Mourant Property Trust Ltd v Fusion Electronic (UK) Ltd [2009] EWHC 3659 (Ch)

Case No TLC/745/A/08[2009] EWHC 3659 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of JusticeDate Thursday, 30 July 2009
Strand
London WC2A 2LL
Before
MR B LIVESEY QC(SITTING AS A DEPUTY JUDGE OF THE HIGH COURT)
Between
MOURANT PROPERTY TRUST LIMITEDClaimantFUSION ELECTRONIC (UK) LIMITEDDefendant
Digital Transcript of Wordwave International, a Merrill Communications Company101 Finsbury Pavement London E C2A 1ERTel No: 020 7422 6131 Fax No: 020 7422 6134Web: www.merrillcorp.com/mls Email: mlstape@merrillcorp.com(Official Shorthand Writers to the Court)
MR JOHN McGEE appeared for CLAIMANTMR GRAHAM HATFORD appeared for DEFENDANT
JUDGMENT
[1]THE DEPUTY JUDGE: The Claimant is the owner of the freehold interest in two warehouse units, namely E1 and E2 at Thames View Business Centre, Barlow Way, Rainham, Essex, and the Defendant was the tenant of each warehouse by virtue of leases for three years dated 19 March 2007, expiring on 18 March 2010, each lease being in virtually identical form.[2]Each lease contained repairing covenants by the tenant in common form including, by clause 13.18, a covenant that the Defendant would at the end of the term give vacant possession of the premises in the condition required by the lease, would remove its fixtures and fittings and leave the premises in a clean and tidy condition, free of rubbish. Each lease also contained (in each case in clause19.1 ) a break clause exercisable by notice given not less than three months before the first anniversary of the commencement of the lease. Clause19.2 in each lease, however, provided as follows: "It shall be a condition precedent to the customer's right to determine this lease as aforesaid that:(a) the customer should deliver up vacant possession of the premises to the service provider on the determination date;(b) the customer shall pay all rent and other monies properly due hereunder at the determination date;(c) there shall be no material breach of covenant on the part of a customer subsisting at the relevant determination date." [Quotation unchecked.][3]The Defendant served an appropriate notice in proper form to notify the Claimant pursuant to clause 19.1 that it proposed to determine the lease on the termination date, on 19 March 2008. The Claimant, however, contends that conditions (a) and (c) were not fulfilled on that date on the grounds(1) that the Defendant was still on that date in the course of carrying out the necessary repairs to the premises, which remained incomplete at that date and were not completed until early April 2008, and(2) that it did not give vacant possession on that date. Accordingly, it argues that the break clause was not validly exercised, that both leases continued to run and that it is entitled to a declaration to that effect and judgment for the rent to which, assuming the continuation of the leases, it is entitled.[4]The Defendant accepts that 19 March 2008 was the material determination date and that it was in the course of carrying out repairs on that date, but it argues that the works of dilapidations which remained, as alleged by the Claimant, were de minimis and not “material” and accordingly condition (c) was satisfied. Further, it denies that it failed to give possession. It argues that the keys to both warehouses were tendered to the Claimant's agent (a company called B-Serv Limited) on that day but B-Serv refused to accept the keys or possession and therefore cannot be heard to complain that the Defendant had failed to deliver possession. It further argues in any event that, even if the conditions (a) and (c) were not complied with, the Claimant is not entitled to rely on the Defendant’s breaches of these preconditions because the Defendant had relied upon certain statements in a schedule of dilapidations and accompanying letter dated 29 April 2009 which the Claimant had served; the Defendant says that these statements gave it grounds to believe that the Claimant would not require strict compliance with the preconditions in (a) and (c) and the Claimant is therefore estopped from seeking now to do so.