Promontoria (Chestnut) Limited v the firm of Ballantyne Property Services, Gillian Ballantyne Smith and Thomas Allan Smith, 1 November 2016 – whether bank had promised not to enforce a security at the end of the term of the facility

This is a Sheriff court case considering the enforcement of standard securities (in security for loans of over £1.8m) held over 6 properties in Edinburgh.

Background
The facilities lasted for 5 years and, when they expired, Promontoria[1] demanded payment, the debtors defaulted and Promontoria called up the securities. The debtors did not challenge the calling up procedure. However, they argued that, when the loans were being negotiated, a representative of the Bank had promised that their loan facility would be extended beyond 5 years and that the securities would not be enforced at the end of the 5 year term.

The debtors referred to a meeting during the negotiations at which they had indicated to the Bank’s representative that they were not happy with the proposed 5 year term and that the term of the facility should instead be 20 years. They said that they had been told that the 5 year term was a standard clause in the contract, but that the clause would not be enforced at the end of the term and that the facility would be renewed. The debtors also said that the Bank’s representative had said:

 “Imagine the public outcry if Clydesdale Bank ever pulled in its business loans, it will never happen”.

As such the debtors argued that the Bank had made a binding promise to extend the facility at the end of the 5 year term.

Decision
The Sheriff rejected the debtors’ arguments. After considering previous authorities[2] and noting that a binding promise can only be created by clear and unambiguous words, he found that the debtors had failed to demonstrate the bank’s unambiguous intention to be legally bound or that a reasonable observer in the context would have understood that the Bank had made a binding promise.

In the first place, although the debtors had asserted that they had been told that the facility would be extended beyond 5 years and that the securities would not be enforced at the end of the 5 year term, they had been unable to provide evidence of the precise words used: those words were critical as the court had to consider the words used in the context and determine objectively whether a binding promise had been made.

In the second place, although the debtors had provided evidence of the words used in relation to the representative’s comments on the public outcry that would arise if the Bank pulled in its business loans the sheriff said the following:

“I considered it inherently unlikely that the Bank’s representative would make a promise which destroyed the legal efficacy of the Bank’s securities. Notwithstanding that observation however, in my opinion, the words pled do not indicate a clear and unambiguous intention on the part of the Bank to extend the specific loan facilities beyond 5 years and not to enforce its 6 securities, nor do I consider a reasonable recipient considering the meaning conveyed by the words, who was in the process of executing formal legally binding standard securities over property, in a commercial context, would reasonably believe so. At most, I would characterise the language used and the sentiments conveyed in the words to be no more than an invitation to speculate about public opinion allied to a strong feeling of confidence and optimism, on the part of the maker in June 2007, that the Bank’s then practice in relation to business loans would not alter.”

The full judgement is available from Scottish Courts here.

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[1] The securities were originally granted in favour the Clydesdale Bank and subsequently assigned to Promontoria.

[2] In particular, Regus (Maxim) Ltd v. Bank of Scotland plc [2013] CSIH 12, 2013 SC 331.

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3D Garages Limited v Prolatis Company Limited, 30 September 2016 – validity of securities enforceable by party other than the creditor

Background
This is a Sheriff Court case considering the enforceability of a number of standard securities granted by 3D Garages in favour of Prolatis over a variety of different properties.

The standard securities had been granted in security of sums due to a David Gill. However, the securities had been granted in favour of Prolatis (described as a security trustee) as part of a commercial arrangement aimed at allowing a single entity to enforce obligations on behalf of a number of creditors.

Argument
Prolatis sought to enforce the securities and proceedings were raised in court. However, 3D argued that the securities were void and unenforceable on the basis that, in terms of the Conveyancing and Feudal Reform (Scotland) Act 1970, the holder of a standard security must also be the creditor in the obligation secured by the standard security. In other words: only the creditor in respect of the debts secured by a security can enforce the security.

Decision
That argument was rejected by the sheriff and an appeal to the Sheriff Principal was also refused. After considering the terms of the 1970 Act, the Sheriff Principal found that:

“There is no provision in the 1970 Act or in the common law which requires or stipulates that the grantee in the standard security must be the creditor in the contract or personal obligation.  The debtor in the personal obligation need not be the granter of the standard security.  It is well settled that the granter of a standard security may be someone other than the debtor.”

The full judgement is available from Scottish Courts here.

