South Essex Partnership University NHS Foundation Trust v Laindon Holdings Ltd

An unqualified contractual right to make internal non-structural alterations may include replacing the landlord’s fixtures or chattels within the building, subject to exclusions for the structure and exterior. Replacing carpet tiles with broadloom carpet may therefore be a permitted alteration rather than a breach of a repairing covenant. Where damages are assessed at trial and paid, a landlord cannot recover a further void period caused by its decision to delay remedial works for its own commercial reasons. That issue is one of legal analysis, not merely fact-finding.

The landlord claimed dilapidations damages for alleged breaches of repairing covenants in a lease of business premises. The High Court awarded £130,492, including sums for replacement carpeting and a void period while remedial works were undertaken: [2014] EWHC 3855(TC). The tenant appealed on two issues. First, it argued that replacing carpet tiles with broadloom carpet was a permitted internal alteration. Secondly, it challenged recovery of a void period after payment of the judgment sum. The Court of Appeal considered the proper construction of the lease and whether the later delay constituted loss caused by the tenant’s breach.

1. Appeal allowed on both grounds. Lord Justice Briggs gave the leading judgment. Lord Justice Kitchin and Lord Justice Jackson agreed.
2. Carpeting. The carpet tiles were properly regarded as the landlord’s fixtures or fittings, despite their reinstallation being paid for by the tenant. It was unnecessary to decide conclusively whether they were fixtures or chattels, because clause 3.4.3 applied to both categories.
3. Construction of the alteration covenant. Clause 3.4.3 conferred an unqualified right to make internal non-structural alterations to the Building. Read commercially, and alongside the separately qualified right concerning structural or external alterations and the landlord’s qualified reinstatement power, it extended to alterations affecting any landlord property within or forming part of the Building, apart from its structure and exterior.
4. Application. Replacing the tiled carpeting system with broadloom carpet was therefore a permitted alteration. The replacement carpet was not out of repair at the end of the Lease for the purposes of clause 3.3.2. The landlord had also not exercised its right under clause 3.4.5 to require removal before termination. The tenant was consequently not in breach in relation to the carpets.
5. Void period and quantification of loss. The tenant did not challenge the lower court’s selection of the trial date, applying the principles referred to in Dodd Properties v Canterbury City Council [1980] 1WLR 433, as the date for quantifying loss. However, once the landlord had received damages shortly after judgment, any further delay in carrying out works necessary to remedy the tenant’s breach, resulting from the landlord’s own commercial decision, was not recoverable from the tenant as loss caused by the breach. That conclusion was a matter of legal analysis rather than fact-finding.

1. Court of Appeal (Civil Division) allowed the appeal on both grounds: [2016] EWCA Civ 377 .
2. High Court of Justice, Queen’s Bench Division, Technology and Construction Court awarded the landlord £130,492 for alleged breaches of repairing covenants, including carpeting and a void period: [2014] EWHC 3855(TC).