Dilapidations can be a contentious issue at lease end, with landlords and tenants vigorously disagreeing over the extent of repairs. Court action is now less frequent, but Julian Bisson has found some interesting exceptions
Litigation is the ultimate threat in any claim for dilapidations, but few disputes now go to court. There are many reasons for this: the expense the introduction of alternative dispute resolution options and, hopefully, claims being brought in line with the current protocol and the RICS guidance note.
That said, some interesting cases have been heard over the past year or so, a number of which have gone to the Court of Appeal all dilapidations practitioners should consider the issues and decisions. This article discusses some of the more notable cases.
Repair and responsibility
Pattrick v Marley Estate Management Ltd [2007] EWCA Civ 1176; [2007] PLSCS 229 concerned a Grade II* listed mansion that had been converted from a former convent into 17 luxury dwellings.
The landlord (a management company to which all the tenants contributed) was responsible for the main structure of the building and the external redecoration. The tenants were liable for the premises other than the main structure. The Court of Appeal was asked to consider whether one of the tenants was responsible for repairing the cloisters and for redecorating the exterior of the windows of the main building.
The trial judge found that the tenant was liable. The Court of Appeal disagreed, holding that the cloister was a building and the landlord was responsible for its repair. It also found that the landlord was liable to redecorate the exterior of the windows, but the tenant was responsible for their repair.
Understanding the subject matter of a covenant is fundamental to any dilapidations dispute. The lease is the contractual reference point, and one assumes that ascertaining each party’s responsibility in respect of a building would be straightforward. However, a poorly drafted lease can lead to uncertainty or, in some cases, disputes as to whether the subject matter of the covenant is in disrepair.
This was the situation in Janet Reger International Ltd v Tiree Ltd [2006] EWHC 1743 (Ch); [2006] 3 EGLR 131. The principal issue was liability for rectifying a damp basement. The tenant had occupied the property for a number of years and had agreed a new lease of the ground floor and basement following significant redevelopment of the premises.
The basement became damp and the tenant withheld rent. It argued that the area could no longer be used for storage and found alternative accommodation. It claimed that the landlord was liable to rectify the dampness under its covenant to “maintain, repair and renew the structure”. The tenant also contended that the landlord was under an implied obligation to ensure that the property was fit for purpose.
The court disagreed on both counts. It found that the dampness had been caused by bad design or workmanship during the redevelopment, although the structure had not deteriorated. Demonstrating deterioration is a fundamental prerequisite to substantiating a breach of the repairing obligation, but it is often misunderstood or misapplied. Here, the landlord was not in breach of covenant, and the court stressed that there was no implied warranty of fitness for purpose.
This theme was also central to the dispute in Alker v Collingwood Housing Association [2007] EWCA Civ 343; [2007] 25 EG 184.
The tenant was injured when her hand went through the glass panel of her door. She brought a case against the housing association, arguing that the door was not fit for purpose. The Court of Appeal agreed with the trial judge. It found that although the glazing was not appropriate (it was not safety glazing), it was not in disrepair and the landlord was not in breach of covenant.
Again, there was no implied warranty of fitness for purpose. The court held that a landlord’s duty to maintain or repair did not mean to keep safe, and a duty to maintain in a good condition did not extend to keeping in a safe condition.
Where disrepair has been established, the appropriate standard of repair must be agreed. In Carmel Southend Ltd v Strachan & Henshaw Ltd [2007] EWHC 1289 (TCC); [2007] 35 EG 136, a dispute arose over the repair of industrial premises, in particular the corrugated asbestos cement roof. This was in disrepair and the surveyors acting for both landlord and tenant accepted that various repairs were required, including the replacement of damaged roof sheets, various fixings and rooflights.
The subtenant wanted to take a new lease directly from the landlord on condition that the roof was overclad. The landlord argued that this provided clear evidence that overcladding, rather than patch-repairing, was the appropriate standard required by an incoming tenant. This was therefore enforceable as a justifiable dilapidations claim against the outgoing tenant. The court had to decide whether overcladding or patch-repairing was appropriate.
It found for the tenant, suggesting that patch-repairing was normal practice, particularly since each party’s surveyor had agreed to this. If an owner wants to overclad a roof in order to attract a new tenant, it is entitled to do so, but at its own expense, not as a damages claim for dilapidations.
Landlord and Tenant Act 1927
The tenant in
The court disagreed, stating that this was not the intention of section 18(1), which is concerned with structural alterations. It reiterated that the dilapidations liability was to repair the roof in the most reasonable and cost-effective manner, namely patch-repairing rather than the more costly overcladding option.
However, section 18(1) was successfully argued by the tenant in Ravengate Estates Ltd v Horizon Housing Group Ltd [2008] EWCA Civ 16. There, the tenant housing group was faced with a significant dilapidations claim. It argued that the property owner had submitted a planning application for substantial redevelopment of the premises and that any commercially minded landlord would carry out those works, in so doing negating significant elements of the dilapidations claim. The Court of Appeal agreed, confirming that a landlord’s intentions for its premises must be fully considered in determining the appropriate dilapidations settlement figure.
Vacant possession
Over the years, a number of disputes have concerned vacant possession. As an implied obligation of the yielding up clause at the expiry of a lease, a tenant must hand back vacant premises. In some leases, this is also expressly required this can be particularly onerous with conditional break clauses. This featured in Legal & General Assurance Society Ltd v Expeditors International (UK) Ltd [2007] EWCA Civ 7; [2007] 2 P&CR 10. The case also contained a stark warning that dilapidations settlement agreements must clearly state what each party intended.
This dispute concerned industrial units at Heathrow. Conditional break options required substantial performance of the tenant’s material covenants and vacant possession. The landlord and tenant agreed the dilapidations settlement sum in advance of the break date. However, the form of settlement wording meant that the requirement for vacant possession was no longer conditional. The tenant did not offer vacant possession, so, as far as the landlord was concerned, frustrating the break.
The Court of Appeal disagreed. It held that the dilapidations settlement agreement had meant that vacant possession was no longer a condition there could still be a residual claim for damages, but the break could not be frustrated.
Keep disagreements out of court
These cases illustrate how dilapidations disputes can arise from fundamental issues – stemming from the difference of opinion that either a landlord or tenant has with its obligations under the lease.
Disagreements should not go to court, but the fact that some do suggests that something has gone wrong in the resolution process. Sometimes, it is the only course of action available, particularly if other forms of dispute resolution are inappropriate or have failed. Court action may result from intransigent behaviour on the part of the parties or poor guidance from advisers. In any event, if litigation does result, it is imperative to have a good and considered case. Courts will take a dim view of poorly prepared or unnecessary cases.
Straightforward message
In Princes House Ltd v Distinctive Clubs Ltd [2007] EWCA Civ 374; [2007] 27 EG 304, the judge commented that, in the circumstances of the dispute, it would be difficult to devise a more potent recipe for expensive and unproductive litigation. The case concerned a service charge dispute not dilapidations, but the point is clear.
Litigation should be the last resort it is expensive and often protracted. A damaging costs order will be awarded against a party that is poorly prepared or has a bad case. The message is straightforward: if you are prepared to litigate, ensure that your case is worthwhile and that you consult experienced dilapidations practitioners as early as possible in the dispute resolution process.
Julian Bisson is a partner at Malcolm Hollis LLP
