Outer House case concerning the nature and extent of tenants’ obligations under a lease of office premises at Chesser House on Gorgie Road in Edinburgh. Mapeley were the landlords and the City of  Edinburgh Council, the tenants.

At the expiry of the lease Mapeley served a schedule of dilapidations on the Council and sought payment of just over £8m.The interpretation of the tenant’s repairing obligations under the lease were at the centre of the dispute. There were two issues of interpretation for the court:

1. whether, in terms of the lease, the landlord was entitled to receive a sum equivalent to the cost of repairing the premises even if it had no intention of carrying out the required repairs; and
2. whether, in terms of the lease, the tenant was obliged to replace the plant and equipment on the premises at the end of the lease whatever the condition of those items (i.e. even if not missing, broken, worn, damaged or destroyed.)

In essence, the Council argued that, in terms of the lease, (a) the landlord was not entitled to recover the costs of putting the property into the standard of repair contained in the lease where the landlord did not intend to undertake the work and (b) the tenant did not require to replace or renew items of plant and equipment where the items were not missing, broken, worn, damaged or destroyed.

Lord Doherty found that the precise wording contained in lease was capable of bearing both that interpretation and the interpretation argued for by the landlord (per 1. and 2. above). However, where such wording is capable of bearing more than one meaning, the court requires to adopt the interpretation which best accords with business common sense. As such Lord Doherty preferred the interpretation contended for by the Council noting that, to adopt Mapeley’s approach, would have involved a radical departure from the common law which would have resulted in excessive and disproportionate consequences and, as a result, would have required to have been clearly indicated in the lease (which it had not been in the lease in question).

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.

Background
Sheriff Court case concerning an action for recovery of possession of a shop premises in Edinburgh. The shop was let on a 25 year full repairing and insuring lease commencing in December 2002.

The lease contained a clause stating: ‘[t]he weekly rent shall be payable by Bank Standing Order to the Landlord’. However, in practice, the rent was paid in cash. The landlord kept rent diaries which recorded the dates when rent was paid and the dates when rent was not paid. On 31 March 2014 the landlord terminated the lease after following the irritancy procedure in respect of 35 weeks of unpaid rent. The landlord then raised an action to recover both possession of the shop and the unpaid rent.

The tenant argued that the rent had been paid in full. In response to the landlord’s evidence that it had not, the tenant pointed to the provision in the lease for the rent to be paid by standing order and the lack of bank records or accounts showing how the rent was received, rent receipts or a rent book.

Decision
After hearing evidence from various parties, the sheriff preferred the evidence of the landlord and his witnesses and granted decree in the landlord’s favour. With regard to the clause indicating that the rent would be paid by standing order, the sheriff found that it meant that the landlord would be bound to accept rent paid by standing order if the tenant paid by that means. However, it did not prevent the landlord from dealing in cash if the tenant wished to pay that way.

As regards the evidence produced by the tenant, the sheriff said the following:

 “In my judgement it was always open to the [tenant] to organise his business affairs in such a way that he could pay the rent by standing order and be in a position to demonstrate he paid the rent regularly and was up to date. I consider this is basic business management. It is his responsibility to organise his business affairs in such a way that he can at least demonstrate he pays the rent. His own parole evidence in my opinion was worthless. The onus of proof is on the [landlord] to prove his case but the fact that the [tenant] is incapable of clearly demonstrating something as basic as regular rent payments, in my view, makes it easier to accept the [landlord]’s case which is at least based on a system, primitive though it may be.”

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.

Background
This is an Outer House case concerning a lease of premises at the Gyle Shopping Centre in Edinburgh under which Gyle was the landlord and Marks & Spencer, the tenant.

Gyle entered an agreement with Primark for the erection of a new store on land which included part of a car park. However, Marks & Spencer’s premises were let together with a one-third pro indiviso share of shared areas which included the car park. In two previous decisions Lord Tyre found (1) that M&S had not consented to the building of the Primark Store and that the building of the store without consent would be a breach of the lease[1] and (2) that M&S was not personally barred from preventing Gyle from erecting the store on the car park[2].

In this case Gyle sought declarator that any refusal of consent to the Primark development by M&S would be amount to an unreasonable withholding of consent. The relevant clause in the lease provided that works on the shared areas could be carried out with the consent of M&S (to the effect that they accepted that any works would not render the mall or shared areas materially less adequate, commodious or convenient to them) and that that consent could not be unreasonably withheld.

