England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		17th July 2006

1. In this action Janet Reger International Limited ("the Claimant "or "the Tenant") seeks an order against its landlord, Tiree Limited ("the Defendant" or "the Landlord" ) for specific performance of, and damages for breaching, a covenant to repair contained in a lease ("the lease") made on 27^th February 2001 relating to the basement and ground floor at Number 2 Beauchamp Place, London., SW3 ("the Demised Premises"). The Defendant counterclaims for unpaid rent (together with interest thereon) which the Claimant has withheld in the course of the dispute with the Defendant.
2. The principal issue in the action is whether the Defendant is in breach of an obligation contained in clause 5.3.2 of the lease to exercise reasonable endeavours under a covenant to "maintain, repair and renew" the Structure to carry out works which were required to prevent damp entering into the basement area of the Demised Premises.

The lease.

3. I shall set out certain of the provisions in the lease below; others are referred to where they are relevant in the judgment to other issues, some of which only arose in the course of the trial. In the lease the Claimant was referred as "the Tenant" and the Defendant as "the Landlord".
4. The term of the lease is 20 years from 8^th June 2000 at a rent of £60,000 per annum. The Demised Premises are the basement and ground floor premises at No 2 Beauchamp Place. The Permitted User is any use within Class A1 of the Town and Country Planning (Use Classes) Order 1987 (as may be approved by the landlord in writing) except Class A1 (f) (h) and (i).
5. Clause 1.1 of the lease provides various definitions:

"the Building" means numbers 2, 3, 4, and 5 Beauchamp Place, London, SW3 of which the Demised Premises form part: Cl. 1.1 (b).

"Demised Premises" is defined as including

(a) the plasterwork and decorative finishes applied to the internal surfaces of the external and load-bearing walls and columns of the Building but not any other part of the external or load bearing walls and columns

(b) the floor finishes the raised floor and its supports and the void beneath the raised floor so that the lower limit of the Demised Premises includes such finishes raised floor supports and void but does not extend to anything below them: Cl.1.1 (d)

"Retained Parts" includes "the Structure": Cl.1.1 (o)

"Structure" includes:

(i) the entirety of the roofs and foundations of the Building;

(ii) the entirety of all floors and ceilings of the Building but excluding the floor finishes the raised floors and their supports and the void beneath the raised floors . . . ;

(iii) the entirety of all external walls of the Building but excluding the plasterwork and decorative finishes applied to the internal faces of such walls;

(iv) the entirety of all load-bearing walls pillars and other structures of the Building but excluding the plasterwork and decorative finishes applied to the faces of such walls pillars and other structures;

(v) . . .

(vi) all other parts of the structure of the Building not referred to on the preceding paragraphs (a) to (e): Cl 1.1 (q).

6. The covenants assumed by the Claimant included covenants:
7. 1. to pay the yearly and other rents reserved in the lease without any deduction or set off whether legal or equitable or otherwise: Cl 4.1
8. 2. to repair and put and keep the whole of the Demised Premises . . . in good and substantial repair and condition and to yield up the same at the expiration or sooner determination of the Term in good and substantial repair and condition in accordance with the covenants by the Tenant herein contained (damage by any Insured Risk excepted save to the extent that payment of the insurance monies shall be withheld in whole or in part by reason solely or in part of any act or default of the tenant . . ): Cl.4.3
9. 3. to pay to the Landlord without any deduction set off or counterclaim by way of further rent on demand or if required by the Landlord on account at the time and in the manner set out Part II of Schedule 5 a fair and reasonable and proper proportion of the aggregate costs expenses and fees properly expended or incurred by the Landlord for or in connection with or relating to the provision of services to the Building and other heads of expenditure as the same are set out in Part 1 of schedule 5 (whether the Landlord be obliged . . to incur such expenditure or not) . . . : Cl 4.6.1... Paragraphs 1 and 2 of Part 1 of Schedule 5 provide

1 All costs and expenses whatsoever incurred by the Landlord in and about the discharge of the obligations on the part of the Landlord set out in clause 5.3. . .

2 Maintaining, repairing amending altering rebuilding renewing reinstating the Retained Parts.

10. The Landlord's covenants included:

An obligation, subject to the Tenant's compliance with clause 4.6 to use reasonable endeavours to maintain repair and renew the Structure . . . : Cl.5.3.2.

Witnesses

11. During the course of the action I heard evidence from the following witnesses:

On behalf of the Claimant:

Miss Aliza Reger (sometimes called Mrs Aliza Reger-Claremont) a director of the Claimant and the wife of Mr Claremont.
Mr Claremont the Company Secretary of the Claimant.
Mr Peter Harris FRICS a construction dispute consultant and expert witness for the Claimant.
On behalf of the Defendant:
Miss Natalie Shulman a property manager with Pearl and Coutts Limited ("Pearl and Coutts")
Mr Trevor Langley a property manager with Pearl and Coutts
Mr Hedley Merriman FRICS and a director of Pater Goodman Merriman, surveyors, expert witness for the Defendant.


The Background.

