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Morley Riches and Ablewhite recommend landlords take note of recent case!

Morley Riches and Ablewhite recommend landlords take note of recent case!

It is quite typical for a commercial lease to include a covenant which permits the tenant to make internal non-structural alterations to their demised premises. But, to what does this apply? The recent case of South Essex Partnership University Foundation Trust v Laindon Holdings Ltd [2016] deliberated this point.

The parties involved in the above case entered into an agreement to lease which provided that the tenant was to undertake ‘tenant’s fitting out works’.  These were not all cosmetic and included installation of a lift. An important element to the works included the taking up, cleaning and re-fitting of the carpet tiles that were in-situ at the time.

The landlord engaged contractors to undertake these works and it had been agreed that the tenant would bear the costs.

The works were carried out and the tenant occupied the building. As the expiry of the lease approached, the tenant contacted the landlord to tell them of their intention to replace the carpet tiles with a similar but not identical broadloom strip carpet. The landlord made no objection to the tenant carrying this out at the time, however, after the lease had expired, the landlord made a complaint. The landlord stated that the tenant was in breach of their covenant to ‘repair or replace […] landlord’s fixtures and fittings […] as necessary at any time during or at the expiration of the term’.

The case rested on who the carpet tiles belonged to – the landlord or the tenant, were they fixtures or chattels and if they belonged to the landlord, was their replacement with strip carpeting by the tenant permitted under the alterations provisions within the lease?

The Court of Appeal held that the tiles were in fact landlord’s fixtures, even though the tenant had paid for the works (including the tiles being lifted, cleaned and re-laid). The landlord had owned the carpet tiles prior to the lease being granted. In addition – carpet tiles are typically glued to the floor and it was therefore held that this constituted a ‘fixture’.

However, the landlord was not home and dry. It did not matter whether it was determined that the carpet tiles were considered to be fixtures or chattels. The lease included a provision that gave the tenant the right to undertake internal non-structural alterations, without landlord’s consent – a not uncommon provision in commercial leases. The alterations provision gave the tenant the right to make alterations to the landlord’s property within the envelope of the building but not to alter the structure or exterior of the building. This meant that the replacement of the carpet tiles with the strip carpet system was a permitted alteration under the lease and the tenant had no obligation to re-instate or replace ‘like for like’ the original carpet tiles.

This case highlighted the need for careful drafting of alterations provisions within leases. If a lease contains a covenant allowing a tenant to make internal non-structural alterations to a building, this may not just refer to the building envelope itself, but could also encompass landlord’s fixtures and fittings.

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