This is an Inner House case concerning the validity of a break option served by a tenant to a landlord in respect of premises in the Glover Pavilion at Aberdeen Science and Technology Park.

Background
The lease was originally of units 3 and 4 in the pavilion and was for a period of 10 years ending in February 2014 and contained a break option exercisable after 5 years. However, in October/November 2011 the parties entered a minute of variation, which amended the lease to include additional premises (unit 1), extended the term of the lease until August 2021 and included a new break option exercisable by the tenant 5 years after the “effective date” provided in the minute of variation (on providing 6 months’ prior notice).

Arguments
The tenant served a notice exercising the break option in January 2016. However, the landlord argued that the notice was invalid as the heading of the letter containing the notice referred only to units 3 and 4 (followed by the term “the Premises” in parenthesis) and not to unit 1. The landlord argued that this created confusion by attributing a new meaning to a defined term (i.e. arguing that the premises had been redefined in the letter as being units 3 and 4 without unit 1). In addition, it was argued that, when this was error was taken with the first paragraph of the letter which referred only to the lease and not to the minute of variation (although the tenant had referred to the minute of variation in the second paragraph of the letter), it had the effect that the notice applied only to the original lease and not the lease as varied by the minute of variation.

Decision
In the Outer House Lord Tyre rejected those arguments and granted declarator that the notice had been validly served.  The test to be applied was how a reasonable recipient with knowledge of the terms of the lease would have understood the notice[1] and Lord Tyre found that, when the notice was read as a whole, a reasonable recipient with knowledge of the lease would have understood the notice to refer to the lease as it had been at the date of the notice (i.e. as varied.).

The Inner House agreed with Lord Tyre’s findings and refused an appeal. Deciding the issue was a matter of assessing the impression immediately made on a reasonable recipient of the notice with knowledge of the relevant background and context. After considering the factors which were known by the Landlord in this case[2], the court said the following:

“Against that background, what would the reasonable landlord have understood as being the meaning of the letter received?  We accept that (s)he would, no doubt, observe that the heading of the letter – not the notice itself (which is contained in paragraph 2 of the letter) – refers to only two of the leased units.  But on proceeding to read the whole letter, it would be clear that the heading was simply incomplete; what the tenant plainly intended was to intimate that the right to terminate conferred in clause 4.2 was being exercised.  That was, for the purpose of the landlord/tenant relationship, the operative part of the letter.  It was not as if any part of the letter sought to open negotiation for the termination of Tyco’s tenancy of only two units and retention of a tenancy of unit 1.  We can accept that (s)he might have paused in respect of the definition of “the Lease” in paragraph one.  However, that pause would, we consider, have been a brief one.  We agree with the Lord Ordinary that, on reading the letter as a whole, there would have been no real doubt.  It was simply too improbable that Tyco were serving notice under a lease which had expired, particularly given the specific reference to the then current break option clause in paragraph 4.2 of the Minute of Variation.”

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] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 as recently applied in Scotland in West Dunbartonshire Council v William Thompson and Son (Dumbarton) Ltd  2016 SLT 12.

[2] Which the court noted as follows:

• “that, by 11 January 2016, the date for the expiry of the lease entered into in 2004 was long since passed and by that time, parties’ contractual rights and obligations were contained in the whole terms of the 2004 and 2011 documents read together (the original lease read together with the Minute of Variation);
• that Tyco were tenants of units 1, 3 and 4 under contractual terms which were unitary in relation to those premises;
• that Tyco had never had any right to terminate their tenancy in relation to individual units;
• that clause 4.2 of the Minute of Variation provided only for termination of Tyco’s whole tenancy;
• that, to exercise the clause 4.2 right, Tyco required to provide written notice at least six months prior to 31 August 2016 but the notice did not need to be in any particular form;
• if Tyco were going to exercise the break option, it would be sensible to service the clause 4.2 notice well in advance of the end of February 2016 – notice in the course of January 2016 would not be at all surprising; and
• that if Tyco were, after 31 August 2016, to be tenants of unit 1 only, parties would require to enter into a new agreement as the terms of their existing agreement were not divisible and made no allowance for partial severance of the tenancy.”

Outer House case concerning the validity of a break option served by a tenant to a landlord in respect of premises in the Glover Pavilion at Aberdeen Science and Technology Park.