[5]The underlying law is not in dispute. It is well established that the conditions attaching to the exercise of options to determine leases must be strictly complied with (see Legal and General Assurance Society v Expeditors International [2006] EWHC 1008 Ch). It is also agreed that the leading case on the “materiality” of dilapidations is Fitzroy House Epworth Street (No 1) Limited v Financial Times Limited [2006] EWCA Civ 329 reported at [2006] 1 WLR 3207, from which it is agreed that the following propositions emerge. First, the word "material" is not intended to modify a rule requiring absolute compliance to the extent that was reasonably fair for both landlord and tenant (see at paragraph 16 per Sir Andrew Morritt, Chancellor). Second, the test is an objective one and the motive of the tenant in seeking to comply with the covenant is irrelevant (see at paragraphs 23 to 25 per Sir Andrew Morritt, Chancellor). Third, the commercial context in which the provision is to be construed is that the landlord would be very much concerned that at the time of the break the covenants should be fully observed so that the property could be relet or sold without delay or additional expenditure (see at paragraphs 13 and 35). Accordingly, materiality of any breach is to be assessed by reference to the ability of the landlord to relet or sell the property without delay or additional expenditure (see at paragraph 35 per Sir Andrew Morritt, Chancellor).[6]In this case whether vacant possession was delivered up on 19 March 2008 or not and whether the extent of the uncompleted dilapidations was such that any breach of the covenant in clause 13.18 was material are issues of fact to which I will now turn.[7]The underlying facts are as follows. The Defendant is a company resident in New Zealand. It was engaged in the electronics industry internationally. At the material time its representative in the United Kingdom was Mr Patrick Verritt. Prior to taking a grant of the leases in question the Defendant had a lease of unit E1 alone. It decided it wanted a further period of occupation and/or space, hence its decision to take both E1 and E2, but it also sought to have the facility of the break clause and this was agreed. Before accepting the lease Mr Verritt told me that he had consulted his head office in New Zealand and spoke to someone there who, he thought, might have legal training. Head office did however take advice from what was described to him as an English QC.[8]As the date for the exercise of the break clause approached Mr Verritt took advice from New Zealand and the decision in principle to break was taken. By a letter dated 28 November 2007 the Defendant duly gave notice that it intended to determine each lease in accordance with its terms on 19 March 2008. The letter was addressed to the Claimant and sent to the address of its agents, B-Serv, and was received by Mr Andrew Burns, one of B-Serv’s directors. On 5 December 2007 Mr Burns acknowledged by e-mail the safe receipt of the notices and stated: "I would refer you to clause 19.2 of each of the leases which sets out the condition precedent for the customer's right to determine the leases. If the condition is not satisfied the lease or leases will continue. Please feel free to call if you wish to discuss the matter further." [Quotation unchecked.][9]Mr Verritt did not choose to accept the invitation to call or to discuss the matter further, certainly not with Mr Burns. In accordance with their usual practice B-Serv instructed a firm of surveyors, the firm of Michael Hollis, to inspect the premises with a view to preparing a schedule of dilapidations. Mr Verritt agreed to the inspection but required that he be present and in an e-mail dated 18 January 2008 in fact stated: "Please be advised that we will be filming this process to ensure that this process is handled robustly. These copies are then forwarded to our QC in New Zealand. We want to ensure that this is a fair and equitable review for both parties..." [Quotation unchecked.][10]The inspections took place on 23 January 2008 in the presence of Mr Verritt, although he did not in fact make a film of the process. He admitted to me in evidence that the statement about filming was something that he just said out of bravado. However, on 4 February 2008 he e-mailed Mr Billy Dawes, one of the surveyors at Michael Hollis asking when he might have a copy of the schedule. The schedule was in fact prepared by Michael Hollis on 13 February 2008. It was then sent in draft to B-Serv. I reject the argument of the Defendant that either B-Serv or Michael Hollis had wilfully delayed supplying that document to Mr Verritt. As Mr Shannon, one of the surveyors who carried out the exercise, told me:
"We would at any time have more than 150 instructions from that client [meaning B-Serv] and most of them would be labeled as “urgent”. We would expect a turnaround of about two weeks."
