Outer House Case considering a lease of premises at Wardpark South Industrial Estate in Cumbernauld.  Batley acquired the tenant’s interest in the lease and North Lanarkshire Council were sub-tenants.

Central to the dispute was a minute of agreement entered into between Batley’s predecessors as tenants and North Lanarkshire Council regulating the terms and conditions on which the Council could carry out alterations to the property.  It provided:

“By the expiration and sooner determination of the period of the sub lease (or as soon as the license hereby granted shall become void) if so required by the mid landlord and at the cost of the sub tenant to dismantle and remove the Works and to reinstate and make good the premises and to restore it to its appearance at the date of entry under the sub lease, such reinstatement to be carried out on the same terms (mutatis mutandis) as are stipulated in this license with respect to the carrying out of the works in the first place (including as to consents, the manner of carrying out works, reinstatement, inspection, indemnity, costs and otherwise).”

 The lease came to an end on 18 February 2009. On 20 February 2009 the Council received a schedule of dilapidations in respect of the property.  However, they claimed that, as they had received the schedule after the expiry of the sublease, there was no obligation to remove the alterations (it having died on expiry of the lease). They argued that the notice provisions from the head lease were incorporated in the sub lease and any notice required to be in writing and to be served prior to the end of the lease.

This argument was rejected by the temporary judge (Morag Wise QC) who noted:

 “the wording of clause 2.5 which obliges the sub-tenant “if so required by the mid-landlord to remove the works” makes no mention of a notice. The means by which the sub tenant can be so required are not specified. In my opinion, it cannot be said to be a mandatory term of the Minute of Agreement that the mid-landlords convey in writing to the sub-tenants the requirement to remove the works unless [it] can be implied that service of some form of notice or request is part of that term.  If written notification of the type envisaged in clause 5.8 of the head lease cannot be so implied, then clause 2.5 would seem to me to permit the pursuers to offer to prove that they required the defenders to remove the work by conveying that to them orally.”

 And further:

“It seems to me that the [Council's] argument is predicated upon a notice being necessary for the purposes of clause 2.5. However, there is nothing in that provision of the Minute of Agreement to support the contention that something formal is necessary before the sub-tenants can be required to remove the works. For that reason I do not accept the submission that the notice provisions of the lease automatically apply to the “if so required” provision of clause 2.5.”

 An amendment to the pleadings was allowed in which Batley claimed that surveyors acting on their behalf had contacted the Council on 22 December 2008 and, after receiving confirmation that the Council were intending to leave the premises, advised them that the surveyors would require access to the property to prepare a schedule of dilapidations and that Batley would require reinstatement of the premises to their original condition.

The temporary judge found that this was ‘just’ sufficient to entitle Batley to a proof before answer on the question of whether or not they had adequately conveyed the requirement for reinstatement of the premises to the Council before the expiry of the sub lease.

 The full judgement is available from Scottish Courts here.

(NB: See also appeals to Inner House and Supreme Court)

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

Outer House case considering an agricultural lease of Rockside Farm at Bruichladdich on Islay.  The tenants were Rockside Farming Company (of which Mr and Mrs French were directors). The farm had been owned by one owner but, following the grant of the lease, part of the farm (776.5ha) was sold to Crewpace.  The remaining part (14.5ha) was sold to Mr and Mrs French with the result that both Crewpace and Mr and Mrs French became landlords under a single lease.

Mr and Mrs French let part of the land to which they had title to a distillery and sold two further parts.  Crewpace argued that Mr and Mrs French should have sought their consent before doing so. They therefore sought declarator that the Frenchs had unlawfully interfered with their interest as “joint landlords”, payment of recompense (for unjustified enrichment) and an interdict preventing Mr and Mrs French from resuming or selling any further parts of the leased subjects without their consent.

Essentially Crewpace’s argument was that their interest in the lease was “common property” and held by them and Mr and Mrs French as “joint landlords”. As such Crewpace claimed to have an interest in the whole subjects similar to that of a pro indiviso owner with regard to management, control and disposal of the land.

Temporary Judge Morag Wise QC preferred Mr and Mrs French’s arguments to the effect that there is no landlord’s interest separate from the right of ownership finding that a landlord’s right is inextricably linked with its title and dismissed the action.

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.

