Mind the (liability) gap – Repair and insurance clauses in commercial leases

The recent case of Stonecrest Marble Ltd v Shepherds Bush Housing Association Ltd [2021] EWHC 2621 (Ch) highlights the importance of careful drafting in a commercial lease to ensure the repair and insuring obligations are comprehensive and correctly allocate liability for both the property to be leased and the property to be retained by the Landlord.  If the lease intends to provide a comprehensive scheme for the repair and insurance of a property but the terms of that scheme fall short, you should not rely on the courts to fill the ‘gaps’.

Facts

In this case, the Tenant held a long lease of a ground floor commercial property and the upper floors were retained by the Landlord. In September 2017, the Tenant advised the Landlord of water ingress into the property. The water ingress continued for two years until a downpipe was unblocked in November 2019. The Landlord and the Tenant agreed that the cause of the water ingress was the blockage by the gradual accumulation of debris in a drainage gutter in part of the building retained by the Landlord and further agreed that the Tenant had not caused or contributed towards the water ingress. The Landlord was required to insure the building against certain risks but the damage caused by the water ingress was expressly excluded as ‘gradual deterioration or wear and tear’.

The Tenant claimed that the landlord was liable:

(a)    For breach of the express covenant in the Lease for quiet enjoyment

(b)    In nuisance or negligence as a result of the Landlord’s failure to inspect, cleanse or repair the parts of the building it had retained.

Decision

The court found in the Landlord’s favour and, in respect of point (a), concluded that the Tenant could not rely on the covenant for quiet enjoyment as an alternative method of imposing a positive obligation on the Landlord which they were not otherwise required to perform under the terms of the lease.

As to point (b), the court considered the following key terms that were expressly included in the Lease:

(i)    That the Tenant was responsible for keeping the property in good repair and condition

(ii)    That there was no express obligation on the Landlord to repair in circumstances where the Landlord had no obligation to insure

(iii)    That the Landlord was obliged to insure the property subject to certain exclusions

(iv)    That the Landlord was obliged to use the insurance monies received to repair the property.

The court concluded that the parties intended there to be a comprehensive scheme for the repair of the property and the parts of the building retained by the Landlord. The court followed the decision in Gavin and another v Community Housing Association Ltd [2013] EWCA Civ 580 that where the lease includes a comprehensive scheme of repair, this was sufficient to exclude any liability for nuisance or negligence which the landlord might otherwise be subject to.

In giving its conclusion, the court stated that its task was not to consider whether the scheme for repair was effective and then seek to fill any gaps with the benefit of hindsight. By doing so, they would risk improving the Tenant’s position rather than giving the lease the meaning and effect which the parties intended at the time.

Conclusion

The terms included in the lease in this case are fairly common in modern lease drafting and it is therefore likely that a substantial amount of leases will include a comprehensive scheme for the repair of a property. Both Tenants and Landlords should carefully consider the extent of their repairing obligations when negotiating a new lease and seek expert advice to understand any potential gaps that may leave them liable for repair during and at the end of the term of the lease. If the risk of such liability is unacceptable, it is important that terms are negotiated and expressly included in the lease as the courts will be reluctant to imply such terms.  The case again exemplifies the court’s approach of adopting a strict interpretation of provisions in documents.

If you have any questions about this topic, please get in touch info@ts-p.co.uk.