Arguments
After Lord Tyre rejected an argument by M&S that the relevant clause could not be construed so as to permit works which effected a permanent alteration to the extent of shared areas, the question for the court was whether it was unreasonable for M&S to withhold consent.

Gyle offered a number of arguments why it was unreasonable for M&S to refuse consent to the development including contentions that the proposed development would benefit public access to the shopping centre, that car parking would remain in excess of the requirements and that the alterations were sufficiently remote not to have a significant impact on the servicing and usage of the M&S store. As a result of the various arguments, Gyle expressed the opinion that it would be unreasonable to conclude that the development would render the Mall or the Shared Parts materially less adequate, commodious or convenient to M&S.

M&S did not challenge those arguments or Gyle’s opinion. However it argued that (1) that the proposed “works” were too unspecific; (2) that loss of ownership rights in relation to the shared areas was sufficient of itself to render them less adequate; and (3) that as the case was ongoing at the time when the Gyle sought M&S’s consent, it could not be said that M&S acted unreasonably in withholding consent.

Decision
Those arguments were rejected by Lord Tyre who found: (1) that the proposed works were detailed in plans provided to M&S prior to its refusal of consent (and in respect of which planning permission had been granted); (2) the loss of M&S’s interest in the shared areas as tenant under the lease did not of itself render the shared areas materially less adequate (the criteria of adequacy, commodiousness and convenience being concerned with practical consequences rather than the technicalities of characterisation of M&S’s right under the lease); and (3) M&S’s entitlement to withhold consent in terms of the relevant clause had to relate to the three specified criteria. (Thus the fact that there was subsisting litigation was not a relevant matter at the time when consent was refused.)

The full judgement is available from Scottish Courts here.

(NB: see appeal to Inner House here.)

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

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[1] Gyle Shopping Centre General Partners Ltd as Trustee for and General Partner of Gyle Shopping Centre Limited Partnership v. Marks and Spencer Plc, 25 March 2014. See summary here.

[2] Gyle Shopping Centre General Partners Ltd as Trustee for and General Partner of Gyle Shopping Centre Limited Partnership v. Marks and Spencer Plc, 6 August 2014. See summary here.

Background
Sheriff Court case concerning a lease of property at Hopetoun Crescent in Edinburgh. The landlord initially failed to pay a deposit (of £1000) into an approved scheme and also failed to provide the tenant with the prescribed information[1] required in terms of Tenancy Deposit Schemes (Scotland) Regulations 2011.

The lease was to run from 1 July 2013 to 31 January 2014 but, despite an unsuccessful attempt to evict the tenant at the end of 2013, continued by tacit relocation until decree for recovery of possession of the property was granted on 27 June 2014. The deposit was paid into an approved scheme on 27 January 2014 (when the landlord became aware of his duties).

Where a landlord has failed to comply with its requirements under the 2011 regulations, regulation 9 provides that the tenant can apply to the sheriff for an award of an amount of money as a sanction against the landlord for its failure to comply with its duties. The question for the sheriff in this case was how much the landlord should have to pay.

Arguments
The tenant argued that he should receive (the maximum award of) three times the deposit contending that the sheriff’s discretion as to the amount of the award was unfettered[2].

The landlord’s solicitor argued that the landlord was not a commercial landlord and was a 30 year old first time amateur landlord who “had made a hash of the let”. He had also paid the deposit into an approved scheme as soon as he had become aware of the requirement and (following a dispute) the deposit had been adjudicated on under the scheme and repaid to the tenant. The landlord also contended that the tenant had been using the threat of sanction under the regulations as a weapon in a dispute over rent arrears (with the suggestion being that judicial sanction regarding the deposit would not be pursued if the landlord were to waive his claim for rent arrears.) In essence the landlord considered that he was being blackmailed by the tenant.

Decision
The sheriff accepted that he had discretion as to the amount of the award but did not agree that the discretion was ‘unfettered’ as it had to be exercised for sound reasons and could not be exercised in a manner which was arbitrary, automatic or capricious. Further, the resulting decision had to be fair and just and could not be disproportionate (in that trivial noncompliance could not result in the maximum penalty).

The sheriff noted that a landlord’s ignorance of the regulations could be no excuse. He also found that there had been no blackmail in this case.