Background
The lease was originally of units 3 and 4 in the pavilion and was for a period of 10 years ending in February 2014 and contained a break option exercisable after 5 years. However, in October/November 2011 the parties entered a minute of variation, which amended the lease to include additional premises (unit 1), extended the term of the lease until August 2021 and included a new break option exercisable by the tenant 5 years after the “effective date” provided in the minute of variation (on providing 6 months’ prior notice).

Arguments
The tenant served a notice exercising the break option in January 2016. However, the landlord argued that the notice was invalid as the heading of the letter containing the notice referred only to units 3 and 4 (followed by the term “the Premises” in parenthesis) and not to unit 1. The landlord argued that this created confusion by attributing a new meaning to a defined term (i.e. arguing that the premises had been redefined in the letter as being units 3 and 4 without unit 1). In addition, it was argued that, when this was error was taken with the first paragraph of the letter which referred only to the lease and not to the minute of variation (although the tenant had referred to the minute of variation in the second paragraph of the letter), it had the effect that the notice applied only to the original lease and not the lease as varied by the minute of variation.

Decision
Lord Tyre rejected those arguments and granted declarator that the notice had been validly served.

The test to be applied was how a reasonable recipient with knowledge of the terms of the lease would have understood the notice[1]. Lord Tyre began by rejecting the landlord’s argument that the reference in the first paragraph of the letter to “the Lease” was to the lease prior to it being varied by the minute of variation.  The notice required to be read as a whole and it was readily apparent from the notice that the sender was fully aware of the existence of the variation and of its terms. A reasonable recipient of the notice with knowledge of the lease would have understood the notice to refer to the lease as it had been at the date of the notice (i.e. as varied.). Lord Tyre took the view there was no ambiguity.

With regard to the omission of unit 1 in the heading in the letter, Lord Tyre, despite noting that careless drafting was to be discouraged, said the following:

“…in my opinion no reasonable recipient would be misled into interpreting the notice [so as to redefine the definition of “the Premises” in the contract] or even of being left in any reasonable doubt that [there had simply been a clerical error]… I am satisfied that the reasonable recipient would not have been perplexed in any way by the error in the letter heading.  The operative element of the notice is sufficiently clear and unambiguous to avoid any such perplexity, and the fact that the ingenuity of lawyers can suggest theoretical ambiguities is not to the point.”

The full judgement is available from Scottish Courts here.

[1] Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 as recently applied in Scotland in West Dunbartonshire Council v William Thompson and Son (Dumbarton) Ltd  2016 SLT 12.

Outer House case considering the lease of an office building in South Gyle Business Park in Edinburgh. The lease was one of 15 years in duration and was supplemented with two licence agreements authorising tenant’s alterations to the premises.

Background
Two weeks before the end of the lease the landlord (PDPF) served a lengthy schedule of dilapidations on the tenant (Santander) which sought removal of the tenant’s alterations and replacement of the floor coverings. The tenant refused to carry out the works as it said that it had not received enough notice. The landlord raised an action to recover the cost relating to the necessary works and preparation of the schedule of dilapidations (amounting to a total of over £755k).

The lease contained a clause obliging the tenant to keep the premises in good and substantial repair during the currency of the lease (paragraph 3), a clause obliging the tenant to leave the premises in good condition and to replace the floor coverings at the end of the lease (paragraph 28) and also a clause obliging the tenant to carry out any works contained in a notice served on it by the landlord within 3 months (paragraph 8).

There were 3 questions for the court to decide:

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

Decision
3 months’ notice?
After considering the relevant terms of the lease, Lord Woolman (approaching the question by considering the view of a reasonable person with all the relevant background knowledge) found that the obligations contained in paragraphs 3 and 28 were independent of the obligation requiring notice contained in paragraph 8 (the fact that only one of the clauses contained a time limit suggested that the others should not be qualified in the same way). As such, the landlord did not have to provide at least 3 months’ notice to carry out the works.

Reasonable notice implied into licence agreements
Lord Woolman also rejected the fall back argument that a reasonable notice period of 10 weeks should be implied into the licences finding that the introduction of implied terms would be warranted where such a term was required to spell out what a reasonable person would understand the licence agreements to mean. That was not the case here where the implied term would be inconsistent with the parties express stipulation that the landlord could issue its requirement on the termination of the lease.

