The recent Court of Appeal decision in South Essex Partnership University NHS Foundation Trust v. Laindon Holdings Ltd  EWCA Civ 377 is a useful reminder that landlords should consider the interplay between the classification of an item as a landlord's fixture and the restrictions placed on alterations in a lease.
The case concerned floor tiles which had been installed in 2002 as part of the tenant's (the Trust) fitting-out works. Those works were undertaken by the landlord's (Laindon) contractors but at the tenant's expense. Shortly before the tenant terminated its lease in early 2011 it recarpeted the premises with strip carpeting rather than carpet tiles.
Under the terms of the relevant lease the tenant was permitted to "make any internal non-structural alterations to the Building without the consent of the Landlord" (the Alterations Clause). The landlord argued that the carpet tiles were landlord's fixtures and therefore did not form part of the building for the purposes of the Alterations Clause. Consequently the tenant had no right to alter the carpeting and the landlord had a dilapidations claim in respect of the same.
The following were among the issues considered by the Court of Appeal:
- Were the carpet tiles landlord's fixtures?
- Was the tenant permitted to alter the carpeting pursuant to the Alterations Clause in the lease?
The classification of the carpet tiles
The tenant had argued the carpet tiles were tenant fixtures as their installation had been paid for as part of the tenant's fitting-out works. The court disagreed. Lord Justice Briggs noted that "the largest part of the Tenant's Fitting Out Works consisted of the installation of lifts which, on any view, were to become part of the fabric of the Building, rather than a fixture". As such the fact that the tenant had paid for the fitting-out works "is of no weight in deciding to whom the carpets belonged". The carpet tiles were instead deemed to be part of the landlord's fixtures and fittings.
Whilst Lord Justice Briggs did not feel anything turned in this case on the distinction between landlord's fixtures or landlord's fittings, he commented that, had he been pressed, he would have classified the carpet tiles as landlord's fixtures as they had been glued to the floor.
Was the tenant permitted to alter the carpeting under the terms of the lease?
The Court of Appeal decided that the tenant had been permitted to replace the carpeting pursuant to the terms of the Alterations Clause. That clause contained an unqualified right to make internal non-structural alterations to the building and, in the words of Lord Justice Briggs, "the only sensible interpretation …. was that it provided a right to the tenant to make alterations affecting any of the landlord's property within, or forming part of the Building, save for the structure and exterior".
One point that arose in respect of the landlord's wider dilapidations claim was whether or not it was entitled to claim damages for void periods i.e. a period of delay after payment of any compensation but before the dilapidations works are undertaken. Void periods are common as, from a cash flow perspective, landlords may prefer to delay the works pending securing a new tenant. The court held that "once put in funds by payment of damages, further delay by the landlord in carrying out the repairs, including those necessary to remedy the tenant's breach, ought not to be visited as a further recoverable loss upon the tenant".
Landlords should consider the full implications of granting tenants the right to make certain categories of alterations without consent and, in particular, what can and cannot be altered in any particular case. Where a lease permits a tenant to undertake internal non-structural alterations without consent that could include alterations to landlord's fixtures and fittings. As such, if a landlord has a particular preference for, say, carpet tiles over strip carpeting, it should ensure that the letting document contains suitable restrictions.
From a tenant's point of view the decision on void periods will no doubt be welcomed. In addition the judgment is a reminder for tenants to consider the detailed terms of their letting documents when faced with a dilapidations claim.