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Commercial leases
Published August 2007
Protecting your position
When entering into a "full repairing and insuring" commercial lease, the repair obligation is one of the most important clauses to consider in order to ensure that your position, whether as landlord or tenant, is protected.
The precise wording of the obligation must be carefully negotiated and understood as liability for repairs is one of the most common areas of dispute between Landlord and Tenant. The case of Janet Reger International Limited v. Tiree Limited clearly highlights this issue.
Janet Reger had a lease of premises consisting of a ground floor and basement for use as offices and retail space. In 2003, the basement started showing signs of damp. For a period of two years the Landlord acknowledged the damp problem and whilst it did not refuse to carry out remedial work neither did it take any steps to rectify the problem.
In 2004, Janet Reger had to move out of the premises and the cause of the problem was identified as the damp proof membrane in the flooring not being linked into the damp proof course in the walls. The damp proof course was, therefore, not continuous and allowed the water to penetrate.
The repair covenant in the lease stated that the Landlord should "use reasonable endeavours to repair, renew and maintain the structure." As the damp proof membrane was in the floor, and this was deemed part of the structure, Janet Reger commenced proceedings against the Landlord to rectify the problem.
Janet Reger alleged that the Landlord was in breach either of its express covenant to repair the structure or of an implied obligation to remedy any defective part of the structure which would cause damage to the premises which Janet Reger was under an obligation to repair.
A tenant must show that the subject matter of the covenant (i.e. the structure) has deteriorated in order to prove an obligation to repair. The Landlord argued that it had no liability as the structure of the premises, such as brickwork, had not been affected.
Janet Reger's main challenge was to convince the judge that the damp proof course had deteriorated. The judge found in favour of the Landlord; holding that the damp proof course had not actually deteriorated rather it had been defectively installed.
The judge held that Janet Reger would be responsible for the repairs as it was required under the lease to "put and keep the premises in good repair and condition". He held that the word "condition" adds something to the meaning of the word "repair". The damp arising from the lack of an effective damp proof course was a feature of the "condition" of the property and had to be rectified under the tenant's repairing covenant, despite the fact that the premises themselves were not in disrepair.
The judge also dismissed the implied obligation argument stating that the Court would be slow to imply any terms into a complex and highly negotiated legal document such as a lease.
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