Inner House case relating to the repossession of a residential property subject to a standard security (in favour of Swift Advances) securing a loan in respect of which the debtors (Mr and Mrs Martin) were in considerable arrears.

The main issues for the court were whether Swift had complied with the necessary pre-action requirements a creditor is required to take before repossessing a residential property[1] and whether it was reasonable, in the circumstances, for the court to grant decree allowing repossession of the property.

Amongst the pre-action requirements are obligations on the creditor:

1. to make “reasonable efforts to agree with the debtor proposals in respect of future payments to the creditor under the standard security and the fulfilment of any other obligation under the standard security in respect of which the debtor is in default”; and

2. not to make an application (allowing it to repossess the property) if the debtor is taking steps likely to result in (a) “payment to the creditor within a reasonable time of any arrears, or the whole amount, due to the creditor under the standard security; and (b) fulfilment by the debtor within a reasonable time of any other obligation under the standard security in respect of which the debtor is in default”.

The Martins property formed part of a larger property, the other part of which was owned by their daughter and son-in-law (the Hendersons). Discussions took place between the solicitors acting for Swift and those acting for the Martins regarding a potential purchase of the Martins property by Hendersons. The Hendersons were prepared to purchase the property on the basis of a valuation of £300k (obtained in July 2010). However, the property had been valued at £750k at the time of the loan (3 years previously) and Swift were concerned at the low valuation (the outstanding debt was said to be approaching £700k).  Mrs Henderson had also indicated to Swift that there was a problem with access to the Martins property (in that access to the Martins’ property depended on the consent of the owner of the Hendersons’ property). Correspondence followed in which Swift’s solicitors unsuccessfully sought the original title deeds from the Martins solicitors (which were held by the holder of a prior security) to ascertain the correct position regarding access (in order that the effect on the valuation could be ascertained) and the Martins solicitors repeatedly sought to insist that Swift accept the Henderson’s proposal of a purchase at £300k. Swift then resumed court proceedings aimed at repossessing the property (an action had previously been brought to an end to explore the possibility of resolving matters without litigation).

The Martins argued that Swift had not made reasonable efforts to agree its proposals to sell the property to the Hendersons (breaching pre-action requirement 1. above) and that, by taking steps to repossess the property while the Martins were proposing a sale to the Hendersons, Swift failed to comply with pre-action requirement 2. (above).

Those arguments were rejected by the Inner House which agreed with the findings of the Sheriff Principal to the effect that the pre-action requirements were aimed at protecting against the situation where a creditor takes action rapidly following a debtors default without communication with the debtor and without making any accommodation allowing the debtor to remain in occupation of the property with an adjusted payment regime. However, in this case, both parties were held to have made reasonable efforts to reach an agreement albeit those efforts had failed and Swift were found to have complied with the pre-action requirements.

“The pre-action requirements introduced by the 2010 Act[2] in respect of residential borrowing are designed to ensure that there is a genuine exploration of the possibility of an arrangement being reached whereby, in due course, the default can be remedied, albeit this may require indulgence on the part of the creditor.  The whole tenor of section 24A(3) and (4) is of discussions aimed at an alternative agreement whereby the debtor’s obligations can be fulfilled, for example, on the basis of a lower monthly payment extending over a longer period.  There is nothing to suggest that a proposal to pay only a fraction of the sum due must be accepted, or that it can stop the raising of court proceedings.”

The court also found that, in the whole circumstances, including the pre‑action correspondence, it could not be said that it was unreasonable for the court to sanction possession of the subjects and their sale on the open market by Swift.

The full judgement of the case is available from Scottish Courts here.

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[1] Contained in s24A of the Conveyancing and Feudal Reform (Scotland) Act 1970.

[2] The Home Owner & Debtor Protection (Scotland) Act 2010 (which amended the 1970 Act).

Outer House case in which a trustee in sequestration sought to challenge four securities and three dispositions granted by Mr Fortune.

Background
The trustee was appointed over the sequestrated estate of Mr Fortune in February 2011. As a result, Mr Fortune’s estate vested in the trustee (for the benefit of his creditors) on 24 December 2010.  Mr Fortune owned a number of properties in Edinburgh and attempted to grant a standard security of 4 of the properties and a disposition of 3 of the properties in favour of Medwin Investments (the deeds were registered in April 2014).

