Court refuses to plug the holes in repair and insurance obligations

Court refuses to plug the holes in repair and insurance obligations

Sweet Midsummer night dreams?

Stonecrest Marble Ltd v Shepherds Bush Housing Association Ltd [2021] EWHC 2621 (Ch)

Summary

The court held that a landlord was not liable, either in tort or under the terms of the lease, as a result of water overflowing from a blocked gutter on the landlord’s retained part of the building, despite this making the tenant’s commercial premises unusable.

Facts of the case

Damage was caused to the tenant’s premises by water ingress from the landlord’s retained parts, caused by an accumulation of debris blocking a downpipe. Even though the insured risks under the lease included overflowing water apparatus, the wording in the exclusions to the landlord’s obligation to insure meant that the landlord was not obliged to insure against this type of damage. The landlord’s insurance policy expressly excluded damage caused by gradual deterioration, which both parties accepted this was.

The tenant argued that the landlord was liable in tort (either in nuisance or negligence) and alternatively that there had been a breach of the express quiet enjoyment covenant enjoyed by the tenant under the lease. It further argued that the rent suspension provisions in the lease were engaged.

The judgment

The High Court found in the Landlord’s favour on all of the preliminary issues. There was no basis for imposing liability on the landlord under the express quiet enjoyment covenant or in tort, or that it was obliged to repair, or keep in repair, the guttering. Consequently, the landlord was not under an obligation to repair the damage, or liable for any consequential loss, as the need for repair had arisen by reason of damage against which the landlord was not obliged to insure.

On the quiet enjoyment argument, it was held that the tenant cannot invoke this covenant as an alternative way of imposing positive obligations to perform acts of repair on the landlord, which it would not be obliged to perform under the terms otherwise agreed between them in the lease.

In applying Gavin & Anor v Community Housing Association Limited [2013] EWCA Civ 580, the judge held that as the parties intended that the lease provide a comprehensive scheme for repair and insurance for both the demised property and the retained parts, there was no reason to impose on the Landlord an implied covenant to repair nor a similar duty in tort. Even though, with the benefit of hindsight, the scheme may not have been fully effective, it was held that it was not for the court to fill the gaps and, therefore, risk improving the Tenant’s position under the lease.

The role of the court was to give the lease the meaning and effect which the parties must have intended; the judgment states:

“A court should not reject the natural meaning of contractual provisions as correct simply because it appears to be imprudent for one of the parties to have agreed to those contractual provisions, even ignoring the benefit of wisdom of hindsight. It is not the function of a court when interpreting a contract to relieve a party from a bad bargain – Arnold v Britton per Lord Neuberger PSC …. In my judgment, C's proposed construction favours an interpretation that is influenced by what has happened after the event so as to improve the bargain actually made.”

Further, on the question of whether, for the purposes of the rent suspension provisions under the lease, the property was damaged by a risk against which the landlord was obliged to insure, it was held that the landlord was not obliged to insure against this damage and so the rent suspension provisions could not apply.

Significance

This case highlights the importance, for both landlords and tenants, of ensuring that the allocation of risk in respect of damage or destruction to premises is carefully considered and understood when entering a new lease. This is to ensure that any gaps in liability arising from the drafting are understood, given that these types of schemes for repair and insurance are regularly included in commercial leases and are likely to be viewed as being comprehensive. From this decision it is clear that the court will not step in to fill any “resulting gaps” where a scheme for repair and insurance that is intended to be comprehensive turns out to give incomplete protection.

The tenant’s appeal of this case is due to be heard in the Court of Appeal later this year and we will provide a further update when that decision is available.

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