Outer House case relating to a development at Watling Street in Motherwell which was alleged to have been built on contaminated land. The McManuses sought damages from City Link Development Company (the Developer), Scott Wilson Scotland (which the McManuses claimed had been environmental consultants on the development project) and Lanarkshire Housing Association (from whom the McManuses had leased properties on Watling Street) after suffering illness which they said had resulted from vapour given off by the contamination.

Arguments
The McManuses sought damages from City Link and Scott Wilson on the basis:

1. that their illness had been caused by the fault of City Link and Scott Wilson in terms of the common law; and
2. that City Link and Scott Wilson had breached the Environmental Protection Act 1990 (s33(1)(a)).

The McManuses also argued that the Housing Association had breached an implied term of their tenancy agreement, and were later in breach of certain provisions of the Housing (Scotland) Act 2001.

Decision
City Link
Common law fault
In terms of the common law, the McManuses argued that City Link knew or ought to have known that the property had not been properly investigated for contamination and had not ben remediated so as to be fit for residential development. However, the court found that reports produced by Scott Wilson were such that a layperson would have understood that the site was suitable for residential development. As such, City Link would only have been liable (1) if they had sufficient expertise to ascertain that Scott Wilson’s investigations had not been sufficient to determine that the site was fit for residential development or (2) if City Link owed a non-delegable duty of care (which can arise in respect of particularly hazardous operations) to the McManuses. The court found that, in the circumstances, neither applied in this case and City Link’s duty did not extend to checking Scott Wilson’s work meaning that City Link were not at fault.

Scott Wilson
Common law fault
Scott Wilson argued that it had not been employed as environmental consultants on the project and pointed to other contractors involved in the project who may have fulfilled that role. As such they argued that the McManuses’ case against them was irrelevant. However, Lord Jones found that the McManuses’ case against Scott Wilson was not bound to fail. It was noted that other contractors involved had been subordinate to Scott Wilson and that it would be possible for the McManuses to prove that it was Scott Wilson’s responsibility to investigate the contamination and to advise on the remediation necessary to make the site suitable for residential development. Further proceedings were allowed in that regard.

City Link and Scott Wilson
The 1990 Act
The MacManuses also argued that City Link and Scott Wilson had been responsible for depositing controlled waste on the site (contrary to s33(1) of the Environmental Protection Act 1990) when materials were redistributed around the site during remediation works. However, Lord Jones accepted arguments made by City Link and Scott Wilson to the effect that the works had taken place prior to the relevant provisions of the 1990 Act coming into force and could not give rise to liability under the act.

The Housing Association
The first property was held under an assured tenancy (in terms of the Housing (Scotland) Act 1987)  until September 2002 and a secure tenancy (under the Housing (Scotland) Act 2001) thereafter. The second property was also held by virtue of a secure tenancy. The court found that, in both situations, the Housing Associations obligations and duties related to the fabric of the let property itself and the McManus’s arguments which were based on the location and construction of the properties were irrelevant.

Time bar
The court also considered arguments to the effect that the McManuses case was time barred but the McManuses were given an opportunity to amend their pleadings and no decision was reached in that regard.

 The full judgement is available from Scottish Courts here.

Background
Inner House case relating to the lease of commercial premises in Port Glasgow. @SIPP were the landlords and Insight, the tenants. @SIPP argued that, when the lease came to an end, the premises were not in good and substantial condition and a dispute arose as to the extent of the tenants repairing obligations under the lease.

The issues
There were two issues for the court to decide.

• Whether the tenants’ obligation on termination of the lease was limited to putting the premises into the condition in which they were accepted by it at the commencement of the lease.
• Whether the landlord was entitled to payment of a sum equal to the cost of putting the premises into the relevant state of repair, regardless of whether it actually intended to carry out any such work.

