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In a recent High Court case (Stonecrest Marble Ltd v Shepherds Bush Housing Association Ltd [2021]), the Court found that the landlord (a Housing Association notwithstanding the demised premises itself was a commercial property) was not liable to the tenant for damage to the demised premises caused by water ingress resulting from the accumulation of debris in a drainage gutter, which was part of the landlord’s retained property. Crucially, the landlord was (under the lease) expressly not liable to the tenant for disrepair caused by “damage or destruction by a risk against which the Landlord was not obliged to insure”.

The intention of the parties

Part of the problem for the tenant was that there was no express obligation on the landlord to repair the structure of the building. There was a covenant to repair common parts, but these were limited to access areas and bin stores.

The Court ultimately opined that there was no reason to impose liability on the landlord under the quiet enjoyment covenant, or an obligation to repair the gutter, or in tort.

The Court considered the intention of the parties at the outset of the lease, referring to a scheme (contained in the lease itself) for the repair and insurance of the demised premises and the common parts. On the face of it, there was nothing out of the ordinary here: the tenant keeps the demised premises clean and tidy and in good repair and condition; and the landlord uses reasonable endeavours to repair and maintain the common parts of the building. As noted above, the crucial exclusion was the landlord not being obliged to carry out repairs for damage caused by a risk which it was not required under the lease to insure.

Insured Risks – what is and isn’t included?

The Insured Risks in the lease included flooding and overflowing of water but these were subject to any exclusions imposed by the insurer. The landlord’s policy excluded damage caused by gradual deterioration or wear and tear which the Court determined that the water ingress was the by-product of – thus, it was essentially uninsured damage, which the landlord was not liable for. The lease itself did not cater for uninsured damage.

To make matters worse for the tenant, the court found that the rent could not be suspended for damage caused by a risk against which the landlord was not required to insure.

Ultimately, the court would not imply a covenant on the landlord to repair its retained land to contradict the expressly agreed repair and insurance scheme in the lease and in the face of an express exclusion of liability in contract, the court would not impose a similar liability in tort.

The key here is the exclusion clause, as the court would have implied a duty on the Landlord to take reasonable care to ensure that the parts retained by it did not cause damage to the demised premises (save for any express exclusions).

Red flag for tenants

It may look innocuous, but an exclusion of all liability for any matter which is not a defined insured risk is (albeit rare) a legitimate red flag for tenants.

Landlord and tenants have been known to adopt relatively lax approach to uninsured risks as the sort of damage that will never arise because 99.99 per cent of damage is insurable on the London insurance market for a reasonable sum. This case will encourage a closer look at those insured risk provisions and any exclusions in the landlord’s insurance policy. However, it is rare for an insurance policy to extend to disrepair resulting from neglect.

Conclusion

The lessons are clear for all tenants: ensure the landlord cannot exclude its liability for any damage which is not an insured risk – and if such a clause has to be agreed, make sure you read those exclusions in the insurance policy (although these of course may change over time). Also, don’t forget that properly drafted uninsured damage provisions provide essential clarity on situations where damage falls (for whatever reason) outside of the defined insured risks. Last but certainly not least, always ensure the landlord is under an obligation to maintain the structure.

If you require further information about anything covered in this briefing, please contact Jamie Goldberg or your usual contact at the firm on +44 (0)20 3375 7000.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, December 2021

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