[11]On 20 and again on 26 February Mr Verritt e-mailed Miss Lucy Taylor, a service manager employed by B-Serv, asking if there was any update on the dilapidations. She replied on 27 February, saying: "Hi Patrick, are you only waiting for our schedule, or have you had your own made up? In order to comply with the conditions attaching to the break clause I am assuming that you will have by now vacated and started on the works. Indications are that it may be mid next week before it arrives with you now." [Quotation unchecked.][12]To this Mr Verritt replied: "No, we do not need to vacate until middle March and we are moving warehouse this weekend and the office on the 10th of the month. The refurb on the warehouse starts Tuesday and the offices prior to leaving on the 19th. We estimate four to six days. We are waiting on your schedule so that we can make sure we do everything so there is no hassle. The clause indicates vacancy and handover on the 19th, actually really the 20th ... with all monies paid up and all attachments removed. This will be absolutely done." [Quotation unchecked.][13]On 28 February Mr Verritt sent an e-mail to Mr Burns stating inter alia: "... We confirm that we are in the process of vacating the premises in accordance with the terms of the lease documents. We are also in the process of completing painting and required works so that these are complete before the determination date. We would like to arrange a meeting on site for final inspection on 19 March and handover." [Quotation unchecked.][14]In reply Mr Burns that day responded: "I note that you have begun the process of complying with the conditions that are attached to the break option in your lease. The schedule prepared by our surveyors will be with you in the next couple of working days. You will then be able to see whether they have identified any items which you do not already have in hand. If you have any issues with the schedules can I ask you to please address these to Michael Hollis in the first instance." [Quotation unchecked.][15]On 29 February 2008 Mr Burns gave internal approval for an uncosted version of the schedule of dilapidations prepared by Michael Hollis to be sent to the tenant immediately and terminal schedules of dilapidations were sent out that day by e-mail and hard copy the following day. Attached to the document was a letter. Both documents were completed on pro formas, which on reflection were more appropriate to the situation where the lease comes to an end by effluxion of time rather than by the exercise of a break clause.[16]As regards the letter, it asked the Defendant to find enclosed the terminal schedules of dilapidations detailing its outstanding obligations and continued: "Either we or our clients would be pleased to receive your proposals for dealing with these outstanding liabilities. For the avoidance of doubt, we have been instructed in relation to the dilapidations claim alone. Any other claims under the lease are to be treated separately, are outside our brief and will not be compromised by any settlement which we conclude. An arrangement has been made for the handover to take place on 19 March 2008 at 3pm in the afternoon. Mr Verritt asked that Michael Hollis should attend the final inspection prior to handover and Mr Billy Dawes himself attending." [Quotation unchecked.][17]It is not in dispute that when Miss Taylor and Mr Dawes arrived at the time appointed they discovered that such work as had been done had been performed to a high standard but that the works on the dilapidations in both the premises was incomplete and ongoing. There were contractors present who continued to be engaged in the work which was not in fact completed until 10 April 2008. In these circumstances Miss Taylor told Mr Verritt that they would have to consult Mr Burns as to what they should do and retired to her car and spoke to him across a telephone line. Mr Burns advised Miss Taylor that she and Mr Dawes should not receive back the keys to the premise; they therefore reported back to Mr Verritt that they would not accept back the keys as the break conditions had not been complied with. Mr Verritt's replied that he felt that he had done more than his fair share and he was prepared to complete the work to a high standard, but:
"If the landlord thinks that Fusion is going to pay more rent they are wrong because I am 'done' here."