Outer House decision
In the Outer House Lord Tyre found in favour of the tenants on both issues holding:

•  that the obligation to keep the premises in good and substantial repair did not necessarily import an obligation to put the premises in that condition regardless of its condition at the commencement of the lease and that the tenants’ obligation was referable to the condition in which the premises were accepted at the commencement of the lease; and
• that the tenant’s obligation to make payment for the cost of the works was conditional on the landlords intending to carry out the repair works and was not as a liquidate damages provision. (Lord Tyre was persuaded that this was the interpretation which best accorded with commercial common sense as he found that very clear wording would be required before it could be concluded that a tenant had entered into an obligation to pay a sum which might bear no relation to the loss actually suffered by the landlord –in this case the estimated cost of the works required was over £1m whereas the tenant argued that, even if it had carried out all of the works, the capital value of the premises would only have increased by £175k.)

Inner House decision
The Inner House have allowed an appeal.

Putting and keeping
The repairing obligation including the following wording: (obliging the tenant)

“To accept the leased subjects in their present condition and at their own cost and expense to repair and keep in good and substantial repair and maintained, paved, heated, aired and cleansed in every respect all to the satisfaction of the Landlord and to replace or renew or rebuild whenever necessary the leased subjects and all additions thereto….. in at least as good condition as they are accepted by the Tenant all to the satisfaction of the Landlord and that regardless of the age or state of the dilapidation…”

The court came to the conclusion that the natural meaning of the clause was clear and, if the premises were not in good and substantial repair at the beginning of the lease, the tenant was required to repair them in such a way as to achieve that standard. The court took the view that the obligation “to repair” of itself was indicative of that but, if there were any doubt, previous cases support the argument that an obligation to keep property in good and substantial repair carries with it an obligation to put them in that condition[1].

In coming to that conclusion the court noted:

 “the repeated references to “the satisfaction of the landlord” not only supports the above construction and confirms that “good and substantial repair” is to be assessed by reference to the landlord’s interest in the subjects being maintained to and being delivered up in at least tenantable standard.  Further, the phrase “regardless of the age or state of dilapidation of the buildings” confirms that the tenant is not to be excused of its obligation to repair, maintain and renew etc to at least “good and substantial repair” standard by reason of them being below that standard at the commencement of the lease or, indeed, them falling below that standard during it.  The absence of a schedule or other record of condition provides further cogent support for that construction.”

Payment of sum in lieu of repairs
A further clause made provision to the effect that, at the expiry/termination of the lease, the tenant was required to carry out repairs and surrender the premises to the landlord in a state complying with the repairing obligation. However, the clause also included the following proviso:

“Provided Always that if the Landlord shall so desire at the expiry or sooner termination of the foregoing Lease they may call upon the Tenant, by notice in writing (in which event the Tenant shall be bound), to pay to the Landlord at the determination date… a sum equal to the amount required to put the leased subjects into good and substantial repair… in accordance with the obligations and conditions on the part of the Tenant herein contained in lieu of requiring the Tenant himself to carry out the work.”

The Inner House took the view that the only natural and ordinary meaning which could be given to the clause was that it was a payment clause (and not a damages clause) meaning that the sum due by the tenant did not depend on loss suffered by the landlord. Consequently, the fact that the cost of carrying out the repairs may have been disproportionately more than any increase in capital value of the premises achieved as a result was irrelevant. As such, the Inner House determined that there was no potential for interpreting the clause so as to mean that payment for the cost of the works was dependent on the landlord’s intention to carry out the works.

In coming to its conclusion, the Inner House contrasted the wording used in this case with that in Grove Investments Ltd v Cape Building Products Ltd[2] on which Lord Tyre had relied when reaching his decision in the Outer House.

The provisions in this case contained a procedure (not included in the lease in Grove) under which the Landlord made an election and served a notice on the tenant requiring the tenant to make the payment in lieu of carrying out the repairs which the court found to be significant in suggesting that the landlord’s right was to a contractual payment rather than a payment of damages.

