Landlord entitled to enforce third party indemnity
In Technotrade Ltd v Larkstore Ltd [2006] EWCA Civ 1079 the vendor of a piece of land had also assigned to the purchaser the benefit of a consultant’s report in relation to the land. In that case the CA held that the purchaser could recover damages from the consultant in relation to the report, which was defective, despite the fact that the vendor had suffered no loss in relation to the report.
In this case the High Court applied the Technotrade in a landlord and tenant context. The case concerned the ability of a landlord to enforce an indemnity given to the tenant’s parent company by a third party. The premises in question were a unit on an industrial estate let to the tenant under the terms of a lease with a tenant’s break option on the tenth anniversary of the term.
The tenant’s parent company had entered into a contract to assign the premises to a third party. The assignment had not taken place but the third party had moved into occupation of the premises. The contract provided that the third party would occupy the premises as a licensee subject to the same covenants as in the lease. The contract further provided that the third party would indemnify the tenant and/or the tenant’s parent company for any breaches of the contract.
The tenant then exercised the break option in the lease but informed the landlord, when receiving a schedule of dilapidations, that it (the tenant) no longer had an interest in the property. As the assignment to the third party had not taken place, there was no contractual relationship between the landlord and the third party occupier. Accordingly, the landlord asked the tenant and its parent company to allow the landlord to sue the third party in their name in respect of the repair costs. The tenant and parent company refused, but they did assign to the landlord their rights under the contract with the third party, including the benefit of the indemnity given by the third party in respect of any breach of covenant under the lease.
The High Court held that the landlord was entitled to be indemnified by the third party in respect of the tenant’s liabilities under the lease. Applying Technotrade, the assignment could not put the third party in a worse position than under the agreement, but equally it did not diminish the third party’s liability. Under the indemnity, the third party was liable for the consequences of the breach of the repairing covenant, and the landlord could rely on this.
Bizspace (NE) Limited v Baird Corporatewear Limited [2006] EWHC 3567 (Ch).
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