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Phoebe Russel-Smith, Stephanie Dion-Jones and Alexis Herskowit v Ijeoma Uchegbu, 30 September 2016 – level of sanction payable by landlord for failing to comply with tenancy deposit regulations

Sheriff court case in which 3 students from the University of Edinburgh, who held a short assured tenancy over a flat on Drummond Street in Edinburgh, sought sanction from their landlady after the landlady failed to pay a tenancy deposit (of £1,550) into an approved tenancy deposit scheme in terms of the Tenancy Deposit Schemes (Scotland) Regulations 2011.

The landlady paid the deposit into an approved scheme 240 days late and only after the students raised the action against her. She also failed to provide the tenants with information (relating to the deposit and landlord registration) in terms of regulations 3 and 42 of the regulations. The tenants sought the maximum sum available of £4,650 (3 times value of the deposit.)

There was a fourth tenant who was not party to the action. Because of this, the landlady argued that the sanction granted should be reduced by 25% on the basis that the fourth tenant could make an additional application for sanction. However, the sheriff rejected that argument as he found that it was not open to the court to sanction the landlady twice. Serial sanctions against landlords by a number of co-tenants are not competent. Instead the fourth tenant had a right of relief which he could exercise against his co-tenants to receive a share of the sanction.

The sheriff took  the following into account when assessing the level of the sanction:

  • for 270 days of a 334 day lease the deposit was unprotected (as a result, the sheriff multiplied the deposit by 270/334 to give a figure of £1,253);
  • the landlady had admitted her breach of the regulations (and not wasted the courts time disputing it);
  • the deposit was ultimately returned to the tenants in full and without dispute (meaning that, although the tenants had been deprived of their rights to protection, they had not actually been prejudiced); and
  • the landlady had been specifically informed of her obligations under the regulations (twice) by the City of Edinburgh Council and so had to be taken to have known of her obligations (although the sheriff found that she had been slow in complying rather than wilfully defiant).

Taking into account the latter 3 points, the sheriff granted a further sum of £600 and awarded a total sanction of £1853.

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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Tonsley (Strathclyde) Limited and Tonsley (Strathclyde No. 2) Limited as Trustees Of The Tonsley 2 Trust v Scottish Enterprise, 4 October 2016 – repairing obligations in lease, payment clause or common law damages

Outer House case concerning a lease of premises in Strathclyde Business Park in Bellshill.

The lease came to an end in September 2013 and the landlord argued that, in terms of the lease, the tenant was obliged to pay a sum equal to the cost of putting the premises into good and substantial condition.

The relevant clause provided that, at the end of the lease, if the premises were not in good and substantial repair and condition, the landlord had the option either to require the tenant to carry out repairs to put it into that condition or to demand a sum certified by the landlord as being equivalent to the cost of carrying out such work:

“Provided always that (a) if at such expiration or sooner determination the Premises shall not be in such good and substantial repair and condition then at the option of the Landlord either (i) the Tenant shall carry out at its entire cost the works necessary to put the Premises into such repair and condition or (ii) the Tenant shall pay to the Landlord the sum certified by the Landlord as being equal to the cost of carrying out such work..”

The landlord sought over £395k from the tenant in respect of the dilapidations said to exist at the end of the lease. The tenant argued that nothing was due in terms of the lease because the landlord had no intention or need to carry out the works listed in the schedule and the relevant clause in the lease did not entitle the landlord to a windfall profit. The tenant argued that the clause was neither a payment clause nor a liquidated damages clause but instead should have been read as clarifying and confirming the landlord’s common law right to damages (meaning that the landlord was only entitled to the loss actually suffered as a result of the tenant’s breach of its repairing obligations)[1].

Lord Doherty rejected those arguments. Following the approach taken in @SIPP (Pension Trustees) Limited v. Insight Travel Services Limited, Lord Doherty found that the ordinary and natural meaning of the clause provided the landlord with the option of certifying a sum equal to the cost of the works necessary to put the premises into the condition in which they would have been in at the end of the lease if the tenant had complied with its repairing obligations. The tenant’s contention that the clause should be interpreted as only allowing common law damages was found not to be a possible interpretation of the clause.

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] The tenant referred to Mapeley Acquisition Co (3) Ltd (In Receivership) v City of Edinburgh Council and Grove Investments Limited v. Cape Building Products Limited in support of its arguments.

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Private client locum and consultancy service

If you think your firm may require a private client locum solicitor or partner, short or long term, or private client consultancy input please contact me at james@legalknowledgescotland.com

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Tyco Fire & Integrated Solutions (UK) Limited v Regent Quay Development Company Limited, 16 August 2016 – Validity of notice exercising break option in lease

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.”
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Highland Ventures Limited (Applicants) against The Keeper of the Registers of Scotland (Respondent) and Marketing Management Services Limited (Interested Party)- rectification of inaccuracies in the Land Register

Case from the Lands Tribunal for Scotland considering an application for rectification of a number of inaccuracies in the Land Register.