Also, the wording used in Grove made reference to the landlord and tenant reaching a settlement based on the value of a schedule of dilapidations rather than making reference to the cost of making the repairs which the court interpreted as being analogous to a damages clause.

Ultimately the differentiating factor was that the wording in this case was interpreted as including a landlord’s right to demand a contractual payment unrelated to loss whereas the wording in Grove was not.

Some general principles
The Inner House stated:

“Care must also be taken to avoid reading anything said in Grove as being to the effect that the court can correct a bad bargain or even an unfair one; there is no general rule that a commercial contract requires to be fair”.

 And:

“it is not legitimate to re‑write parties’ agreement because it was unwise of one party to gamble on future outcomes;  the question is not whether a reasonable tenant would have entered into the obligation”

 Further:

“it is important to note that Grove did not lay down any general rule to the effect that the landlord in a commercial lease is, at termination, if repairs are outstanding only entitled to be compensated for capital loss actually suffered.”

 The full judgement is available from Scottish Courts here.

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[1] Albeit it was noted that a different conclusion may be appropriate where no obligation to renew or replace or rebuild as necessary is included.

[2][2014] CSIH 43

Supreme Court case considering the effect of a break clause contained in sub-underleases of different floors of a building known as “The Point” in London.

M&S let the property from BNP and the rent was paid quarterly in advance. When M&S exercised the break clause, the lease came to an end on 24 January 2012. M&S then brought a claim for return of the apportioned rent in respect of the period from 25 January 2012 to 24 March 2012.

There was no express term in the lease which entitled the tenant to repayment of the rent. However, M&S argued that a term should be implied into the lease.

The Supreme Court dismissed M&S’s appeal.

The Court confirmed that a term will only be implied into a contract if it satisfies the case of business necessity or is so obvious that it goes without saying.  It was noted that, although rent payable in arrears is apportionable under the Apportionment Act 1870, the 1870 Act does not apply to rent payable in advance and that common law authorities do not provide for rent (whether paid in arrears or advance) to be apportioned. The court then reached the conclusion that (aside from in very exceptional circumstances) an express term would require to be included in the lease to entitle a tenant to a refund of rent paid in advance.

Lord Neuberger said the following:

“Save in a very clear case indeed, it would be wrong to attribute to a landlord and a tenant, particularly when they have entered into a full and professionally drafted lease, an intention that the tenant should receive an apportioned part of the rent payable and paid in advance, when the non-apportionability of such rent has been so long and clearly established. Given that it is so clear that the effect of the caselaw is that rent payable and paid in advance can be retained by the landlord, save in very exceptional circumstances (eg where the contract could not work or would lead to an absurdity) express words would be needed before it would be right to imply a term to the contrary.”

The full judgement is available from the Supreme Court here.

Outer House case considering the extent of a repairing obligation under a lease of industrial premises in Shotts.

Background
Demi-Master were the landlords and HES, the tenants. Demi-Master sought declarator that the lease had been terminated in terms of notices of irritancy which they had served following HES’s failure to respond to notices requiring HES to comply with the repairing obligations under the lease and also to make the premises clean and tidy in terms of the repairing clause in the lease.

The repairing clause provided:

“The Tenants accept the Premises as being in such condition as shown on the attached Photographic Schedule and in all respects fit for the Tenants’ purposes and shall at their sole expense and, to the reasonable satisfaction of the Landlords, repair and maintain and renew (and, if necessary for the purposes of maintenance and repair, to replace and rebuild) and decorate and keep the Premises and all permitted additions and new buildings, if any, in like condition as is evidenced on the said Photographic Schedule and in a clean and tidy condition, clear of all rubbish, for the Duration…”

Although the repairing clause referred to a photographic schedule detailing the condition of the premises at the commencement of the lease, neither party had a copy of the schedule and it may have been that it had never existed.

Arguments
Dem-master, who were seeking a summary decree (which can be granted where, even if a defender succeeds in proving the substance of its defence, its case must fail), argued that as HES had (in terms of the repairing obligation) accepted the Premises as being “in all respects fit for the tenants’ purposes” at the date of entry, they had accepted that the Premises were in a tenantable condition at that time.