12. The Claimant trades in the design, production and sale of upmarket lingerie and nightwear under the label "Janet Reger". It is a highly respected brand within its industry. The business was founded by Janet Reger the mother of Miss Aliza Reger.
13. The business of Janet Reger has traded from premises at 2 Beauchamp Place for some 30 years. In 1997 the freeholds of numbers 2 to 10 Beauchamp Place were sold and redeveloped by new owners (Millbank Property Fund Limited and Pearson Nominees Limited). In order to allow the redevelopment to be carried out the Claimant moved its business to Number 10 Beauchamp Place temporarily and then moved back into Number 2 Beauchamp Place which was enlarged at the rear of the basement during the course of the development. Prior to the redevelopment the Claimant occupied the entirety of the building, but after the redevelopment, it occupied the basement and ground floor only.
14. During the course of the construction works the buildings at Numbers 2 and 3 Beauchamp Place collapsed into the street. This caused considerable delay to the reconstruction and the Claimant eventually moved back into the building on 8^th June 2000.
15. The basement and ground floor areas are arranged as follow. The ground floor is used for retail display and sale and includes a changing and stock room. The basement, which one can only enter through the shop, comprises a showroom at the back for wholesale sales at the rear of the building and open plan offices at the front. The rear room is higher than the front room and there is a staircase between the two. The basement also contains a small kitchenette and lavatory serving both the basement and ground floor. This is located between the rear and front rooms of the basement. The basement also has a storage vault under the pavement at the front of the building.
16. On 28^th August 2002 the freeholds of numbers 2 to 10 Beauchamp Place were acquired by Cosmichome Ltd which is in the same group of companies as the current landlord, the Defendant, which acquired the freeholds on 6^th May 2003.
17. The Defendant's managing agent is Pearl and Coutts which is ultimately owned by the same person as the Defendant.
18. At the beginning of July 2003 the basement of Demised Premises began to show signs of dampness. The wall between Numbers 2 and 3 Beauchamp Place showed signs of damp at a low level, paintwork started to blister and the Amtico floor covering started to lift in a number of areas. To the side of the the internal stairs leading to the showroom, kitchenette and lavatory the plaster and paintwork blistered and showed signs of dampness and one of the wooden treads on the stairs split. The matter was reported to Pearl and Coutts; by the end of July 2003 the damp had got worse and by August the condition of the basement had worsened appreciably with signs of damp showing throughout the basement.
19. By August the Claimant was considering relocating the offices and showroom and possibly the shop. The Amtico floor was lifting in various places and was likely to, as it did, cause someone walking over it to trip up. The air was damp and there was fungal growth on the walls. Mr Claremont became concerned for the welfare of his employees and the Claimant's potential liability to its employees under health and safety regulations. In addition the basement was becoming an unattractive place for clients to go into, whether clients of the wholesale business or the retail shop. Customers of the shop who wished to use the lavatory had to go downstairs and the appearance was unsightly and not up to the standard of what one might expect in a shop in one of London's premier shopping streets.
20. The damp in the basement also caused problems in the shop. The smell permeated into the shop particularly over a period when the door to the shop was closed for a long period, such as between Saturday evening and Monday, and scented candles were used to mask the smell. The nature of many of the Claimant's products which are made of delicate silk material is such that the environment was becoming unsuitable. Retail stock could not be stored in the basement. The front office was also deteriorating and it was becoming unreasonable to expect staff to work in the damp and unsightly environment.
21. The Claimant contacted Pearl & Coutts to inform them of the damp problem. It appeared to be the shared view of the Claimant and Pearl & Coutts that the damp was caused by leaking pipes in Number 3 Beauchamp Place from which operated a restaurant called Al Casbah. By 14^th August 2003, the problem caused by the damp was sufficiently serious for the Claimant to ask their solicitors Messrs Brecher & Abram to write to Pearl & Coutts on their behalf in order to emphasise how serious the problem was. Brecher and Abram warned that the Claimant was considering vacating not just the basement but also the shop. Pearl & Coutts applied pressure on the tenant of Number 3 to repair any leaking pipes. By 26^th August 2003 the tenant of Number 3 had indicated that his plumber had already repaired one leaking pipe and was checking the drains.
22. In September a Mr Phillips of Capital McLarens, loss adjusters, visited the premises. He informed Mr Claremont that before repairs could be carried out the cause of the damp had to be ascertained, but he arranged for a firm of building surveyors to visit the premises to consider the state of the property and ascertain what works of reinstatement and redecoration were required.
23. On 5^th September 2003 a Mr Hughes of Focus Chartered Surveyors ("Focus") visited the premises. He informed Mr. Claremont that major works would be required to repair the floor including restructuring the floor, replastering, decoration, drying out and dehumidifying the premises. Mr Claremont became increasingly concerned as to the consequences for the business of substantial building works being carried out in the basement. It appeared to him that whilst any such work was going on it was going to be very difficult for the shop and basement to function normally and that both floors of the premises might have to be vacated. By 18^th September 2003 Focus had prepared a schedule of works which were estimated to cost approximately £23,000. Mr Claremont informed Mr Hughes that the Claimant would be most unhappy if the works were carried out before Christmas as the period before Christmas was the Claimant's busiest trading period.
24. On 21^st October 2003 Mr Merriman inspected the premises on behalf of the Defendant. He reported his findings by a letter dated 4^th November 2003 to Pearl & Coutts. He reported that there was some pipe work in the basement screed of Number 3 which the previous tenant had disconnected due to leaks and that it was possible that the current tenant of Number 3 had reconnected the pipes. He indicated that the preferred method of dealing with the matter would be to identify the pipes which might be leaking and cut them off and run surface pipes to replace them. It would then take some time before it would become clear whether that had solved the damp problem in the Demised Premises. Mr Merriman also warned, with considerable foresight, that the dampness in the basement might also be occurring as a result of defects in construction of the building, in particular, measures taken in relation to the water proofing of walls and floors. He reported that he was surprised to find damp readings round large areas of the basement and that the Amtico floor covering was lifting in a number of areas to both the front and rear basement rooms.
25. On 18^th November 2003 Pearl & Coutts informed the Claimant's solicitors that there might be a leak in the pipe work of Number 3 but the dampness in the premises might be caused as a result of defects to the damp proofing course. Pearl & Coutts suggested that the Claimant remove the existing floor coverings in the basement and put down a temporary floor finish. They indicated that the Defendant was not accepting any responsibility for the costs of doing this "as these will fall on Al Casbah if their defective pipe work is indeed to blame".
26. In January 2004 the Claimant started to look for alternative office premises as it considered that the state of the basement made it difficult to use as an office or for storage of documents and lingerie.
27. In March 2004 Mr Claremont noticed a further leak in the vault area of the premises. The floor was covered in water, the walls showed signs of damp and blistering and various items stored in the vault had been damaged. It appears that water was entering through the glass paving lights. Pearl & Coutts informed Mr Claremont that repair of the leak was not the Defendant's responsibility but the Claimant's. Mr Claremont responded that the Claimant did not accept responsibility for these works.
