Background
Inner House case relating to the lease of commercial premises in Port Glasgow. @SIPP were the landlords and Insight, the tenants. @SIPP argued that, when the lease came to an end, the premises were not in good and substantial condition and a dispute arose as to the extent of the tenants repairing obligations under the lease.

The issues
There were two issues for the court to decide.

• Whether the tenants’ obligation on termination of the lease was limited to putting the premises into the condition in which they were accepted by it at the commencement of the lease.
• Whether the landlord was entitled to payment of a sum equal to the cost of putting the premises into the relevant state of repair, regardless of whether it actually intended to carry out any such work.

Outer House decision
In the Outer House Lord Tyre found in favour of the tenants on both issues holding:

•  that the obligation to keep the premises in good and substantial repair did not necessarily import an obligation to put the premises in that condition regardless of its condition at the commencement of the lease and that the tenants’ obligation was referable to the condition in which the premises were accepted at the commencement of the lease; and
• that the tenant’s obligation to make payment for the cost of the works was conditional on the landlords intending to carry out the repair works and was not as a liquidate damages provision. (Lord Tyre was persuaded that this was the interpretation which best accorded with commercial common sense as he found that very clear wording would be required before it could be concluded that a tenant had entered into an obligation to pay a sum which might bear no relation to the loss actually suffered by the landlord –in this case the estimated cost of the works required was over £1m whereas the tenant argued that, even if it had carried out all of the works, the capital value of the premises would only have increased by £175k.)

Inner House decision
The Inner House have allowed an appeal.

Putting and keeping
The repairing obligation including the following wording: (obliging the tenant)

“To accept the leased subjects in their present condition and at their own cost and expense to repair and keep in good and substantial repair and maintained, paved, heated, aired and cleansed in every respect all to the satisfaction of the Landlord and to replace or renew or rebuild whenever necessary the leased subjects and all additions thereto….. in at least as good condition as they are accepted by the Tenant all to the satisfaction of the Landlord and that regardless of the age or state of the dilapidation…”

The court came to the conclusion that the natural meaning of the clause was clear and, if the premises were not in good and substantial repair at the beginning of the lease, the tenant was required to repair them in such a way as to achieve that standard. The court took the view that the obligation “to repair” of itself was indicative of that but, if there were any doubt, previous cases support the argument that an obligation to keep property in good and substantial repair carries with it an obligation to put them in that condition[1].

In coming to that conclusion the court noted:

 “the repeated references to “the satisfaction of the landlord” not only supports the above construction and confirms that “good and substantial repair” is to be assessed by reference to the landlord’s interest in the subjects being maintained to and being delivered up in at least tenantable standard.  Further, the phrase “regardless of the age or state of dilapidation of the buildings” confirms that the tenant is not to be excused of its obligation to repair, maintain and renew etc to at least “good and substantial repair” standard by reason of them being below that standard at the commencement of the lease or, indeed, them falling below that standard during it.  The absence of a schedule or other record of condition provides further cogent support for that construction.”

Payment of sum in lieu of repairs
A further clause made provision to the effect that, at the expiry/termination of the lease, the tenant was required to carry out repairs and surrender the premises to the landlord in a state complying with the repairing obligation. However, the clause also included the following proviso:

“Provided Always that if the Landlord shall so desire at the expiry or sooner termination of the foregoing Lease they may call upon the Tenant, by notice in writing (in which event the Tenant shall be bound), to pay to the Landlord at the determination date… a sum equal to the amount required to put the leased subjects into good and substantial repair… in accordance with the obligations and conditions on the part of the Tenant herein contained in lieu of requiring the Tenant himself to carry out the work.”

The Inner House took the view that the only natural and ordinary meaning which could be given to the clause was that it was a payment clause (and not a damages clause) meaning that the sum due by the tenant did not depend on loss suffered by the landlord. Consequently, the fact that the cost of carrying out the repairs may have been disproportionately more than any increase in capital value of the premises achieved as a result was irrelevant. As such, the Inner House determined that there was no potential for interpreting the clause so as to mean that payment for the cost of the works was dependent on the landlord’s intention to carry out the works.

In coming to its conclusion, the Inner House contrasted the wording used in this case with that in Grove Investments Ltd v Cape Building Products Ltd[2] on which Lord Tyre had relied when reaching his decision in the Outer House.

