Outer House case considering the lease of an office building in South Gyle Business Park in Edinburgh. The lease was one of 15 years in duration and was supplemented with two licence agreements authorising tenant’s alterations to the premises.
Background
Two weeks before the end of the lease the landlord (PDPF) served a lengthy schedule of dilapidations on the tenant (Santander) which sought removal of the tenant’s alterations and replacement of the floor coverings. The tenant refused to carry out the works as it said that it had not received enough notice. The landlord raised an action to recover the cost relating to the necessary works and preparation of the schedule of dilapidations (amounting to a total of over £755k).
The lease contained a clause obliging the tenant to keep the premises in good and substantial repair during the currency of the lease (paragraph 3), a clause obliging the tenant to leave the premises in good condition and to replace the floor coverings at the end of the lease (paragraph 28) and also a clause obliging the tenant to carry out any works contained in a notice served on it by the landlord within 3 months (paragraph 8).
There were 3 questions for the court to decide:
- whether the lease stipulated that the landlord had to provide at least 3 months’ notice prior to its expiry;
- whether a term of reasonable notice should be implied into the two licence agreements; and
- whether the schedule of dilapidations constituted a valid notice.
Decision
3 months’ notice?
After considering the relevant terms of the lease, Lord Woolman (approaching the question by considering the view of a reasonable person with all the relevant background knowledge) found that the obligations contained in paragraphs 3 and 28 were independent of the obligation requiring notice contained in paragraph 8 (the fact that only one of the clauses contained a time limit suggested that the others should not be qualified in the same way). As such, the landlord did not have to provide at least 3 months’ notice to carry out the works.
Reasonable notice implied into licence agreements
Lord Woolman also rejected the fall back argument that a reasonable notice period of 10 weeks should be implied into the licences finding that the introduction of implied terms would be warranted where such a term was required to spell out what a reasonable person would understand the licence agreements to mean. That was not the case here where the implied term would be inconsistent with the parties express stipulation that the landlord could issue its requirement on the termination of the lease.
Valid notice constituted by schedule of dilapidations
The tenant sought to argue that the service of the schedule of dilapidations was simply an assertion of the tenant’s existing repairing obligations under the lease and did not provide adequate notice in terms of removal of the works carried out under the licence agreements. This argument was also rejected by Lord Woolman who noted that the removal of licensed works requires no formality and that, at the time the notice to quit is served, the tenant can ask whether the Landlord insists on removal of the tenant’s alterations.
The full judgement is available from Scottish Courts here.
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