He also indicated that he was going to return the keys by post anyway. Mr Verritt spoke to Mr Burns that afternoon and at 17.03 sent him an e-mail message stating, inter alia: "I acknowledge that there are some issues with the dilapidations and these will be resolved. This has been due to adverse weather conditions and paint drying, et cetera. As per the B-Serv dilapidations report, the timing would have been approximately ten weeks to do this. At this stage we are no longer tenants and absolutely feel that we have acted in good faith to be out of the building. Accordingly, excluding the physical handing over of the keys, we will ensure that this work is complete to the highest satisfaction." [Quotation unchecked.][18]Mr Verritt sent a further e-mail on 25 March stating that the dilapidations were advanced and he wanted everything sorted out by the time he left for New Zealand on 4 April. He said that the Defendant had secured extensive legal advice and were advised that they had acted in the correct and prescribed manner.[19]The Claimant instructed solicitors, who wrote on 27 March 2008, that the leases remained in effect because the Defendant had not strictly complied with the provisions in the lease with regard to dilapidations. In argument the Defendant asked me to note that there was no mention of the supposed failure to give vacant possession in that letter. Mr Verritt did indeed return the keys to B-Serv with a letter dated 4 April 2008 to which Mr Burns responded on 8 April, stating that he would retain the keys for the safekeeping of the Defendant but was not accepting them as a surrender of the units and that the leases were to continue.[20]The Defendant instructed solicitors, who wrote on 1 July 2008, stating inter alia that as a result of a number of different actions and the contents of representations in the schedule and the letter dated 29 February, the Claimants were estopped from alleging that there was any disrepair; second, that such disrepair as there might have been would not have been considered material so as to prevent the leases from being effectively determined, even without taking into account the terminal schedules and letters.[21]A claim form was issued on 29 July 2008 whereby the Claimant sought a declaration that(1) the break clauses had not been operated properly and that the leases continued, and(2) seeking judgment for outstanding rent and service charges. By their Defence the Defendant pleaded, amongst other things, in paragraph 6 that: "The letter of 29 February 2008 and the schedules of dilapidations were an invitation to the Defendant to carry out so much (inaudible) work as they might choose and pay the Claimants damages for so much as they had not carried out by termination of the lease on 19 March and a clear representation that none of the matters described in the schedules was a material breach of covenant within the meaning of clause 19.2 of the leases.” “Furthermore, by serving on the Defendant on 29 February 2008 the letter and the schedules, following inspection on 21 January 2008, and including an estimate that the work required would take 15 weeks to complete, the Claimants represented that they did not expect the work to be completed for termination of the leases on 19 March 2008." [Quotation unchecked.][22]They also pleaded in paragraph 11 as follows: "By 19 March 2008 much of the work described in the terminal schedules had been completed and on 19 March 2008 Mr Verritt, the Defendant, discussed the balance with Lucy Taylor of B-Serv and the Claimants' surveyor. Mr Verritt said that only the contractor would have the keys after 19 March 2008, that he expected the work to be completed in significantly less than the ten weeks earlier estimated, but that the contractor could be pulled at any time. Miss Taylor did not suggest that completion of the work or the giving of vacant possession on that day was a condition precedent to termination of the leases, but rather approved Mr Verritt's suggestion that decorators and cleaners should continue over the next days. Furthermore, Mr Verritt offered Miss Lucy Taylor possession of the premises and the keys to the premises and the Claimant by its agent, Miss Lucy Taylor and Mr Billy Dawes, refused to accept possession from Mr Verritt, saying that B-Serv would not accept the keys. In the circumstances the Claimant cannot rely on its own refusal to accept performance of the condition in clause 19.2(a) of the leases as disentitling the Defendant to determine the leases." [Quotation unchecked.] The Trial.[23]The trial took place over three days, and I heard both lay and expert evidence. As regards the lay evidence, the Claimant relied on Mr Burns and Miss Taylor from B-Serv and Jason Shannon and his assistant Mr Billy Dawes from Michael Hollis. The Defendant relied on the evidence of Mr Verritt. The parties each called an expert surveyor to give evidence as to the “materiality” of the non-completed dilapidations as at 19 March. I will deal with that evidence later.