Case considering a landlord’s right to terminate a lease for breach of the maintenance obligations under the lease. Crieff Highland Gathering are the landlords and Perth Council, the tenants of an area of ground known as Market Park in Crieff. The subjects are used by the Council as a pubic park and sub-let back to Crieff Highland every year for the holding of the Crieff Highland Gathering. The lease is for 60 years and began in 1983. The rent is £100 per year and was not subject to review (although it appears that the rent was never demanded or paid). Importantly, the lease contained no irritancy clause.

Background

The Council wished to retain the park as public open space. However, Crieff Highland wanted to sell the park for development as a site for a Sainsbury’s supermarket. They had entered option agreements with developers which would allow for the sale of the park and development of an improved sports ground at an alternative site. They had also been granted outline planning permission for the two developments.

Crieff Highland had also been dissatisfied and frustrated by what they considered to be slow and inadequate maintenance of the park particularly in relation to the boundary walls. In November 2007 (when it became clear that the Council was unwilling to relinquish the tenancy of the park) Crieff Highland served a notice on the Council intimating “numerous wants of repair within the subjects which fall within the tenant’s responsibility in terms of the lease” and an Interim Schedule of Dilapidations. The notice purported to require that the wants of repair be remedied within 3 calendar months and warned that if the Council failed to comply the lease might be terminated.

The Council did not carry out the repairs which it did not consider to be urgent. On 22 January 2009 Crieff Highland served a further notice on the Council purporting to terminate the lease on the basis of the Council’s breaches of the lease.  The Council then arranged an independent inspection of the premises and carried out repairs between July and September 2009. Crieff Highland was not satisfied with this and began court proceedings against the Council.

The issues

The main legal issues for the court were as follows:

1. Was the Council in breach of its obligations as tenant under the lease?
2. Was Crieff Highland entitled to terminate the lease?

The decision

Lord Pentland found that the Council was in breach of its obligations under the lease but concluded that the breaches were not material and therefore Crieff Highland were not entitled to terminate the lease.

Breach of the obligations
There was debate as to whether the tenant’s obligations under the lease extended to extraordinary repairs as well as ordinary repairs. The relevant clause said:

“The Tenants shall, during the currency of this lease, relieve the Landlords of their whole responsibility for the maintenance of the boundary fences, walls and others enclosing the ground leased.”

The Council argued that use of the word “maintenance” meant something other than extraordinary repairs. However, Lord Pentland rejected those arguments taking the view that, when read in the context of the lease as a whole, the clause was referring to the liability which would otherwise be incumbent on the landlord for maintaining the boundaries and that would include liability for carrying out extraordinary repairs. On the evidence, the Council had breached its repairing obligations under the lease.

Materiality of the breach
With regard to the materiality of the breaches, Lord Pentland noted that it was primarily a question of fact and degree. In coming to the conclusion that the various breaches were not material Lord Pentland took account of the following:

1. The fact that both parties were able to make full and uninterrupted use of the park which did not have to be closed to the public as a result of the condition of the property.
2. The shortcomings were not of such fundamental gravity to touch on the very existence of the contract. There was no evidence that Crieff Highland considered carrying out the works themselves with a view to recovering the costs from the Council or of taking an action for specific implement to force the Council to carry out the works nor even did Crieff Highland take steps to call a formal meeting (which it could have done under a procedure contained in the lease).
3. The lease was a long one with over 30 years left to run.  The tenant had carried out repairs, had co-operated well with Crieff Highland in preparing for the Highland Gathering in 2010 and had expressed its intention to continue to run the park as a public facility and fulfil its obligations under the lease. (Indications of the Council’s future intentions are of importance because the courts have traditionally been reluctant to allow a rural lease without an irritancy clause to be brought to an end in circumstances where the tenant has made it clear that it intends to perform its side of the contract during the remaining period of the lease- see below.)
4. Taking a step back from the detailed evidence and trying to take a “realistic” view of matters, Lord Pentland’s impression was that the problems were not particularly serious in the overall scheme of things. He took into account that the cost of the repairs amounted to just over £9,000 and that the overall condition of the subjects seemed to be adequate for them to be used without significant difficulty (he was not persuaded that the deficiencies detracted in any substantial sense from the value and utility of the subjects.)

The following issues were also considered:

The relevance of the Council’s willingness to perform in the future

Lord Pentland contrasted the right to rescind for material breach with the right to irritate. Whereas the right to irritate applies to a right to terminate for a past breach (and derives from the lease or by law for failure to pay rent), the right to rescind applies to a right to terminate for a refusal by the tenant to perform in the future (and derives from the common law).

The landlord can only rescind for material breach when the following conditions are satisfied:

1. The tenant has committed a material breach;
2. The landlord has given fair and reasonable opportunity to fulfil the obligations; and
3. The tenant has indicated that it will not perform in the future.

It had been established that Crieff Highland had failed on a) and c). However Lord Penrose also went on to consider whether Crieff Highland had given fair and reasonable opportunity to fulfil the obligations.

The adequacy of the termination procedure adopted by Crieff Highland

Lord Pentland said that the notice must give both reasonable notice of the grounds for the termination and also an adequate opportunity to put it right. The notice given by Crieff Highland was deemed to have given reasonable notice of the grounds but Lord Pentland found that the 3 month period was not sufficient. In that time the Council had to carry out an inspection, take legal advice, consult Historic Scotland, identify a contractor (who would have to inspect and prepare a programme of works. Evidence was heard to the effect that the works could not be done in the 3 months following the notice due to difficulties in repairing lime mortar in the winter.

Would a fair and reasonable landlord have terminated the lease in the circumstances?

If Crieff Highland had been in material breach the next question would have been whether a fair and reasonable landlord would have terminated the lease. This requirement arises from s 5(1) (b) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. Although he did not require to decide on it, Lord Pentland found that in this case a fair and reasonable landlord would not have terminated the lease because:

1. The ultimatum of 3 months was too short
2. The repairs were not sufficiently serious to justify termination (especially in view of the 30 year term)
3. A fair and reasonable landlord will not opt for termination where there are other remedies available which would not deprive the tenant of its interest but nevertheless adequately protect the landlord’s interest. In this case Crieff Highland could have considered carrying out the works themselves and recovering the expenses from the Council or it could have followed a formal meeting procedure provided for in the lease.

Looking at the circumstances as a whole Lord Pentland found that it was reasonable to infer that Crieff Highland’s reason for terminating the lease was that it wanted to proceed with the arrangements it had entered with Sainsbury’s rather than having a pressing concern over the condition of the property.

The full judgement is available here.

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