One of the key provisions to be negotiated when taking a new lease relates to the repairing obligations of the parties. More often than not, a new lease will be a fully repairing and insuring lease (known commonly as FRI), but the specific drafting of the relevant repairing covenant within the lease requires careful thought and consideration. In a recent High Court case Pullman Foods Ltd -v- The Welsh Ministers & Others, the court considered this point in relation to asbestos-containing materials that were spread across the site.
The claimant was the tenant of a site and the defendant was the landlord. The tenant sought a new tenancy under the Landlord & Tenant Act 1954 (LTA 1954) and the landlord opposed the renewal of the tenancy by serving a Section 25 Notice under the LTA 1954. The notice provided that the landlord intended to redevelop the site and that it required the tenant to remove any buildings on the property by the end of the term.
The tenant sought statutory compensation in excess of £40,000 but the landlord made a counterclaim for damages, arguing that the tenant had breached its covenants in relation to the yield-up provision in the lease. The covenant provided that at the end of the term the property should be returned ‘in good and substantial repair and condition to the satisfaction of the landlord’. It also required that the tenant should ensure that it has ‘removed any buildings or works and having made good to the satisfaction of the landlord all damage occasioned to the demised premises by or in such removal’ if so required by the landlord.
When the tenant’s contractors carried out the works to remove the buildings, the complete removal was not achieved by the date for terminating the lease. Specifically, there were some sections of concrete slabs from the buildings that remained in place and those contained asbestos-related materials.
Two licences were granted to the tenant’s parent company to allow the tenant’s contractor to enter the site and remove the slabs. However, during the removal process, further asbestos-related materials were disturbed and spread across the site. This resulted in remediation works being carried out at the landlord’s cost. The landlord claimed against the tenant’s parent company for breach of the terms of its licences and failing to adhere to the Control of Asbestos Regulations 2012.
In relation to the licences, the court held that there was no express covenant in the licences to comply with the covenants of the lease. However, the failure to remove the building remains, and the asbestos-related material and to inform the landlord of the asbestos-related material discovered during the works constituted a breach.
As far as the tenant’s liability was concerned, the court held that the tenant was in breach of its covenants within the lease on two grounds. First, that the failure to remove the asbestos-related material was a breach of the requirement to remove the buildings on the property; and second, there was a failure to yield up the property in good repair and condition.
The court held that the use of the word ‘condition’ extended the tenant’s duty of repair and that the removal of the asbestos-related material would be required in order to comply with the covenant.
This case demonstrates the importance of environmental due diligence in order to ascertain the presence of historical hazardous substances/contamination and negotiating the repair/yield-up covenants so that the liability for historical environmental issues is set out clearly.