Sheriff court case concerning the meaning of “a premium” in the context of residential leasing.

Mr Cross and others (the students) sought a lease of property at Elmfield Avenue in Aberdeen. They completed an application form supplied by Aberdeen Property Leasing which revealed that the rent was to be £1,300 per month, and that a deposit of £1,300 and an “Admin fee” of £125 plus VAT thereon were to be paid prior to entering into the lease. The students paid the deposit and administration fee. In June 2009 they entered into the lease and were granted an assured tenancy of the property.

The students subsequently raised a small claims action seeking repayment of the administration fee which they argued was an illegal premium.

At the time the lease was entered section 82(1) of the Rent (Scotland) Act 1984 provided:

“any person who, as a condition of the grant, renewal or continuance of a protected tenancy, requires, in addition to the rent, the payment of any premium or the making of any loan (whether secured or unsecured) shall be guilty of an offence under this section”.

And s90 of the 1984 Act provided:

““premium” includes any fine or other sum and any other pecuniary consideration in addition to rent”

On 29 November 2012 s90[1] of the 1984 Act was amended by section 32(3) of the 2011 Act and now provides:

“”premium” means any fine, sum or pecuniary consideration, other than the rent, and includes any service or administration fee or charge.”

Aberdeen Property argued that the administration fee had been legitimately charged as, at the time the lease was entered into (i.e. prior to the amendments), administration fees were not prohibited.

The students argued that administration fees were prohibited at the time the lease was entered into and that the amendments made by section 32(3) of the 2011 Act simply clarified the meaning of “a premium”. They explained that the clarification was necessary because of confusion on the part of some landlords about what they could and could not charge and because of poor and inconsistent practices adopted by many landlords in relation to the imposition of charges and fees in addition to the rent and refundable deposit.

The sheriff agreed with the students’ interpretation and granted decree for repayment of the administration fee with interest:

“In my opinion the definition was not changed – it was improved to make it crystal clear to all involved in residential leasing that administration fees ought not to have been imposed and ought not to be imposed. The administration fee imposed by the defender is “a pecuniary consideration in addition to the rent” (s90 of the 1984 Act – prior to amendment). I asked [Aberdeen Property’s representative] if she could explain to me what the administration fee of £125 could possibly be if not “a pecuniary consideration in addition to the rent”. She has yet to answer that question. I have concluded that the administration fee imposed by [Aberdeen Property] was a prohibited payment and accordingly the pursuers are entitled to the return of it.”

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 concerning the lease of a fast food restaurant and car parking spaces at Queens Drive Leisure Park, Kilmarnock.

Background
The lease contained a prohibition on subletting but stated that the landlord could not unreasonably withhold or delay consent to a subletting to a subtenant who was “respectable and responsible”. Burger King were the tenants under the lease and wished to sublet the premises to Caspian Food Retailers Limited. Burger King’s solicitors wrote to Castlebrook requesting consent for the subletting and providing some information on Caspian. Castlebrook’s agents replied seeking further information (including 3 years audited accounts and references from at least two previous landlords). Burger said that they had no accounts or references for Caspian as it was a new company.

Arguments
Castlebrook argued that, as Caspian had no track record, they had no idea whether the company was “respectable and responsible” but indicated that, if the main company in the group were to grant a guarantee or take the sublease itself, consent would be granted.  Burger King argued that, when taken with the fact that Castlebrook could continue to rely on Burger King’s covenant as tenant, there were no reasonable grounds to refuse the subletting. Castlebrook acknowledged the excellent track record of other companies in the group but contrasted that with Caspian itself which had no track record and refused to grant consent. Burger King sought declarator from the court that Castlebrook had refused consent unreasonably and a decree ordaining Castlebrook to issue the consent.

Decision
Lord Tyre found merit in Castlebrook’s argument to the effect that the landlord should first consider whether the proposed subtenant was respectable and responsible and then, if it found that it was not, the landlord was entitled to refuse consent without justifying that refusal by reference to any reason other than the non-respectability and/or non-responsibility of the sub-tenant. Lord Tyre referred to support for this approach in Bates v Donaldson:

“It will be seen that it is only when a respectable and responsible person is proposed as assignee or undertenant that this clause (as to the permission not being unreasonably withheld) comes into play. If the person proposed be not a respectable and responsible person, the lessor has an absolute right to refuse permission; if, however, the person proposed be respectable and responsible, then the lessor cannot unreasonably withhold his permission.”[1]

