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The Minefield of Repair Covenants

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The former tenants of a prime location office block that was left in a state of severe dilapidation on the expiry of a full-repairing lease have been ordered to pay more than £1.3 million to cover the costs incurred by the freeholder in restoring the property to a condition in which it could be re-let.
 

hlw Keeble Hawson LogoThe landlord spent £2.42 million refurbishing the premises after expiry of the 35-year lease and claimed in excess of £2.1 million of that from the former tenants.  However, the tenants claimed that their liability should be capped at £240,000, as that was the amount of the diminution in the value of the premises occasioned by their breaches of repairing covenants.

It was also argued by the tenants that their obligation was to maintain the property in the same condition as it had been in at the commencement of the lease in 1973 and that they should not be required to pay the costs incurred in a major refurbishment of the property to bring it up to modern standards.

Whilst acknowledging that the refurbishment works carried out by the landlord were reasonable in both cost and extent, the Technology and Construction Court accepted the tenants' argument that they should only be held liable for those repairs which were necessitated by their breaches of covenant.

The Court refused to cap the tenants' liability and awarded the freeholder a total of £1,353,254, including the costs of preparing professional reports and a schedule of dilapidations.  The tenants must also pay interest on that sum at a rate of 3 per cent from the date of which the lease expired.

Andrew McKenzie Smith, Partner in hlw Keeble Hawsons' Property Dispute Team commented that the disparity between what the Landlord claimed, what the Tenant claimed and what the Court actually ordered in this case illustrates the need to take prior expert advice on the enforcement of repair covenants in leases whether as Landlord or Tenant.

For further advice on this or any other issues on disputes about commercial leases please contact either
Andrew  on 0114  2521422 or email him at andrewmckenziesmith@hlwkeeblehawson.co.uk

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