Court refuses to confirm lease repair obligations by declaration

The Technology and Construction Court has declined to grant declarations confirming the extent of a tenant's lease repairing covenant.

Facts

The case of Office Depot International (UK) Ltd v UBS Asset Management (UK) Ltd concerned the design, construction and maintenance of a warehouse in Manchester.

UBS Asset had agreed to take a long lease of the warehouse once constructed and, in turn, Office Depot (OD) had agreed with UBS Asset to occupy the warehouse.

Amec Developments Ltd was engaged to design and construct the warehouse. Amec engaged a subcontractor, FK Facades Limited, to carry out the detailed design, supply and installation of the roofing and cladding.

Amec gave warranties to OD that it would comply with its obligations under the design and build contract. FK also gave a warranty to OD that it had complied with its roofing obligations.

When the works were completed in 2005, OD took a lease of the warehouse. The lease obliged it to "keep the premises in good and substantial repair, maintained and in clean condition".

Then the roof leaked.

UBS Asset claimed against Amec for defects in the design and construction of the warehouse. The claim was settled, with Amec paying £2.8m. Amec in turn claimed against FK, who paid £4m to settle. UBS did not use the monies to repair the warehouse.

UBS Asset assigned its long lease to UBS Triton in 2016.

The parties tried to agree a scheme of remedial works but failed to do so. Meanwhile, OD became concerned that its immediate landlord (UBS Asset and then UBS Triton) would take action against it for breach of its own repairing obligations under its lease because it had not addressed the leaks and OD wanted to clarify the extent of its liability before the warranties expired.

OD issued a claim against UBS Asset, UBS Triton, Amec and FK for declarations as to:

• what remedial works, if any, it was obliged to do under the terms of its lease and 
• against AMEC and FK that such works were necessitated as a result of the defects covered by the warranties made in its favour. OD also asked for an indemnity for the cost of remedial works.

Due to the result of an initial hearing OD applied to amend its claim. The other parties applied to strike out the claim and/or for summary judgment.

Decision

In its discretion a court can make a declaration as to the rights of the parties to proceedings, the facts of a case and on a principle of law. This is known as declaratory relief. The making of a declaration can be useful in prompting settlement between the parties to an action and in determining whether further action is appropriate.

In this case the court had to decide whether OD's case for declaratory relief in the terms claimed (set out above) had any realistic prospect of success and whether its claims had been properly pleaded. It confirmed:

• That it has a wide jurisdiction to grant declaratory relief but only where there is a real dispute between the parties. There was no dispute here. Whether any works were needed and what those works should be was a matter for OD to determine for itself and it was not one that could be shifted onto someone else. In any event, the tenant's repairing obligation required that it maintain a state of repair, it did not impose an obligation to carry out specific works.
• Without OD putting forward its own view as to what was needed, the court had nothing to comment upon. Declaratory relief would only be granted where the terms of the declaration sought were specified with precision. It was not appropriate for the court to assume responsibility for, or interfere with, a decision made under a commercial contract. That would amount to a restriction of the freedom of the parties to contract and act in their own commercial interests.
• It would not be appropriate for the court to carry out an investigation to identify the scope of works required. Without submissions from the parties, the court could not make a determination.

For these reasons, OD had no real prospect of succeeding in its claim as currently pleaded. Its claims for declaratory relief against UBS Asset and UBS Triton were struck out.

However, the court gave OD an opportunity to reformulate its claims against Amec and FK as straightforward claims for breach of warranty (rather than for declaratory relief), to be heard at a later date. This was because a document had been submitted to court which identified the alleged defects in design and construction of the roof and the related breaches arising from them.

Comment

Many will have sympathy with OD's plight as the landlord's claims were settled with no works being undertaken to the warehouse. However, a tenant taking on a repairing obligation will always be required to construe the extent of the work required. In the absence of action by the landlord, it is likely to need to determine that for itself. In the event of a dispute a tenant must make out a positive case as to what works it considers are required.

This case is a stark illustration of the need to consider fully whether the grounds for a claim and the remedy sought are suitable. OD was ordered to pay the costs of UBS Asset and UBS Triton and those of Amec and FK for the application to amend the claim/their applications to strike out the claim - an expensive result.

Office Depot International (UK) Ltd v UBS Asset Management (UK) Ltd [2018] EWHC 1494 (TCC)