Chancery Court rules on Tenant’s liability to carry out Reinstatement and Repair Works upon surrender of a Lease


Ref. Baroque Investments Ltd V Heis & Ors (2012)

The Chancery Court was requested to determine the Tenant’s liability to carry out reinstatement and repair works to the premises they formerly occupied, upon surrender of said lease but prior to the expiry of the term.

The Landlord leased premises to the Tenant who covenanted in an express clause to keep the premises in good and substantial repair. The Tenant was granted additional Licences to carry out Tenant’s improvements on the specific terms that, before the lease expired, the Tenant would carry out reinstatement of the works.

Unfortunately, the Tenant went into liquidation and the defendants were appointed as the Liquidators. As Liquidators, they then surrendered the lease back to the Landlord.

Specific terms were agreed in the leasehold documentation which released the parties from all rights and obligations under the lease “on or after, but not before the date of surrender”.

The Chancery Court Held that:

The Tenant would breach the terms of the tenancy if the reinstatement works were not carried out before the lease expired or was surrendered. As the Tenant’s obligation arose after the date of the surrender, the reinstatement liability was automatically extinguished by the surrender.

Damages for repairing breach of covenants which would have occurred during the occupation was a liability for the Tenant, but this was limited to the before and after valuation approach. (S.18 Landlord and Tenant Act 1927.)

No attempt had been made to value the reversion in either its actual or the (assumed) repaired state.

An assumption was made that this would be the Landlord’s loss on re-letting.

It was considered that a provable debt may have existed, in which case any loss would have been restricted to the amount that the breach of covenant would have diminished the value. Unfortunately, the due process was not followed and the amount ascertainable upon valuation of the reversion in its actual and repaired state was not calculated.

Because the proper processes were not followed, in accordance with S.18 Landlord and Tenant Act 1927, the debt was not provable and, as such, no compensation was payable by the tenant or the liquidator. Nor was a valid claim able to made made against the Tenant’s assetts.

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