Failure to reinstate at the end of a lease and associated licence

In China Resources Property Management Ltd v Max Merit Ltd ([2012] HKEC 1010 (District Court)) C had granted M a lease of some shop premises for use as a sandwich shop and a licence of an Outside Seating Area. M had taken over the business of a previous owner of the shop and H was a director both of M and of the previous tenant. She had undertaken day to day management of the business both before and after the takeover.

At the end of the lease / licence term, C alleged that M had failed to reinstate ceiling panels to their ‘bare shell’ state as required by the agreement between them. One  question was whether this required the panels to be in the state they were in at the time of the takeover or at the time of the original lease to the previous tenant. The close involvement of H in both businesses persuaded the court that the ‘bare shell’ clause created an obligation to reinstate as at the date of the original lease to the previous tenant ([41] – [42]). The tenant was in breach and the agreement required it to indemnify C in respect of any costs associated with the breach.

The agreement prohibited the installation of fixtures of a permanent nature. The ceiling fans and spotlights were not fixtures since they were temporary and easy to remove. There was no breach of this prohibition.

The court had not allowed the landlord to rely on photographs and project documents as part of its evidence. They had been in existence for quite a long time but disclosed very late. The person who took the photos had not been called as a witness and so the photos would have been hearsay evidence.

The landlord’s claim to be able to forfeit the deposit because of non-payment of sums due under the agreement failed. The terms of the agreements did not allow forfeiture of the deposit in the circumstances of this case.

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