BHP Petroleum Great Britain Ltd v Chesterfield Properties Ltd

A covenant whose burden is expressly personal to the original landlord is not a landlord covenant within Landlord and Tenant (Covenants) Act 1995. It is not an obligation falling to be performed by the person for the time being entitled to the reversion. A notice under section 8 cannot therefore release the original landlord from that personal obligation.

Under a defects clause covering both actual physical damage and an underlying defect that will cause physical damage, the two limbs have distinct functions. The first covers repair of accrued damage. The second permits remedy of the underlying defect if it manifests during the stipulated period and has caused, or will cause, physical damage. Actual damage may establish that the defect will cause damage; the tenant need not prove further future damage.

BHP took a 20-year lease of refurbished office premises from Chesterfield under an agreement for lease. Chesterfield’s obligations to remedy building works defects were expressly personal to it. After Chesterfield transferred the reversion, it served a notice under section 8 of the Landlord and Tenant (Covenants) Act 1995 seeking release from those obligations. No counter-notice was served.

Several toughened-glass units fractured. BHP contended that the agreement required Chesterfield to remedy the underlying defect, namely the use of toughened glass in non-vertical units, rather than merely replace fractured units.

Lightman J, at first instance ([2001] 3 WLR 277), held that the notice did not release Chesterfield but construed the agreement as limiting its liability to accrued physical damage. Chesterfield appealed on the statutory issue and BHP cross-appealed on construction.

1. Appeal dismissed; cross-appeal allowed. In the judgment of the court, delivered by Jonathan Parker LJ, Chesterfield remained liable under clause 12.2 of the agreement and had not been released by its notice.

2. The agreement was a collateral agreement and its obligations were accordingly capable of being covenants of the tenancy for the purposes of the Landlord and Tenant (Covenants) Act 1995. However, the statutory definition of landlord means the person for the time being entitled to the reversion. A landlord covenant must therefore be one falling to be performed by whoever from time to time holds that reversion.

3. The clause 12 obligations were expressly personal to Chesterfield. They were consequently not landlord covenants within the Act. This conclusion did not revive the former distinction between covenants that touch and concern land and personal covenants. A covenant may relate to land while the contracting parties nevertheless make its benefit or burden personal. Section 3(6)(a) confirms that freedom. The section 8 notice was therefore ineffective, despite BHP’s failure to serve a counter-notice.

4. The court disagreed with the judge’s construction of the definition of “Building Works Defect”. In its second limb, the words “manifesting itself during the Defects Period” qualify the defect, rather than the physical damage. Before the cut-off date, BHP need only identify a defect which will cause physical damage at some time. It need not prove that damage will occur before that date.

5. Where the defect had in fact caused physical damage, that fact satisfied the requirement that it “will” cause damage. The first limb concerned repair of physical damage already suffered. The second covered remedying the underlying defect, including preventing future damage. It was unnecessary to decide the separate argument on the £50,000 proviso.

• Court of Appeal: Chesterfield’s appeal was dismissed and BHP’s cross-appeal was allowed.
• High Court, Chancery Division (Lightman J): In [2001] 3 WLR 277, the judge held that the section 8 notice did not release Chesterfield, but construed the agreement in Chesterfield’s favour. The Court of Appeal upheld the first conclusion and reversed the second.