28. On 2^nd April 2004 Mr Merriman carried out another inspection of the premises. He reported by letter dated 8^th April 2004 to Pearl and Coutts that it appeared that the dampness in the premises was caused in the works of alteration undertaken by the previous owners of the building and that details of the damp proofing works carried out in the course of the rebuilding should be obtained.
29. On 11^th May 2004 Mr Claremont spoke to Mr Merriman and complained about the length of time it had taken to sort out the damp proofing problems in the basement.
30. In an email of 12^th May 2004 to Mr Langley, Miss Shulman indicated that if the Defendant damp proofed the basement that would mean moving the Claimant out and "will cost us a fortune all round". By 27^th May 2004 Mr Langley had already told the Claimant that a damp proof course would have to be inserted in the basement. On that date Salter & Co wrote to Pearl & Coutts and informed them that the Claimant's use of the basement had become untenable and they had found alternative premises at 8 Beauchamp Place ("Number 8") and that the Claimant had entered into negotiations for a licence for between 6 to 12 months depending on the amount of time it believed that the Defendant required to carry out the works. Salter & Co also indicated that the Claimant would withhold some part of the rent. A chaser was written by Salter & Co on 10^th June 2004 and a further chaser on 14^th July 2004. The letter referred to the serious damp problems in the basement. These letters were never replied to. It was not suggested that the basement was still in a condition where it could be used as an office for the shop or to store documents or stock for the shop.
31. On 5^th July 2004 LSE Preservation Limited visited the premises in the company of Mr Langley. LSE had injected a chemical damp proof course to the front section of the party walls above the line of underpinning carried out during the rebuilding but not to the wall at the rear of the basement. They had not been responsible for the damp proof course at the level at which the damp was appearing and they confirmed that the damp was not appearing through a defect in the chemical damp proof course. They recommended that the floor should be opened up and examined.
32. On 27^th July 2004 the entire office and showroom in the basement of Number 2 was moved to Number 8. This move, of course, entailed moving all the equipment of an office such as computers, phone systems and the installation of an alarm system. The retail shop remained at 2 Beauchamp Place. The Claimant took a 6 month licence (at a cost of £12,500) to the first and second floors of Number 8 with the consent of the Defendant, the consent of which was required as it was the freeholder of Number 8.
33. The Defendant admits that if it was under an obligation to carry out the works to prevent the damp in the basement then, as of 27^th July 2004, it was in breach of its obligations to use reasonable endeavours to carry out the works. The Claimant does not contend for any earlier date. It is for that reason that I will not set out a detailed description of the course of events and causes of the delay in carrying out the works. If the Defendant was in breach of its obligation to carry out reasonable endeavours to carry out the works it will be liable for any recoverable damages arising from the delay and the delay continues until completion of the works.
34. Little progress was made over the succeeding months to resolve the problems in the basement. In October 2004 Mr Merriman with the assistance of contractors made three holes in the basement floor to try and establish the nature of the damp proof course and whether a damp proof membrane had been installed. It then became apparent that the damp proof course had not been effectively installed. The damp proof membrane laid above the floor slab was not tied into the damp proof course within the party wall with Number 3 Beauchamp Place and nor was there a link to the damp proof courses installed at the rear of the basement (if a damp proof course had been installed in the wall to the rear).
35. The Claimant's continued to press the Defendant to get on with the works but by the end of October 2004 its solicitors (by then Salter & Co) by letter dated 26^th October 2004 indicated that the works should be carried out by the beginning of 2005 and not in the period leading up to Christmas 2004 so as not to disrupt the business in the period leading up to Christmas. The letter threatened proceedings in the light of the Defendant's delay in carrying out the works and sought damages in relation to the cost of removal to Number 8, loss of profits, for inconvenience and various other matters.
36. On 15^th November 2004 Mr Merriman wrote to Pearl & Coutts to report that a study of the drawings for the refurbishment of the premises together with the result obtained from the opening opened in the floor showed that the damp proof membrane to the floor slab were not continuous with any damp proof course to the walls. The defects resulted from poor design and workmanship. He proposed three ways in which the defective construction could be remedied; he dismissed two of these on grounds of practicality and recommended a third which involved the removal of the existing floor screed to provide a new damp proof course turned well up the walls to avoid instances of rising dampness and to install a new screed and floor finish. A preliminary schedule of works was attached to the letter. On 6^th January 2005 that part of Mr Merriman's letter dated 15^th November 2004 was passed on to the Claimants headed "without prejudice" with an expanded schedule of works.
37. By November 2004 it was clear to the Claimant that the works in the basement were not going to be carried out before the Claimant's licence to Number 8 expired and accordingly the Claimant set out to find alternative premises to which it could move after the expiry of the licence. Eventually the Claimant found alternative premises at 138 Brompton Road, London SW3 ("Number 138") about 200 yards from the retail shop which continued and continues to operate from 2 Beauchamp Place. Number 138 was only available on a 2 year lease at a rent of £24,000 per annum inclusive of service charge and exclusive of business rates. The Claimant moved from No 8 to Number 138 on 25^th January 2005.
38. On 9^th December 2004 the new tenant of Number 3 wrote to Pearl & Coutts to the effect that water was leaking into the underground entrance of Number 3 from an external source and that a damaged main in the street was due to be repaired.
39. In December 2004 it was discovered that a mains water pipe outside Number 3 was leaking. That was repaired on 19^th January 2005.
40. On 4^th February 2005 Mr Harris wrote to Mr Merriman commenting on his proposed schedule of works and disagreeing with one of Mr Merriman's proposals for the builders. He also suggested that the source of the water flowing into Number 3 needed to be fully investigated.
41. The Claimant lost patience with the Defendant and Pearl & Coutts due to the lack of progress in carrying out the works. Accordingly on 13^th July 2005 a letter before action was sent which contained draft particulars of claim. The letter expressed the hope that the Defendant would immediately put in hand the carrying out of the works so as to avoid the need for litigation. Pearl & Coutts replied on 12^th August 2005 stating that their clients had always been willing to carry out the works but denied any financial liability for doing so.
42. The proceedings were commenced on 23^rd August 2005.
43. On 19^th September 2005 Mr Merriman contacted Mr Harris in relation to the comments made on 4^th February 2005 on the proposed schedule of works. Mr Harris responded on 20^th September 2005 and referred to the fact that the period to Christmas 2005 was the Claimant's business trading period and did not recommend that the works be carried out till 2006.
44. In correspondence dated 29^th September and 5^th October 2005 the Defendant, by it solicitors, was making the point that albeit that it was prepared to carry out the works it was not admitting the cause of the damp or that it was in breach of its obligation to exercise reasonable endeavours to carry out the works to prevent the damp..
45. It is now hoped that the works to the basement can be carried out during the later summer months of 2006.

