27 October, 2020
The recent High Court decision in Pullman Foods Ltd v The Welsh Ministers and another  EWHC 2521 (TCC) (23 September 2020) provided a stark reminder of the potential pitfalls for tenants in relation to yielding up obligations.
Pullman Foods Limited ('the Tenant') was the tenant of a property on Swansea dock. The Welsh Ministers ('the Landlord') were the landlords of the property and therefore entitled to the reversionary interest. The Tenant was under an obligation pursuant to the terms of its lease to deliver up the property at the end of the lease term in good and substantial repair and condition to the satisfaction of the Landlord.
The Tenant had engaged contractors to carry out demolition and removal works to buildings on the property and during the course of these works asbestos containing materials were disturbed and distributed at the property some of which were buried under the ground at the property. As a result when the lease term came to an end, the property was held by the Landlord to have been contaminated by asbestos which required expensive remediation works.
The Court was asked to consider whether the Tenant had breached its yielding up obligation owing to the alleged contamination of the property by way of the asbestos materials that remained.
The Court held that the word 'condition' demonstrated that the obligation was capable of extending to doing works that went beyond just strict repair. Unsurprisingly perhaps, the Court was reluctant to hold that the Landlord had absolute unfettered discretion as to what constitutes 'good condition' in interpreting the Tenant's obligation in relation to yielding up the property. The Court instead concluded that the Landlord could form its own judgment as to what was required to satisfy the appropriate standard to constitute 'good condition', as long as the Landlord's judgment was reasonable in this regard. The Court were satisfied that the presence of the asbestos materials at the property was sufficient that the Tenant had not yielded up the property in the required state of repair and condition. Accordingly the Tenant was held to be liable for breach of its yielding up obligation in the lease.
Interestingly the Court also held that the Tenant would have been liable for the removal of asbestos materials even if these pre-dated its occupation of the property. This serves to reinforce the importance of carrying out careful environmental due diligence prior to entering into a lease to highlight any existing contamination, hazardous materials or other such issues. It can be very easy to make assumptions about the condition of a property however there is no substitute for careful site inspections and full due diligence, especially where a tenant is planning to make substantial investments under the lease.
For more information contact Michael Rutter in our Commercial Property department via email or phone on 0333 207 1147. Alternatively send any question through to Forbes Solicitors via our online Contact Form.