Arguments
Medwin argued that, in terms of s44(4)(c) of the Conveyancing (Scotland) Act 1924[1], as 3 years had passed since Mr Fortune had been sequestrated without the trustee having completed title to the properties, the properties subject to the standard securities and dispositions no longer vested in the trustee meaning that the deeds in favour of Medwin were immune from challenge by the trustee.

At the heart of this case was a procedural failure in the recording of a sheriff’s order (pronounced in December 2010). Where a petition for sequestration of the debtor’s estate is presented by a creditor, the sheriff to whom the petition is presented must grant warrant to cite the debtor to appear before him (in order to allow the debtor to show why sequestration should not be awarded). When the sheriff grants the order, the sheriff clerk must send a certified copy of the order to the keeper of the register of inhibitions and adjudications for recording[2]. In this case (for reasons unknown) the certified copy of the sheriff’s order was not recorded.

Decision
Lord Jones agreed with the trustee’s contention that, in terms of the legislation, the three year period leading to immunity from challenge in respect of the deeds granted in favour of Medwin was dependent on the recording the sheriff’s order. As the order had not been recorded, the three year period had not begun to run and therefore could not be said to have expired prior to registration of the deeds in favour of Medwin (meaning that the dispositions and standard securities were not immune from challenge by the trustee).

However, during the case an additional complication emerged in that solicitors acting for the trustee advised the court that the trustee had applied for an order[3] waiving failures to comply with requirements of the legislation and restoring parties to the position that would have occurred were it not for the failure. That application led to the sheriff pronouncing two interlocutors. The first (on 6 February 2014) amended the warrant to cite and ordained the sheriff clerk to intimate the interlocutor and the order of 24 December 2010 to the keeper whilst “reserving to pronounce further”. The sheriff clerk sent a certified copy of the interlocutor to the keeper and it was recorded on 11 February 2014. The second interlocutor authorised the Keeper to record the certified copy of the order of 24 December 2010 and a memorandum of renewal extending the 3 year period and was recorded on 22 May 2014.

Lord Jones found that, although the sheriff may not have intended the certified copy of the order to be recorded until he made the second interlocutor, it had in fact been recorded. The effect of this was to retrospectively trigger the beginning of the three year period (from the date sequestration) meaning that at the time the dispositions and standard securities were granted the three year period had expired (and consequently the deeds may potentially have been immune from challenge).

However, Lord Jones also found that, although the three year period had passed, the Trustee retained the personal right to the properties which had vested in her on 24 December 2010. And, although expiry of the 3 year period prevented the deeds being challenged on the grounds of sequestration, because Medwin was aware that the trustee had a prior personal right to the property when Medwin acquired title to the property, Medwin was acting in bad faith and the deeds could be challenged on the basis of that bad faith. As such the deeds were reduced.  (Essentially, Medwin had fallen foul of what is known as the “offside goals rule” [4] which protects a person with a prior right from a second party who appears later and knows (or ought to have known) of the prior right but nevertheless attempts to obtain rights to the property anyway.)

The full case report is available from Scottish Courts here.

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[1] “No deed… granted… by a person whose estates have been sequestrated under … the Bankruptcy (Scotland) Act 1985,… relative to any land or lease or heritable security belonging to such person at the date of such sequestration or subsequently acquired by him shall be challengeable or denied effect on the ground of such sequestration if such deed… shall have been granted… at a date when the effect of recording… under subsection (1)(a) of section 14 of the Bankruptcy (Scotland) Act 1985 the certified copy of an order shall have expired by virtue of subsection (3) of that section, unless the trustee in such sequestration shall before the recording of such deed… in the appropriate Register of Sasines have completed his title to such land… or heritable security by recording the same in such register…”

[2] In terms of s14(1)(a) of the Bankruptcy (Scotland) Act 1985.

[3] In terms of s63 of the Bankruptcy (Scotland) Act 1985.

[4] The rule is described in Rodger (Builders) Ltd v Fawdry and Others 1950 S C 483.