The cause of the damp

46. Mr Merriman and Mr Harris are in substantial agreement as to the cause of the damp. They agree that the damp proof membrane has failed to work and this was aggravated by the burst main outside Number 3. The damp was not caused by a leaking pipe in Number 3. They are also agreed on the works which are needed to prevent further damp; in essence the works involve the preparation of the floor and walls to a height of 1 meter above ground floor level to receive an applied linked horizontal and vertical damp proof RIW Toughseal floor coating and a three coat Sika wall render. Mr Harris graphically described the process as the insertion of an inverted swimming pool. They disagree whether the Claimant should have to vacate the ground floor shop when the works are carried out. Mr Merriman agreed in cross examination that the works could take as long as 8 to 12 weeks to carry out. Mr Harris considered that the works would take 12 weeks.
47. Mr Merriman on his visit to the Demised Premises on 21^st October 2004 with a building contractor removed sections of the party wall plaster and the concrete floor adjacent thereto within the basement area. He found that there was a blue polythene damp proof membrane laid above the floor slab but that it did not extend as far as the walls. There was a gap through which water could penetrate into the floor slab and rise up the walls. There was not continuous damp proof protection between the floor and walls.
48. Mr Merriman's exhibited two drawings prepared for the reconstruction of the building in the late 1990's. One drawing shows the building in section. It records "existing floor broken out and levels reduced. New 65 mm thick screed laid on 25 mm thick Jablite HD polystyrene insulation on new 150mm thick conc. slab on DPM on 100mm binding on well compacted hardcore to engineer's detail". DPM probably stands for "damp proof membrane". The second page of the drawing shows how it was intended that the membrane was to be laid. There was to be a membrane under a new concrete slab. The membrane was to extend to the end of the slab and then turn upwards to above the top of the slab. There was then intended to be a flexible joint, above which there was to be Sika tanking which is a waterproof cementitious render. If the work had been properly carried out as shown on that drawing, that would have prevented water from penetrating into the floor slab and walls.
49. Mr Merriman concluded from his observations that the works had not been properly carried out. The membrane does not extend to the walls and there is no Sika render or other adequate damp protection on the walls.
50. Mr Harris in his report concluded that the dampness was due to the breakdown of the damp proofing measures incorporated into the building during reconstruction works or a failure to install the damp proofing measures in a way as to make them effective In relation to the latter he said in his report "it is essential that all the elements of the zone, both horizontal and vertical and all perforations into the zone are continuous without break. Visual examination of the sample trial holes show no linkage of the floor horizontal damp proof membrane with that of the wall damp proof membrane or injected damp proof barrier if there was one inserted.".
51. Mr Harris had no evidence to support his alternative suggestion that the membrane might have been damaged by workmen walking or wheeling wheel barrows over the membrane during building works. That appears to have been speculation on his part as to what might have happened to cause the damp in the basement.
52. Both experts were agreed that the main which was leaking outside Number 3 and which was repaired on 19^th January 2005 could have exacerbated the problem. The evidence as to how long the mains had been leaking was anecdotal. Mr Harris had been told that it had been leaking for months and months by one of the partners in Al Casbah.
53. Three days before the trial started Mr Harris wrote a letter which was intended to supplement his expert's report. Mr Harris had apparently been asked to consider whether the Structure had been damaged as a result of the rising damp. He wrote that "we have a situation now of brickwork, which was meant to be kept dry, becoming wet and deteriorating due to natural sulphates in the ground permeating the brick via the ground bourne moisture/water." He also referred to the efflorescence near the retaining structure around the staircase linking the lower to the upper basement areas.
54. Prior to this Mr Harris had not raised the possibility of damage to the Structure. His explanation for that was that he had not considered that it fell within the terms of the Master's order made on 23^rd January 2006 which provided that each party had permission to adduce expert surveying evidence (in the form of a limited report) in relation to various matters including (a) actual state of the premises (i.e., the basement of 2 Beauchamp Place, London SW3) since July 2003 to date with particular regard to damp and water ingress and (b) any and all effective causes and sources of damp and water ingress to the said premises since July 2003 to date. He had read the reference to "premises" as being coextensive with the expression Demised Premises. As a result of his misconception he had confined his investigations for the purpose of his report to matters falling within the definition of Demised Premises – which did not include the brickwork which fell within the expression "Structure".
55. He had not investigated the Structure at all and made no tests on the brick work to see if his theory as to possible damage to the bricks was borne out. He referred to a publication "Defects in Buildings, Symptoms, Investigation, Diagnosis and Cure" to support his assertion that sulphate attack could occur to the brickwork or concrete in the building. London Clay is apparently particularly prone to contain sulphates and the way of avoiding the problem is to use sulphate resisting Portland cement – which would not have been available when the building was first constructed but was available when the reconstruction occurred in the late 1990's. However the writer of Defects in Buildings at page 13 states that small amounts of salts are present in bricks and if the bricks are exposed to water the salts may appear on the surface as efflorescence and that in general this phenomenon is harmless. Albeit there may have been limited efflorescence on the walls there is no evidence that the walls have suffered any material damage.
56. Mr Merriman had borne in mind the Structure of the building when carrying out his inspections and found no indications of any breakdown in bricks or blocks. Mr Harris had agreed to the schedule of works without suggesting that there might be structural problems. Mr Harris also stated that he thought the building would be sound for at least another 20 years. Mr Merriman thought it would be sound for considerably longer than that.
57. I do not consider that there was any evidence of damage to the Structure. Mr Harris's evidence on this point amounted to conjecture.
58. Accordingly I find that the damp in the basement to Number 2 Beauchamp Place was caused by a defectively installed damp proof membrane in that the membrane was not linked into the damp proof course in the walls (to the extent that there was such a course) and that there is no damage to the Structure.

