Can the presence of asbestos be a breach of a yielding up clause in a lease?

Yielding up clauses in a lease determine what state of repair and condition the property must be left in at the end of a lease. For example, it may be just to return the property to the landlord in good repair.

When a commercial property lease comes to an end, the landlord can be left with a property in disrepair, which may lead to expensive remedial work or loss of rental income.

The extent of the tenant's obligations in relation to the repair of the property will be defined in the lease. Unless the repair obligation is expressly limited under the lease, the tenant can even be required to put the property in a better state of repair than it was at the start of the lease.

Pullman Foods Limited v The Welsh Ministers and another [2020] EWHC 2521

The most significant case in this relation is the recent high court decision in Pullman Foods Limited v The Welsh Ministers and another [2020] EWHC 2521, which highlighted the potential pitfalls for tenants in relation to yielding up obligations.

In this case, the court was asked to consider whether the tenant had breached its yielding up obligation due to the property's contamination by asbestos materials.

Background

Pullman Foods Limited was the tenant of a property on Swansea dock, and the Welsh Ministers were the landlord of the property. The tenant was under an obligation pursuant to the terms of the lease to leave the property at the end of the lease term in good and substantial repair and condition to the landlord's satisfaction.

The tenant carried out demolition and removal work on the property where, during the course of these works, asbestos-containing materials were distributed in the property. As a result of this, when the lease term came to an end, the property was contaminated by asbestos, requiring expensive remediation works by the landlord.

Decision

The court held that the presence of asbestos-containing materials in the site was a breach of Pullman's obligation to yield up the property in good and substantial repair and condition.

They held that the word 'condition' demonstrated that the obligation was capable of extending to doing works that went beyond just repair and concluded that the landlord could form its own judgment as to what would be required to satisfy the appropriate standard to constitute 'good condition', as long as it was reasonable.

More interestingly, the court also held that the tenant would have also been held liable for removing asbestos materials even if they were present at the site prior to the lease being granted to the tenant.

What does this mean for tenants?

Following the decision in the above case, it is clear that the tenant may be in breach of a yielding up clause if asbestos is present in the property, even if it existed prior to the grant of the lease.

Therefore, it is essential that the tenant undertakes environmental due diligence before entering into a lease. If asbestos-containing materials are found, the appropriate exclusion from liability can be considered. This will become most significant when a tenant plans to make substantial alterations to the property under the lease.

Contact our commercial property solicitors

If you’d like to have an initial discussion about your commercial lease, including yielding up clauses, please contact us.

Our team of commercial property solicitors in Eastbourne, Brighton, London, Hastings and Uckfield can help you understand your options.