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30 October 2020
This case concerned a counterclaim by a landlord for the cost incurred by it in remediating its property prior to undertaking a major redevelopment project which included a larger parcel of land (Pullman Foods Ltd v The Welsh Ministers  EWHC 2521 (TCC)).
The Court has held that the landlord was entitled to recover the full cost of that remediation work to deal with asbestos contamination which it found was caused by the previous tenant and its parent company.
This case provides a useful reminder to tenants on the extent of their potential liability at the end of the term of their lease, and a sounds a cautionary note to any party undertaking works under licence.
This may be especially so in relation to longer leases where the nature of buildings and activities carried out may give rise to more issues.
The landlord, the Welsh Ministers, served notice under s.25 of the Landlord and Tenant Act 1954 relying on redevelopment ground (f) to terminate the lease which was at that time held by Pullman Foods Limited. At the time of serving the notice the landlord also required the tenant to perform its lease covenants including to yield up the property in repair.
Following discussions between the parties it was agreed that Pullman would vacate and undertake certain works required under the terms of their lease in advance of doing so.
On quitting the property on the basis of the notice served the tenant was entitled to recovery statutory compensation and brought a claim for payment of that. The landlord defended that claim and brought a counterclaim for damages for breach of the lease covenants and/or breach of certain obligations given by the tenants parent company under two licences granted following the termination of the lease under which they were granted rights of access to the property to undertake further works required to deal with the existence of asbestos at the site.
The asbestos was brought onto the site after the commencement of the lease and as such the obligation in relation to it and to remove it at the end of the lease rested with the tenant.
The tenant was in breach of its repairing obligation in the lease by failing to do so. The Court held that the use of the word "condition" in the repair clause extended that obligation "beyond repair strictly so called" so that the presence of asbestos meant the property was in disrepair and that remediation works were therefore required in order to comply with this obligation at the end of the term.
The parent company also owed a duty to remove the asbestos as a result of the two licences granted and that that duty was also breached. In fact, the work undertaken during the licence period was the major cause of contamination.
As to the costs of remediation (some £1.4m) the Court found that the indemnity given in the licences had the effect of excluding the usual contractual test of remoteness so that the damage incurred could be recovered.
The Court also found that, in light of the nature of the landowning entity and the use it proposed to put the land to once remediated, as well as its location, the cost of the works was reasonable and reasonably incurred and thus fully recoverable.
However, the Court rejected the argument that the tenant was in breach of its duty under the Control of Asbestos Regulations 2012 and therefore in breach of its obligations 'not to do or permit to be done on the Property anything which is illegal' and 'to comply with all laws' under the licences. The Court accepted that the tenant had duties imposed on it by the 2012 Regulations, including, among others, those relating to the assessment of work that exposes employees to asbestos and the prevention or reduction of exposure to asbestos. Despite also finding that the tenant was in breach of those duties, the Court refused to accept that the breach of statutory duty had anything to do with the loss suffered by the property owners in connection with remediation works. It was the offending conduct (including the failure to remove the gravel trap asbestos and to inform the Welsh Government of its presence) rather than the unlawfulness under the 2012 Regulation itself that occasioned the loss to the Welsh Government. The contractual provisions in the licence did not have the effect of turning the health and safety statutory duties into the equivalent of duties actionable by the Welsh Government.
This decision is particularly interesting when considering the landlord was going to redevelop and, as mentioned in the case but not dealt with in any detail as a result of the findings of the Court, damages would usually be limited by supersession and capped under s.18 of the Landlord and Tenant Act 1927.
The case also raises a cautionary note when entering into arrangements with an indemnity. In this case the provision had the effect of excluding contractual remoteness rules so that whilst the extent of the damage was not reasonably foreseeable the type of damage was.
In addition it should be noted that the Court was willing to have regard to the nature of the landlord entity and the fact that they were not a purely commercial landowner in reaching its decision. Along with that the location and prospective use of the land was also highly relevant to the decision and is something that should be borne in mind when considering the nature and scope of environmental obligations relating to land.
As to the reasonableness of the works undertaken to remediate, and whilst on the facts of this case they were found to be reasonable in scope and cost, it is well worth ensuring that detailed notes are kept to confirm the basis of decisions taken as they may be highly relevant in proving reasonableness where a claim for damages is subsequently needed.
For further information on this topic please contact Emma Pinkerton, Olivia Jamison or Valentina Keys at CMS Cameron McKenna Nabarro Olswang LLP by telephone (+44 114 279 4000) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The CMS Cameron McKenna Nabarro Olswang LLP website can be accessed at cms.law.
This update has been reproduced in its original format from Lexology – www.Lexology.com.
This article was co-written by Ben Collins of CMS.
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