Was the Defendant under an obligation to carry out the works to prevent the damp entering into the basement ?

59. The Claimant contends that the Defendant was under an obligation to carry out the works pursuant to (i) the obligation on the Defendant in clause 5.3.2 of the lease that the Landlord will use reasonable endeavours to (amongst other matters) maintain repair and renew the Structure or (ii) an implied term to the effect that:

"The Landlord shall use reasonable endeavours to remedy any defective part of the Structure of the Building which is, or threatens to cause immediate damage to any part of the demise which the Tenant is obliged to maintain and/or keep in substantial repair and condition under its covenants in the lease".

Reliance upon a claim in nuisance was abandoned by the Claimant.

Is the Defendant in breach of clause 5.3.2 ?

60. The definitions of "the Structure" and "the Demised Premises" in clause 1.1(d) and (q) of the lease provide which parts of the building fall within the expression "Structure" and "Demised Premises" and clauses 5.3.2 and 4.3 impose an obligation to repair the Structure and the Demised Premises upon the Landlord and Tenant respectively.
61. It was common ground that the damp proof membrane formed part of the Structure.
62. The expression "maintain " connotes an obligation in this context to keep the Structure in the same condition as when it was demised. At that date, 21^st February 2001, (or 8^th June 2000 when the lease was deemed to commence) the damp proof membrane was in the same state as it is today. There is no evidence of any deterioration in the damp proof membrane; the evidence is that it was not properly installed and the defective installation is the cause of the damp penetration.
63. The expression "renew" adds little to the expression "repair": see Collins v Flynn [1963] 2 All ER 1068 and Dilapidations by Dowding and Reynolds 3^rd Ed at paras 4-25 and 4-26. The obligation to repair may well include renewal but it is difficult to see why a landlord should be under an obligation to renew the subject matter of the covenant absent an element of deterioration or perhaps, depending on the subject matter of the covenant, when disrepair is imminent.
64. A landlord's obligation to repair arises when the subject matter of the covenant, in this case the Structure, has deteriorated from a previous condition so that it has fallen below a standard which a reasonably minded tenant would expect under the lease. It will only be in a state of disrepair if one can point to a previous time at which the Structure was in a better condition so that one can say there has been deterioration. As Lawton LJ said in Quick v Taff- Ely [1986] QB 809 at p. 821G

As a matter of the ordinary usage of English that which requires repair is in a condition worse than it was at some earlier time. This usage of English is, in my judgment, the explanation for the many decisions on the extent of a landlord's or tenant's obligation under covenants to keep houses in repair."

and at p.823B:

"In my judgment, there must be disrepair before any question arises as to whether it would be reasonable to remedy a design fault when doing the repair. In this case, as the trial judge found, there was no evidence that the single glazed metal windows were in any different state at the date of the trial from what they had been in when the plaintiff first became a tenant. The same could have been said of the lintels. The judge misdirected himself in finding that these windows required repair."

Dillon LJ at 818D and Neill LJ at 823C gave judgments to the same effect.

65. The fact that there may be a loss of amenity due to the design fault does not lead to the conclusion that there is disrepair. The matter was put succinctly by Ralph Gibson LJ in Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055 at (1063 d).

"I found it at first to be a startling proposition that, when an almost new office building lets groundwater into the basement so that the water is ankle deep for some years, that state of affairs is consistent with there being no condition of disrepair under a repairing covenant in standard form whether given by landlord or tenant. Nevertheless, as was pointed out in the course of argument, the landlord of such a building gives no implied warranty of fitness merely by reason of letting it; and neither a landlord nor a tenant who enters into a covenant to repair in ordinary form thereby undertakes to do work to improve the demised premises in any way. I see no escape from the conclusion that, if on the evidence the premises demised are and at all times have been in the same physical condition (so far as concerns the matters in issue) as they were when constructed, no want of repair has been proved for which the tenants could be liable under the covenant".

At page 1063(g) he held that the principle was not confined to bad design but applied to bad workmanship.

66. I note also that where the parties to the lease intended to provide for an alteration to the Retained Parts (which includes the Structure) the parties expressly referred to alteration. Thus under clause 4.6 and Schedule 5 Part 1 para 2 the Landlord is given the right, but is not obliged, to do work consisting of "maintaining repairing amending altering rebuilding renewing and reinstating" the Retained Parts.
67. It does not follow that that compliance with a covenant to repair cannot require poor workmanship or a design defect to be rectified. Provided that there is damage to the subject matter of the covenant, so that repair is needed, it may be the case that sensible repair work will include putting right a design defect that has led to the damage. In Lee v Leeds City Council [2002] 1 WLR 1488 Chadwick LJ at p.1496 said in relation to Stent v Monmouth County Council 19 HLR 269 and Elmcroft Developments Ltd v Tankersley-Sawyer [1984] 1 EGLR 47

"But it is important to keep in mind that, in those cases, there was evidence of damage to the structure (the damaged plaster being treated as part of the structure for that purpose) which gave rise to the need for repair. The cases show that, where there is a need to repair damage to the structure, the due performance of the obligation to repair may require the landlord to remedy the design defect which is the cause of the damage. They do not support the proposition that the obligation to repair will require the landlord to remedy a design defect which has not been the cause of damage to the structure; notwithstanding that the defect may make the premises unsuitable for occupation or unfit for human habitation."

There is no reason why the same principle should not apply to defective workmanship.

