Can the presence of asbestos in a site be a breach of a yielding up clause in a lease?

Can the presence of asbestos in a site be a breach of a yielding up clause in a lease?

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Yielding up clauses in leases determine what state of repair and condition a property must be in at the end of a lease. Wording does vary but commonly a yielding up clause contains an obligation to return a property to the landlord in good repair and condition. An alternative would be that the tenant is obliged to return the property to the landlord in accordance with the covenants contained in the lease.

In the recent case of Pullman Food Ltd v The Welsh Ministers and another [2020] EWHC 2521 (TCC), the judge had to consider whether the existence of asbestos containing materials (ACMs) which had been left buried across a site meant that the tenant was in breach of its yielding up obligations in its lease. The case may be of interest to commercial tenants looking to enter into a lease and understand their obligations in relation to the condition of a site or property.

Background

Pullman had a lease of a parcel of land in Swansea Dock. The Welsh government was its landlord. Prior to the expiry of the lease, the landlord served notice on Pullman notifying it of its obligation to remove the buildings on the site in accordance with clause 2(10) of its lease. Clause 2(10) was the yielding up clause and stated that Pullman must yield up:

“..leaving [the site] in good and substantial repair and condition having first …. removed any buildings … to the satisfaction of the lessor”

Pullman failed to comply with its obligation and at expiry of the lease there were still remains of the buildings on the site which contained ACMs. The landlord then granted two successive licences to BFS Group Ltd (Pullman’s parent company) so that BFS could go onto the site and remove the remains of the buildings as well as the ACMs. 

BFS’ contractors went on site to carry out the works. At some point further ACMs were discovered buried in the site, although it was not clear whether these further ACMs were buried during the lease term or prior to the lease being granted. Either way, further works were carried out by the contractors. In the process of doing the works, they failed to remove some of the ACMs and instead managed to spread ACMs over the site. This meant that the site as a whole became contaminated and required extensive remediation works.

Court’s decision

It was held that the presence of the ACMs in the site was a breach of Pullman’s obligation to yield up the property in good and substantial repair and condition. Whether or not the ACMs were in the site before the lease was granted was irrelevant. The presence of the ACMs meant that the site was not in proper repair. Additionally, the use of the word “condition” in the yielding up clause shows that the tenant’s obligation extended to doing works that went beyond repair and the presence of the ACMs meant that the site was in a damaged or deteriorated condition. 

The judge also found that whilst the landlord did not have carte blanche in deciding the appropriate standard of “good condition”, it was entitled to form its own judgment as to what was required to satisfy the appropriate condition, provided that judgment was within the range of views that could reasonably be held.

Therefore Pullman was in breach of the yielding up clause in its lease and liable to pay damages. As an aside, BFS was also found to be in breach of the terms of the licences granted to it post expiry of the lease.

Practice points

This case highlights the need for a tenant to undertake environmental due diligence before entering into a lease so if ACMs, or indeed any other type of contamination is found, the appropriate exclusions from liability can be dealt with. It also highlighted the fact that, even if a site is not capable of being in disrepair due to there being no buildings, it does not mean that it cannot be returned in a good condition.

If you have any queries about landlord and tenant issues, such as lease termination and dilapidations, please get in touch with us.

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