In this Scottish commercial lease case, the landlord’s failure to carry out repairs to the roof ended up costing it an awful lot more than the cost of the works.
Background
The Landlord (Kooner) and Tenant (Hillington Cash & Carry Ltd) entered into a lease of warehouse premises for the Tenant to trade from. The warehouse had been vacant for two years before the Tenant took entry and the roof was in poor condition. The lease was therefore drafted to include an obligation on the Landlord to repair and maintain the roof to keep the warehouse wind and watertight, ‘to the satisfaction of the Tenant’s surveyors.’
The Landlord failed to repair the roof properly and significant water ingress required the Tenant to leave, after 13 months in the warehouse and only 2 months of trading.
The Tenant raised an action for breach of contract and was awarded £147,000 for wasted costs, including (i) rent (ii) professional fees (iii) return of rent deposit (iv) start-up costs of the business (v) insurance premiums (vi) running costs of the business and (vii) damaged stock.
The Appeal
The Landlord appealed the decision and made the following arguments:
The words ‘to the satisfaction of the Tenant’s surveyors,’ meant that, without a report to show evidence of the works required to repair the roof, the Landlord was not obliged to repair the roof. It also argued that the Tenant had not given the Landlord written notice of the issues with the roof and therefore the Landlord’s repairing obligation had not yet been triggered.
In respect of damages, the Landlord argued that the normal rules should apply to put the Tenant into the position it would have been in, had the roof been repaired as agreed. This would have reduced the award of damages to whatever the Tenant could prove they lost because they could not trade from the warehouse for the full 13 months.
The decision
The Court said that the obligation on the Landlord to keep the warehouse wind and watertight applied immediately. This meant that the repairs were automatically required, and the Tenant did not need to provide a report or notice.
Separately, it decided that it made commercial common sense to interpret ‘to the satisfaction of the Tenant’s surveyor,’ as a limit on the amount of works to the roof the Tenant could demand from the Landlord, rather than a report being required to enforce the obligation.
On damages, the court agreed that it had been valid to award the amount of wasted costs. Given the Tenant had only been able to trade for 2 months, it would have been difficult for the Tenant to prove the trade it had lost. Instead, the court awarded damages for each loss the Tenant could prove it had incurred as a direct result of the Landlord’s failure to repair the roof.
Key takeaways
It is important to consider whether the obligations in a leases applies immediately from the date of agreement, on demand by notice or at the end of the lease.
This also serves as a timely reminder for landlords that where they have an obligation under a lease to repair or carry out works, if they fail to do so and it causes a tenant a loss, they can recover that loss from the landlord
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