68. The Claimant submitted that a repairing covenant may (but not necessarily will) require the rectification of an inherent defect citing Quick v Taff-Ely Borough Council [1986] QB 809. It may do so provided, in relation to a covenant relating to Structure, there has been damage to or deterioration in the Structure which requires to be made good ; it is only after that requirement is satisfied that the covenant comes into operation. Elmcroft v Tankersley-Sawyer [1984] 1 EGLR 47 is not authority for a different proposition: see Chadwick LJ in the decision in Lee v Leeds City Council which I have cited above. In Elmcroft the covenant concerned required the landlord to "maintain and keep the exterior of the building . . the main walls in good and tenantable repair and condition". The Court proceeded on the basis that the landlord was obliged to repair the plaster on the walls once it was damaged by rising damp – that was conceded by the landlord in argument. Accordingly the covenant operated and the case, on this aspect, was really about the extent of the repairs which the landlord was obliged to carry out once the covenant operated. The court held that once it operated, in the circumstances, the obligation extended to inserting a damp proof course because in that case that was a reasonable course to expect the landlord to take in relation to the premises.
69. I have found that there was no deterioration to the bricks (or blocks) in the walls as a result of the damp. Even if I were wrong on that, and some process of deterioration had started, I would not hold that the Defendants were liable to repair or replace the bricks under clause 5.3.2. Mr Harris's evidence was clearly to the effect that he expected the works to produce a satisfactory result for at least 20 years. In a sense all structures start to deteriorate the moment they are constructed. In the absence of any expectation by anyone that the alleged deterioration in the bricks will manifest itself in any way so as to produce any adverse affect on the tenant during the anticipated course of the life of the lease and the likelihood, which I find, for many years after that, any deterioration has not yet occurred to an extent which requires it to be repaired under clause 5.3.2. If deterioration has occurred it is immaterial.
70. Accordingly I find that the Defendant is not liable to carry out the works under clause 5.3.2 and is not in breach of it.

Is there an implied term in the lease to the effect that the Landlord will remedy any defective part of the Structure which causes damage to part of the Demised Premises which the Tenant is obliged to maintain in the terms asserted by the Claimant ?

71. A court will be slow to imply a term into a lease for the reasons summarised in Hannon v 169 Queen's Gate Ltd [2000] 1 EGLR 40 by Mr Bernard Livesey QC at p.41L

"… the courts are reluctant to imply a term where, as here, there is a long and complex legal document drawn up by the lawyers in which the parties have crystallised the terms of their relationship. The conditions that must apply before the courts will imply a term in these circumstances were set out by Lord Simon in BP Refinery (Westernpoint) Pty Ltd v Shire of Hastings (1978) 52 ALJR 20 at p26 and repeated by Sir Thomas Bingham MR in Philips Electronique Grand Public SA v British Sky Broadcasting Ltd [1995] EMLR 472 at p481 as follows:

for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

To this, the defendant has suggested that a sixth principle has been added by Hughes v Greenwich London Borough Council [1994] 1 AC 170, that the courts would imply a term into a contract only where there was a compelling reason for doing so, which I accept, although it seems to me that this may simply be another way of looking at Lord Simon's second condition.".

72. In Lee v Leeds City Council¸ Chadwick LJ considered whether it would be right to imply an obligation on the part of the landlord to keep premises in good condition where the tenancy agreement contained an express provision that the landlord would keep the structure in repair: see paras 60 to 68. He pointed out that some tenancy agreements oblige the landlord to keep the house "in good condition", and that imposed a more extensive obligation than to repair. He then said, at para 62, that:

"It must follow that to imply an obligation to keep the dwelling in good condition in a tenancy agreement which contains only an express term to keep the structure in repair (as in the Lee appeal) or which contains no express repairing obligation on the landlord, so that the repairing obligations are those implied under section 11(1) of the 1985 Act (as in the Ratcliffe appeal) is to invite the criticism that the court is seeking to make for the parties a bargain which they have not themselves made. The term would impose on the landlord obligations which, on a proper understanding of the law as explained by this court in Quick's case [1986] QB 809, the landlord could not have intended to undertake. Nor, viewed objectively, could the tenant have thought that the landlord did intend to undertake those obligations: see the observations of Lord Hoffmann in Southwark London Borough Council v Mills [2001] 1 AC 1, 12: "In the grant of a tenancy it is fundamental to the common understanding of the parties, objectively determined, that the landlord gives no implied warranty as to the condition or fitness of the premises." Lord Millett explained the position in the following passage, at pp 17-18:

'It'—the principle that a tenant takes the property as he finds it — 'is simply a consequence of the general rule of English law which accords autonomy to contracting parties. In the absence of statutory intervention, the parties are free to let and take a lease of poorly constructed premises and to allocate the cost of putting them in order as they see fit. The principle applies whether the complaint relates to the state and condition of the demised premises themselves or, as in the cases cited, of other parts of the building in which the demised premises are located.'

73. In the present case, it is noteworthy that the tenant's covenant in clause 4.3 is not only to repair, but also "to put and keep the whole of the Demised Premises … in good and substantial repair and condition ...". There is no obligation on the landlord to put the Structure in good condition in the lease.
74. The works that are to be done to the basement are works of lining the interior faces of the Structure with waterproof material. The purpose of those works is not to put right damage to the Structure. It is not to protect the Structure from imminent deterioration. It is to protect the plasterwork and Amtico floor tiles from being damaged by damp. This is adding a new feature to the interior, to the Demised Premises, which is not there at the moment. The work is, then, necessary to put and keep the Demised Premises – the interior decorative finishes of the basement – into good and substantial repair and condition. It is work falling within the tenant's covenant in clause 4.3 not the landlord's covenant in clause 5.3. It might be that the tenant could comply with clause 4.3 in some other way, such as replacing the plaster and Amtico tiles from time to time, but there is no doubt that the work that is to be done is one way of complying with clause 4.3. It is, of course, work which the Landlord may carry out and charge for under clause 4.6.1 of the lease.
75. An implication of the kind suggested is wholly inappropriate. It meets none of the conditions for the implication of such a term:
76. 1. It is not reasonable and equitable. It imposes an obligation on the landlord to improve the Demised Premises. Under the lease, the landlord has the right, but not the obligation, to make alterations and improvements. Under clause 4.6 and Schedule 5 Part 1 para 2 the landlord is given the right, but not the obligation, to do work consisting of "maintaining repairing amending altering rebuilding renewing and reinstating …" the Retained Parts. It is neither reasonable nor equitable to re-write the parties' bargain to turn a right into an obligation.
77. 2. It does contradict express terms of the lease. It turns a right into an obligation, and transfers work that falls within the tenant's repairing covenant to the landlord's repairing covenant
78. 3. It is not necessary to give business efficacy to the lease. The lease works perfectly well without such a term.
79. 4. It is not obvious, and certainly not so obvious that 'it goes without saying'.