With regard to the meaning of “respectable and responsible”, Lord Tyre noted that “respectability” had been held to refer to the manner in which the company in question conducted its business and to its reputation and that “responsibility” had been held to refer to financial capacity. In each case he found that supporting evidence should relate to the proposed subtenant itself and not to other group companies or other entities that could provide assistance to the proposed subtenant:

“In my opinion a landlord who stipulates that a proposed sub-tenant must be responsible is reserving to himself the right to be satisfied as to the financial soundness of the sub-tenant itself and not as to the soundness of individuals or entities who might or might not provide assistance in the event of financial difficulty. So far as respectability is concerned, it may be that little should be required to satisfy the landlord, but once again I consider that evidence of respectability should relate to the proposed sub-tenant itself. A company does not acquire respectability automatically along with its certificate of incorporation, although it may not be long before its mode of carrying on business affords sufficient indication that it could not reasonably be regarded as anything other than respectable. That is not, in my view, the same as an assessment of the respectability of the company’s owners or of other companies in common ownership.”

Lord Tyre dismissed Burger King’s action but noted that if Burger King had provided material demonstrating even a successful first few months’ initial trading by Caspian, including landlords’ references, it might have been difficult for Castlebrook to justify a refusal of consent.

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 from the Court of Appeal for England and Wales considering the treatment of rent payable during an administration and whether part of a payment of rent payable in advance could be treated as an expense of administration (and thus paid in priority to unsecured debts).

One of the companies in the Game group of companies was the tenant of many hundreds of properties from which the group traded. The rent in respect of most of those properties was payable quarterly in advance on the usual English quarter days (which include 25 March). On 25 March 2012 approximately £10m in rent became due under the leases and on the following day the Game Group went into administration. Trading continued from some stores which were included in a sale of the business and assets of the group to Game Retail Limited which was outwith the group. Approximately £3m in rent was said to be outstanding in respect of those stores.

The cases of Goldacre (Offices) Limited v Nortel Network UK Limited[1] and Leisure (Norwich) II Limited v Luminar Lava Ignite Limited[2] had decided that part of an instalment of rent cannot be treated as an expense in the context of insolvency. In Goldacre  it was found that, where a quarter’s rent payable in advance fell due during a period in which the administrators were retaining the property for the purpose of the administration, then the whole of the quarter’s rent was payable as an administration expense, even if the administrators were to give up occupation later in the same quarter. In Luminar  it was decided that, where a quarter’s rent payable in advance fell due before entry into administration, none of it was payable as an administration expense even if the administrators retained possession for the purposes of the administration.

As a result of Goldacre and Luminar it has become increasingly common for companies to enter administration on the day immediately following a quarter day, thus avoiding liability to pay the rent in full even if they retain possession of their leased property. A quick sale of the business to a new company can also mean that the new company can, in effect, trade for the first three months rent free.

The High Court in this case followed Goldacre and Luminar. However, the Court of Appeal applied the “salvage principle” under which liability for rent incurred before the winding up may be treated as if it were an expense of the winding up (on equitable grounds) where a liquidator or other office holder retains the property for the benefit of the winding up or administration. Consequently, the court allowed the Landlords’ appeal and over-ruled Goldacre and Luminar finding that an application of the salvage principle means that:

“the office holder must make payments at the rate of the rent for the duration of any period during which he retains possession of the demised property for the benefit of the winding up or administration (as the case may be). The rent will be treated as accruing from day to day. Those payments are payable as expenses of the winding up or administration. The duration of the period is a question of fact and is not determined merely by reference to which rent days occur before, during or after that period.”

The full judgement is available from BAILII here.

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

Outer House case in which Mr Leonard sought damages from the Loch Lomond and the Trossachs National Park Authority after falling and injuring himself while descending a path forming part of the West Highland Way at Balmaha.

Arguments
Mr Leonard (who had been 12 at the time of the accident) argued that the park authority had breached its duties both at common law and under the Occupier’s Liability (Scotland) Act 1960 due to  the presence of hazards and lack of preventative measures on the path. He contended that the steps provided by the park authority were very uneven, inconsistent in shape and sloping downwards at various different angles and also that there were exposed roots and other tripping hazards such as man-made drainage gullies on the steps.  There was also a steep unfenced drop from the path to the public road. Mr Leonard argued that a risk assessment of the type that was standard practice in the design and planning process for any public right of way in open areas would have revealed the need for (amongst other things) a hand rail which would have slowed Mr Leonard’s descent and prevented his fall to the road.