[24]Dealing with the lay evidence, Mr Verritt broadly supported the case as pleaded in the re-re-amended Defence. He explained to me how the leases came to being agreed. I accept that he received advice on the terms of the leases from executives at head office in New Zealand and that advice was taken also from an English QC who considered the terms of each lease before they were completed and, it seems, retained a copy of the lease in his papers; in the result, when Mr Verritt came to consider bringing into effect the break clause, he did not have a copy of the lease but was reliant on those in New Zealand, and in particular a Mr Lock (who he believed to be the assistant to a director and may well not have been a lawyer) for his understanding of the requirements of the break clause.[25]It appears to me that neither Mr Verritt nor Mr Lock had a clear understanding of the requirement that there had to be strict compliance with the conditions in clause 19.2. It appears that the Defendant took no advice on their legal position from either a lawyer or a surveyor. It is however evident that they did seem to understand at one stage that there had to be compliance with the conditions, if in fact the terms of Mr Verritt's e-mails of 27 and 28 February are taken at face value. Mr Verritt did at that stage seem to understand the purport of clause 13.18. He accepted that he did know he was under an obligation to give vacant possession by 19 March 2008 and he accepted that Miss Taylor had made that clear to him in a telephone conversation prior to the service of the notice to break. I note also that Mr Burns had also specifically drawn his attention to the preconditions in clause 19.2 in his e-mail of 5th December 2007, acknowledging the service of the break notice. It is, however, quite clear to me that Mr Verritt was under the impression, because of something his contractors had told him, that he could not allow the Claimant to carry out the dilapidations because, if he did, it would almost certainly charge an exorbitant amount of money. He was therefore keen, for reasons of economy, to carry out the works himself.[26]The thrust of his case was that he first understood that the preconditions in clause 19.2 had to be complied with strictly from the time of the receipt of the schedule of dilapidations on 29 February. However, he went on to say that it was the accompanying letter which led him to believe that the Claimant would be content not to enforce the strict requirements of clause 19.2 but would be content to accept damages if it should transpire that the Defendant in the result failed to comply with the precondition (a) and (c) in any respect. He told me that at the inspection on 19 March 2008, when Miss Taylor was taking the point that the works had not been completed, he asked her what should be done from here and commented that the contractors would conclude their work based on the terminal schedules, if there was no objection to them continuing, but if the Claimant wished the work to stop then they should say so. But the Claimant said nothing. Miss Taylor denied that this conversation took place. Mr Dawes could not remember these remarks being made.[27]My view of the credibility of the witnesses is as follows. Each of the witnesses called by the Claimant gave, I thought, dispassionate evidence in a reasonable manner which reflected and was consist with the contemporary documentation passing between parties. They gave me the impression of accuracy and truthfulness. Miss Taylor in particular was an important witness. She was a perfectly open and dispassionate and straightforward witness with a reliable memory. She was not technically qualified and had no commercial role and therefore no responsibility for any of the decisions which resulted in the formal steps taken and ultimately the outcome of this litigation. Her brief and responsibility was to act as a relationship manager dealing with maintaining contact between the customer and B-Serv. I accept her evidence in all relevant respects.[28]As regards Mr Verritt, I do not regard him as a witness on whom I can rely. He did not properly to understand the underlying obligations or explain them. I am not persuaded that he took advice on the legal and practical position from Mr Lock as none of the e-mail exchanges, which his evidence implied had occurred, were put in evidence. During his evidence he was regularly inconsistent in his answers and his answers were often inconsistent with the documents. In particular his case that the Defendant had learnt about the strict application of clause 19.2 from the schedule of dilapidations and the letter of 29 February 2008 simply cannot be true. The schedule of dilapidations was, as I have indicated, completed on a not entirely appropriate pro forma and in fact made no reference to clause 19.2. I do not believe that either he or the Defendant placed any reliance on the supposed representations in the accompanying letter at all. At one stage Mr Verritt told me that Mr Lock in New Zealand had told him that there were these preconditions and that, so long as he used his best endeavours, the Defendant could pay damages if he failed to complete the works. In my judgment this was not a conclusion into which the Defendant was misled, it was a conclusion that Mr Verritt and the Defendant came to on their own.