In a terminal dilapidations case, the Court of Appeal had to decide whether carpet tiles were tenant's fixtures, landlord's fixtures or chattels, to determine whether the tenant would be liable for the cost of replacing them after the end of the lease.
The case is South Essex Partnership University NHS Foundation Trust v Laindon Holdings Ltd (2016).
As a guide to the expressions used in this article:
- A 'chattel' is an item that is physically tangible and removable, such as a clock or a table.
- 'Fixtures' are items that have been fixed to land or a building. Landlord's fixtures are usually demised with a property.
- A 'Fitting' is imprecise and therefore uncertain in its meaning.
The case involved a dispute about whether a tenant had complied with the repairing obligations in its lease. The landlord, Laindon Holdings Ltd, made a claim for damages against the tenant NHS Foundation Trust in respect of several alleged breaches of the tenant's repairing covenants in a lease of business premises in Laindon. The lease had ended following the tenant exercising a break clause.
In the first instance decision, the landlord was awarded damages of £41,445 in respect of 'carpets' and it was this element of the overall award of over £130k against which the tenant appealed.
The lease was preceded by an agreement which provided for the tenant doing substantial fit out works. Amongst other things, these involved the lifting, cleaning and reinstallation of an existing system of tiled carpeting throughout the building.
Shortly before the end of the lease, the tenant notified the landlord that it would be replacing the tiled carpeting system with a new carpet, in strips rather than tiles. Receiving no objection from the landlord, the tenant went ahead at a cost of £38,234.
After the end of the lease the landlord claimed that the re-carpeting didn't comply with the tenant's repairing obligation. This obliged the tenant to:
'repair or replace from time to time the landlord's fixtures and fittings in the premises as may be or become necessary at any time during or at the expiration of the Term.'
The tenant said the carpets were tenant's fixtures because it had paid for the reinstallation of the tiled carpet system as part of its fit out works. As tenant's fixtures, the tenant was entitled to either remove the carpet or leave it behind in the state of repair required by its repairing obligations in the lease; it said it had complied by leaving behind a carpet system that was in repair. Alternatively, if the carpet was a landlord's fixture, its replacement with the new carpet was a permitted alteration under a lease clause which said:
'the tenant may make any internal non-structural alterations to the building without the consent of the landlord'.
The landlord said the tiled carpets were landlord's fixtures or fittings and didn't form part of the building such that the tenant had no right to alter them under this clause. Instead, the original carpet tiles should have been left in repair, or replacement tiles should have been left which replaced the original system like for like, rather than installing a completely different system.
At first instance the court found the carpets were landlord's fixtures and fittings and that changing them was not permitted by the alterations clause. The tenant was accordingly in breach of the lease and the landlord was entitled to damages.
When the tenant appealed against this, the landlord argued that the tiled carpets were landlord's property on any view. As to the allegation that they could be altered under the permitted alterations clause, the carpets were chattels rather than fixtures, falling within 'fittings' under the lease. This meant they did not form part of the building and therefore could not be altered by the tenant without consent.
The Court of Appeal disagreed that the tenant was in breach.
It agreed that the tiled carpets were landlord's fixtures and fittings regardless of the fact that they were re-laid at the tenant's cost at start of lease because they belonged to the landlord before their removal and reinstatement.
However, the clause which permitted internal non-structural alterations allowed the tenant to make changes to the carpets. This was because, the court said, the only sensible interpretation of the clause was that it allowed the tenant to make alterations affecting any part of the property within or forming part of the building - therefore including the landlord's fixtures - except for the structure and exterior.
Replacement of the tiled carpet was a permitted alteration. The new carpet was not in disrepair at the end of lease and the landlord had not asked for it to be removed. The tenant had therefore not breached the repairing covenant in relation to carpeting and the landlord was not entitled to damages in respect of it.
- Parties to leases should ensure they understand the meaning of words used such as fixture, fitting or chattel, and what rights apply to these items in the context of the lease
- This case makes clear that if a tenant can make non-structural alterations without consent, this will allow changes to be made to landlord's fixtures and fittings and so these need to be expressly excluded from a permitted alterations clause if the landlord does not want them to be altered.