Sunlife Europe Properties Ltd v Tiger Aspect Holdings Ltd and Another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Edwards-Stuart |
| Judgment Date | 07 March 2013 |
| Neutral Citation | [2013] EWHC 463 (TCC) |
| Docket Number | Case No: HT-11432 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 07 March 2013 |
[2013] EWHC 463 (TCC)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Hon. Mr Justice Edwards-stuart
Case No: HT-11432
Martin Hutchings QC (instructed by Forsters) for the Claimant
Mark Wonnacott (instructed by Mishcon de Reya) for the Defendants
Hearing dates: 8 – 11.10.12 15.10.12 7.12.12 18.2.13
Introduction
This is a terminal dilapidations claim. The Claimant ("Sunlife") is the owner of a combined office and retail premises at 3–5 Soho Street, 6/7 Soho Street and 12 Soho Square. The premises had been let by Sunlife's predecessor to the predecessor in title of the Second Defendant ("Tiger") under two leases with full repairing covenants. The leases were dated 22 May 1973, in relation to Nos 6/7 and 12, and 25 March 1974, in relation to Nos 3–5. The First Defendant is the guarantor under the leases.
The leases were for a term of 35 years and both were due to expire on 24 March 2008. Sunlife purchased the reversions in May 2006. The leases continued beyond the expiry dates because Tiger made a request for new tenancies. However, Tiger subsequently changed its mind so those tenancies came to an end on 14 November 2008 when Tiger moved out. For the short period when the tenancies continued after the original expiry dates under the leases the interim rents were agreed at £273,500 for Nos 3–5, and £287,500 for Nos 6/7 and 12.
By early October 2006 Sunlife appears to have become concerned about the condition of the premises and so it arranged for the preparation of an interim schedule of dilapidations. This was done by a Mr Iain Feasey, a Chartered Building Surveyor who was employed by Lambert Smith Hampton. Mr Feasey inspected the premises whilst they were still occupied by Tiger (although a retail unit forming part of No 3–5 was vacant). The schedule that he prepared in October 2006 showed a total cost of putting the premises into repair at about £740,000.
Mr Feasey inspected the premises again in November 2008, just after Tiger had vacated them. As a result of this inspection he prepared an uncosted schedule of dilapidations. On 3 December 2008 he sent a copy of this to the surveyor who was then acting for Tiger. On 6 March 2009 Mr Feasey sent a costed version of that schedule to Tiger's surveyor. This showed a total claim, representing the cost of putting the premises back into repair, of over £2.5 million.
About two or three weeks later Tiger notified Sunlife that it had instructed a different surveyor, Mr Lee Davison of DTZ. He inspected the premises on 1 April 2009. Mr Davison produced a response to Mr Feasey's schedule, but dealing only with the building fabric items (and not the mechanical and electrical ("M&E") installation), which showed a cost of about £150,000.
On 18 August 2009, following completion of initial asbestos surveys and the strip out works, which had enabled a thorough investigation of the M&E installation, a further costed schedule of dilapidations was prepared by Mr Feasey. This showed a total sum claimed of about £2.45 million. Mr Davison's schedule in response, issued in December 2009, showed costs totalling only about £87,000 — significantly lower than the sum shown in his first schedule. The parties were clearly a very long way apart.
Finally, following completion of the remedial works, Sunlife produced a schedule of dilapidations in which it claimed £2.42 million.
By the time of the trial Sunlife's claim for damages by reference to the cost of the remedial works was £1,573,894, including the contractor's preliminaries and overheads and profit. Sunlife also had other claims, such as the cost of obtaining validation reports (£37,663), Lambert Smith Hampton's project management fees (at 4.88%) and for certain remedial works that had not yet been undertaken. In addition, there was a claim for 30 weeks lost rent. The total sum claimed by Sunlife amounted to a figure of the order of £2.172 million, plus interest.
Tiger, by contrast, asserted that the remedial works attributable to want of repair amounted to about £700,000, but it did not accept that this was a sum that Sunlife was entitled to recover. It was Tiger's case that Sunlife's claim was capped by the amount of the diminution in value of the premises as a result of Tiger's breaches of the repairing covenants, which Tiger contended was no more than about £240,000.