On the other hand, HES argued that, the premises were already badly dilapidated at the date of entry.  They were not wind and water tight and had not been for some years previously.  The reference to the premises being fit for the tenants’ purpose in the lease was not an acceptance that the premises were wind and watertight or otherwise in a good state of repair. HES’s use of the Premises did not require them to be wind and watertight and, in contrast to Dem-master’s assertion, the effect of the reference was to make it clear that the premises had not been wind and watertight or in a tenantable condition at the date of entry.

Decision
Lord Doherty found that he was not in a position to determine the meaning of the repairing clause without an inquiry into the material circumstances surrounding the signing of the lease and, in particular, the state of the premises at the date of entry (finding that HES were not bound to fail in their defence and he could not grant summary decree in favour of Dem-Master) and put the case out by order for a discussion as to further procedure.

The full judgement is available from Scottish Courts here.

Inner House court case relating to a lease of premises on Buchanan Street in Glasgow. ELB were the Landlords and Prestwick Hotels Ltd, the tenants.

Background
Prestwick were dissolved in June 2013 and then restored to the register of companies in October 2013. In terms of the Companies Act 2006 (s1012), when a company is dissolved its property (including leasehold property) falls to the Crown as bona vacantia and the Crown must then decide whether or not to disclaim the property. In this case the Crown opted to disclaim the property which (in terms of s1020 of the 2006 Act) had the effect of terminating the lease.  ELB therefore sought to recover possession of the subjects from Prestwick.

The crux of the case was the meaning of s1032(1) of the Companies Act 2006 which provides:

“The general effect of an order by the court for restoration to the register is that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register.”

Arguments
Prestwick argued that the effect of this section was that when it had been restored to the register all matters reverted to the pre-dissolution status quo to the extent that bona vacantia no longer applied to the premises. As such the lease continued and there was no foundation for ELB’s action to recover possession of the premises. The sheriff agreed with those arguments and dismissed ELB’s action.

Decision of the Sheriff Principal
However, on appeal, the Sheriff Principal recalled the sheriff’s decision and found that ELB were entitled to recover possession of the premises. In coming to this conclusion the sheriff principal took account of the uncertainty which would result if the restoration of the company were also to restore the lease. In terms of s1030(4) of the 2006 Act a company can be restored to the register up to 6 years after it has been dissolved. Thus if, for example, a landlord recovered possession of the premises following a dissolution and let it to another tenant, following Prestwick’s reasoning, the new tenant would cease to have any rights to the premises, if (at any point during the 6 year period) the original tenant were restored to the register.

As such, the Sheriff Principal found that Parliament did not intend that 1032(1) should operate so as to re-write history in an unrestrained manner and that specific provisions concerning the company’s property (contained in ss1012 to 1014 and 1020 to 1022) should prevail over the general effect of s1032. Again Prestwick appealed.

Decision of the Inner House
The Inner House agreed with the approach taken by the Sheriff Principal and refused the appeal. When a company is dissolved and the Crown opts to disclaim the property, the effect is that (1) all of the company’s rights in the property are brought to an end (in terms of s1020(1)) and (2) the property is deemed not to have vested in the Crown (in terms of s1014)[1]. This meant that PHL’s rights in the lease had been terminated from the date the Crown opted to disclaim the property. The judgement states:

“on a proper construction of the 2006 Act, “the general effect” of the restoration of the company as provided for by section 1032, namely “that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register”, merely provides for the general approach which is to be adopted in such circumstances;  but that general approach must give way to the specific and detailed provisions concerning the company’s property as set out in sections 1012 to 1014 and 1020 to 1022.  As a result, therefore, we consider that PHL’s rights in the lease came to an end on 15 July 2013. [The date the Crown opted to disclaim the property.]”