The provisions in this case contained a procedure (not included in the lease in Grove) under which the Landlord made an election and served a notice on the tenant requiring the tenant to make the payment in lieu of carrying out the repairs which the court found to be significant in suggesting that the landlord’s right was to a contractual payment rather than a payment of damages.

Also, the wording used in Grove made reference to the landlord and tenant reaching a settlement based on the value of a schedule of dilapidations rather than making reference to the cost of making the repairs which the court interpreted as being analogous to a damages clause.

Ultimately the differentiating factor was that the wording in this case was interpreted as including a landlord’s right to demand a contractual payment unrelated to loss whereas the wording in Grove was not.

Some general principles
The Inner House stated:

“Care must also be taken to avoid reading anything said in Grove as being to the effect that the court can correct a bad bargain or even an unfair one; there is no general rule that a commercial contract requires to be fair”.

 And:

“it is not legitimate to re‑write parties’ agreement because it was unwise of one party to gamble on future outcomes;  the question is not whether a reasonable tenant would have entered into the obligation”

 Further:

“it is important to note that Grove did not lay down any general rule to the effect that the landlord in a commercial lease is, at termination, if repairs are outstanding only entitled to be compensated for capital loss actually suffered.”

 The full judgement is available from Scottish Courts here.

__________________________________

[1] Albeit it was noted that a different conclusion may be appropriate where no obligation to renew or replace or rebuild as necessary is included.

[2][2014] CSIH 43

Supreme Court case considering the effect of a break clause contained in sub-underleases of different floors of a building known as “The Point” in London.

M&S let the property from BNP and the rent was paid quarterly in advance. When M&S exercised the break clause, the lease came to an end on 24 January 2012. M&S then brought a claim for return of the apportioned rent in respect of the period from 25 January 2012 to 24 March 2012.

There was no express term in the lease which entitled the tenant to repayment of the rent. However, M&S argued that a term should be implied into the lease.

The Supreme Court dismissed M&S’s appeal.

The Court confirmed that a term will only be implied into a contract if it satisfies the case of business necessity or is so obvious that it goes without saying.  It was noted that, although rent payable in arrears is apportionable under the Apportionment Act 1870, the 1870 Act does not apply to rent payable in advance and that common law authorities do not provide for rent (whether paid in arrears or advance) to be apportioned. The court then reached the conclusion that (aside from in very exceptional circumstances) an express term would require to be included in the lease to entitle a tenant to a refund of rent paid in advance.

Lord Neuberger said the following:

“Save in a very clear case indeed, it would be wrong to attribute to a landlord and a tenant, particularly when they have entered into a full and professionally drafted lease, an intention that the tenant should receive an apportioned part of the rent payable and paid in advance, when the non-apportionability of such rent has been so long and clearly established. Given that it is so clear that the effect of the caselaw is that rent payable and paid in advance can be retained by the landlord, save in very exceptional circumstances (eg where the contract could not work or would lead to an absurdity) express words would be needed before it would be right to imply a term to the contrary.”

The full judgement is available from the Supreme Court here.

Outer House case considering a contract between the Bank of Ireland and Knight Frank relating to a valuation which Knight Frank provided to the Bank in respect of a client’s property over which the Bank received a standard security.

Background
The Bank claimed that it had suffered substantial loss as a result of the valuation and sought damages for negligence from Knight Frank. However, Knight Frank’s standard terms provided that any contract to provide a survey report was subject to English law and that the English courts would have exclusive jurisdiction in respect of any dispute arising from it. The issue for the court was whether the standard terms formed part of the contract and, consequently, whether the court had jurisdiction to hear the case.

Knight Frank had provided a valuation for the Bank’s client in relation to the property (near Kilmacolm) which was to be the subject of a development. The Bank instructed its own valuation of the property from Knight Frank (by letter dated 2 May). This was provided and included Knight Frank’s standard terms. However, in a departure from its normal practice, Knight Frank had not sought to ask the Bank in advance for written confirmation that the standard terms formed part of the contract. Following receipt of the valuation, the Bank advanced a loan of £2.35m to the client in return for a standard security.

