Background
Outer House case concerning a ground lease of a 4 acre site in Houstoun Industrial Estate in Livingston. There was a building on the site which had been there since the lease was granted in 1977. The tenant wished to demolish the building (which it argued was past its economic lifespan, and obsolete) and re-develop the site but the landlord argued that the tenant did not have the right to demolish the building in terms of the lease. At the centre of the argument was the tenant’s obligation “to maintain in good order and when necessary to re-erect” the buildings on the site.

Arguments
The landlord argued that the tenant’s obligation was to maintain the building in good order and that re-erection would only become necessary where the building was destroyed (for example by fire or in an explosion).

The tenant argued (1) that the building could be demolished and re-erected where it was necessary for the tenant’s (or a sub-tenant/assignee’s) use of the site. If that were  not the case, then (2)  development was permitted when circumstances rendered re-erection necessary such as in the circumstances existing here, where the present building was obsolete and could only be repaired by expenditure of unreasonable sums of money. Demolition as a precursor to re-erection was, the tenant argued, therefore “necessary”.

Decision
Lord Tyre, giving the lease an interpretation consistent with that which would have been understood by a reasonable person with background knowledge reasonably available to the parties at the time of the contract, accepted the tenant’s second argument.

“I accept the tenant’s alternative submission that there may be circumstances where re-erection of a building is “necessary” even though an existing building is still standing on the site.  These might include (i) where the existing building is obsolete and unsuitable for any reasonable use, regardless of cost of repair; or (ii) where the cost of repair is excessive in relation to what it would cost to demolish and rebuild premises similar to the existing building.  In each of these cases (and I note that the tenant offers to prove in the present case that both of those descriptions apply), I consider that it is in accordance with commercial common sense to describe re-erection as “necessary”.  It must follow, as a matter of practicality, that demolition of the existing obsolete and/or uneconomic building is also “necessary” in order to allow re-erection to proceed.”

However, Lord Tyre also noted that the Landlord would be able to withhold consent not only to the detailed plans for re-development but also to the demolition preceding re-erection if (acting reasonably) it was not satisfied that the re-development was necessary (in terms of (i) and (ii) above).

The full judgement is available here.