Mr Mark Wonnacott, who appeared for Tiger, summarised Tiger's case in this way. He submitted that in order to let the building in 2009 Sunlife had to carry out a significant upgrade and refurbishment, which is what it did. Mr Wonnacott submitted that if Tiger had complied sufficiently with its obligations under the leases Sunlife would have been left with a building that was in working order and good condition, but by reference to 1973/4 standards. If the premises were in this condition, ran Tiger's argument, they would not have been a lettable proposition in 2009 to the type of tenant who might be expected to take a building of this age and location. In other words, if Tiger had carried out the maintenance and repair required by its obligations, and no more, Sunlife would still have had to carry out nearly all of the work that it in fact carried out. This is because, Mr Wonnacott submitted, these premises, if in good repair but in line with 1973/4 standards, could only have been let at a very substantial discount. As a result, the diminution in value that resulted from Tiger's breach of its obligations under the covenants was of the order of £240,000.
In short, Tiger's case is that if it had carried out remedial works to an extent sufficient to discharge its obligations under the covenants, a major refurbishment to bring the premises up to 2009 standards of the type actually carried out would still have been necessary. Sunlife submits that the sum claimed, which is less than the amount that it has actually spent, represents the cost of the work necessary to put the building into the condition in which Tiger should have left it.
The premises
The buildings are situated in a prime location on the north side of Soho Square. At the time of their construction in the 1970s the Soho area was the premier area in London for advertising agencies and film companies. The buildings were originally constructed as separate adjoining buildings and let as 'grade A' high class office and retail premises to a leading advertising agency, Geers Gross Advertising Ltd, for use as their headquarters. The buildings together comprise 15,300 sq ft of space, consisting of basement, ground and four upper floors; 3–5 Soho Street also has a fifth floor. The buildings were originally separated by a loading bay (now a car park) but in about 1980, the second to fourth floors were knocked through to provide intercommunicating open space at these three levels.
It appears to be common ground that the premises were built to a state of the art standard in 1973/4 and fitted out with a modern, integrated, heating ventilation and air conditioning ("HVAC") system, fitted carpets, suspended ceilings to most areas and aluminium double glazed centrally hung pivot windows. In that state, they were capable of being let to a high class tenant for 35 years with full repairing and maintenance obligations. Tiger occupied them as its headquarters building from 2000 to 2008.
The original four pipe heating and air conditioning system was supplied by water from a cooling tower and water chiller on the roof of the buildings. This system supplied air conditioning to each of the floors via perimeter chilled water fan coil units ("FCUs"), the pipework for which was concealed in the suspended ceilings of the floor beneath. Fresh air was supplied via air handling units ("AHUs") in the basement of the buildings, which were connected by pipework to the roof top boilers and water chillers. The AHUs supplied fresh air to each FCU on each floor via ductwork which was also concealed in the suspended ceilings in the floor beneath. Heating was provided by six boilers.
It appears that the original system was not maintained or repaired by successive tenants and few, if any, of its component parts were renewed when they broke down as the leases required. At some stage, which I was told was in about 1991, various alterations were made to the systems. The water chillers were replaced with air cooled chillers. On certain floors, where it would appear the FCUs were no longer in a serviceable state, DX units were installed to replace the old system. Fan convectors may also have been installed a few years later, in about 1994.
Tiger's occupation of the premises
When Tiger acquired the premises as their new headquarters in 2000 from First Leisure Corporation, they were generally in a poor state of repair and a reverse premium of £490,000 was paid to Tiger by the outgoing tenant in what, I find from the evidence, was a reasonably strong letting market. Tiger carried out a limited general refurbishment in 2000 — but apparently without licence from the then landlord. This included the installation of new partitions with consequent alterations to the electrical services to suit the new layout. But it seems that Tiger was not keen to incur substantial costs on premises with leases that were due to expire in 8 years time, so it was only prepared to undertake a limited amount of work. There may have been problems with the works that were carried out at that point, because no O&M manuals or records of the works, such as wiring diagrams, were provided (or, if they were, they have since been lost).
Tiger did not carry out any maintenance of the...
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