Arguments
The parties were agreed that the Bank’s letter of instruction constituted an offer that the offer had been accepted by conduct. The Bank argued that the offer was accepted by Knight Frank when it delivered the valuation report to the bank. The contract was accepted at the moment the report went through the bank’s letterbox at which point it was too late to introduce new terms (the bank argued that it would have been odd if the fulfilment of the contract –i.e. providing the valuation- were to be treated as a counter offer.)

On the other hand, Knight Frank argued that the delivery of the valuation report along with the standard terms constituted a counter offer which the bank had accepted when it relied on the report to grant the loan.

Decision
Lord Woolman preferred Knight Frank’s argument noting that it had been open to the bank to raise an issue with Knight Frank regarding the standard terms and it had not one so. It was irrelevant that the officer of the bank dealing with the transaction had not read the standard terms. The Bank could not “cherry pick” the document: i.e. it could not accept the valuation without also accepting the standard terms attached. In coming to his conclusion, Lord Woolman also took account of the facts that it had not been surprising to the bank’s employees (giving evidence in the case) that surveyors would seek to introduce their own standard terms into the valuation agreement and that the terms introduced were not unusual.

As such, Lord Woolman found that the court did not have jurisdiction to hear the dispute.

The full judgement is available from Scottish Courts here.

Outer House case concerning an Option Agreement relating to a 4.6 acre Brownfield site near the Commonwealth Games Athletes Village in Glasgow which was owned by Glasgow City Council.

Background
PIP 3 wanted to construct a hotel and car park on the site and, between 2006 and 2011, instructed various investigations to be carried (which showed that the site was relatively free from hazardous waste) However, following receipt of a survey from the Council, PIP 3 discovered that a large quantity of extra earth had been deposited on the site which the Council then confirmed was spoil derived from the construction of the nearby Commonwealth Games facilities.

The parties entered an option agreement in late 2011 (schedule 1 of the agreement was termed “the Missives”). Amongst other things, the agreement provided for payment of an initial purchase price by PIP 3 (at settlement –which was 15 working days after PIP 3 exercised the option to purchase the property) and for the Council to instruct a remediation consultant to prepare a Site Waste Management Plan and a Materials Management Plan (as soon as reasonably practicable after execution of the option agreement). The Council were also to procure that the contractors and the remediation consultant were to provide collateral warranties to PIP 3.

The settlement date was 11 April 2013. PIP 3 asked for copies of the Site Waste Management Plan and a Materials Management Plan in February 2013 and, whilst the Council said it was obtaining the documents, it said that there was no obligation on them to deliver them at settlement. PIP 3 did not pay the initial purchase price at settlement. The Council delivered the copy documents to PIP 3 on 5 June 2013. However, PIP 3 still did not pay and the Council rescinded the Agreement on 4 July 2013.

PIP 3 raised an action for breach of contract on the basis that the Council had failed to provide (a) the Waste Management Plan and the Materials Management Plan and (b) the collateral warranties. PIP 3 sought damages of over £15m equating to an estimate of its lost profit if the development had gone ahead. Alternatively, PIP 3 sought abortive costs on the basis that the Council had (i) breached its obligations of good faith and (ii) negligently misrepresented the position by failing to disclose the deposit of hazardous waste.

Decision
Lord Woolman dismissed PIP 3’s claim for breach of contract. In the first place, it was found that, in terms of the wording of the relevant clause in the agreement, there was a duty to instruct the Waste Management Plan and a Materials Management Plan but not to deliver them on or prior to settlement. (In coming to that conclusion Lord Woolman also observed that there were only three working weeks between exercising of the option and settlement and it might have been difficult for the Council to obtain the documents in that period.)

Secondly, Lord Woolman referred to the missives. Clause 1.7 provided that Council was not entitled to rescind:  “for any period of time during which the delay in payment by PIP 3 is due to any failure or breach by or on behalf of the Council to implement its obligations or duties under the Missives on time”. Lord Woolman noted that, unlike clause 1.3 which provided that the Council was entitled to rescind both the missives and the option agreement if PIP3 failed to pay the initial purchase price, clause 1.7 referred only to the missives. As such, the limitation of the Council’s right to rescind contained in clause 1.7 applied only in respect of obligations contained in the missives (but not the option agreement). The obligation relating to the Waste Management and Materials Management Plans was contained in the option agreement but not the missives meaning PIP 3 could not withhold payment on the basis non-compliance with the obligation without giving the Council a right to rescind.