Outer House case concerning an Option Agreement relating to a 4.6 acre Brownfield site near the Commonwealth Games Athletes Village in Glasgow which was owned by Glasgow City Council.

Background
PIP 3 wanted to construct a hotel and car park on the site and, between 2006 and 2011, instructed various investigations to be carried (which showed that the site was relatively free from hazardous waste) However, following receipt of a survey from the Council, PIP 3 discovered that a large quantity of extra earth had been deposited on the site which the Council then confirmed was spoil derived from the construction of the nearby Commonwealth Games facilities.

The parties entered an option agreement in late 2011 (schedule 1 of the agreement was termed “the Missives”). Amongst other things, the agreement provided for payment of an initial purchase price by PIP 3 (at settlement –which was 15 working days after PIP 3 exercised the option to purchase the property) and for the Council to instruct a remediation consultant to prepare a Site Waste Management Plan and a Materials Management Plan (as soon as reasonably practicable after execution of the option agreement). The Council were also to procure that the contractors and the remediation consultant were to provide collateral warranties to PIP 3.

The settlement date was 11 April 2013. PIP 3 asked for copies of the Site Waste Management Plan and a Materials Management Plan in February 2013 and, whilst the Council said it was obtaining the documents, it said that there was no obligation on them to deliver them at settlement. PIP 3 did not pay the initial purchase price at settlement. The Council delivered the copy documents to PIP 3 on 5 June 2013. However, PIP 3 still did not pay and the Council rescinded the Agreement on 4 July 2013.

PIP 3 raised an action for breach of contract on the basis that the Council had failed to provide (a) the Waste Management Plan and the Materials Management Plan and (b) the collateral warranties. PIP 3 sought damages of over £15m equating to an estimate of its lost profit if the development had gone ahead. Alternatively, PIP 3 sought abortive costs on the basis that the Council had (i) breached its obligations of good faith and (ii) negligently misrepresented the position by failing to disclose the deposit of hazardous waste.

Decision
Lord Woolman dismissed PIP 3’s claim for breach of contract. In the first place, it was found that, in terms of the wording of the relevant clause in the agreement, there was a duty to instruct the Waste Management Plan and a Materials Management Plan but not to deliver them on or prior to settlement. (In coming to that conclusion Lord Woolman also observed that there were only three working weeks between exercising of the option and settlement and it might have been difficult for the Council to obtain the documents in that period.)

Secondly, Lord Woolman referred to the missives. Clause 1.7 provided that Council was not entitled to rescind:  “for any period of time during which the delay in payment by PIP 3 is due to any failure or breach by or on behalf of the Council to implement its obligations or duties under the Missives on time”. Lord Woolman noted that, unlike clause 1.3 which provided that the Council was entitled to rescind both the missives and the option agreement if PIP3 failed to pay the initial purchase price, clause 1.7 referred only to the missives. As such, the limitation of the Council’s right to rescind contained in clause 1.7 applied only in respect of obligations contained in the missives (but not the option agreement). The obligation relating to the Waste Management and Materials Management Plans was contained in the option agreement but not the missives meaning PIP 3 could not withhold payment on the basis non-compliance with the obligation without giving the Council a right to rescind.

Thirdly, PIP 3 had also claimed that they were entitled to withhold payment on the basis that the missives required the Council to deliver certain documents including the collateral warranties at settlement. However, Lord Woolman found that, having regard to the wording of the agreement, payment of the initial purchase price was the hinge of the transaction and, until payment occurred, the Council had no obligation to deliver the collateral warranties (and other settlement documents).

Lord Woolman also held that, in the circumstances[1], the case was not one in which PIP 3 could argue alternative and inconsistent grounds of action. (I.e., on one hand, make a claim for damages equivalent to PIP 3’s lost profit on the basis that the development would have gone ahead were it not for the Council’s actions but, on the other hand, claim for abortive costs on the basis that PIP 3 would not have gone ahead with the transaction if it had known about the hazardous waste.) Lord Woolman took the view that PIP 3 must have known whether it would have exercised the option and developed the subjects and agreed with the Council that the whole thrust of the PIP 3’s arguments indicated that the transaction would not have gone ahead. As such, PIP 3 could only claim for abortive costs and not for damages amounting to lost profit.