[29]The fact that Mr Verritt did not regard the obligation as strict but required only performance of best endeavours is evidenced from the terms in which he sought to explain and justify the non-completion of the works on 19 March and thereafter. In my judgment, it is of importance to note that Mr Verritt did not query his supposed interpretation of the meaning of the schedule and the letter with Miss Taylor, Mr Burns or with anyone at Michael Hollis. Of greater evidential significance is the fact that when he discovered from Miss Taylor on 19 March that, contrary to his expectations, the landlord had taken a strict view of the noncompliance, he did not seek to protest that he had relied on being misled by the terms of the schedule and letter. Nor did he do so in his e-mails to Mr Burns written on 19 and 25 March or in his letter of 4 April. The argument, that Mr Verritt and the Defendant had placed reliance on the wording of the schedule and the letter and been misled by it, was not raised until the letter from the Defendant's solicitors dated 1 July 2008. The argument set out there was, in my judgment, a contrivance and something which I do not accept was true.[30]I turn now to the allegation that vacant possession was given. The argument is as follows. The Defendant contends that, at the time when it offered the keys to the premises to Miss Taylor on 19th March, it was tendering vacant possession; this was because at the time of the offer of the keys Mr Verritt also offered to have his contractors vacate the premises if the landlord wished him to do so. The Defendant argues that the Claimant was entitled to refuse to accept the keys, but if it did so it could not be heard to deny that tender of vacant possession had been made. That is because the Claimant could not rely on its own default as a failure of a condition precedent.[31]The problem for te Defendant is that I do not accept Mr Verritt’s account of the conversation with Miss Taylor on 19 March. I am quite satisfied that at the time he tendered possession Mr Verritt did not make any express or implied offer to instruct his contractors to leave. Because he did not anticipate or understand the subtlety of the argument his counsel was to make to me at trial and was keener to complete the works himself at the more modest cost that he could achieve than the extortionate one that he anticipated would be levied by the landlord, Mr Verritt was keen that the Defendant should retain possession of the premises and that his own contractors should complete the works, as I believe the contemporary e-mails show.[32]I find that at the meeting on 19 March Mr Verritt offered most but not all of the keys to the premises. He retained one set to each warehouse so that the contractors could continue and finish the works to completion. Moreover, the contractors were at the time storing in the premises the tools, equipment and materials which they were hoping to use for their works. In particular, B-Serv was not given the option of taking possession immediately and leaving the repairs uncompleted. In the contemporaneous note of the conversation with him, prepared by Miss Taylor, it does not mention such a conversation and she denies that it took place. Nor do Mr Verritt's contemporary e-mails to Mr Burns refer to such an offer. I have therefore concluded that the Defendant did not tender possession which was vacant and was therefore in breach of the precondition (a) in clause 19.2. The consequence of this breach is that the break clause cannot be regarded as having effectively been put into effect and the lease therefore continued. But since I have heard evidence and argument on the effect of the failure to complete the dilapidations and the question of their materiality as it affects the precondition (c), it is only right that I express my findings on this issue as well.[33]It is not in dispute that the dilapidations and repairs were not completed. The question is whether those which remained outstanding were “material” in the terms of the judgment of the court in Fitzroy House. The Claimants relied on expert evidence from Mr Stephen Richmond of Altus Edwin Hill. The Defendant relied on the expert evidence of Mr John Mass of Mass and Co. Each had appropriate expertise and each delivered expert reports of some length dealing with the issues in some detail. It is unnecessary to go through those reports in this judgment and the matter can be taken shortly, as indeed it was taken before me. My attention was directed to a joint statement of the two experts where there was a measure of agreement, although the agreement was not complete.