“In my view, the bona fide use, by tenants, of this right as supplementary leverage against landlords, is not illegal and if it becomes widespread, it should further enhance good market practice and regulatory compliance. It is not a bar to sanction against the landlord.”

However, after taking account of the various mitigating factors in favour of the landlord, the sheriff took the view that the award in favour of the tenant should be at the lower end of the scale and awarded the tenant the sum of £333.33 (one third of the deposit).

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] Relating to the safekeeping of the deposit, the status of the landlord as a registered landlord under the scheme and how any future disputes over the money could be resolved.

[2] See summaries of Fraser v Meehan, 2013 S.L.T. (Sh Ct) 119 and Tenzin v Russell, 28 January 2015 (and 19 December 2013 here) in which the sheriff’s discretion was described as ‘unfettered’.

Background
Inner House case relating to a landlords’ failure to comply with the Tenancy Deposit (Scotland) Regulations 2011 in respect of a property at 4/6 Admiralty Street in Edinburgh.

The landlords failed to pay a deposit of £750 into an approved tenancy deposit scheme as required by regulation 3 of the 2011 regulations and made deductions from the deposit before returning it to the tenant at the end of the lease. In terms of regulation 10, where the landlord fails to comply with its duty under regulation 3, (following an application by the tenant) the sheriff must order the landlord to make a payment not exceeding 3 times the deposit to the tenant. Following an application from the tenant, the sheriff ordered the landlord to pay the maximum monetary payment of three times the deposit.

The sheriff principal refused an appeal by the landlords on the basis of technical points relating to the tenants’ pleadings[1] and on the basis that the sheriff had made an error when exercising his discretion to award the maximum penalty (noting that the sheriff had “complete and unfettered discretion” as to the award to make).

Arguments
The landlords appealed to the Inner House which refused the appeal and found no flaws in the decisions of the sheriff and sheriff principal. With regard to the sheriff’s decision to award the maximum penalty, the landlords argued that the sheriff had failed to take into account the fact that the landlords were only in breach of the regulations for 34 days and had placed weight upon the fact that the landlords had held the deposit for several months prior to the tenancy deposit protection deadline. Further, the landlords argued that the sheriff should have taken account of the facts that, at the time of the breach, the regulations were new and complex, that the breach had occurred during the transitional period of the regulations coming into force, and that the breach had occurred during a period in which the tenant had given notice of his intention to vacate the property.

Decision
The Inner House emphasised the limited role which it (as an appellate court) could play in considering an exercise of the sheriff’s discretion noting that it could only interfere where, for example, the sheriff had not exercised his discretion at all, had taken into account irrelevant considerations, or had failed to take into account relevant ones. The sheriff had set out in detail his reasons for awarding the maximum penalty and the Inner house could find no fault with his reasoning:

 “It is plain that he reached the conclusion that the breach by the defenders in this case was indeed a serious one.  There is, in our opinion, no basis upon which we would be entitled to interfere with the decision he reached.  It is not insignificant that the defenders had until 30 November 2012 to register the pursuer’s deposit with one of the approved schemes.  That was over four months after the regulations had first come into force.  They chose not to do so.”

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] For which see LKS summary of earlier decision here.

Background
Inner House case concerning a lease of property on Kelvinhaugh Street in Glasgow. (The subjects were greater than two acres in extent and were the subject of a probative lease). The natural term of the lease had come to an end (on 27 February 2012) and the lease continued by tacit relocation. By letters dated 3^rd and 16^th of January the tenants gave notice to the landlords that the lease was to terminate at 27^th February 2013. The tenants argued that in doing so they had complied with the requirement, at common law, to provide 40 days clear notice of the termination.

Arguments
However the landlords argued that the situation was governed by s34 of the Sheriff Courts (Scotland) Act 1907 which deals with removings and provides that notice requires to be given 6 months before termination.

In the sheriff court the sheriff agreed with the tenants’ interpretation and the landlords appealed.

Decision
In the Inner House the appeal was refused. The court found that s34 applies to the situation where the landlord initiates the termination process but not where the tenant initiates the process. This was in contrast to s35 which provides for the situation where the tenant initiates the termination and preserves the common law position on the giving of notice. As such the common law applied and a period of 40 days’ notice was sufficient to terminate the lease.