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] Lord Woolman took the view that this was an extreme type of case in which the court had to exercise supervision referring to Maclaren Court of Session Practice page 311 and Smart v Bargh 1949 SC 57.

Background
Outer House case relating to a joint venture agreement which five parties had entered with a view to obtaining planning permission for, and optimising the sale value of, an area of land to the west of St Andrews.

Four of the parties held title to the parts of the property to be developed and the fifth was the intended developer of the land. Two of the parties to the agreement (including the developer) were controlled by Joseph Headon.

Two of the parties to the joint venture (Headon Holdings and the Cuthills) reached a separate agreement under which the Cuthills would convey an area of land to Headon who would hold the land and any future sale proceeds (less the price paid by Headon to the Cuthills for conveyance of the land) in trust for the Cuthills.

Arguments
Two of the other parties to the agreement including the University of St Andrews were unaware of the agreement between Headon and the Cuthills when they entered the joint venture. When they became aware of the agreement, they sought to have the joint venture agreement reduced on the basis that (1) they had relied on a material misrepresentation by Headon and the Cuthills and (2) they argued that Headon and the Cuthills had a duty to disclose material facts to them when they entered the joint venture. The university argued that they had been led to believe that Headon and not the Cuthills had the “beneficial interest” (i.e. being the recipient of the benefit which would result from the development of the property in question) as a result of statements made by Joseph Headon and others.

The University pointed out that Headon was closely related to the developer (both were controlled by Joseph Headon) and that, as a party to the joint venture, Headon received certain privileges under the joint venture agreement including voting rights on matters affecting the developer and enjoyed the ability to block agreement amongst the parties to the joint venture on certain issues. As such, if the university had known about the agreement between Headon and the Cuthills (the result of which the university argued was that the Cuthills were the “beneficial owners” of the property in question and not Headon as they had believed), they claimed they would have not have allowed Headon into the joint venture and would not have entered the venture themselves.

Decision
Lord Tyre rejected the university’s arguments and dismissed the action.

Duty of disclosure
In the first place Lord Tyre found that, in the circumstances, there was no duty of disclosure. The general rule is that the parties to a contract have no duty of disclosure. However, a duty can arise in relation to certain special contracts or where the parties are in a special relationship. (A common example where the duty arises is contracts of insurance, where facts material to the insurer’s risk are known only to the insured.) The university argued that the duty also applies to parties negotiating a partnership. After noting that it was not definitely decided that the duty applies to such cases in Scotland, Lord Tyre found that he was not persuaded that the joint venture could properly be characterised as a partnership (or analogous to a partnership) for the purpose of applying the law of pre-contractual duties.

Misrepresentation
Secondly, Lord Tyre held that there had been no misrepresentation in the statements describing Headon as the owner or landowner of the land in question as Headon did in fact hold title to the land. Describing Headon as the landowner did not amount to a representation that Headon was a “beneficial owner” in the sense that the term had been used by the university.

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
Inner House case considering the interpretation of a detailed planning permission granted in respect of Springkerse Retail Park near Stirling.

The provision at the centre of the dispute (condition 3) contained a definition of household goods which listed various specific types of (non-food) goods permitted for sale.

Coal Pension Properties (CPP) argued that the retail units within the park could be used for the sale of a wider range of goods than those contained in the condition 3 list and applied for a certificate of proposed lawful use permitting “the retail sale of any non-food goods”. Stirling Council refused the application and a reporter appointed by the Scottish Ministers refused an appeal of that decision. CPP appealed to the Inner House.

Argument
CPP contended that the condition 3 list only applied to units engaged in the selling of household goods. (i.e. those which were not engaged in selling household goods could sell any non-food goods). They also argued that the planning permission did not exclude the operation of the Town and Country Planning (Use Classes) (Scotland) Order (which allows buildings within class 1 (shops) to be used for the retail sale of goods other than hot food without it being taken as a development requiring planning permission).

Decision
The Inner House rejected those arguments and refused the appeal.