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80. Accordingly I do not consider that there is any such implied term in the lease.

Is there an implied term that in circumstances where the Landlord has the right, but not the obligation, to carry out works to the premises the Landlord must, within a reasonable time or upon request, inform the Tenant whether and if so when and how it intends to carry out the works ?

81. The Claimant submits that if the Defendant is not under any obligation to repair the damp proof course then there should be an implied term to the effect that:

"If any part of the Retained Parts is in need of remedial works which the Landlord is not obliged to but may carry out under the terms of this lease then the Landlord must, within a reasonable time or upon request, inform the Tenant whether, and if so, when and how it intends to carry out those works".

82. I consider that no such term can be implied. It is not necessary to imply any such term. If the Tenant wishes to know whether the Landlord will carry out the works it can ask; if the Landlord declined to answer then the Tenant is free to set about carrying out the works itself in order to comply with its own covenants and to seek such consents from the Landlord as it might require under clause 4.9.2. It is also not clear what happens under such a term if the Landlord's response is to state that it intends to carry out the works in two years time. It was not contended by the Claimant that there was implied term to the effect that if the Landlord responded to the Tenant's request that it would carry out the works it had to specify a reasonable time within which it would carry out the works.
83. The Defendant makes the additional point that Mr Claremont in his evidence emphasised that the Claimant had not been prepared to carry out the works itself at any time as it was not certain that the works would solve the problem. Accordingly had the Claimant been told that the works would be carried out in 2006 it would have acted precisely as it did. It is difficult to see how a breach of this term, if it could be implied into the lease, caused the Claimant any loss.

Was the Claimant entitled to withhold any part of the rent pursuant to clause 6.6 of the lease ?

84. Clause 6.6 of the lease provides that if any part of the Demised Premises should be damaged by an Insured Risk so that the Demised Premises or part thereof are unfit for occupation and use the rent and Service Charge or a fair proportion thereof according to the nature and extent of the damage sustained shall be suspended until the Demised Premises or the relevant part thereof shall be rendered fit for occupation and use or until the expiration of three years from the date of the damage whichever shall be the earlier.
85. The Claimant purported to exercise this right and informed the Defendant that it would do so by letter dated 27^th May 2004. The Defendant did not assert that it was not entitled to do so until service of the counterclaim seeking payment of the monies withheld.
86. Insured Risk is defined in clause 1.1 (f) of the lease. The definition includes "such risks as the Landlord may from time to time in its absolute discretion think fit to insure against".
87. The insurance policies (which were annual policies starting on 1^st January) for the period June 2003 to June 2006 insure the Defendant for loss caused as a result of the Building suffering damage through "Escape of Water". The policies provide that the Defendant is insured against physical loss or damage occurring during the period of insurance directly caused by (amongst other matters):

"8 Escape of water from any tank, apparatus or pipe including the cost of replacing any tank apparatus or pipe which has suffered physical damage at the time of the loss

If there is an escape of water from the above equipment which causes damage to the insured property the company will pay for the necessary and reasonable expenses the insured incur in locating and making good the source of the escape of water.".

There is excluded from cover any loss or damage (a) arising directly or indirectly from seepage, (b) attributable to a rise in the water table or (c) which originated before the start of "this insurance".

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88. The only leak from any pipe to which the dampness could be attributed is that in the mains pipe outside Number 3. That leak was repaired on 19^th January 2005 and there is no evidence that it has continued to contribute to the dampness after that date.
89. I consider that the insurance was not intended to cover a leak from a pipe which was not owned by the Landlord so as to form part of the Building; alternatively the damage was not caused directly by a leaking pipe within the terms of the policy but by seepage through the ground and the defective damp proof course which, but for its defects, should have prevented the damp caused by the leak entering the premises. It is noteworthy that the exclusion for seepage applies to all the Insured Perils in Section A of the insurance policies and accordingly seepage cannot be confined to seepage caused by wholly natural causes.
90. It follows that Claimant should not have withheld monies pursuant to clause 6.6 of the lease and the amount withheld must now be paid. The amount withheld amounts to approximately £77, 500.
91. In addition the Claimant should have paid the further rent payable in respect of insurance premiums pursuant to clause 3.2 of the lease. That clause incorrectly refers to the payment by the Landlord of insurance premiums under clause 4.2 (which clause provides for the Tenant to bear future taxes and rates etc levied on the Demised Premises). The reference to "4.2" is an obviously mistaken reference to clause 5.2 which imposes an obligation upon the Landlord to pay insurance premiums required by an insurance company for keeping the Demised Premises fully insured. There is a clear mistake in clause 3.2 (the reference to clause 4.2)and it is clear what the correction is – it is to refer to clause 5.2. Accordingly I can correct the mistake as a matter of construction: see Littman v Aspen Oil (Broking) Ltd [2005] All ER (D) 262 (Dec) paras 3 to 17.
92. The Defendant claims interest on the amount withheld at three percentage points above the base rate of National Westminster Bank plc' s base rate pursuant to clauses 4.33 of the lease. I shall hear submissions in relation to interest after delivery of this judgment.
93. In the event that I ruled against the Claimant in relation to its application for specific performance and damages I was asked to deal with damages on the basis that the Claimant was correct in its contention that the Defendant was in breach of clause 5.3.2 of the lease on 27^th July 2004 in case this matter should go further and it be held on appeal that the Claimant is entitled to damages for breach of clause 5.3.2.. In the light of the schedule of damages I indicated that I would rule on damages but on the basis that both parties were free to raise any particular points of detail on my ruling at the time judgment was delivered.

Was the Claimant's decision to vacate the basement and move to Number 8 a reasonable one ?

