Repair obligations and the removal of asbestos
Key Contact: Damien Cann
Author: Ffion Morgan
Repair obligations and the removal of asbestos The case of Pullman Foods Ltd v The Welsh Ministers and another  EWHC 2521 (TCC) (23 September 2020) (HHJ Keyser QC), highlights the importance of understanding and reviewing repairing obligations in a lease especially where asbestos is present. This case is a useful reminder to tenants of the extent of their potential liability at the end of the term of their lease.
The Welsh Ministers (the Landlord), served a section 25 notice on Pullman Foods Ltd (the Tenant) under the Landlord and Tenant Act 1954 (LTA) to oppose the grant of a new tenancy. Following this, the Tenant, relying on section 37 of the LTA, claimed compensation. In response, in a counterclaim against the Tenant, the Landlord argued breach of covenant. The Landlord argued that whilst the Tenant vacated the site in February 2015, it failed to comply with the yielding up covenant in the lease which required them to deliver up the site in ‘good and substantial repair and condition’ to the satisfaction of the Landlord.
The Landlord also argued that BFS Group Limited, the Tenant’s parent company (the Company), had breached the terms of their licences. The Landlord granted the Company two successive licences to enter the site and remove any building remains and constituents containing asbestos-containing material after the end of the term (ACM). Due to the failures of both the Tenant and the Company, the Landlord was required to conduct extensive remediation works at significant expense.
Breach of covenant
It is a legal requirement for both landlords and tenants to manage asbestos risk in non-domestic properties. In this case, the court said that at the end of the term, the Tenant’s failure to remove buildings at the site which contained ACM constituted a breach of covenant. The court said that the presence of ACM at the end of the term indicated that the site was in a ‘damaged’ or ‘deteriorated’ condition and therefore the Tenant did not satisfy the repairing obligations in the lease. In particular, the use of the word ‘condition’ in the yield up clause suggested that the Tenant’s obligation extended beyond strict repair. The court said that asbestos was brought onto the site after the commencement of the lease and as such, the obligation in relation to it and subsequently the removal of it rested with the Tenant. Interestingly, the High Court also held that the removal of asbestos was reasonably required for compliance with the covenant even if the asbestos had been present before the grant of the lease (which was not the case here).
Breach of the licences
Although there was no express obligation for the Company to comply with the covenant in the lease, insofar as liability also extended to the Company, the court said that as a result of the licences being granted, they also owed a duty to the Landlord to remove the ACM. Furthermore, the court had probable cause to believe that the work undertaken during the licence period was in fact, the major cause of contamination. The Company also failed to disclose to the Landlord the potential for further ACMs to be located at the site after these works had been conducted.
The High Court decision
The High Court ruled that the costs of remediation had been reasonably incurred. The Landlord recovered the full cost of remediation works from the Company. The High Court held that the Company was liable to the Landlord for the full costs of remediation to the site and additionally the Tenant was liable to the Landlord in damages for breach of the yield up covenant.
As demonstrated by this case, the implications of failing to comply with lease repairing obligations are potentially devastating. It is important to bear in mind that a repairing obligation may have been extended to either require the Tenant to put the property into a better state of condition than it was in before or to keep the property safe and fit for purpose. Tenants should be alert to onerous repairing obligations in yield up covenants from the outset.
In this case, it has been noted that even if the asbestos had been present before the grant of the lease, the obligation to comply with the yield up covenant would still apply. Prospective tenants should undertake environmental due diligence which includes a ‘suitable and sufficient’ assessment to ascertain the presence of any hazardous substances or contamination before entering into a lease. Where such due diligence is not possible at a proportionate cost the tenant should seek to exclude their liability for such matters through negotiation.
For more insights on the implications of failing to comply with lease repairing obligations, get in touch with Acuity’s Real Estate & Construction Team.