft Properties Ltd v Davstone (Holdings) Ltd [1980] QB 12; Quick v Taff-Ely Borough Council [1985] 2 EGLR 50.
3. The tenant would not be under any obligation to do any work pursuant to the covenant to repair unless the demised premises were at present out of repair. However, a state of disrepair connoted a deterioration from some previous physical condition. There was no reason why that should not apply where there was an inherent defect: see Post Office v Aquarius Properties Ltd [1987] 1 EGLR 40.
4. It was not sufficient that it would have been convenient to do them along with other works of repair before the review date. The test was whether the works were necessary as the only practicable way of making good the subject-matter of the repairing covenant.
5. The arbitrator had not applied the correct test and the award would be remitted for reconsideration.
Jonathan Gaunt QC (instructed by the Treasury Solicitor) appeared for the Secretary of State for the Environment; Michael Barnes QC and John Male (instructed by SJ Berwin & Co) appeared for Euston Centre Investments Ltd.
