Background
Outer House case concerning a lease of premises at Corstorphine Road Retail Park in Edinburgh. Aviva were the Landlords and McDonald’s, the tenant. McDonald’s operated a restaurant with a drive through from the premises. Aviva entered an agreement with Costa for the construction of a coffee shop with a drive through to be situated on the car park. In terms of the lease with McDonald’s, McDonald’s consent was required for such an arrangement. McDonald’s refused consent and the question for the court was whether McDonald’s refusal of consent was unreasonable.

Arguments
Before coming to a decision, McDonald’s sought information from Aviva on the impact of the proposals on traffic and parking and instructed expert advice from ADL Traffic Engineering Limited. ADL advised that, following construction of the coffee shop, the car park would not be fit for purpose at peak times and the development would impact negatively on McDonald’s. Following that advice, McDonald’s concluded that the proposals would materially adversely affect its trade and refused consent.

Aviva obtained a report from its own engineer Dougall Baillie Associates (DBA) which indicated that sufficient parking would remain after construction of the Costa store. They argued that McDonald’s should have been aware of the DBL report and it was not reasonable for them to rely solely on the ADL report.

Decision
After noting that the onus was on Aviva to demonstrate that the refusal was unreasonable, not on McDonald’s to prove the opposite, Lord Malcolm found that Aviva had failed to show that any reasonable tenant would have granted consent. In all the circumstances there was nothing unreasonable in McDonald’s choosing to follow ADL’s views. The court did not require to decide whether it agreed with the refusal of consent or the reasons for it. McDonald’s did not need to demonstrate that the expert advice was correct, nor justify the conclusions upon which the decision to refuse consent was based. The only question was whether McDonald’s had acted in a reasonable manner. In that regard, Lord Malcolm said the following:

“[McDonald’s] did not “expert shop”, nor tailor matters to obtain the advice it wanted. There was no need for [McDonald’s] to seek another view, nor to place the ADL report before DBA before reaching a decision on what to do. There was no obligation upon [McDonald’s] to come to its own independent view on the traffic impact of the DBA proposals. It was entitled to rely on the advice received from ADL. There was nothing unreasonable about the conclusions on which the refusal of consent was based.”

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 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 tenants, the sheriff ordered the landlords to pay the maximum monetary payment of three times the deposit.

Argument
The landlords appealed challenging the sheriff’s decision on, what were essentially, 3 grounds:

1. that the summary application made by the tenants, although made timeously[1], sought declarator (that the landlord had failed to comply with its duties) but not payment (of the deposit/penalty) and was consequently incompetent;
2. that the sheriff had made an error in allowing an amendment to be made to the summary application outwith the time limit; and
3. that the sheriff had made an error in the exercising of his discretion as to the amount of the penalty (arguing that the sheriff had given no explanation for exercising his discretion in the way he did).

Decision
Summary application
It was implicit in the landlords’ argument that the unamended application was incapable of providing the tenant with a statutory payment (in terms of regulation 10). However, the Sheriff Principal found that the grant of declarator to the effect that a landlord has failed in its duties under regulation 3 is the trigger for a payment under regulation 10. The landlords in this case had admitted their failure to pay the deposit into the statutory scheme which engaged a mandatory requirement on the sheriff to make an order for payment. Whilst it would have been prudent for the tenant to have separately sought an order for payment, the summary application as drafted was sufficient to trigger a payment under regulation 10.[2]

Discretion
There are no rules as to the approach the sheriff should take in assessing the order and the regulations do not contain matters or criteria which the court must consider. Therefore, in the view of the Sheriff Principal, the sheriff has “complete and unfettered discretion” as to the award to make and an appellate court has little, if any, justification for intervening. Whilst procedural fairness suggests a sheriff must have regard to any mitigation, in this case, no evidence had been led in mitigation and it was difficult to see what effect the mitigation might have had. The Sheriff Principal noted:

“As I have observed the sheriff is entitled to impose any penalty including the maximum to promote compliance with the regulations especially at this early stage in their operation and implementation. I regard this as important. It is clear that the appellants made deductions from the deposit at the end of the tenancy directly contrary to the letter and spirit of the regulations. As the sheriff states – “the very thing which it seems to me this legislation was designed to avoid or at least mitigate.””

 And earlier in the decision she had stated:

“In dealing with non-compliance no distinction has been drawn by the legislators between the careless or devious; the experienced or inexperienced, the culpable or inadvertent. Likewise the strict liability consequences of non-compliance allow the court to promote rigorous application of the regulations pour encourager les autres. In other words deterrence.”

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.