Outer 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 meet qualifying criteria for type of tenant to whom parts of the development could be let imposed by the sale agreement 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 was to deliver a letter 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 put forward the following arguments:

1.  The letter was an undertaking in terms of which the bank were obliged to make payment.
2. There was a separate underlying agreement between the bank and Tritax/HUB in respect of which Regus were, by means of a jus quaesitum tertio, entitled to payment from the bank.
3. That the bank was personally barred from relying on the terms of its agreements with Tritax/the developers to resist payment to Regus.
4. That the letter contained negligent misrepresentations acted on by Regus to its detriment and the bank was obliged to make reparation to the Regus for breach of a duty of care.

Lord Menzies rejected Regus’s arguments and 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.

The letter was no more than a letter of comfort, and as such, could carry a moral responsibility but not a legal obligation. The court could not enforce a moral responsibility where there was no legal obligation.

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.

The landlord registration scheme had its origins in the Antisocial Behaviour (Scotland) Act 2004 which required registration of all private landlords.  As a result of which, private landlords have been required to register with their local authority since the end of April 2006.

The stated intention of the requirement is to ensure that all private landlords meet minimum standards and to remove the worst landlords from the sector.

The Scottish Government has commissioned and published an Evaluation of the Impact and Operation of Landlord Registration in Scotland.

The research (carried out by DTZ) includes the following findings:

• The registration scheme has had some impact in meeting its goals of raising management standards in the private rented sector with private sector landlords now more aware of their there obligations.
• Registration has not succeeded in  removing  the ‘worst’ landlords from the sector
• Local authorities have adopted a ‘light touch’ approach to implementing the scheme with advice and information being the main focus in encouraging landlords to join.
• Not all local authorities have landlord and tenant awareness strategies in place and not all local authorities have established performance and monitoring systems.
• Overall the view was that there are few sanctions available when landlords do not comply.
• Whilst there is evidence of effective administration and sound management within local authorities, a simpler and more effective administration system would enable greater levels of investigation and enforcement activity.

The following recommendations were also included:

• The Scottish Government should be explicit about the purpose of the landlord registration and this should be communicated clearly to local authorities, landlords, private sector tenants and the general public.
• Local authorities should develop landlord and tenant awareness raising strategies where not already in place and should develop more systematic performance and monitoring systems.
• Local authorities should carry out random sample checks on landlords to check that information on application forms is accurate.
• The landlord registration scheme should be more formally constituted with clear levels of responsibility demarcated for both the Scottish Government and local authorities.
• Local authority guidance should be updated and clarified.

The report is available from the Scottish Government here.

Inner House case considering the competency of the Lands Tribunal to discharge or vary conditions in a registrable lease in terms of s90 of the Title Conditions (Scotland) Act 2003.

The Co-operative Group, who were tenants under a 125 year lease of subjects at the Paisley Centre, sought to discharge or vary certain provisions including restrictions on the use of the property and a “keep open” clause contained in the lease.

The Lands Tribunal had rejected Propinvest’s (the landlord) preliminary arguments that it had no jurisdiction to vary or discharge the conditions. However, an extra division of the Inner House held that the Lands Tribunal had “gone too far, too fast and on inadequate foundation” in rejecting Propinvest’s challenge to their jurisdiction.

The Inner house found that the Lands Tribunal had not applied their minds to a significant aspect of the decision in George T Fraser Limited v Aberdeen Harbour (1985). It was clear that the legislature did not intend all title conditions in registrable leases to be susceptible to the Lands Tribunal’s jurisdiction[1] and, in Fraser, the Lord President (Emslie) had[2]: identified two potential areas of limitation:

1)     that the condition must “relate to land”; and

2)     that there must be an obligation. I.e. a burden on an established right.

With regard to the second area of limitation, the court in Fraser had held that the Lands Tribunal had no jurisdiction to interfere with a clause which, by excluding assignees without the landlords consent, essentially defined the tenant’s identity from the outset. Such a clause was not a true burden just an important delimitation of the initial grant.

The Inner House found that, when rejecting Propinvest’s challenge to its jurisdiction, the Lands Tribunal had not considered the second aspect of the Fraser decision and had failed to consider whether Fraser laid down a principle of general application which should have been followed. Fraser was plainly of high authority and it was at least arguable that the court there did seek to identify a principle of general application.

The Inner House sustained Propinvest’s appeal and allowed a proof before answer on all aspects of the dispute including whether the Co-operative Group could bring their application within the proper scope of the Lands Tribunal’s jurisdiction noting that a decision should not be reached without the fullest consideration of the Fraser decision.

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.

Outer House case in which a tenant (Ralph Lauren) of premises on Ingram Street in Glasgow sought to prevent the landlord (the pension fund) from letting a neighbouring unit (Unit 6) to a hairdressing salon on the basis of an obligation contained in a back letter.

