Wheeler v JJ Saunders Ltd

A landlord’s contractual right, under a lease, to enter premises, carry out repairs after notice, and recover the cost from the tenant is not a claim for damages for breach of a repairing covenant. It is a debt claim for reimbursement of expenditure actually incurred. Accordingly, it falls outside the restrictions imposed by Leasehold Property (Repairs) Act 1938, section 1, which applies to actions for damages and forfeiture.

Such a reimbursement clause is also not penal where payment is triggered by the landlord’s expenditure on repairs rather than by breach itself. A repairing covenant expressed by reference to “good tenantable repair” is not cut down by separate wording requiring a specified letting value unless the lease clearly says so.

The appeal arose from the trial of three preliminary issues concerning an underlease of industrial premises. The landlord sought to enforce repairing covenants and to restrain the tenant from preventing entry to carry out repairs.

The issues were:

1. the construction of the tenant’s repairing covenant;
2. whether the landlord could enforce a clause allowing entry, repair, and recovery of costs without leave under section 1 of the Leasehold Property (Repairs) Act 1938;
3. whether the tenant’s reimbursement obligation under that clause was irrecoverable as a penalty.

The judge answered the issues in the landlord’s favour. The tenant appealed. The central question was whether a landlord’s self-help repair-and-reimbursement clause was, in substance, an action for damages for breach of covenant, or instead a separate contractual debt mechanism outside the 1938 Act and the penalty doctrine.

Held

1. Appeal dismissed. Millett LJ gave the principal judgment, with which Otton LJ and the President agreed.
2. On the construction issue, the lease imposed distinct obligations to repair and, when necessary, to rebuild. The concluding words requiring the buildings to be of a stated clear letting value qualified the rebuilding obligation, not the repairing obligation. The repairing covenant already stated its own standard, namely “good tenantable repair and condition”. That standard was not sensibly displaced or limited by the separate letting-value language. Millett LJ added that, even if the concluding words also touched the repairing obligation, they would add a further obligation rather than reduce the duty to keep the premises in good tenantable repair.
3. On the 1938 Act issue, the landlord’s right under the clause to recover the cost of repairs carried out by him after notice was not a claim for damages for breach of covenant. It was a claim in debt for reimbursement of sums actually expended. The right arose only once the landlord had done the work and sought repayment of an ascertainable sum. Such a claim did not depend on proof of loss and was distinct from a damages claim for diminution in value caused by disrepair.
4. The court further held that section 1 of the Leasehold Property (Repairs) Act 1938 did not require the landlord to obtain leave before entering to repair, nor before later demanding reimbursement under the clause. The section restricted forfeiture and actions for damages for breach of repairing covenants. It did not extend to this contractual self-help mechanism. The court accepted the reasoning of Vinelott J and rejected the view that such clauses were devices to evade the statute. Properly understood, the clause enabled a landlord to secure necessary repairs and restore the value of the property, including for the tenant’s benefit.
5. On the penalty issue, the reimbursement clause was not penal. The obligation to pay was triggered by the landlord’s expenditure on carrying out repairs, not by breach of a contractual obligation in the sense required by the penalty doctrine. The clause therefore provided for payment on the happening of a specified event other than breach, and the doctrine of penalties did not apply.
6. The court overruled the earlier first-instance decision which had treated such a clause as falling within the 1938 Act.

• Court of Appeal: appeal dismissed. The court affirmed the declarations made at first instance and overruled the contrary first-instance decision in [1981] 45 Property and Compensation Reports 328.
• Chancery Division: Morritt J, sitting as Vice Chancellor of the County Palatine of Lancaster, determined three preliminary issues on 10 May 1994 in favour of the landlord. Leave to appeal was granted on the second and third issues, and leave was also granted on the construction issue.