Sheriff Court case concerning the validity of an irritancy notice.

Background
Shetland Leasing were the landlords, and Mr Younger the tenant, under the lease of commercial premises at North Ness Industrial Estate in Lerwick.

Shetland Leasing served a notice on Mr Younger (under s4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985) advising that they had failed to pay rent and interest due in terms of the lease and demanding payment of £10,167.64 (stated to be the outstanding rent) within 14 days failing which Shetland Leasing would terminate the lease. The notice also stated that once payment had been received Shetland Leasing would advise as to the interest due.

Mr Younger did not pay and Shetland Leasing served a termination notice on Mr Younger. Mr Younger’s solicitors then sent the outstanding rent to Shetland Leasing’s solicitors and Mr Younger remained in the premises. Shetland Leasing sought declarator that the lease was at an end and summary ejection of Mr Younger from the premises.

Argument
Mr Younger argued that the irritancy notice was invalid as it did not adequately convey what required to be done in order to comply with it. In particular it did not include adequate specification of the rent said to have been in arrears: the rent was said to be for a period of 5 months rent but the actual figure quoted in the notice did not equate to that. Mr Younger contended that it was unclear whether the sum of £10,167.64 included interest and, because it was unclear which months had been paid in full and which had not, he could not calculate the interest due on the lease.

Decision
The Sheriff found that the lease had been validly terminated and granted decree for summary ejection of Mr Younger.

The purpose of the notice was to give a clear and unambiguous intimation to the tenant that there were arrears of rent which required to be paid within a specified period, failing which the landlord could rely on the irritancy clause in the lease to bring it to an end. The notice served by Shetland Leasing clearly demanded rent only and not interest.

In terms of s4 of the 1985 Act the landlord must demand payment of: “the sum which he has failed to pay together with any interest thereon in terms of the lease “. The lease made the tenant liable to pay interest on unpaid rent from the due date for payment until payment was “actually made”. The interest could not be calculated until payment was made. The sheriff found that the obligation as regards interest was to pay it within a reasonable period after payment of the rent. It followed that it was not necessary, or appropriate, that the notice demanded payment of the interest and its validity of the notice could not be attacked on that basis.

The sheriff also found that, although the notice referred to Mr Younger’s failure to pay interest when in fact there was no obligation to pay interest at that point, it did not make the notice invalid as Mr Younger ought to have known by reference to the lease that it was not payable at that time and could not have been misled by the assertion.

With regard to Mr Younger’s assertion that the arrears were overstated, the sheriff said:

“That is not a defence that is open to a tenant who has received such a notice and has done nothing in response to it. It may well be the case that the sum claimed in such a notice is inaccurate. That could be so for a variety of reasons. But in this case we are dealing with a commercial lease. The defender is a man of business. In running his business he must maintain records. He ought to know whether or not he is actually in arrears with his rent. He ought to be able to calculate from his records the extent to which he is in arrears with his rent. But all that the defender avers is that he was aware that he was in arrears of rent to some extent but was unaware of the exact amount. If it is truly the defender’s position that the section 4 notice overstated the arrears he could, and should, have responded to the notice by asserting a lower amount of arrears than was claimed and by paying that lower amount.”

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.

Sheriff Court case in which commercial estate agents sought payment of fees under a sole selling agreement they entered with Mr and Mrs Ferguson in respect of the sale of licensed premises (known as “the Lounge”) in Bathgate. In terms of the agreement the estate agents were entitled to payment “upon conclusion of a contract for the sale of or other disposal of the business and premises…”.

The estate agents were initially instructed (in October 2010) to sell the premises at offers over £300k with sitting tenants. However no offers were received and the tenant of the downstairs bar area gave up his tenancy. The Fergusons decided to refurbish the whole premises and the tenant of the upstairs music venue (a Mr Ward, who had continued to trade for a short time after the bar stopped trading) relocated to other premises owned by the Fergusons. The premises were then remarketed without a sitting tenant at offers over £200k.

Discussions took place between the Fergusons and the estate agents to the effect that it was preferable to sell the premises with a sitting tenant which led to a belief, on the part of the estate agents, that the Fergusons wished to dispose of the premises by lease rather than sale. A former barman also intimated interest in the premises. The estate agents prepared further sales particulars (which were not approved by the Fergusons) advertising the premises for let.

The estate agents then (in July 2011), in the mistaken belief[1] that the former barman had, or was to, acquire an interest in the premises stopped marketing the property and invoiced the Fergusons for fee of £5k plus VAT. The Fergusons then entered missives for a 5 year lease of the premises with Mr Ward in August 2011.