Thirdly, PIP 3 had also claimed that they were entitled to withhold payment on the basis that the missives required the Council to deliver certain documents including the collateral warranties at settlement. However, Lord Woolman found that, having regard to the wording of the agreement, payment of the initial purchase price was the hinge of the transaction and, until payment occurred, the Council had no obligation to deliver the collateral warranties (and other settlement documents).

Lord Woolman also held that, in the circumstances[1], the case was not one in which PIP 3 could argue alternative and inconsistent grounds of action. (I.e., on one hand, make a claim for damages equivalent to PIP 3’s lost profit on the basis that the development would have gone ahead were it not for the Council’s actions but, on the other hand, claim for abortive costs on the basis that PIP 3 would not have gone ahead with the transaction if it had known about the hazardous waste.) Lord Woolman took the view that PIP 3 must have known whether it would have exercised the option and developed the subjects and agreed with the Council that the whole thrust of the PIP 3’s arguments indicated that the transaction would not have gone ahead. As such, PIP 3 could only claim for abortive costs and not for damages amounting to lost profit.

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.

 ___________________________________________________________

[1] Lord Woolman took the view that this was an extreme type of case in which the court had to exercise supervision referring to Maclaren Court of Session Practice page 311 and Smart v Bargh 1949 SC 57.

Background
Outer House case relating to a joint venture agreement which five parties had entered with a view to obtaining planning permission for, and optimising the sale value of, an area of land to the west of St Andrews.

Four of the parties held title to the parts of the property to be developed and the fifth was the intended developer of the land. Two of the parties to the agreement (including the developer) were controlled by Joseph Headon.

Two of the parties to the joint venture (Headon Holdings and the Cuthills) reached a separate agreement under which the Cuthills would convey an area of land to Headon who would hold the land and any future sale proceeds (less the price paid by Headon to the Cuthills for conveyance of the land) in trust for the Cuthills.

Arguments
Two of the other parties to the agreement including the University of St Andrews were unaware of the agreement between Headon and the Cuthills when they entered the joint venture. When they became aware of the agreement, they sought to have the joint venture agreement reduced on the basis that (1) they had relied on a material misrepresentation by Headon and the Cuthills and (2) they argued that Headon and the Cuthills had a duty to disclose material facts to them when they entered the joint venture. The university argued that they had been led to believe that Headon and not the Cuthills had the “beneficial interest” (i.e. being the recipient of the benefit which would result from the development of the property in question) as a result of statements made by Joseph Headon and others.

The University pointed out that Headon was closely related to the developer (both were controlled by Joseph Headon) and that, as a party to the joint venture, Headon received certain privileges under the joint venture agreement including voting rights on matters affecting the developer and enjoyed the ability to block agreement amongst the parties to the joint venture on certain issues. As such, if the university had known about the agreement between Headon and the Cuthills (the result of which the university argued was that the Cuthills were the “beneficial owners” of the property in question and not Headon as they had believed), they claimed they would have not have allowed Headon into the joint venture and would not have entered the venture themselves.

Decision
Lord Tyre rejected the university’s arguments and dismissed the action.

Duty of disclosure
In the first place Lord Tyre found that, in the circumstances, there was no duty of disclosure. The general rule is that the parties to a contract have no duty of disclosure. However, a duty can arise in relation to certain special contracts or where the parties are in a special relationship. (A common example where the duty arises is contracts of insurance, where facts material to the insurer’s risk are known only to the insured.) The university argued that the duty also applies to parties negotiating a partnership. After noting that it was not definitely decided that the duty applies to such cases in Scotland, Lord Tyre found that he was not persuaded that the joint venture could properly be characterised as a partnership (or analogous to a partnership) for the purpose of applying the law of pre-contractual duties.

Misrepresentation
Secondly, Lord Tyre held that there had been no misrepresentation in the statements describing Headon as the owner or landowner of the land in question as Headon did in fact hold title to the land. Describing Headon as the landowner did not amount to a representation that Headon was a “beneficial owner” in the sense that the term had been used by the university.

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 interpretation of a minute of agreement in respect of professional fees relating to a planned development.