Valid notice constituted by schedule of dilapidations
The tenant sought to argue that the service of the schedule of dilapidations was simply an assertion of the tenant’s existing repairing obligations under the lease and did not provide adequate notice in terms of removal of the works carried out under the licence agreements. This argument was also rejected by Lord Woolman who noted that the removal of licensed works requires no formality and that, at the time the notice to quit is served, the tenant can ask whether the Landlord insists on removal of the tenant’s alterations.

The full judgement is available from Scottish Courts here.

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

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

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

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

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

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

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

The full judgement is available from Scottish Courts here.

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

Supreme Court case considering a lease of premises at Wardpark South Industrial Estate in Cumbernauld.  Batley were tenants and North Lanarkshire Council were sub-tenants.

At the centre of the dispute were works which the Council carried out to the property under a minute of agreement. In terms of the minute, the Council had to remove the works and re-instate the premises at the end of the agreement if they were required to do so by Batley.  Batley served a schedule of dilapidations after the end of the sublease.  However, the Council argued that the obligation to reinstate the premises died on the expiry of the sublease and therefore it did not require to comply.

In the Outer House, the temporary judge (Morag Wise QC) found that, in terms of the minute, there was no need for Batley to give written notice requiring removal of the works and allowed a proof to consider whether Batley had adequately conveyed its requirement for re-instatement when a surveyor acting on its behalf had telephoned the Council before the end of the sublease and indicated re-instatement would be required.

The Inner House allowed a reclaiming motion finding that the minute not only amended the sublease but also ratified provisions in the sublease. These included a provision incorporating a requirement for written notice which was contained in the head lease. In the absence of such written notice there was no requirement on the Council to re-instate the premises. An attempt by Batley to claim the cost of re-instating the premises under the general repairing clause in the sublease also failed.

The Supreme Court have allowed an appeal and allowed a proof before answer to hear evidence on the facts.

Construing the words used in the context of the minute of agreement as a whole and the surrounding factual matrix the court found that:

1. the use of the words “if so required by the Mid-Landlord” in relation to the re-instatement requirement in the minute was in contrast to two other provisions in the minute which expressly required written forms (suggesting that, where writing was required, it was expressly stated);
2. to interpret the documentation as requiring written notice required a convoluted construction of both the agreement and head lease whereas the simpler construction (preferred by the court) was that written notice was not required;
3. although the minute existed in the context of the head lease and sub-lease, it was a separate contract and the starting point for interpretation was the words it contained which pointed towards the conclusion that writing was not required for communications in all circumstances and that conclusion was not overturned by the provisions of the head lease and sub-lease; and
4. it made business common sense that written notice was not required as:
   1. although the minute stated that the obligations were incorporated into the sub-lease (containing a requirement for written notice), this was done so as to give the mid-landlord the power of irritancy if the sub-tenant breached its obligations under the minute; and
   2. the landlord would only require removal of the sub-tenants works at the end of the sublease when the sub-tenant would have to address its separate and continuing repairing obligation under the lease and, at the time such repairs were being carried out, the sub-tenant could readily respond to an intimation to remove its works (without the need for formal intimation).

With regard to Batley’s attempt to recover the cost of re-instating the premises under the general repairing clause in the sublease, the Supreme Court found that the repairing obligation was a continuing obligation which did not require notice from the landlord to activate it.

The full judgement is available from the Supreme Court here.

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

Outer House case considering a break option in leases of office premises situated on Broadway Park in Edinburgh.

The leases were due to expire in 2023 but could be broken as at 7 May 2013. In order to exercise the break option, the tenants (Scottish & Newcastle) required to give 12 months notice and not be “in breach of any of their obligations (under the lease in question) at the date of service of such notice and/or the termination date”.

Scottish & Newcastle served break notices on time but by their own admission, at the date of service of the notices, had not fully performed their repairing obligations under the lease. The business park argued that the leases continued after the notice date and sought payment of rent from the date of the notices.

Scottish & Newcastle argued that:

1. although they had not fully performed their obligations under the lease at the date of the notices, they were not in breach of the lease as the non-performance was remediable; and
2. (even if argument 1. was wrong) for the tenants to lose their option to break they had to be in breach of the lease either:
   1. both at the date the notices were served and at the date of termination; or
   2. at the date of termination.

Lord Malcolm rejected both arguments finding that, in terms of the leases, there was no distinction to be made between non-performance of the obligations and a breach of the obligations and, with regard to the second argument, the natural meaning of the words used was that a notice was invalid if the tenants were in breach of the notice either at the date of the notice, the date of termination or both.

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 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.

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.