[34]Paragraph 4 of that joint statement is in the following terms. "Summary. "4.01. The parties agree that an incoming tenant would expect compensation for the works outstanding at the determination date. Mr Richmond assesses this to be five months' rent and Mr Mass two months'. Mr Mass does not agree that there would be additional delay or an effect on the headline rent or that the landlord would need to do the works. Mr Richmond believes that there is more than just the rent-free period scenario that could occur and it is possible that an occupier may prefer the option of a reduced rental, schedule of condition or the landlords undertaking the works." [Quotation unchecked.][35]However, both experts had prepared their initial reports and their joint report on the basis of a schedule of outstanding works which had been prepared in November 2008 rather than a rather shorter schedule which had been prepared in April 2008. On analysis, the lay evidence called before me did not confirm the accuracy of those items in the November list which were not also in the April list and I ruled that the correct list of outstanding dilapidations was the April list. Accordingly it became necessary that the opinions of the experts in their joint statement had to be reconsidered. They took time to do so and confirmed to me their revised views as follows. Mr Richmond concluded that he must reduce his rent-free period for unit E1 from five months to 3.5 months and for unit E2 from five months to four months. Mr Mass reduced his estimate of rent free period from two months in respect of unit E1 to zero and for unit E2 to a negligible period.[36]Under cross-examination it became apparent that the reasons for the differences between the experts was largely attributable to the following factors. First, in assessing the rent-free period Mr Mass was working on the basis of the passing rent rather than the market rent, which was higher; if it was appropriate for the market rent to be applied the result would be a longer period than that he had stated. Secondly, a number of items set out on the schedule were items which Mr Mass thought would not affect the mind of an incoming tenant, who would probably be intending to carry out a refit of the premises to his own requirements in any event.[37]In my judgment it is more appropriate for the purpose of this sort of case that the evaluation of the rent-free period should be assessed on the basis of the market rent at the time when the breach was said to have occurred. Mr Richmond had approached the matter on this basis and in my judgment was correct to do so.[38]Secondly, the items, which Mr Mass had excluded, included the following: the cost of a surveyor instructed by the tenant, the cost of cleaning, certain exterior defects and the cost of certain statutory checks of which the outgoing tenant was required by statute to provide certificates of compliance but had failed to do so. In relation to these items, Mr Mass accepted in cross-examination three important propositions. The first is that if a prospective tenant were given a choice between premises without the state of disrepair left by the Defendant on 19 March and premises with the state of disrepair, it would be likely to choose the premises without the disrepair. Secondly, it would be highly likely that any surveyor instructed by a prospective tenant who was worth his salt would both identify the items on the schedule, which Mr Mass had disregarded, price them and argue, probably successfully, that they should be taken into account in negotiation of final terms between the parties. The negotiation would probably result in the giving of a rent-free period of possession, though it might be reflected in some other way. Mr Mass also conceded in cross-examination that a large number of items which he had excluded from his consideration would be the subject of such a negotiation with the landlord in the normal case.[39]In the light of these concessions it seems to me that the gap between Mr Mass and Mr Richmond had to narrow in the direction of Mr Richmond's opinion. In my judgment, these concessions by Mr Mass have led me to prefer the rent-free figures put forward by Mr Richmond. This being the case, it seems to me that, in accordance with the test in Fitzroy House, the breaches were material.[40]Mr Graham Hatford, who appeared for the Defendant, finally argued that in determining whether any disrepair is material it was legitimate to take into account the fact that the Claimant did in any event hold security in the form of a bond worth at the time of the breach some £29,000 in value. Accordingly, he argued, it could not be said that the matters of disrepair were material. Mr John McGee, who appeared for the landlord, argued that the existence of such a bond was an irrelevance. It was an argument that had not been advanced before and there was no merit in it.[41]In my judgment, Mr McGee is correct. It cannot be doubted that there was a breach. Whether it was a material breach or not can only be determined by the nature and extent of the disrepair and the effect it would have on the lettability of the premises in accordance with the test in Fitzroy House. Accordingly, I have come to the conclusion that on 19 March 2008 there was also breach of the covenant in clause 13.18. That being the case, there was a breach of the precondition (c) in clause 19.2 of the lease and the Defendant is not entitled to contend that there had been compliance with the preconditions which had to be fulfilled before the break could take effect. It follows therefore that the leases of each of the units continues and the Claimant is entitled to the relief which it has sought.