 And goes on:

 “The construction contended for by [Prestwick] would lead to uncertainty and confusion in the commercial world…  In general, applications for restoration of a company may be made at any time in the six years following dissolution, but in the case of a personal injuries claimant, there is no time-limit (section 1030(1)).  Thus on [Prestwick’s] construction, any transactions, contracts, titles, leases, and loans relating to the relevant company property would be struck at years later by an application for restoration resulting in an “as-you-were” position whereby the property simply reverted to the restored company as if the company had never ceased to exist and as if the dealings with the property over the recent years had never occurred…  Parliament cannot have intended to produce such results.”

The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1]The Act also makes provision (ss1021 and 1022) for interested third parties such as creditors or sub-tenants to apply to the court for the property to be transferred to them but there was no suggestion that Prestwick qualified in terms of the Act.

Sheriff Court case relating to a short assured tenancy of a flat on Laurence Street in Broughty Ferry. Ms Cordiner was the tenant and Mr Al-Shaibany, the landlord. In terms of the lease, the rent for the first and last months was payable in advance. The lease also provided that no deposit was required by the tenant. In terms of the Tenancy Deposit Scheme (Scotland) Regulations 2011, if a landlord fails to pay a tenancy deposit into an approved scheme within 30 days of the beginning of the lease, it may be liable to pay a penalty to the tenant for failing to comply with its duties.

The question for the court was whether payment of the last month’s rent fell within the definition of a “tenancy deposit” (provided in the Housing (Scotland) Act at s120).

The definition provides that:

“A tenancy deposit is a sum of money held as security for

(a) the performance of any of the occupant’s obligations arising under or in connection with a tenancy or an occupancy arrangement, or

(b) the discharge of any of the occupant’s liabilities which so arise.”

The sheriff found that the payments made by Ms Cordiner under the lease has been payments of rent and not payments held as security for the performance of any of the tenant’s obligations. In coming to that conclusion found the reasoning of the English Court of Appeal in Johnson v Old[1] to be persuasive. In particular, the sheriff noted that in that case:

“the Court made the crucial distinction between a payment discharging an obligation or liability and a payment made as security for that obligation or liability. A payment as security does not discharge the obligation or liability. Rather, it is an assurance that the obligation or liability will be discharged at a future time. The court concluded that a payment of rent in advance is a payment which discharges the obligation to pay rent and is not therefore a payment held in security for the discharge of any such obligation in the future”.

As regards the present case the sheriff stated:

“[Ms Cordiner] paid the first and last rental payment at the start of the lease. At that time she discharged her obligation to pay the first and last month’s rent in accordance with the lease. It seems to me to be wrong to describe that money as money held as security for the performance of an obligation, if that obligation has already been discharged. There was no evidence to suggest the rental payments were being held for any other purpose.

 As the payment of the last month’s rent was not “held as security” for the performance of the obligations under the lease, the payment was not a tenancy deposit in terms of the 2006 Act and did not require to be paid into an approved scheme in terms of the 2011 Regulations.

 The full judgement is available from Scottish Courts here.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] [2013] EWCA 415; [2013] HLR 26.

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.

Sheriff Court case considering the extent of leased premises situated in Eastfield Industrial Estate in Penicuik.

The premises were situated above the Loon Burn which flows through a culvert. The culvert became damaged and the tenant argued that repairs were the landlord’s responsibility and sought an order compelling the landlord to repair the culvert or pay damages sufficient to cover the costs of repair.

The question for the court was whether the leased premises included the culvert.

The landlord’s title, as shown on his land certificate, was a coelo usque ad centrum (i.e. from the heavens to the centre of the earth) and thus, if the tenant had taken a lease of the whole of the landlord’s interest, the leased premises would include the solum of the property and therefore the culvert. The tenant pointed out that the description of the property in the lease was different to that in the Land Certificate arguing that, if a full transfer of the premises had been intended, the landlord could have put the matter beyond doubt by including the full conveyancing description from the land certificate.

