419-1587-Clerksroom-RRD-Stephen-Pritchett

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www.clerksroom.com Administration: Equity House Blackbrook Park Avenue Taunton Somerset TA1 2PX DX: 97188 Taunton Blackbrook REINSTATEMENT – WHEN DOES THE LIABILITY ARISE ? Stephen Pritchett, Barrister at clerksroom examines the recent decision in In re Teathers [2012] EWHC 2886 Ch (22 October 2012) Clerksroom is a trading name of European Administration Limited Registered Office: Equity House, Blackbrook Park Avenue, Taunton TA1 2PX. Registered in England: 04207276 T: 0845 083 3000 F: 0845 083 3001 mail@clerksroom.com www.clerksroom.com The decision of Sir Andrew Morritt, the Chancellor in In re Teathers emphasises the need for caution in drafting surrenders where there are potential claims for damages for reinstatement. THE FACTS Briefly the facts were: LL granted to T (Teathers) various leases each for a term expiring on 30 March 2014. Each lease contained a tenant covenant: “to keep the demised premises…in good and substantial repair and condition…and in such repair and condition…to yield up the same at the expiration or sooner determination of the term”. On 14 December 2005 licences to alter were granted in favour of the T which contained provisions: “Before the end of the Lease the Tenant is to dismantle and remove the Works and reinstate the Premises to the same plan and design as before the carrying out of the Works and as if the Works had not been carried out (unless and to the extent that the Landlord requests that it does not do so).” On 13 November 2009 following the appointment of administrators of T, surrenders were entered into in respect of the leases which provided: “[LL] and [T] respectively release each other from the rights and obligations contained in the Lease and from all liability in respect of any breach of those rights and obligations whether arising on or after, but not before, the date of this Surrender.” LL sought to prove in the insolvency of T for the cost of reinstatement under the terms of the Licences to Alter. The liquidator disputed the proofs of debt and the Court was invited to determine preliminary issues which involved a determination as to whether the LL had a valid claim for reinstatement costs/ damages against T.
ANALYSIS The Chancellor accepted that the Licence gave to the T the full extent of the Term granted by the lease in order to carry out the reinstatement works. He therefore held that because the obligation was one which lasted throughout the term and therefore beyond the date of the Surrender, the obligation had been released by the Surrender. The Court specifically held that the T had until 13 November 2009 to fulfil the obligations and that accordingly the liability was one which arose “after, but not before, the date of this Surrender”. Accordingly the Court appears to have treated the liability as a future liability which was accordingly released. There is an alternative argument which does not appear from the Approved Judgment to have been run. Importantly, the Licence stated that the obligation to reinstate in accordance with the requirements of the Licences to Alter arose “at the end of the Lease”. Although that was treated as coextensive with the “end of the term” it is capable of bearing an alternative meaning. The end of the Lease could be construed as “the end of the Lease howsoever arising” with the result that it would create an obligation whether the Lease expired by effluxion of time, by surrender or by forfeiture. That would create an obligation to reinstate at the same moment as the surrender of the Lease and would be caught by the provisions of the Surrender as an obligation “arising on or after….the date of this Surrender”; the liability would arise and at the self same time be released. The importance here for practitioners is to ensure that any Deed of Surrender properly takes account of present, future and contingent liabilities on the part of the T and properly distinguishes between those which are to be released and those which are not. It is important to factor in that a reinstatement obligation may be treated as a future obligation capable of being performed at any time up to the end of the Lease as opposed to the end of the Term. There is a second aspect to this case which deals with the calculation of damages under section 18. The landlord re-let the premises at a reduced rental and giving a substantial rent free period. It then sought to recover a large proportion of the rent attributable to the rent free period and the rent differential as damages. The Court emphasised that the assessment under section 18 is essentially a comparative one - between the value of the reversion in the repaired and unrepaired conditions. That has to be taken as a snapshot at the date of termination. At that date no-one knows what if any rental concessions will need to be given nor what future rental will be agreed with an incoming tenant. Those claims are not claims arrived at or calculated in accordance with section 18. They may be evidence of a diminution in value; they may be of use in assessing the diminution in value, but the assessment of damages is not as simple or straightforward as saying that because of the breaches the rent was reduced so as to claim as damages the rent differential. The effect upon the saleability or marketability of the premises inn disrepair must be transposed into a diminution in value figure. Reduced rent and rental concessions MAY but will not always extrapolate into a diminution in value “attributable to the breaches” as there may be many reasons why concessions are given. STEPHEN J PRITCHETT Monday, 7 January 2013 www.chancerycounsel.co.uk Clerksroom is a trading name of European Administration Limited Registered Office: Equity House, Blackbrook Park Avenue, Taunton TA1 2PX. Registered in England: 04207276
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419-1587-Clerksroom-RRD-Stephen-Pritchett

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