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Anyone who has bought a new build property will be familiar with a 'snag list' of items that should be rectified. Normally these don't present too many issues, but when the snags are significant, and the new build is one in which there is a landlord who is reliant on contractors and the property is leased to a tenant, things can get more complicated.
If an issue arises which involves the quality of the building work, the landlord can insist the tenant complies with the covenant in the lease to keep the property in good repair and/or may obtain redress from the relevant contractor.
In such circumstances, a contractor that settles a claim by the landlord will normally require that the landlord indemnifies it against any claim by the tenant. However, the position of the tenant is less clear.
In a recent case, the landlord had taken on a long lease of a newly built warehouse on completion of the works. It granted an office supplies company a 20-year lease of the warehouse that required the tenant to keep the building in 'good and substantial repair'. The contractor and the subcontractor gave warranties to the tenant regarding the performance of the building.
When leaks appeared in the roof, the landlord brought a claim against the contractor, alleging defects in the design and construction of the warehouse. That claim was settled. The contractor subsequently passed on the claim to the subcontractor and obtained an arbitration award in its favour.
The roof continued to leak, however, and some years later the tenant, concerned that the limitation period on the warranties provided would shortly expire and that under its lease it could face a claim that it should be required to carry out the necessary repairs, brought an action against the landlord, the contractor and the subcontractor. From the landlord, it sought confirmation of the works it would have to carry out to comply with its repairing covenant and from the contractor and the subcontractor that the need for such works was the result of defects in their work.
The High Court refused to act, in effect, as referee over what the appropriate scheme of rectification should be. It denied the claim against the landlord and ruled that any claim would have to go ahead against the contractor and subcontractor.