The park authority argued that a hand rail was not required at the relevant part of the path as the gradient was not severe and the drop was less than two metres. They also said that it was likely that a hand rail would be vandalised and would have placed a maintenance risk on them. Further they contended that, given the gradient of the slope and width of the area before the drop, Mr Leonard would not have fallen to the road if he had been descending the path at walking pace.

Decision
Lord Uist found that the circumstances leading to the fall had not been proved but, even if they had been, there would have been no duty on the park authority under the 1960 Act[1]. After considering the authorities (which suggest that, whilst an occupier will have a duty to fence off special or unfamiliar hazards, an occupier will not be liable for obvious dangers), Lord Uist adopted the approach of Lord Emslie in Graham v East of Scotland Water Authority[2]. In Graham, Lord Emslie found that the test of ‘obviousness’ was not per se satisfactory. He noted that the early authorities have used the term ‘obvious’ to denote features of the environment which are “permanent, ordinary and familiar” and went on to say that, whilst natural landscape features plainly fall into that category, so too do long standing artificial features.

Lord Uist then concluded that the path under consideration in this case was:

“a long-standing artificial feature which was neither concealed nor unusual and did not involve exposure to any special or unfamiliar hazard. It had become a permanent, ordinary and familiar feature of the landscape”.

As a result, the park authority owed no duty to Mr Leonard (or anyone else) under 1960 Act in respect of the path.

However, Lord Uist also went further and indicated that, in addition to being inapplicable to long standing features, the occupier’s duty would not apply to other obvious artificial features (even though recently constructed) which have become part of the landscape and which do not involve exposure special or unfamiliar hazards:

“it is not a requirement that the artificial feature be well established or long standing before the principle[3] of Stevenson[4] and Taylor[5] applies: it is sufficient that it is obvious, part of the landscape and does not involve exposure to any special or unfamiliar hazard. If, for example, an accident happened a week after an obvious artificial feature which became part of the landscape (such as a pond, swimming pool or path) had been constructed I see no reason why the principle in Stevenson and Taylor should not apply. Of course, by its very nature, the path in this case presented a danger in the form of the risk of tripping or slipping, but that is a risk which those venturing upon the hill must be taken to have accepted. Adapting the words of Lord Hutton in Tomlinson[6], it would be contrary to common sense, and therefore not sound law, to expect the defenders to provide protection to members of the public (by means of a handrail or barrier or anything else) against such an obvious danger. The fact that [Mr Leonard] was aged only 12 at the time is of no relevance to the issue of the existence of a duty on the [park authority].”

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.

Outer House case in which Mrs Cooper sought reduction of a standard security (in so far as) granted by her in favour of the Bank of Scotland over her share of the home she shared with her husband. Mrs Cooper argued that her husband had procured her signature of the security by misrepresentation and that the bank had neither advised her of the consequences of signing the document nor advised her to take independent legal advice.

Background
The Coopers’ had granted a standard security over their house in favour of the Bank of Scotland in 2002 (securing the present and future debts of both/either of them). At about the same time Mr Cooper obtained an overdraft from the Bank of Scotland for his business and, when the business overdraft grew to £72k, granted a personal guarantee in favour of the Bank of Scotland in January 2006 (in effect securing the business debt over the house). At the end of 2006 the house was re-mortgaged in favour of the Halifax. Due to an oversight (there was still outstanding business debt), and despite an instruction to the contrary, the security in favour the Bank of Scotland was discharged. In March 2007 the Bank of Scotland wrote to the Coopers asking them to sign a fresh security in respect of the business debt. Mr Cooper had failed to tell Mrs Cooper about the overdraft and personal guarantee. When the fresh security arrived, he gave Mrs Cooper the second page only and asked her to sign it telling her only that it related to the mortgage and that the higher monthly payments would pay off the mortgage more quickly.

Arguments
Mrs Cooper based her case on the principles arising from Smith v. Bank of Scotland[1] in which it was found that a bank may owe a duty to warn a potential cautioner of the consequences of entering into a proposed obligation and advise him or her to take independent advice where:

“the circumstances of the case are such as to lead a reasonable man to believe that owing to the personal relationship between the debtor and the proposed cautioner the latter’s consent may not be fully informed or freely given…”

In order to have an obligation set aside, the cautioner must show[2] (1) that an actionable wrong has been perpetrated by the principal debtor (2) that the creditor was in bad faith and (3) that the obligation was undertaken gratuitously.