“… [W]e have reached the view that the submissions for [the tenants] are sound, and that the sheriff’s analysis and conclusions were correct.  The structure of sections 34-37 of the 1907 Act makes a clear distinction between a landlord’s notice in writing to remove and a tenant’s letter of removal.  The first proviso to section 34, which requires not less than 6 months’ notice before the termination of the lease, relates to a notice in writing to remove.  It relates to termination initiated by the landlord, and not termination initiated by the tenant.”

As to the contrasting approaches of s34 and s35, the court noted the element of additional protection provided for the tenant when the landlord exercises the remedy of ejection without independent judicial termination (which is not required when the tenant initiates the procedure).

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.

Background
Outer 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.

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.

Decision
Putting and keeping
Lord Tyre began by rejecting @SIPP’s contention[1] that an obligation to keep the premises in good and substantial repair necessarily imports an obligation to put the premises in that condition regardless of its condition at the commencement of the lease. Then, taking a modern approach (which requires the court to consider what a reasonable person would have understood the parties to have meant by the language they used, rather than necessarily imposing interpretation which is grammatical result of the language used) to construction of the relevant clause, Lord Tyre found that the tenant’s obligation was referable to the condition in which they were accepted at the commencement of the lease (and not the condition in which they were deemed to have been accepted).

Remedy for breach of the repairing obligation
Where a tenant breaches its obligation to return the premises to the condition specified in the lease at the end of the term, the landlord is entitled to common law damages for the loss sustained. The landlord will normally argue that that loss amounts to the cost required to put the premises into the specified condition. However, that will not be the measure of the loss in all cases. In some cases the proper measure of loss may be the diminution in the capital value of the subjects[2] and in some cases, for example where the building is to be demolished (for reasons unconnected with the tenant’s breach), the landlord may be unable to show any loss at all.

In this case @SIPP argued that the relevant clause in the lease provided an express right to payment of a sum equivalent to the cost required to put the premises into good and substantial repair and that in exercising that contractual right it was not making a claim for damages for its loss.

However, Lord Tyre found that there was nothing in the relevant clause compelling the interpretation favoured by @SIPP. In the view of Lord Tyre, a lease would require very clear wording to allow a conclusion that the tenant had to pay a sum which bore no relation to that required to compensate the landlord for the loss actually sustained as a result of a breach of the repairing obligation.

As such, Insight were entitled to prove that @SIPP’s loss was equivalent something other than the cost of repair and the case was put out by order for discussion as to further procedure[3].

The full judgement is available from Scottish Courts here

(NB see appeal to Inner House appeal here)

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

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[1] This argument was based on the judgment of the Supreme Court in L Batley Pet Products Ltd v North Lanarkshire Council[2014] UKSC 27, however, Lord Tyre found that the reference to putting/keeping the property in good condition related to a commentary on the particular clause used in that case rather than making a general statement/change as to the law.

[2] In this case the estimated cost of the works required was over £1m whereas Insight argued that even if it had carried out all of the works in the schedule of dilapidations, the capital value of the premises would only have increased by £175k.

[3]The question of whether @SIPP would be entitled to recover the cost of the repairs if it could prove an intention to carry out the repairs regardless of the extent to which the cost of the repairs would exceed the increase in capital value of the subjects was left open.

Sheriff 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[1] 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
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 the specific provisions contained in s1020 relating to the termination of the lease should prevail over the general effect of s1032.

With regard to the effect on Prestwick the sheriff principal said the following:

“My decision might be seen as somewhat harsh in so far as [Prestwick] are concerned.  However, I would reject any such criticism.  Firstly, in general terms, the construction placed upon the provisions of the 2006 Act simply serves to highlight the importance to be attached to proper compliance with features such as the regular and timeous lodging of company accounts etc.  Dissolution of a company is rightly associated with very significant consequences not only for the company itself but also for other parties with whom they have contracted.”

The full judgement is available from Scottish Courts here.

(See appeal to Inner House here.)

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

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[1] Section 1012

Background
This is an Outer House case concerning a lease of premises at the Gyle Shopping Centre in Edinburgh under which Gyle was the landlord and Marks & Spencer, the tenant.

Gyle entered an agreement with Primark for the erection of a new store on land which included part of a car park. However, Marks & Spencer’s premises were let together with a one-third pro indiviso share of shared areas which included the car park. In an earlier decision Lord Tyre had found that (1) the building of the Primark store would breach the lease with Marks & Spencer and (2) a meeting of the shopping centre management committee approving construction of the new building was not sufficient to vary the terms of the lease.