Background
Mr Kennedy and others (the trustees) were the owners of a 6.293 acre site in Ayr which they agreed to sell to a house builder (DMH). The missives of sale included a term which allowed DMH to resile from the bargain on the payment of an “abort fee”. DMH paid the fee and resiled. The parties then entered a minute of agreement which provided for the trustees to reimburse DMH for professional fees of just over £165k in certain circumstances if the trustees agreed to sell the site to a third party.

When the trustees agreed to sell the site to Miller Homes, DMH served charges on the trustees for payment of the professional fees.  The trustees denied liability to pay and sought suspension of the charges. The question for the court was whether, in terms of the minute of agreement, there was a liability to pay the fees in the situation where DMH had not obtained planning consent for the development.

Decision
On the interpretation of the contract, Lady Stacy said:

“I accept the submissions made by both counsel to the effect that the task of the court is to consider what the reasonable person, armed with the information that the parties reasonably had at the time of entering into the contract, would consider was meant by the words of the contract.  I accept that the construction should, if there is a choice, favour a commercially sensible outcome.  I am bound by the case of Grove Investments to proceed in that fashion. The words of the contract are to be read as a whole, and if possible meaning given to all of them.  I am not concerned to find out what the parties intended to agree, but rather what in the context of the facts agreed or proved, their words show that they did agree. I have reached my view by considering all of the circumstances known to both parties. I have not relied on internal communications known to only one of them.”

 On that basis, and after noting that the minute of agreement was not easy to construe, Lady Stacy accepted DMH’s arguments to the effect that the trustees were liable to pay the fees even where planning permission was not obtained and refused the trustees’ petition.  In coming to that conclusion Lady Stacey found that, although the trustees commercial intention had been hard to ascertain, they had entered the agreement and agreed to make the payment because they wished to encourage  DMH to proceed with their planning application during the period when the trustees were looking for a third party to purchase the site. If, however, the intention had been that the payment would only be made if DMH were successful in obtaining planning permission, it would not have been drafted in the way it had been drafted.  It would not have been difficult to draft an agreement which stated plainly that payment was dependent on DMH obtaining planning permission and the minute of agreement did not do so.

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.

The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 came into force on 1 July 2015.

It does two things:

•  It makes provision to the effect that documents signed in counterpart are legally effective under Scots law
•  It permits delivery of ‘traditional’ or paper documents by electronic means.

Execution in counterpart
Execution in counterpart refers to the practice (frequently used in England) whereby each of the parties to a document executes a separate physical copy of the document before the documents are exchanged so that each party holds a copy of the documents signed by the other parties.

It can be done where the parties are in different places and signing at different times. As such, it avoids problems of time and cost that can arise if all of the parties have to get together for a signing meeting or wait for a single document to be circulated around each of the parties one-at-a-time for execution.

There was a great deal of confusion as to whether executing documents in counterpart was competent in Scots law prior to the 2015 Act and the situation was so uncertain that it was common practice for parties to contracts in Scotland to agree to contract under English law in order to allow the use of counterpart signing. The 2015 Act removes that uncertainty and confirms the validity of the practice.

Delivery of traditional documents by electronic means
Under Scots law, contractual documents which have not been signed by all of the parties to the contract require delivery (i.e. to be given to the other parties to the contract) to be effective. The theory is that, until the document has been delivered to the other party, it is open to the party granting the obligations to change their mind and destroy or change the principal document but, once the document has been delivered to the other party, it is out of the control of the party granting the obligations and the contract becomes effective.

It is of course common for contracts to be negotiated by email or fax with the relevant documents attached. However, there is case law which suggests that sending a document as an attachment to an email or fax is not sufficient to amount to delivery. The reason for this is that faxed or e-mailed documents are merely copies of the principals meaning that, until the original document is delivered, a party could still change its mind and destroy the original.

The 2015 Act changes that and provides that traditional or paper documents can be delivered electronically meaning that the document will now become effective on the sending of the email (or fax) to which it is attached (unless the document provides otherwise).  It is worth noting that the original documents can still require to be sent to the other party, in addition to electronic delivery, where self-proving status is required or where the principal documents are required for another purpose (for example, registration).

The Legal Writings (Counterparts and Delivery) (Scotland) Act 2015 is available here.

The explanatory notes can be seen here.

Outer House case considering an option agreement over land at Greystone farm, Alford in Aberdeenshire.

