Potted Guide: Putting things back the way they were

Jonathan Seitler QC guides practitioners through the basics of the law relating to the reinstatement of alterations Checklist ■ Where are reinstatement obligations to be found? ■ What is the difference between a yield up provision and a reinstatement requirement? ■ What are the rules for service by the landlord of a notice for reinstatement? ■ What happens if a landlord serves a notice to reinstate which cannot be complied with before the end of the term? ■ Does a landlord’s right to insist on reinstatement and a tenant’s duty to carry it out “run with the land”? ■ What does it mean if the requirement to reinstate is only exercisable by the landlord “reasonably”? ■ What level of reinstatement is required? ■ What can a landlord recover by way of damages for a tenant’s failure to reinstate? Where are reinstatement obligations to be found? Sometimes alongside the alterations or yield up provisions of a lease but more often, and in more detail, in a licence to alter. In some instances, the obligation to reinstate is one which it is stated must be complied with “before the end of the lease” irrespective of whether the landlord has required it. In those cases, the tenant is obligated to reinstate come what may, though because the obligation might “bite” only during the term, a surrender of the lease in wide terms would be capable of wiping it out, as in Re Teathers Ltd (in liquidation); Baroque Investments Ltd v Heis and another [2012] EWHC 2886 (Ch); [2012] 3 EGLR 30. What is the difference between a yield up provision and a reinstatement requirement? A yield up provision usually requires the tenant to deliver up vacant possession and deliver the property in a certain (good) condition. On its own, however, such a clause will not be interpreted as requiring the reinstatement of alterations. It is of course quite possible to yield up property in good condition without reinstating alterations. In contrast, a reinstatement provision requires the tenant to reinstate alterations it has made, specifically. It is important not to mix up these different types of clauses because their application is for different circumstances. What are the rules for service by the landlord of a notice for reinstatement? In most cases, the lease or provision in the licence to alter gives the landlord the right to choose whether or not to ask the tenant to reinstate and for that purpose it requires the landlord to serve a notice of reinstatement within a certain period before the end of the term. The time limit which is provided for that notice must be strictly complied with. That means that, if indeed the landlord’s request for reinstatement has to be served before the end of the term, it will not be made in time if it is included only in a terminal schedule of dilapidations served after the end of the term. There are no formal requirements for service of such a notice, which, at least under Scottish law, can in theory even be given verbally – see L Batley Pet Products v North Lanarkshire Council [2011] CSOH 209 – though in the more usual case of the notice being in writing it will be necessary to set out clearly that the tenant is being asked to reinstate its alterations and under what clause of the lease or licence to alter that is being requested. It is not, however, necessary to set out every detail of the work that is being requested if liaison between the landlord and tenant in relation to it is inevitable because the works of reinstatement must first be approved by the landlord – see Fairgate International Ltd v Citibank International plc [2005] EWCA Civ 569; [2005] 2 EGLR 48. Although a notice of reinstatement will be construed by reference to how the reasonable recipient would understand it – see Westminster City Council v HSBC Bank plc [2003] EWHC 393 (TCC); [2003] 1 EGLR 62 – it is probably not best practice to insert it into a schedule of dilapidations, but rather set out the landlord’s requirements as regards reinstatement of alterations separately. What happens if a landlord serves a notice to reinstate which cannot be complied with before the end of the term? There is no definitive answer but the common sense view is that there are two alternative analyses: (1) That the landlord is impliedly required to serve the notice in sufficient time for the reinstatement works to be carried out before the term of the lease ends, so that it is not valid and effective if served too late, having regard to the time that the reinstatement works will take to be carried out. (2) That the landlord’s notice requiring reinstatement carries with it an implied licence to allow the tenant to remain in the premises for the reasonable time that is to be taken to comply with it. Either position has practical arguments against it and the matter awaits a comprehensive legal authority on the point. Each has its proponents and each has its detractors. In the case of option (2), however, any implied licence should be clarified by a tenant that is put in this position so as not to make it liable for damages for use and occupation, or make it lose its right to break the lease on the basis that it is a condition of the break clause that vacant possession is given on the break date – see Ibrend Estates BV v NYK Logistics (UK) Ltd [2011] EWCA Civ 683; [2011] 3 EGLR 1. Does a landlord’s right to insist on reinstatement and a tenant’s duty to carry it out “run with the land”? Yes, as long as the covenant to reinstate is not expressed in specifically personal terms (which they are rarely are). This means that a landlord can enforce a covenant to reinstate in a licence to alter even if that landlord is the successor to the landlord under the licence to alter. Similarly, a tenant is duty bound to carry out reinstatement under a licence to alter even if it was not the tenant that agreed to it in the first place. In relation to (the obviously increasing number of) leases granted after 1 January 1996, this results from the operation of section 3(1) of the Landlord and Tenant (Covenants) Act 1995. In relation to pre-1996 leases, the position is probably the same, under the common law. What does it mean if the requirement to reinstate is only exercisable by the landlord “reasonably”? It is not unusual for a reinstatement provision to require the tenant only to reinstate alterations “if the landlord reasonably so requires”. This will mean that the landlord will need an objectively respectable reason to insist on reinstatement. It might therefore not be reasonable where the alterations add value to the reversion on any sensible view; where they are not possible in building terms; or when it will cost a disproportionate amount to reinstate compared to the gain in value as a result. What level of reinstatement is required? Each obligation will need to be interpreted in accordance with its wording but, generally speaking, reinstatement means removing whatever physical changes have been made to the premises and putting back, as nearly as is possible, the features that existed prior to the alterations in question being made. The simple answer is therefore that it will be the tenant’s duty to reinstate the property to its condition before the alterations which are the subject of the reinstatement provision were carried out. Where this is not possible, say because of planning requirements or materials no longer being available, the tenant would have to get as close as possible to the original: the burdens on the tenant are not substantially relieved by the passage of time. Although slavish reconstitution of what was there before is not an inevitable ingredient in reinstatement, similarly effective and efficient equivalent quality reconstitution is still required – see, in a similar situation, Vural v Security Archives Ltd (1989) 60 P&CR 258. What can a landlord recover by way of damages for a tenant’s failure to reinstate? The answer to this question is the main reason why it is important to bear in mind the distinctions between obligations to reinstate and obligations to repair. This is because the starting point for the common law measure of damages for a tenant’s failure to repair is the cost of the works to remedy the disrepair. That is not the starting point for breaches comprising a failure to reinstate. In addition, a reinstatement obligation is not “a covenant or agreement to keep or put premises in repair” under section 18(1) of the Landlord and Tenant Act 1927, so neither the cap on damages nor the provision preventing any recovery in certain circumstances, applies. There is no statutory cap on damages for a failure to reinstate. The damages for such a failure to reinstate by the tenant will instead be the normal contractual measure: either the cost of carrying out that reinstatement or the diminution in value, depending on what the reasonable landlord would do as regards that reinstatement at the end of the term – see: Ruxley Electronics and Construction Ltd v Forsyth [1995] 3 All ER 268. In practice, the evidence as to what the actual landlord intends to do will always be a factor in deciding what the reasonable landlord would do, in the absence of anything suggesting that the actual landlord is being peculiarly eccentric. Where, therefore, the actual landlord has not reinstated and the evidence falls short of showing that it intends to do so, the measure of damages is much more likely to be based not on the cost of reinstatement but on the diminution in value, which means that, if in fact the alterations un-reinstated are not detrimental to the value of the property (or even enhance it), damages will be no more than nominal. The podded guides Be sure to check out our new tie-in podcast series where Jonathan Seitler QC takes a more informal, but no less incisive, look at key areas of law. Find out more at www.egi.co.uk/legal/pottedguide Image © Cultura/REX/Shutterstock