The tenant also referred to the definition of conduits which included various wires and pipes not serving the premises, noting that a tenant would not take on liability for conduits not serving the premises and suggesting that it was therefore unlikely the premises included the conduits.

The sheriff preferred the landlord’s arguments finding that, although the descriptions were different, the description of the premises in the lease was full and unlimited with no hint of reservation or separation of the solum (albeit there were some small differences in other boundaries of the property which the sheriff concluded were sufficient to explain any dissimilarity in descriptions in the land certificate and lease).

The sheriff also rejected the tenants arguments in relation to the conduits noting that, although some of the conduits did not serve the premises, the parties had expressly recognised and regulated that situation in the lease. As a result, the sheriff was not prepared to infer that the conduits did not form part of the premises on the basis that some did not serve the premises.

Accordingly, the sheriff found that the leased premises included the Loon Burn culvert.

The full judgement is available from Scottish Courts here.

Outer House case relating to a lease of retail premises in Falkirk. The landlord was Grantchester and the tenant was Homebase.

Background
The tenant sought to assign the lease of the premises to a third party (CDS). In terms of the relevant clauses of the lease, the tenant was not entitled to assign the lease without the prior written consent of the landlord. That consent could not be unreasonably withheld by the landlord in the case of an assignee of “sound financial standing demonstrably capable of fulfilling the tenant’s obligations” under the lease. (Further, the lease provided that the tenant could not sublet the premises for a rent less than the open market rent and could not require the payment of a premium to the tenant or other ‘unreasonable’ incentive).

When considering the tenant’s request for consent to the assign, the landlord requested to see the terms of agreement between the tenant and the proposed assignee regulating premiums or deals relating to payments due under the lease. The tenant refused to provide that information arguing that it was irrelevant to the landlord’s decision and that, in terms of the lease, the landlord should only be concerned with the a proposed tenant’s identity, character and ability to comply with the tenant’s obligations under the lease.

Arguments
Before the court, the tenant contended that the only relevant considerations which could be taken into account by the landlord were whether the proposed assignee was of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations in terms of the lease. In the view of the tenant, if the proposed assignee satisfied those requirements, it would be unreasonable for the landlord to withhold consent.

Decision
After considering the authorities[1], Lord Tyre rejected the tenant’s arguments and preferred the arguments made on behalf of the landlord to the effect that the lease provided a two stage test. The first stage was to determine whether the proposed assignee’s covenant was good, i.e. whether it was of sound financial standing and demonstrably capable of fulfilling the tenant’s obligations.  If and only if that test was satisfied, one passed to the second stage, which was to determine whether there were reasonable grounds for a refusal of consent by the landlord. In that regard there may be good reasons unconnected with the financial standing of the proposed tenant which would entitle the landlord to withhold consent[2].  In this case it had been reasonable for the landlord to request the information relating to any rent subsidy or reverse premium and to withhold consent unless and until it was supplied. In coming to that conclusion Lord Tyre noted previous authority[3] recognising that the payment of rents subsidies or reverse premiums could affect the rental value of the property and that was something that a landlord could reasonably take into account when deciding whether to withhold consent.

 The full judgement is available from Scottish Courts here

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.

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[1] Including Burgerking Ltd v Castlebrook Holdings Ltd [2014] CSOH 36. (See summary here).

[2] Although a landlord would not be entitled to withhold consent if the reasons for doing so had nothing to do with the relationship of landlord and tenant in regard to the subjects leased.

[3] Norwich Union Life Insurance Society v Shopmoor Ltd [1999] 1 WLR 531 and Burgerking Ltd v Rachel Charitable Trust 2006 SLT 224.

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:

1. whether the lease stipulated that the landlord had to provide at least 3 months’ notice prior to its expiry;
2. whether a term of reasonable notice should be implied into the two licence agreements; and
3. 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.

All of our property and conveyancing case summaries are contained in the LKS Property and Conveyancing Casebook here.