Arguments
Here Gyle argued that, although the lease had not been varied, Marks & Spencer were personally barred from objecting to the construction of the building as Marks & Spencer’s representatives had agreed to the building at the shopping centre management committee and that Gyle had relied on that agreement with their knowledge.

In particular Gyle argued that M&S was personally barred:

1. in terms of s1(3) of the Requirements of Writing (Scotland) Act 1995;
2. in terms of the (pre-1995 Act) common law rule of rei interventus; or
3. by waiving its right under the lease.

Decision
Lord Tyre rejected those arguments.

The 1995 Act
Lord Tyre found (in accordance with the decision of Lord Drummond Young in Advice Centre for Mortgages v McNicoll[1]) that s1(3) does not apply to leases; noting that s1(3) applies only to separate contracts relating to the land (i.e. transactions giving rise to merely personal rights) and not to dispositions and other deeds which actually effect the creation or transfer of an interest in land (i.e. transactions giving rise to a real right).

Rei interventus
With regard to the common law rule of rei interventus, Lord Tyre found that the (pre-1995 Act) common law rules (relating to both rei interventus and homologation) had been replaced in their entirety by the statutory rules contained in the 1995 Act and did not continue in parallel.

Waiver
On the subject of a potential waiver of Marks & Spencer’s rights in the lease, Lord Tyre said the following:

 “In my opinion, the evidence falls well short of establishing that there has been voluntary, informed and unequivocal waiver by [Marks & Spencer] of its right to prevent the construction and leasing of the building.  It seems to me that [Gyle’s] analysis perpetuates its original error of treating [Marks & Spencer’s] representatives who attended and approved the minutes of Management Committee meetings as equivalent to [Marks & Spencer] itself.  It wrongly characterises the conduct of those individuals as the conduct of [Marks & Spencer].  As I have already held, those individuals were not empowered in terms of [Marks & Spencer’s] lease to take decisions affecting [Marks & Spencer’s] real rights in the Shared Areas.  There was no evidence to indicate that they were even aware of what those rights were, although it was clear that the question of real rights was given no consideration by those representing [Gyle].  Nor was there any evidence of actings on the part of any person within [Marks & Spencer’s] organisation who was truly responsible for taking decisions regarding the variation of real rights under the lease which might induce [Gyle] to believe that [Marks & Spencer] regarded such decision-making as falling within the competence of the Management Committee.”

The full judgement is available from Scottish Courts here

(See also summaries of decisions finding (1) that M&S had not consented to the building of the Primark Store and that the building of the store without consent would be a breach of the lease (2)  that M&S was not unreasonably withholding consent to the Primark development.)

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

Inner House case concerning a lease of a unit in a large (and mostly unoccupied) industrial complex in Shotts. Dem-Master were the landlords and Alba, the tenants.

Background
Dem-Master raised an action for payment in respect of electricity and outstanding rent. Alba disputed that the sums were due and a secondary issue arose regarding access to the property. Alba argued that Dem-Master had restricted vehicular access to the property by securing gates and locking loading bay doors which were used to allow heavy goods plants and equipment to be manoeuvred into the premises.

Alba sought an interim interdict to prevent Dem-Master restricting access to the premises in such a way as to prevent their rights under the lease. Dem-master granted an undertaking allowing access via a defined route and Alba dropped their motion for interim interdict but subsequently returned to court arguing that Dem-master had failed to comply with the undertaking.

Arguments
Alba argued that they were unable to carry on their business and that they wished to vacate their premises and move to other premises but that they were unable to remove their plant and machinery without access to the loading bay door. Dem-Master argued that Alba had no right to exercise access via the loading bay doors in terms of the lease and, in view of the fact that Alba’s published accounts showed them to be insolvent, they were concerned that removal of Alba’s plant and machinery would prevent use of the Landlord’s hypothec (i.e. the right to retain a tenant’s property as security).

Decision
In the Outer House the motion for interim interdict was granted so as to allow access via the loading bay doors. The Inner House found that, on a construction of the lease (under which the landlord, acting reasonably was entitled to designate the route of the rights of access), it could not be said that Alba had the right to use the loading bay doors. However, the court did find that the balance of convenience (required to allow an interim interdict) did favour access over another route which would allow Alba to operate their business from the premises (but which would not allow the removal of their heavy plant and machinery from the unit).

The case was put out by order to discuss the exact terms of the order for interim interdict.

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.