The sheriff found that the estate agents were not entitled to payment in terms of the sole selling agreement finding that the existence of missives of let between the Fergusons and Mr Ward was not an event which gave rise to the estate agent being entitled to remuneration in terms of the agreement.  In particular the word “disposal” in the agreement related to the disposal of the sellers’ interest in land and that the missives entered into between the Fergusons and Mr Ward did not constitute a disposal of an interest in land nor was it a long lease and therefore did not trigger any entitlement to payment under the contract.

Appealing that decision, the estate agents argued (amongst other things) that the sheriff had been wrong to read the words “interest in land” into the agreement after the word disposal and that the word “disposal” should be given it’s plain and ordinary meaning which was the “rearranging of affairs”. The estate agents also contended that the missives of let were not simply a renewal of the existing lease: the missives referred to both parts of the property (upstairs and downstairs); there was a change in rent and a new date of entry. In coming to his conclusions the sheriff, it was argued, had placed an interpretation on the contract which was contrary to commercial sense or reality.

Those arguments were rejected by the sheriff principal who refused the appeal finding that, against the factual and statutory background[2], the sheriff had not erred in coming to his conclusions. The Sheriff Principal also took the view that the ordinary meaning of the word “disposal” was “alienation” and, with regard to the commercial purpose of the agreement, said the following:

“The suggestion that the commercial purpose of the agreement is to ensure the [the estate agent’s] remuneration in circumstances which include the other party entering into missives of let with the sitting tenant is, in my view, absurd. That contention disregards completely the fact that there are two parties to the contract and in respect that the purpose of the contract is to achieve either a sale of the premises or, as contended for by [the estate agents], a lease of the premises. The commercial reality or purpose of the contract is for both parties to achieve such a result. Without achieving the sellers’ purposes the estate agent will not receive remuneration. The commercial purpose contended for on behalf of [the estate agents] would be to have the other party as a “hostage” for the duration of the contract. It would mean that the seller would be unable to conduct and regulate their business affairs by renewing a lease or renegotiating a lease with an existing trading tenant without triggering liability to pay a fee to the estate agent”.

 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.

Sheriff Court case in which the tenants under a short assured tenancy of property at Cumberland Street in Edinburgh sought to enforce the terms of the Tenancy Deposit Schemes (Scotland) Regulations 2011 against their landlord (an experienced property agent).

The landlord terminated the lease (on 12^th January 2013) and retained the tenants’ deposit of £1150. When the tenants contacted the landlord to recover the deposit (on 17^th February 2013), the landlord  claimed that he was entitled to retain the deposit due to damage caused to the premises by the tenants (but failed to produce any evidence). After lengthy correspondence between the parties the landlord repaid half the deposit to the tenants.

The 2011 Regulations obliged landlords to pay deposits to the scheme administrator of an approved tenancy deposit scheme by 24th November 2012 and also provides a free dispute resolution scheme in relation to the return of the deposits. If a landlord fails to comply with his obligations under the regulations, he is obliged to pay an amount not exceeding three times the amount of the deposit to the tenant.

The landlord admitted that it had failed to comply with his obligations under the regulations but argued that, following the correspondence, the parties had settled the matter and that, as the most the tenants would have been entitled to in terms of any arbitration under the statutory dispute resolution scheme was £1150, payment of three times the deposit was excessive.

The sheriff ordered that an amount of £3450 be paid to the tenants. The amount to be paid was not compensatory; it was a sanction or a penalty analogous to an award of punitive or exemplary damages[1]. In exercising the courts “unfettered discretion” when assessing the amount to be paid, the sheriff took account of the following:

“In this case the landlord was someone who may be presumed to have special knowledge of his obligations both in terms of the 2011 Regulations and the 2004 Act[2]. He failed to comply. It is averred that it was due to “oversight”. No further information was provided by [the landlord's solicitor]. In my opinion no proper explanation for his failure has been provided. He claimed retention of the pursuers’ deposit but failed to produce any evidence to support his claims. Had the dispute resolution procedure been available he would have been unable to seek retention of any part of the deposit without producing relevant evidence. The pursuers were placed in an invidious position and a compromise was reached on economic grounds. The fact that offers to settle this action have been made is in my opinion irrelevant to the issue to be determined.”

Sheriff Court case concerning an application by Edinburgh Woollen Mill to renew its lease of premises on the Lawnmarket in Edinburgh under the Tenancy of Shops (Scotland) Act 1949. Their landlords (trustees for the firm of Gold Brothers) were trading competitors and had served a notice to quit on the Woollen Mill requiring them to leave the premises at the end of the lease.

