Thu 04 May 2017

Dilapidations Update: Moor Row Limited v DWF LLP

A recent judgment of the Court of Session has seen the law firm DWF, fail in its attempt to have a dilapidations claim of almost £1 million raised by its former landlord dismissed.

Dilapidations is the phrase commonly used in the world of commercial property to describe the state of disrepair within leased premises.  Most commercial leases impose at least some (and usually a substantial) obligation on the tenant for repairing or rectifying items which are not in good repair.   The obligation to repair usually applies throughout the life of the lease, however it is common for the issue to be addressed only upon its expiry or earlier termination.

The case of Moor Row Limited v DWF LLP saw Moor Row Limited as landlord of DWF's former premises at Dalmore House, St Vincent Street, Glasgow claim in excess of £1 million pounds from their former tenant.  The landlord claimed that £1m was the sum it would cost them to carry out the necessary dilapidations work at the end of the tenant’s lease of the premises.

In this case, the tenant refused to carry out repair works at the end of its lease of the premises.  As a result, the landlord claimed that (1) the tenant did not leave the premises in a state consistent with its performance of the repairing obligations under the lease and therefore claimed for damages for breach of the obligations and; (2) the tenant was liable to indemnify the obligations the landlord owed to the head landlord (and the owner of the premises), Tarn. Tarn, in their capacity as head landlord, had written to Moor Row seeking payment of the costs to carry out the repair works and so Moor Row claimed that the tenant was due to indemnify them for these costs.

The tenant accepted that it hadn’t carried out any of the dilapidations work identified and admitted that it was in breach of its repair obligations in terms of the lease, but they argued that the landlord and the head landlord did not intend to carry out the identified repair work to the property and so would not incur the costs that they sought to recover from the tenant. They based this assertion on the fact that the premises had been marketed for sale as a ‘redevelopment opportunity’.

The tenant’s position was that their lease with the landlord did not specifically oblige them to make payment to the pursuer as an alternative to its obligations to repair (unlike the relevant clauses in other dilapidations cases such as @Sipp and Grove). In respect of the landlord’s claim of indemnity, the tenant’s position was that as the head landlord had not raised a claim against the landlord it was premature or irrelevant for the landlord to look to the tenant to indemnify the potential costs.

Decision of the Court of Session

A debate (a hearing on legal arguments without evidence or witnesses) was heard by Lady Wolffe in the Court of Session. The issues at debate were: (1) whether the landlord's claim for damages was competent in law, (2) whether the landlord's claim for indemnity was competent in law, and (3) whether the landlord had raised court action prematurely in respect of (1) and/or (2).

In her decision, Lady Wolffe found that:

(1) Although the lease did not provide a mechanism for seeking payment or liquidated damages in lieu of the dilapidations works being carried out, that did not preclude a common law claim for damages.  A common law claim for damages did not require that the remedial works to rectify the dilapidations be completed before a claim for damages can be made. The landlord's claim for damages was therefore competent.

(2) On construing the terms of the lease Lady Wolffe commented that a 'claim' can include a potential liability, that the tenant's argument that 'claim' meant an established liability was too restrictive and therefore the indemnity could be triggered. However, Lady Wolffe noted that although the tenant had admittedly breached the repair obligation, it did not necessarily follow that this would result in a loss to the landlord, so the landlord would still be required to prove the loss and the amount of loss at a further hearing.

(3) The prematurity point raised by the tenant was rejected in relation to both claims. The landlord had only claimed on the basis of indemnity once they received the letter from Tarn requesting payment so the claim for indemnity was not premature and the landlord's claim for damages was not premature.

As with most dilapidations cases, much consideration is given to the specific wording of the clauses of the relevant leases. As such, this case predominantly turns on its own facts and the construction of the particular clauses in the lease between the landlord and tenant, however, it is worth remembering that the Court is willing to find that - in the absence of clear lease terms to the contrary - remedial work doesn't require to have been carried out before the landlord can raise a claim for breach of the repairing obligation or for damages.

That said, this case isn't over yet, as the landlord is still required to prove to the court, by leading evidence and witnesses, that they have suffered a loss by the tenant breaching their obligation to repair.  Whether or not  £1 million is due from the tenants to the landlords for the breach of the repairing obligations will be determined at a later date.

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