When a lease expires whether the tenant has complied with it’s repair covenants is to be judged by the standards at the start of the lease not at the end.
Even if the building is compliant with those covenants, it may not be relettable in the modern market. However, as the recent case of Sunlife Europe Properties Ltd –v- Tiger Aspect Holdings Ltd (2013) confirms, the tenant will not be liable for the additional cost of bringing it up to modern standards.
If the building is non compliant with the tenant’s covenants, the tenant will be liable for the cost of making good that non compliance, but not for the additional cost of bringing it up to modern standards.
Furthermore the tenant will not be liable for making good non-compliance to the extent that:
– The relevant works would have been superseded by the necessary modernisation anyway, or
– The liability would exceed the statutory cap in section 18 of the Landlord and Tenant Act 1927 (“the Section 18 Cap”) i.e. the cost of the relevant works would have exceeded the reduction in the value of the landlord’s unmodernised reversion caused by that non compliance.
In this particular case the costs of remedying the tenant’s breaches was comfortably less than the Section 18 Cap so the tenant was liable for the full amount of the cost.
The tenant could not be expected to fund the landlord’s further improvement works. However that afforded the tenant little relief here as:
– Few of those works superseded the works the tenant was obliged to do to comply with it’s covenants. So the tenant was liable for it’s failure to do them, and
– the tenant was liable to the extent that it’s breaches rendered the cost of making the landlord’s improvements more expensive.
The cost of the valuation reports in this case was alone well over £30,000. The damages bill in excess of £1.3m is a reminder of the heavy costs that tenants can face for not complying with their repairing obligations.
As usual this blog is posted out of general interest. It does not replace the need for proper legal advice in individual cases.