The 1949 Act allows a sheriff to determine that a tenancy be renewed for a period of up to a year at a rent, and on terms and conditions, that the sheriff thinks are reasonable. The purpose of the Act was to prevent small shopkeepers being evicted by speculators who purchased properties and gave the shopkeepers the option of either buying at an exorbitant price or being evicted.

After noting that the mischief which the Act was designed to address is no longer self-evident today and was not apparent in the circumstances surrounding the lease in question, the Sheriff refused the Woollen Mill’s application:

“[The 1949 Act] empowers, and requires, the court to act to avoid injustice, in the historic context of widespread economic oppression of small-scale shop traders. The types of protection envisaged includes allowing the trader time to relocate to another property, to preserve his business and goodwill, or to avoid the trader being forced out of business altogether through removal of premises from which to trade.

Turning to the present case, it is at once apparent that no such considerations exist. The parties have both known, since the defenders acquired the landlord’s interest approximately six years ago, that the lease would not be renewed consensually. That has left the pursuer plenty of time to anticipate and prepare for the trading realities that this would bring. The pursuer’s business will be somewhat diminished by ceasing trade from the premises, but otherwise continues uninterrupted, from its 300 other outlets. There is no threat to its goodwill or good name, as it can adapt other stores to carry their name, if they wish. The present dispute represents no more than an attempt to retain a highly successful site, and to keep it from a direct competitor. Such an attempt is understandable… ….It is, however, only an economic blow. It is not an injustice, and there is nothing unreasonable in requiring the pursuer to remove at the end of the lease.”

 The full judgment is available from Scottish courts here.

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

English Court of Appeal case concerning leases of commercial premises at 104 Cromer Street and at 106/108 Cromer Street in London. The subjects in both leases included the ground and basement premises but not the upper floors (which consisted of residential flats retained by the Landlord) nor the soil pipes on the rear wall of the building which served the upper floors.

The leases contained an obligation on the tenant to put and keep the subjects in good and substantial repair, decoration and condition. There was no corresponding obligation on the landlord to repair the parts of the building it had retained; the landlord’s only express obligations being in relation to insurance (of both the premises and the retained subjects) and allowing the tenant quiet enjoyment of the premises.  A cesser of rent clause (i.e. ceasing liability for rent) also applied in the event the premises (or any part of them) were unfit for occupation and use.

The premises were damaged on at least 4 occasions between April 2004 and June 2005 by water and sewerage coming from the parts of the property retained by the landlord. The damage was repaired and insurance payments made. The tenant continued to pay the rent until June 2008 then stopped. The landlord took steps to forfeit the leases and re-enter the premises. The tenant argued that, as she had continued to pay the rent during the period in 2005 when the premises had been (in the tenant’s opinion) unfit for use, she was entitled to set that off against the rent due in 2008. The tenant also sought substantial damages for financial losses (including loss of business) arising from the leaks.

In order to succeed in such a claim the tenants had to establish a breach of duty on the part of the landlord in either contract or in delict arising from the various leaks. The basis of such liability was said to be either an implied obligation to keep the retained parts in repair or alternatively a common law duty as adjoining occupier to remedy any defect in those premises which was capable of causing damage to the leased subjects.

The Court of Appeal found that there was no reason to require the implication of an obligation on the landlord to keep the retained subjects in good repair. Although there was no express repairing obligation imposed on the landlord, the repair of the structure of the building was catered for through the provisions of the insurance clause. In the face of these provisions there was no reason based on necessity or business efficacy to alter the balance of the scheme by imposing an implied obligation to repair on the landlord, let alone one (as was argued for by the tenant) under which his liability to repair was absolute.

For much the same reasons, the existence of what the parties obviously intended should be a comprehensive scheme for the repair of both the leased subjects and the retained parts of the building was sufficient to exclude any liability in delict to which the landlord might otherwise be subject to in relation to the retained premises.

The full judgement is available from BAILII here*.

*We believe that the tenant disputes the facts as reported in the judgment (see here) and is appealing the case to the Supreme Court.

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

Sheriff Court case concerning missives of let for premises at 34-39 Ann Street in Aberdeen. The missives were dated 13 September 2006 and annexed to them was a draft lease. However, the lease was never engrossed and signed by the parties.

Although the missives provided for a lease with a term of ten years, they also contained a supersession clause providing that the missives would cease to have effect after a period of 2 years.