The Bank of Scotland argued that, because Mrs Cooper had been liable for Mr Cooper’s business debts before the discharge (in error) of the 2006 security, the Bank had no reason to believe that her consent to the 2007 security was not freely given. Further, they argued that reducing the security would give a windfall benefit to Mrs Cooper and put her in a better position than she would otherwise have been by allowing her to escape from the obligations previously incumbent upon her merely because of the erroneous discharge of the 2002 security.

Decision
Lord Tyre found had that Mrs Cooper was entitled to a reduction of the standard security. The grant of the standard security by the pursuer was gratuitous (i.e. there was no obligation on Mrs Cooper to grant it). Having accepted that Mr Cooper had misrepresented the purpose and effect of signing the security to Mrs Cooper, it was also found that Mr Cooper had committed an actionable wrong. The Bank of Scotland were also found not to have acted in good faith as there was no evidence that either they or their solicitors took any steps whatsoever to bring to the pursuer’s attention the consequences for her of signing the standard security. The letter sending the security for signature had been in bland terms and conveyed an impression that the execution of the security was something of a formality. There was also no mention of the need for Mrs Cooper to obtain independent legal advice.

The discharge of the 2002 security had not been gratuitous as it had been granted in consideration of repayment of the loan then outstanding. The bank did not attempt to argue that the discharge could have been reduced on the ground of a unilateral uninduced error on the part of the bank (or their solicitors). There was no obligation on Mrs Cooper to grant the 2007 security at the time she signed it. That was the time to have in mind when determining whether restoration of the position was possible. Consequently, Lord Tyre held that the reduction of the 2007 security should not be refused on the basis that it would fail to restore the parties to the position they had been in prior to the granting of the security.

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.

Petition for Judicial Review in which Trump International sought to challenge the Scottish Government’s decision to grant permission for an offshore wind farm near its golf resort at Menie in Aberdeenshire[1].

Trump argued that the Scottish Government:

1. should have held a public inquiry before reaching its decision; and
2. should not have granted consent in terms of s36 of the Electricity Act 1989 as the wind farm developer did not hold a licence to generate electricity.

Public inquiry
Trump contended that the Scottish Government’s failure to hold a public inquiry would raise in the mind of the fair-minded and informed observer a real possibility that the decision-maker was biased.

S36 argument
Trump founded on the decision in Sustainable Shetland v The Scottish Ministers in which Lady Clark found that consent to build a wind farm could not be granted to developers who did not already hold a licence to generate electricity.

Decision
Lord Doherty rejected these arguments. The decision not to hold a public inquiry had been lawful (the Minister has a wide discretion as to whether or not to hold a public inquiry) and Trump had not set out any objective justification as why it indicated bias. As regards s36 of the 1989 Act, Lord Doherty disagreed with the interpretation taken by Lady Clark in Sustainable Shetland and found that the Act conferred power on the Scottish Government to grant s36 consent even though Aberdeen Offshore did not have a licence to generate electricity.  Trump’s petition was dismissed.

The full judgement is available from Scottish Courts here.

(See also appeals to the Inner House and Supreme Court.)

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

Our DIY training session on property auctions in Scotland is now available. It  includes slides, speaker’s notes and a detailed handout covering the following:

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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.

Outer House case in which a property developer sought damages from his solicitors in respect of professional negligence.

The developer argued that, as a result of the solicitors’ negligence (in failing to advise him correctly), he entered a contract to sell land which was conditional on him obtaining planning permission (for residential development) within a period of 12 months and which made provision for the purchaser to withdraw from the contract if planning was not contained within the period but contained no corresponding provision allowing the developer to withdraw in the same situation. Consequently, when the developer failed to obtain planning permission, he was unable to withdraw from the contact and, as a result, and claimed that he was unable to accept an offer from an alternative purchaser at a higher price.

After considering the evidence of various witnesses, Lord Brodie found that the developer had failed to show that the solicitors were guilty of a failure to exercise reasonable care. Although the solicitors’ had given no direct advice to the developer himself, Lord Brodie held that the solicitors had given advice on the effect of the clause to the developer’s father who he found to be acting as an agent for the developer with actual authority to conclude the missives on his behalf. Lord Brodie accepted evidence to the effect that the developer’s father had repeatedly given instructions to the solicitors[1]

in the past (on behalf of, and with the knowledge of, the developer) and noted:

“It may be that there was no express agreement between father and son conferring the authority of the latter on the former. Indeed I would be surprised were that so. What is more probable is that they developed a way of working over a series of transactions, without ever formalising it. They were practical men operating in a very dynamic environment who were, reasonably enough, interested in making money in a booming market. Neither had much interest in “paper work”.”

The full judgement is available from Scottish Courts here.

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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.