94. This question raises two issues. First, for what purpose could the basement be used in accordance with the lease; secondly, in the light of that purpose, was it reasonable to vacate the basement.
95. Under clause 4.11 of the lease the Claimant covenanted not to use the premises for any purpose other than the Permitted Use, i.e., in the circumstances, as a retail shop or ancillary purposes thereto. The use of the premises to run a wholesale selling business, or as offices for purposes unconnected to the retail shop, is not within the permitted user. The plan attached to the lease described the back room as a "new retail area". Mr Claremont's evidence was that when the Building was being rebuilt Mr Till of Jones Lang Lasalle agreed to build a show room at the rear or upper part of the basement. Although Mr Claremont said in evidence that Mr Till was aware of how the premises were to be used he did not say that Mr Till was aware that the back room was to be used as a showroom for wholesale as opposed to retail sales. Furthermore there was no claim for rectification of the lease to permit a wholesale showroom or that there was a collateral contract to the effect that the Claimant could carry on a wholesale business in the basement: see for example the claim in City and Westminster Properties (1934) Ltd v Mudd [1959] 1 Ch 129.
96. It was not contended by the Claimant during the course of the trial that if the Defendant had been aware of the use to which the rear room basement was being put it was estopped from raising the argument that the Claimant could not recover damages for the cost of obtaining alternative premises in which to carry on a business which it was not permitted to carry on in the premises pursuant to the terms of the lease. In any event there was little evidence to support a claim that the Defendant was aware that a wholesale business was carried out from the rear of the basement and an internet sales business carried on from the front part of the basement. Miss Shulman and Mr Langley saw clothes hanging on rails and computer stations in the rear and front rooms respectively. From that they could not be expected to appreciated the nature of the businesses being carried on by the Claimant in the basement although Mr Langley stated in his evidence that from the number of computer stations it was clear to him that the front basement room was being used for something other than ancillary services for the shop. However that appreciation was rather late in the day as Mr Langley only became responsible for 2 Beauchamp Place on about May 2004. In any event it is well established that use of premises contrary to the provisions of a lease is a continuing breach and is only waived by the acceptance of rent down to the date of the acceptance and there is a new breach immediately thereafter which is not waived: see City of Westminster Properties (1934) Ltd [1959] 1 Ch 129.
97. However the office in the basement front room also provided ancillary services to the retail shop; it was useful to have the office in close proximity to the shop. Staff could go up to the shop and assist as and when required; in particular when the employee in the shop went out in her lunch break or went into the fitting room with a customer. Stock for the shop could be brought upstairs as and when required. Accordingly, if it was reasonable to move out of the basement, the Claimant would be entitled to any loss suffered through the delay in carrying out the works, insofar as the loss was attributed to the obtaining of alternative premises and facilities from which to carry out functions for the retail shop which could have been carried on in the basement in accordance with the terms of the lease.
98. I consider that the in July 2004 when the Claimant moved out of the basement that was a reasonable decision to take. The Claimant was not being unreasonably fastidious. The decision had to be taken in the light of the serious damp problems affecting the basement. It was common ground that the smell of damp was sufficiently strong to spread to the retail shop. Mr Merriman gave evidence that on his later visits the smell had diminished; it might well have done but that was because insofar as they could the Claimant kept the shop door open. It is clear that the Claimant could not keep the shop's stock in the basement as the stock would start to smell of damp, as Mr Merriman accepted. Mr Langley in his evidence suggested that whether the shop sold hard hats or ladies delicate lingerie made no difference. I do not think that the Claimant could offer silk lingerie brought up from the basement to customers in the shop if it smelt of damp. The risk of damage to the Claimant's goodwill would have been considerable. In addition the Claimant needed office facilities to service the retail shop. There is evidence that at least one employee tripped on a raised area of the floor. It is all very well to contend that the Claimant could have put a mat on the floor and removed the Amtico floor covering (as suggested by Pearl & Coutts in a letter dated 18^th November 2003) and that the employees could have put up with the visible signs of damp (such as fungal growth) and its smell. However the type of employee who wishes to work in a smart shop selling fine ladies lingerie is unlikely to stay content for long in a damp and unsightly working environment. It must have been difficult enough to have customers from the retail shop who wished to use the lavatory seeing the state of the basement as they descended into the basement. In addition the Defendant was showing few signs of wishing to carry out the repairs. By July 2004 the Claimant had been complaining of the problem for 12 months and Mr Langley had indicated that the Defendant would carry out works to the basement albeit no schedule of works had by that date been prepared.
99. Accordingly the move out of the basement can be justified on two grounds. First on the grounds that the basement was not suitable for use by employees providing ancillary services to the retail shop and secondly to enable the works to be carried out in the basement albeit a schedule of works had not been prepared by that date.
100. It follows that (in the event of a breach of clause 5.3.2) the claimant would be entitled to damages caused by the Defendant's failure to exercise reasonable endeavours to carry out the works.
101. The Claimant has no claim in damages in relation to those expenses which it would have incurred in any event had the Defendant fulfilled its obligation to act with reasonable endeavours. Furthermore it cannot claim for the additional costs incurred in obtaining accommodation for activities which it was not permitted to carry on in the premises and must give credit for betterment. I do however accept that the Claimant acted reasonably in not acquiring other basement premises in Beauchamp Place; that is because none would have been available as entry to the basement in Beauchamp Place properties is through the shops.
102. I also disallow the costs of replacement computers. I am not satisfied that the computers required replacement as a result of the damp. They were in any event three and a half years old and probably coming to an end of their useful life. I have set out on the attached schedule my assessment of the damages to which the Claimant is entitled (were the claim to be allowed) with short reasons adjacent to each of the items. As I indicated at the end of the trial the parties are at liberty to raise matters on the schedule when this judgment is delivered.
103. I do not consider that the Claimant contributed to the Defendant's delay in carrying out the works. Albeit that in 2004 and 2005 it requested the Defendant not to carry out the work in the period leading up to Christmas, that was not only a reasonable request, but also there was no evidence to suggest that but for the request the Defendant would have carried out the work earlier.
104. However, for the reasons set above, the Claimant is not entitled to an order for specific performance or any damages and is liable to pay the amount withheld under the lease in respect of rent and service charges including the payment in respect of insurance premiums.