New case law on dilapidations
South Essex Partnership University NHS Foundation Trust v Laindon Holdings Ltd  EWCA Civ. 377
On 12 April 2016, the Court of Appeal considered two issues on appeal of the Technology and Construction Court decision in Laindon Holdings Limited v South Essex Mental Health and Community Care NHS Trust  EWHC 3855.
The first related to tiled carpeting, which was installed by a landlord before its property was let. The incoming tenant’s fitting out works included the removal, cleaning and, where possible, re-installation of the tiles. Tiles that could not be re-used were to be replaced. Shortly before the end of the term, the tenant replaced the tiles with a broadloom carpet with the landlord’s knowledge.
The landlord argued that the carpeting did not comply with the tenant’s covenant to repair or replace the landlord’s fixtures and fittings. The tenant argued that the new carpet was an internal non-structural alteration, which it had been allowed to make without landlord’s consent.
The Court of Appeal decided that the tiles were landlord’s fixtures and fittings, despite the tenant’s work at the start of the lease. The largest part of the carpeting system consisted of the landlord’s refurbished tiles and neither party argued that the system should be apportioned.
The Court made a distinction between ‘fixtures’ (a legal term of art, subject to much case law) and ‘fittings’ (which were treated as the landlord’s goods or chattels). Lord Justice Briggs said it did not matter whether the tiles were fixtures or fittings as the tenant had the express right to alter both. The new carpet was an authorised alternation and it was not in disrepair. The landlord could have requested the removal of the carpet as a tenant’s alteration under an express covenant of the lease but as it had not done so the tenant was not in breach in relation to carpets.
Secondly, the Court of Appeal considered the assessment of damages. The landlord had argued that it should be awarded damages for a four-month void period whilst it did the remedial works. The High Court accepted this, despite the landlord’s decision to wait until it had found a new tenant before starting the works, although the Court reduced the void to two months.
On appeal, the tenant argued that since the landlord would obtain compensation shortly after judgment there could be no basis for visiting upon the tenant thereafter any void period arising from the landlord’s choice to delay its work. Whilst the Court of Appeal did not argue with the landlord’s commercial sense of doing its works in one go, that was a business decision of the landlord and was not caused by any tenant’s breach. Once put in funds by payment of damages, further delay by the landlord ought not to be visited as a further recoverable loss upon the tenant.
The decision on the second issue closes down a potential line of argument for landlords opened up by the decision at first instances. The decision in the relation to the first issue is perhaps more interesting as it suggests that in future it may be beneficial for tenants to think more creatively regarding the interaction between dilapidations obligations and alterations covenants as lease end approaches.
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