Speedy contended that, as no lease was signed, the formal written lease came to an end when the missives ceased to be enforceable on 13 September 2008. Thereafter the lease continued from year to year by tacit relocation until Speedy served a notice to quit on 9 December 2010 and left the premises on 13 September 2011. The Sheriff agreed with that argument and dismissed Gilcomston’s action for declarator that the parties were bound by a valid and enforceable lease for a period of 10 years from 13 September 2006.

The full judgement is available from Scottish Courts here.

Inner House case concerning a rent review under a lease of premises in Helensburgh.  The landlords were the trustees of a pension fund. The tenants were Argyll and Bute Council.

On 19 July 2010 a surveyor wrote to the Council purporting to act for the landlord in relation to a rent review of the property and specifying that the revised fair market rent for the property was £58k. The letter contained several errors (including naming an entirely different company as landlord and stating an incorrect review date).  On 24 August 2010 the surveyor again wrote to the Council in relation to the rent review of the property and specifying the rent but this time correcting the errors in the previous letter. The Council did not serve a counter notice but continued to pay the rent payable prior to the review and the trustees sought declarator that the rent had been effectively reviewed.

In the Outer House Lord Menzies held that the errors contained in the letter dated 19 July were failures to comply with the fundamental requirements of the lease and the letter did not operate as an effective rent review notice.  However, the second letter did satisfy those requirements. On appeal the Council argued that the second letter had failed to address in express terms all of the errors which had been contained in the first letter and that the recipient was faced with two competing or contradictory notices and two overlapping periods for service. As a result, the Council argued, the “reasonable recipient” test had not been met.

The Inner House refused the appeal. The notices had been served under different clauses of the lease; the first under a provision dealing with a ‘timeous’ rent review at the relevant term and the second under a separate provision dealing with invoking a ‘late’ rent review. The terms of the notices were different due to the distinct purpose of the different provisions. They were not competing notices and there was no scope for confusion as a consequence of the issue of both notices, assuming that the reasonable recipient applied his common sense.

The full report is available from Scottish Courts here.

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

Inner House case relating to an agreement for lease of subjects at the Maxim office park in North Lanarkshire. Tritax were owners of the development and Regus were to take a lease of part of the development. Monies were to be made available to Regus in respect of its fit out costs as an incentive.  Regus did not comply with restrictions on the type of tenant imposed by sale agreements and so HUB (a company created to run the restaurant and other facilities at the development) was interposed to sub-let to Regus.

In terms of the agreement for lease, HUB were to deliver a letter to Regus (although the letter was not addressed to Regus) from the Bank of Scotland relating to sums which the Bank held on deposit in respect of the fit out costs. This letter formed the crux of the case and was in the following terms:

“We understand that Heads of Terms have been agreed between TAL CPT and Regus (Maxim) Limited for the lease of the first floor of Building 1 at Maxim.

It may assist the proposed tenant to have confirmation from us that, on behalf of the landlord (Tritax Eurocentral EZ Unit Trust) and TAL CPT, we hold the sum of £913,172 to meet the landlord’s commitment to fit-out costs. These funds will be released in accordance with the drawdown procedure agreed between the parties, whereby the proposed tenant’s contractors will issue monthly certificates.

This is subject always to agreement of wider commercial terms with the incoming tenant.”

Regus carried out the fitting out works and issued invoices to HUB who confirmed that the costs were properly incurred and that the contribution should be paid to Regus. However, the bank refused to release the costs as there had been a default in the facility agreement and they were exercising a right of retention over the sums referred to in the letter.   Regus sued for payment of the costs from the bank. In the Outer House Lord Menzies had dismissed the action. He found that he was unable to construe the letter as amounting to a unilateral undertaking by the bank of a legally enforceable obligation to pay the sum to Regus. On appeal to the Inner House, Regus relied on two arguments:

1. The letter was an undertaking in terms of which the bank were obliged to make payment.
2. That the letter contained negligent misrepresentations acted on by Regus to its detriment and the bank were obliged to make reparation to the Regus for breach of a duty of care.

The court rejected Regus’s appeal. For a promissory obligation of the type argued for by Regus, clear words are required. The letter merely confirmed that, at the date of the letter, the bank held the funds on behalf of Tritax and TAL (the developer/development manager). It did not contain an unconditional obligation on the bank to pay the funds to Regus on demand as the bank’s own debt. The bank’s freedom to pay out the money would depend on the terms and conditions on which it held the funds and the letter also spelt out that release of the money was governed by an agreed procedure. In addition, the sentence referring to wider commercial terms made it plain that the confirmation was not unconditional. For the same reasons, whilst the letter made the representation that the bank held the funds; it did not make a representation that the money would be released whatever the circumstances when Regus came to demand payment.

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.