End of Leases

Leases must be read and construed as a whole. In the hurly-burly of negotiation this wider perspective can be overlooked. Not until a matter goes to court is the inter-relationship between the parties' covenants and obligations fully understood.

However, some clauses are evidently linked, such as alterations and yielding up. In South Essex Partnership University NHS Foundation Trust v Laiden Holdings Limited [2016] EWCA CIV 337, the Court of Appeal looked at the terms of these clauses in the context of a dilapidations settlement.

The tenant had undertaken fitting out works at the start of the lease, at its expense but using contractors nominated by the landlord. The bulk of the work concerned the lift but carpet tiles were also lifted and (where possible) re-used. During the lease the tenant had freedom to make internal non-structural alterations without consent. At the end of the term the landlord could require reinstatement of those alterations if it was reasonable to do so.

Practitioners will be familiar with a commercial bargain of this nature. Fitting out works tend to be quicker if the same party carries out both Category A works (such as mechanical and electrical, raised floors and suspended ceilings) and Category B works (like partitioning for meeting rooms and offices, carpets and kitchenettes). Specifying the contractors to be used adds an element of control for the landlord in relation to important or technical works like a lift. There's no need for landlords to approve every minor change carried out to premises by a tenant during a lease, but equally no reason why the landlord should be stuck with those changes at the end of the term.

The tenant exercised a break option. The tenant then wrote to the landlord advising that the carpet tiles would be replaced with carpeting of the same colour and quality, but laid in strips rather than as tiles. The landlord did not reply. We know from Fitzroy House Epworth Street (No 1) Limited v Financial Times Limited [2006] EWCA Civ 329 that, however frustrating it might be for the tenant, the landlord is under no obligation to reply. In this case the tenant replaced the carpets. After the lease had ended the parties were unable to agree a figure for the tenant's dilapidations liability. The first instance trial turned on two key issues: Firstly, had the re-carpeting been done in compliance with the relevant covenants in the lease? If it had not, what was the date in which the landlord's...