The court noted that, when interpreting a planning permission, the question is not what the parties intended but what a reasonable reader would understand would be permitted by the planning authority. On that basis, the court found that the condition 3 list applied to all of the retail units in the park. The court also agreed with the Scottish Ministers’ argument that, if CPP were correct then, if no unit sold household goods, the condition would not apply and would serve no purpose. In addition, the court took account of an earlier decision letter in relation to the grant of outline planning permission (to which the detailed planning permission expressly referred) which indicated that the condition 3 list applied to all of the retail units in the park.

With regard to the Use Classes Order, the court found that, when construed as a whole considering the purpose and context of the permission (including the earlier outline permission which had referred to the need to restrict the non-food goods sold at the retail park to protect town centre shopping facilities), the planning permission had the effect of excluding the operation of the Use Classes Order.

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
Inner House case in which Mr Leonard sought damages from the Loch Lomond and the Trossachs National Park Authority after falling and injuring himself while descending a path forming part of the West Highland Way at Balmaha. Mr Leonard (who had been 12 at the time of the accident) argued that the park authority had breached its duty under the Occupier’s Liability (Scotland) Act 1960 due to the presence of hazards and lack of preventative measures on the path.

Outer House decision
In the Outer House, Lord Uist found that the circumstances leading to the fall had not been proved but, even if they had been, there would have been no duty on the park authority under the 1960 Act. After considering the authorities (which suggest that, whilst an occupier will have a duty to fence off special or unfamiliar hazards, an occupier will not be liable for obvious dangers including natural features), Lord Uist found that the path under consideration in this case was “a long-standing artificial feature which was neither concealed nor unusual and did not involve exposure to any special or unfamiliar hazard. It had become a permanent, ordinary and familiar feature of the landscape”.

As a result, the park authority owed no duty to Mr Leonard (or anyone else) under the 1960 Act in respect of the path. Lord Uist also went further and found that, in addition to being inapplicable to long standing features, the occupier’s duty would not apply to other obvious artificial features (even though recently constructed) which have become part of the landscape and which do not involve exposure to special or unfamiliar hazards.

Appeal to the Inner House
On appeal, Mr Leonard argued that, in coming to his conclusion that the circumstances leading to the fall had not been proved, Lord Uist had overlooked or misstated some of the evidence.

Decision
The Inner House rejected that argument finding that Lord Uist had properly addressed himself as to what was relevant and material and had not omitted evidence.

Having come to that conclusion, the appeal had to be refused and it was not necessary for the court to consider the outcome in the event that Mr Leonard had been able to prove that he had tripped or lost his footing on the path. However, the court was nevertheless satisfied that Lord Uist had not been in error in that respect and noted:

“…the Lord Ordinary reviewed the authorities and correctly concluded that the law is to the effect that there is no duty on an occupier of land to warn or fence against obvious dangers.  In so far as a stone pitched path – as in the case of any rural path- inherently presents some risk of tripping or slipping, the Lord Ordinary was in our view well entitled to regard such as an obvious danger to which those using such a path required to be alert and to exercise appropriate care.”

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.

Petition for Judicial Review in which Trump International sought to challenge the Scottish Government’s decision to consent to an offshore wind farm near its golf resort at Menie in Aberdeenshire [1].

Trump argued that the Scottish Government should not have granted consent in terms of s36 of the Electricity Act 1989 as the wind farm developer did not hold a licence to generate electricity. Trump founded on the decision in Sustainable Shetland v The Scottish Ministers[2] in which Lady Clark found that consent to build a wind farm could not be granted to developers who did not already hold a licence to generate electricity. In the Outer House Lord Doherty disagreed with the interpretation taken in Sustainable Shetland, rejected that argument and dismissed Trump’s petition.

The Inner House have refused an appeal finding that the entitlement to apply for a section 36 consent is not limited to developers who already hold (or are exempt from holding) a licence to generate electricity and that, where an applicant under section 36 obtains consent, it will require to obtain a licence or an exemption before it can generate electricity at the wind farm.

The court also rejected arguments made by Trump to the effect that the Scottish Ministers’ decision had been pre-determined and showed bias.

The full judgement is available from Scottish Courts here.

Also see appeal to the Supreme Court here.

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

[2] [2013] CSOH 158

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.