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26 April 2019

Enforcing repair obligations during the lease

It is 20 years since the decision in Rainbow Estates Ltd v Tokenhold Ltd, which confirmed that the court can order specific performance of a tenant’s repairing obligations during a lease term. However, the circumstances of that case were rather unusual since the lease contained no right of entry to repair or right of forfeiture.

In recent months, we have seen two court decisions examine the option of requiring a party to perform its repair obligations during the term of the lease - and come to differing conclusions! So, what is the position when urgent repairs are required during a lease term: is the court willing to force action? Our summary below looks at these two recent cases and why the courts took a different approach in each.

Zinc Cobham 1 Ltd & Ors v Adda Hotels & Ors (2018)

This decision is a good illustration of the importance of considering whether damages are a sufficient remedy instead of an injunction, particularly where compliance with any injunction will need to be monitored (which courts tend to dislike).

Facts

Zinc had acquired the freehold of a number of hotels occupied by tenants under the Hilton Hotels brand. The leases contained a series of covenants which were designed to maintain the brand. These included covenants to clean, decorate or otherwise maintain the hotels in accordance with the “Operating Standards”. These standards were brand standards issued by the Hilton Group.

Zinc identified certain breaches of these covenants and it served schedules requiring the tenants to undertake work to remedy the breaches. After serving the schedules, Zinc issued proceedings for specific performance of the obligations and/or damages for breach. Zinc claimed that the condition of the hotels had reduced the value of its interest but said that it would be very difficult to quantify the loss arising from the breaches. It therefore sought an injunction for specific performance on the basis that damages would be inadequate compensation. The cost of carrying out the works was estimated to be over £100m.

Decision

The High Court decided that Zinc’s claim for specific performance should be struck out and that its remedy should be limited to damages. The court felt it would be inequitable to require a tenant to carry out works at a cost substantially higher than any loss to the landlord. The court pointed out that an order for specific performance would also require constant supervision to monitor compliance with the Operating Standards.

In the court’s view, Zinc did not have a legitimate interest in enforcing the obligations and was only concerned with financial compensation, although damages seem likely to be limited given that the breaches are not expected to impact on rental levels due to the terms of the rent review provisions.

Blue Manchester Ltd v North West Ground Rents Ltd [2019] EWHC 142 (TCC)

This slightly more recent case demonstrates that specific performance of repairing obligations is still available in appropriate circumstances.

Facts

Here, there was a serious issue with the sealant holding together the glass panels of the building. The contractor who built the tower was Carillion. It installed temporary stitch plates to keep the glass in place but had failed to find a permanent solution by the time it went into liquidation 4 years later.

The hotel operator tenant of the building – Hilton - was concerned about the safety of the stitch plates and their impact on the appearance of the building. Its 999 year lease of the hotel obliged the freeholder to keep the facade “in good and substantial repair and when necessary…reinstate, replace and renew” it. There was also a reverse Jervis v Harris clause, allowing the tenant to undertake works at the freeholder’s cost if the freeholder failed to comply with its repairing obligations.

The parties disagreed as to whether the freeholder was obliged to find a permanent solution and undertake the relevant works to address the sealant issue. 

Decision

Having heard expert evidence about the problems caused by the stitch plates and the fact that they were designed to last for no longer than 3 years, the court concluded that the temporary fix had not discharged the landlord’s lease repairing obligations. Interestingly, the judge also felt that aesthetic standards could be relevant and that there would need to have been a compelling reason for the tenant to be required to accept the ugly stitch plates as a permanent solution.

Although there was no specification for the remedial work, the judge decided that he was prepared to order specific performance of the landlord’s repairing obligations. In his view, damages would not be an adequate remedy for the tenant – nor would it be satisfactory to leave the tenant to undertake the repairs and recover the costs from the landlord.

The freeholder was allowed 18 months to repair the building and restore it to substantially the same external appearance as at the date of the lease. However, watch this space: if it transpires that the costs are going to be disproportionate, the court has given the landlord permission to apply for approval to undertake a different remedial scheme.


 For more information please contact Emma Humphreys on +44 (0)20 7203 5326 or at Emma.Humphreys@crsblaw.com.

 

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