Highland Ventures was the former owner of a hotel in Crieff. The company sold the hotel (whilst retaining some land for the personal use of a director and his wife) to a Mr Sancto in 2006 (the transaction triggered first registration) and the property was registered the Land Register. The hotel was subsequently repossessed and the bank sold it to MMSL, at which point Highland Ventures became aware of inaccuracies in Mr Sancto’s registered title.

The possibility of inaccuracy in the register was raised with the Keeper in November 2014. At that time, section 9 of the Land Registration (Scotland) Act 1979 was in force. Under s9, except in very limited circumstances, it is not possible to rectify the register to the prejudice of the proprietor in possession (in this case, MMSL). The application to the Lands Tribunal was made after the “designated day” on which the Land Registration etc. (Scotland) Act 2012 came into force[1]. The tribunal found that, in terms of the 2012 Act, transitional provisions[2] applied under which there is a presumption[3] that the registered proprietor (in this case MMSL) is in possession of the property. However, in this case the Tribunal found that Highland Ventures (which led evidence of use of the property by the director and his wife) had demonstrated possession of the subjects and consequently had rebutted the presumption that MMSL possessed the subjects.

As such, the tribunal found that that register was inaccurate and that the presumption in favour of the possession of the registered proprietor had been rebutted.

The full decision is available from the Lands Tribunal for Scotland here.

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

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[1] 8 December 2014.

[2] Contained in Schedule 4 of the 2012 Act.

[3] Para 18 of Schedule 4.

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Outlook Finance Limited v. William Lindsay, Executor Nominate in the estates of Euan Mcintyre Lindsay – standard security descriptions and pre-action requirements

Sheriff court case relating to a standard security granted in favour of Outlook Finance over Harperfield Farm near Lanark.

Background
The standard security was granted by Euan Lindsay in October 2010 as security for a loan of £1,355,000. Euan Lindsay died in June 2011 and his executor continued to make contractual monthly interests payments on the loan until October 2012 but no payments were made after that. Outlook served a calling up notice in September 2014 and sought to recover possession of the property.

The description of the subjects in the standard security contained a description of the subjects by reference to the name of the subjects and by reference to a Sasines title recorded in the Register of Sasines (all of which was accurate). However, it also contained a particular description (i.e. a description identifying the boundaries of the property) of the subjects in a schedule which was incorrect (it had been taken from a prior title but text referring to exceptions from the property had been omitted.). The error was then repeated in the calling up notice.

Arguments
The executor argued that the error in the particular descriptions invalidated the documents and meant that Outlook’s action seeking repossession of the property was incompetent. The executor also argued that Outlook had failed to comply with pre-action requirements[1] requiring the provision of information to the debtor.

Decision
Descriptions
After considering the authorities, the sheriff found that a faulty description of subjects in a standard security will be sufficient so long as what is contained within the descriptions enable the subjects of the security to be correctly identified (after reasonable search and enquiry if necessary) with certainty.

The sheriff said the following:

“I conclude that there is in the standard security an error in that while the subjects were correctly described by reference, owing to a mere clerical error or oversight, part of the full particular description was omitted. So, if one sets aside the particular description, what remains is a fully sufficient description of the subjects, sufficient to accurately identify them without any reasonable doubt. That error has not led to any practical error in identifying the subjects of the standard security which is Harperfield Farm in the standard security. The precise boundaries of those subjects are apparent from the description by reference. The error has led to no confusion about that fact in anyone’s mind, not least, the present defender.”

As such, the sheriff found that both the standard security and the calling up notice were valid despite the errors in the particular description.[2]

Pre-action requirements

In terms of the legislation[3] (before commencing repossession proceedings): “the creditor must provide the debtor with clear information about-

(a) the terms of the standard security;

(b) the amount due to the creditor under the standard security, including any arrears and any charges in respect of late payment or redemption; and

(c) any other obligation under the standard security in respect of which the debtor is in default.”

Outlook argued that it had done this in a letter of 14 December 2014 but the sheriff disagreed. The main problem for Outlook related to the specification of the amount due in the letter. The letter stated that the account balance (and also the account arrears) amounted to £2,884,536.97. However, the letter did not specify how that figure had been arrived at. The sheriff found that the obligation to provide clear information meant that there should be no reasonable doubt as to how the total amount said to be due had been arrived at and that an accounting should be provided showing the principal sum borrowed, the arrears of payments due and also the charges attributable to the default. That had not been done in this case. Although it may have been possible for Mr Lindsay to attempt to work out how the figure had been arrived at, the obligation was on the creditor to provide the clear information, not for the debtor to attempt to work it out.