The back letter granted by the pension fund provided:

“We shall not grant first lettings of that one of the Commercial Units (as defined in the Lease) known as Unit 6, situated to the north of that one of the Commercial Units let as at the date hereof to All Saints Retail Ltd, to retailers other than high quality fashion retailers as are approved by you (such approval not to be unreasonably withheld or delayed).”

Ralph Lauren sought an interim interdict on the basis that the hairdressing salon was not a high quality fashion retailer. On the other hand, the pension fund argued that, in terms of the back letter, as the hairdressing salon was not a retailer, Ralph Lauren’s permission was not required.

Ralph Lauren contended that the pension fund’s interpretation would permit the landlord to let the premises to anyone who did not sell goods which they argued was an absurd consequence given the context in which the undertaking had been given. As a result, they urged that back letter should be construed in a commercially sensible, rather than a purely literal, way.

However, Lord Glennie agreed with the pension fund’s arguments and found that the letter did not restrict the pension fund with regard to lettings to non-retailers (noting that it was “nigh impossible” to describe a hairdresser as a retailer). Whilst it was “permissible to do some slight violence to the language of a clause in a contract where a literal construction would defeat what is objectively the intention of the parties to it”, there was no basis for applying that approach in this case. There was nothing to suggest that the parties had intended a restriction on all lettings other than high quality fashion retailers. There was no evidence to suggest that a high quality fashion retailer such as Ralph Lauren would consider themselves to be prejudiced by the letting of a neighbouring unit to, for example, a restaurant or a cafe. If they had wished to prevent such a letting it would have been easy to address it in the undertaking.

Lord Glennie came to the conclusion that Ralph Lauren had not shown that they had a prima face case and refused the motion for interim interdict although leave to reclaim was granted.

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.

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

Background

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

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

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

The issues

The main legal issues for the court were as follows:

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

The decision

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

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

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

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

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

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

The following issues were also considered:

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

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

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

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

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

The adequacy of the termination procedure adopted by Crieff Highland

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

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

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

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

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

The full judgement is available here.

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

Case considering a tenant’s liability for extraordinary repairs under a lease. Co-operative Insurance were the landlords and Fife Council were the tenants under a 25 year lease of the Unicorn house at the Kingdom Centre in Glenrothes. The Co-op claimed that the Council had breached their repairing obligations under the lease and sought damages of more than £1.3m. The matter for the court to decide was the relevancy of the Council’s argument that they were not liable for “extraordinary repairs” under the lease

The repairing clause contained the following:

“At their own cost and expense to repair and keep in good and substantial repair and maintained, renewed and cleansedin every respect all to the satisfaction of the Landlords the leased subjects”

The Co-op accepted that at common law a tenant is only liable for “ordinary repairs” and the responsibility for “extraordinary repairs” (such as the rebuilding or renewal of the subjects and making them wind and watertight) is normally that of the landlord. To make it the responsibility of the tenant would require clear stipulation or necessary inference. However, they argued that in this case the lease did make it clear that the tenant was liable for extraordinary repairs. The Co-op relied on the extent of the subjects included in the lease (which comprised the whole of the external walls and roof) and the fact that the repairing clause included an obligation to “renew” as well as to “repair”.

On the other hand, the Council contended that many of the repairs identified by the Co-op arose as a result of the impending expiry of lifespan of component parts of the property and both parties would have been aware that the lifespan of the parts in question was not much greater than the length of the lease. If it had been intended that the Council were to replace all such parts at the end of the lease it would have been made unambiguously clear.

Lord Glennie was not persuaded that the lease imposed liability on the tenants for extraordinary repairs. Indeed the clause did not go beyond the common law position. To argue that use of the word “renewed” meant that the tenants had assumed responsibility for “extraordinary repairs” put too much emphasis on the word renewed. As part of an obligation to repair the tenant may be obliged to renew certain elements in the structure but that is part of the repairing obligation.

If the Co-op’s arguments had been correct the lease would also have obliged the Council to give the property back at the end of the lease in as good condition as it had been 25 years earlier. They would have been obliged to renew parts even though they were not in need of repair. Whilst Lord Glennie agreed that it was possible to impose such an obligation, the intention would have to be made clear.

Although there were provisions in the lease which appeared to place responsibility on the tenants for structure that did not alter Lord Glennie’s opinion that the lease did not make the tenant liable for “extraordinary repairs”.

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.