The High Court considers the meaning of a yield up covenant with regard to the presence of asbestos-containing materials
Following this decision, tenants must consider the risk of previous contamination and other environmental concerns.
Pullman Foods Ltd v The Welsh Ministers and another  EWHC 2521 (TCC)
The claimant, Pullman Foods Limited (“Pullman”) was the tenant of a site and the landlord was the defendant, the Welsh Ministers (the “Welsh Government”).
The Welsh Government served a Section 25 notice opposing a new tenancy under the Landlord and Tenant Act 1954 (“LTA”). Pullman vacated the site in February 2015 but failed to comply with a yield up covenant in the lease to leave the property “in good and substantial repair and condition to the satisfaction of the [Welsh Government]”. It had failed to remove buildings which contained asbestos-containing material (“ACM”). Two successive licences (“the Licences”) were granted to Pullman’s parent company, BFS Group Limited (“BFS”) to enter the site and remove the building remains and constituents containing ACM.. Whilst they were undertaking those works, further ACM was disturbed and buried across the site.
Pullman later brought a claim against the Welsh Government under s.37 of the LTA claiming compensation for termination of the tenancy. The Welsh Government did not dispute this, but brought a counterclaim against Pullman relating to the breach of covenant and against BFS for breaches of the Licences.
Breach of covenant
The court found that the use of the word ‘condition’ demonstrated the extension of the obligation to undertake works which go beyond that of repair. The ACM was required to be removed in order to comply with the yield up covenant. It was not relevant whether the ACM was present before or after the grant of the lease.
The court also commented, however, that the Welsh Government did not have unlimited discretion when considering the ‘condition’ and its view must be reasonably held.
The court ultimately found that the ACM should have been removed in order to satisfy the yielding up provisions in the lease.
Breach of the Licences
Although there was no express obligation in the Licences to comply with the covenant in the lease, the purpose of such was for compliance. Due to its failure to remove the building remains including the ACM and to remove and inform the Welsh Government of further ACM discovered during the works, BFS was found to be in breach of the Licences.
High Court decision
The court held that BFS was liable for the full costs of the remediation to the site and Pullman was liable for damages for the breach of the yield up covenant.
It was noted that even if the ACM had been present before the grant of the lease, this would not affect the required standard to comply with the yield up covenant. This demonstrates the need for tenants to consider the risk of previous contamination and other environmental concerns before entering into a lease.