Update: landlord and tenant

Service charges

In Barrington v Sloane Properties [2007] LRX/31/2006, the leases of a block permitted the landlord to recover by way of service charges 'an annual sum of money equal to. . . the actual cost to the landlord of provided (specified services)'. The landlord undertook building works to the block over a period of three years, during which time various interim certificates for payment were issued by the contractor and paid by the landlord.

Under the service charge accounts, however, the landlord sought to recover, not the value of the sums paid in respect of the interim certificates, but estimated sums as to the amount of work undertaken in a particular year. One of the tenants of the block objected to paying on that basis, and the Lands Tribunal held that the accounts misstated the amounts chargeable to the tenants and so could not be properly certified by the landlord's accountants.

In Princes House v Distinctive Clubs [2007] EWCA Civ 374, a landlord granted to a tenant a lease of part of a building where the roof was in disrepair on the basis that the landlord would use all reasonable endeavours to complete repairs to the roof. The tenant, for their part, covenanted to pay service charges but they were to be capped for the first five years of the lease. However, the landlord failed to complete the works within five years, after which time the tenant's service charge cap had expired. The court held that the landlord had breached its obligation to use all reasonable endeavours, and the damages awarded to the tenant for that breach wholly offset the tenant's share of the repair costs incurred by the landlord.

Rent review

In Coors Holdings v Dow Properties [2007] EWCA Civ 255, a public house was subject to a rent review which provided that the rent to be assessed was the annual rental value at which 'the site comprised in the premises' might reasonably be expected to be let. There were, however, numerous clauses in the lease, including the rent review clause, that assumed that buildings existed on the site.

A dispute arose as to whether the review clause required the rent to be assessed by reference to the land and building or to the land alone. The court held that the premises should be valued but the fact that there was a building on it should be disregarded.

In Level Properties v Balls Brothers [2007] EWHC 744 (Ch), a lease contained alienation provisions that required the tenant not to assign without the landlord's consent which was not to be unreasonably held subject to various requirements, including the provision of a surety. The rent review clause provided for the new rent to be assessed on the basis of 'a letting' of the demised premises as one unit or as separate ground floor and part ground floor premises. A definition clause stated that 'words importing the singular shall include the plural and vice versa'.

Disputes at review were to be determined by an independent expert. At rent review, three issues arose:

• whether, on an application for licence to assign the lease, the landlord could insist upon the provision of a surety even if it was unreasonable to do so;
• whether the rent at review should be determined on the basis of a single letting of the whole or, if it produced a higher figure, on the basis of two lettings;
• whether the parties were bound by the determination of the independent expert.

The court held that:

• the landlord was entitled to insist on the provision of a surety;
• the open market rent could be assessed on the basis of two lettings if that produced a higher figure; and
• the parties would not be bound by a determination based upon an erroneous interpretation of the lease but would be bound by one based upon matters other than an erroneous interpretation.

Repairs

In Business Environment Bow Lane v Denwater Estates [2007] EWCA 622, the Court of Appeal reversed the decision of the High Court that was reported in the last 'landlord and tenant update' ((2007) SJ 151 390, 23.03.07). The Court of Appeal said that the assurance given to a tenant by the original landlord that no schedule of dilapidations would be served at the end of the lease did not bind a subsequent purchaser of the original landlord's interest. It said that no collateral contract had been created; the only contract was the lease. Further, if a collateral contract had been created, it would be unenforceable unless it complied with Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.

In Carmel Southend v Strachan & Henshaw [2007] EWHC 1289 (TCC), an industrial unit was let and sub-let. At the expiration of the leases, the sub-tenant remained in occupation and subsequently took a new lease direct from the freeholder. The head tenant had covenanted to leave the property in 'good substantial repair and condition' but, at the end of the lease, the roof was defective. It was agreed the defects could be repaired either by patching or by the complete over-cladding of the roof. The sub-tenant, prior to taking a new lease, required that the new roof be overclad which the landlord did and then sought to recover the cost from the head tenant. The head tenant argued that though the landlord had overclad the roof it was only liable for the cost of patching. It further argued as the landlord had overclad the roof, that work had superseded certain elements of the patch repairs and, pursuant to section 18(1) of the Landlord and Tenant 1927 Act, those elements should be deducted from the patching cost. The court held the head tenant was right that it should only be liable for the cost of patch repairs. However, the overcladded work had not superseded the patch repairs as the works did not amount to structural alterations as required by section 18(1).

Assignment

In Prudential Assurance Co v Ayres [2007] EWHC 775 (Ch), the original tenant to a lease, on assigning the lease, guaranteed performance of its terms by the incoming assignee partnership. Thereafter, the landlord and the assignee partnership entered into a separate deed which provided that the liability of the original tenant under the lease and any authorised guarantee agreement should be limited to the assets of the assignee partnership and not extend to the personal assets of the individual partners. Subsequently, the assignee partnership became insolvent leaving a substantial level of rent unpaid and the landlord claimed against the original tenant. The original tenant claimed the benefit of the deed. The landlord countered by arguing that the original tenant was not a party to the deed and could not take the benefit of it.

The court held that the original tenant could take advantage of the deed through the operation of the Contracts (Rights of Third Parties) Act 1999 since the deed purported to confer benefit on the original tenant. Construing the deed, the court held that, insofar as the assets of the assignee partnership were insufficient to meet the arrears, nothing further could be recovered from the original tenant.

Parent gurantees

In Prudential Assurance Co v PRG Powerhouse [2007] EWHC 1002 (Ch), a company had taken various properties from a number of landlords and had sought to support its covenant by various guarantees given by its parent company. The company then began to experience financial difficulties and proposed to enter into a company voluntary arrangement (CVA) under which it sought to release some, but not all, of the parent guarantees. The affected landlords questioned whether the CVA operated to either directly release the parent guarantees or otherwise prevent the landlords from enforcing them against the parent company and, if it did, whether the CVA was unfairly prejudicial to their interests. The court held that though, the CVA did not operate to directly release the parent company from its guarantees, it did prevent landlords from seeking to enforce those guarantees. However, in the circumstances, the CVA was unfairly prejudicial to the affected landlords in that it depriving them of the benefit of valuable guarantees and left them in a worse position relative to that in which they would have been on an insolvent liquidation.

Break options

In KPMG v Network Rail Infrastructure [2007] EWCA Civ 363, parties entered into an agreement for a lease to which a draft lease was attached. The draft contained a break clause which was subject to certain conditions. However, when the final lease was executed, the conditions were omitted.

The tenant argued that the omission of the conditions was a deliberate change in its favour giving it the unconditional right to break the lease. However, the court held that the omission was a mistake which had in fact been noted but not corrected prior to execution and that the lease should be rectified to reflect the draft.

Business tenancies

In Trustees of the Portman Estate v Drexler [2007] EWCA Civ 464, tenants of business premises indicated shortly before the expiration of their lease that they wished to be granted a new lease. Following the service of a Section 25 notice and the commencement of proceedings by the landlord, the tenant filed an acknowledgment of service opposing the landlord's terms of renewal. Subsequently, however, the tenant informed the landlord that they had relocated to new premises and did not require a new lease. An issue arose as to costs and the court held that, as the tenant had in effect discontinued their claim for a new tenancy, the normal order would be that they pay the landlord's costs and that the burden of proof was on them to justify a departure from the normal order.