Regus (Maxim) Limited v The Bank of Scotland plc, 11 August 2011 – dispute as to payment for fit out costs at Maxim park

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.

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