New Landlord Tenant Law Tested

May 2010

Readers will recall that there was a complete revamp of the Property Law Act that resulted in the enactment of the Property Law Act 2007 (the Act) which came into effect on 1 January 2008.

The first important point to note is that the protection for lessees under the Act only applies to commercial leased premises and not to residential premises.

It is common in commercial leases that the lessee pays the landlord for the cost of insuring the leased premises, either contractually or as a part of the rent. This has resulted some inconsistent judicial decisions over the years – some allowing the lessee to be sued and some preventing it. The Act looks to remedy this situation and to provide certainty to this area of law by allowing a lessee to have the benefit of a landlord’s insurance.

Recently the High Court in Sheehan v Watson, had an opportunity to comment on the extent of a lessee’s protection from a landlord/lessor, or their insurer, seeking to hold the lessee liable for damage to leased premises.

The short facts of Sheehan are that - Sheehan (as part of a joint venture partnership) leased an industrial premises to GTR Access Equipment Limited (GTR) who employed Mr Watson and Mr Robinson (a fellow defendant). Mr Watson and Mr Robinson were involved in a negligent (work related) activity that resulted in extensive fire damage to the leased premises. Sheehan was insured by QBE who paid out to the landlord for the damages caused by a fire and then sought to recover from Mr Watson and Mr Robinson.

There is little doubt an employee acting in a course of his or her employment and for whose acts or omission the employer is vicariously liable would fall into the Act’s definition of “lessee’s agent” which is identified as a person “whose acts or omissions the lessee is responsible”. But the lessee immunity clause only makes reference to the “lessee” and omits any reference to “the lessee’s agent”.

In Sheehan the plaintiff did concede that if it sued the lessee on the ground of vicarious liability (which is the standard course in the case like this) that the lessee would be exempt under the Act. So the plaintiff knowing that it was statutory barred from recovering damages against GTR pursued Mr Watson and Mr Robinson personally. The plaintiff’s argument was that the provisions of the Act did not expressly extend the benefit of lessee immunity to the employees or agents of the lessee.

However, the plaintiff could not convince the High Court that it had the ability to bypass the Act by only suing GTR’s employees and ignoring GTR’s vicarious liability obligations. The Court emphasised that a corporate lessee’s liability for damage to leased premises is necessarily vicarious. That is to say that a company can only act through the agency of its employees and it would be artificial to ignore this reality.

There is some academic comment that raises issue about the way the High Court came to its conclusion in the Sheehan case. But the writer agrees with the result of the Court’s decision in the case of a lessee’s employees. It would be strange indeed to grant a statutory immunity to a lessee and then, (especially in the circumstances of a ‘one-man-band’ Company), allow a landlord to sue its employees.

The vicarious liability reasoning would not naturally apply to non-employee agents of the lessee. So the legal result may be very different if the negligent person was an independent contractor.

It is understood that this case will be appealed so watch this space. However the writer predicts that on appeal the outcome will be the same (with the employees enjoying their employer/lessee’s immunity) even if the Court of Appeal finds a different road to that result.

Any questions, please contact Rick Hargreaves.