The full judgement is available from Scottish Courts here.

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[1] In terms of the Conveyancing and Feudal Reform (Scotland) Act 1970 as amended by the Home Owner and Debtor Protection (Scotland) Act 2010. (The pre-action requirements were applicable because part of the property was residential.)

[2] Outlook also sought rectification of the documents (under s 8 and 9 of the Law Reform (Miscellaneous Provisions) Scotland Act 1985). However, although the sheriff found that rectification was not competent in the course of these proceedings, he found it was not necessary as the deeds were valid despite the errors.

[3] Section 24A(2) of the Conveyancing and Feudal Reform (Scotland) Act 1970.

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LKS Property and Conveyancing Casebook

LKS is now more than 5 years old and, to celebrate, the current version of the LKS Property and Conveyancing Casebook is now available freely available here.

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ASA International Limited v Kashmiri Properties (Ireland) Limited, 23 August 2016 – creation of servitude right by implied grant

Inner House case considering a dispute as to the existence of a servitude right of access in the title of a property at Coates Crescent in Edinburgh.

Background
Nos. 6 and 7 Coates Crescent had both previously been owned by National Mutual who sold no. 6 in 1994 and no. 7 in 1996. ASA subsequently acquired title to number 6 and Kashmiri subsequently acquired title to no.7.

Although no express grant of servitude had been included in the disposition, ASA argued that when National Mutual had sold no. 6, a servitude right of access (in favour of no.6) had been granted by implication over a car parking area forming part of no.7 (to a garage and further parking area used by the owners of no.6).

Arguments
ASA pointed to the following factors in support of their contention:

  1. there were steps and a gate leading from the rear garden of No 6 into the car park at No 7;
  2. tenants and sub-tenants at no.6 had used the steps and gate to obtain access from the rear of No 6 across the car parking area of No 7 since at least 1988; and
  3. the need for effective fire escapes from no.6 across the disputed area.

As such, ASA argued that, when National Mutual separated the ownership of no.6 from no.7, there was an inference or presumption that National Mutual would have intended that a servitude over the car park would be created as an incident of the conveyance.

Decision
In the sheriff court, the sheriff rejected ASA’s arguments and found that there was no implied servitude, noting that the crucial question to be considered was whether the alleged servitude was reasonably necessary for the enjoyment of no.6. In the sheriff’s view, whilst use of the servitude was convenient, the evidence produced by ASA did not show it to be reasonably necessary for the enjoyment of no.6 (Although there was evidence that occupiers of number 6 preferred to use the disputed access route through the rear of no.7, it was not far from the garage and parking area used by no.6 to the front entrance of no.6 via the street).

The Inner House refused ASA’s appeal stating that the law should be slow in recognising servitudes by implied grant for a number of reasons:

“First, when property is divided, it is always possible to create servitudes by express grant.  If a servitude right is important, it can generally be expected that the matter will be raised in negotiation and that an appropriate clause will be inserted into the disposition.  The question of an implied grant only arises where no express provision has been made. Secondly, claims for implied rights inevitably involve a degree of uncertainty, and if an expansive approach is taken to the creation of such rights there is a risk that a substantial number of dubious or even extravagant claims may be made.  Thirdly, and more importantly, servitude rights are real rights created over heritable property.  In this area of the law certainty has always been regarded as crucial, because of the perpetual existence of such rights.  Fourthly, perhaps the most important factor is that real rights bind the whole world, and will be binding on any future purchaser of the servient property.  Any such purchaser should be able to discover the existence of real rights easily.  Normally this is achieved by express grant and the recording of the relevant deeds in the Land Register.  Implied rights, however, do not appear in the Land Register.  Thus there are strong policy reasons for restricting the recognition of such rights to cases where their existence is reasonably obvious from the surrounding facts and circumstances.  Cases where the right is reasonably necessary for the enjoyment of the dominant tenement can be said to fall into the latter category.”

In this case, although ASA had been able to show substantial use[1] of the route, they had been unable to show that that the alleged servitude was reasonably necessary for the convenient and comfortable enjoyment of no.6.

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] But not for a sufficient period for a servitude to be created by prescription. (ASA also attempted to argue that, because the reason they were not able to rely on prescription for creation of the servitude was that the properties had been in common ownership until 1996, their application for a servitude by implication should be looked on favourably. However, the court found that it had to apply the law relating to implied servitudes on the evidence available.)

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