Background
Mr Kenwright owned the land and entered into an option agreement with Stuart Milne by missives agreed in 2003. In terms of the agreement Stuart Milne could exercise the option to purchase parts of the farm land with detailed planning permission (which the parties were to work together to obtain) and consents for a housing development. Under the agreement Mr Kenwright was bound to enter any section 75 agreement[1] required by the local authority and Stuart Milne was to indemnify Mr Kenwright against any obligations he incurred under such an agreement.

Stuart Milne applied for and entered negotiations with Aberdeenshire Council regarding planning permission. It was agreed that the council would grant planning permission for two areas referred to as phase 1 and phase 2 and that an area of land between the two phases would be conveyed (for no purchase price) by Mr Kenwright to the council for the building of a new school/community centre. The planning permission was then granted subject to a section 75 agreement obliging Mr Kenwright to transfer the school land to the council.

In June 2010 further missives varied the agreement to change the purchase price for the phase 1 land and made provision for Stuart Milne to exercise the option in respect of the school land (at a purchase price of twice the open market agricultural value of the land). Stuart Milne also wrote to Mr Kenwright in June 2010 undertaking to “implement and perform or to procure the implementation and performance” of the obligations under s75 agreement and indemnifying him against any loss.

In July 2010 Stuart Milne exercised its option to purchase phase 1 and began building the development. The option agreement expired in January 2013 and the council called on Mr Kenwright to convey the school land to it in August 2013. He did so in September 2013.

Arguments
Mr Kenwright argued that the indemnity granted in June 2010 obliged Stuart Milne to exercise the option in respect of the school land (paying him the agreed price) and then convey it to the council (for no consideration) in terms of the 2010 missives.

The questions for the court were whether Stuart Milne was obliged to indemnify Mr Kenwright and, if so, what loss had he suffered.

Decision
Lord Woolman found that, in terms of the June 2010 indemnity letter, Stuart Milne had the option to implement and perform the obligation contained in the s75 agreement using the procedure contained in the 2010 missives (i.e. purchasing the school land from Mr Kenwright for the agreed price then selling to the council for no consideration) or it could ‘procure’ the implementation and performance of the obligation. Stuart Milne had procured implementation and performance of the obligation when Mr Kenwright had conveyed the land directly to the council. There was no binding obligation requiring Stuart Milne to follow the procedure contained in the 2010 missives and it was able to choose not to do so.

Lord Woolman observed that, if Mr Kenwright had not transferred the school land to the council, the council would have refused to grant planning permission or required a developer’s contribution from Stuart Milne (which would have reduced the price Stuart Milne would have been willing to pay Mr Kenwright): meaning that, in effect, Mr Kenwright had already received the value of the school land. Lord Woolman also noted that Mr Kenwright retained the phase 2 land which had an enhanced value due to the planning permission.

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.

____________________________________

[1] Agreements which local authorities can use to divert some of the benefit received from the grant of planning permission for a development back to the public sector.

Background
Outer House case concerning a ground lease of a 4 acre site in Houstoun Industrial Estate in Livingston. There was a building on the site which had been there since the lease was granted in 1977. The tenant wished to demolish the building (which it argued was past its economic lifespan, and obsolete) and re-develop the site but the landlord argued that the tenant did not have the right to demolish the building in terms of the lease. At the centre of the argument was the tenant’s obligation “to maintain in good order and when necessary to re-erect” the buildings on the site.

Arguments
The landlord argued that the tenant’s obligation was to maintain the building in good order and that re-erection would only become necessary where the building was destroyed (for example by fire or in an explosion).

The tenant argued (1) that the building could be demolished and re-erected where it was necessary for the tenant’s (or a sub-tenant/assignee’s) use of the site. If that were  not the case, then (2)  development was permitted when circumstances rendered re-erection necessary such as in the circumstances existing here, where the present building was obsolete and could only be repaired by expenditure of unreasonable sums of money. Demolition as a precursor to re-erection was, the tenant argued, therefore “necessary”.

Decision
Lord Tyre, giving the lease an interpretation consistent with that which would have been understood by a reasonable person with background knowledge reasonably available to the parties at the time of the contract, accepted the tenant’s second argument.

“I accept the tenant’s alternative submission that there may be circumstances where re-erection of a building is “necessary” even though an existing building is still standing on the site.  These might include (i) where the existing building is obsolete and unsuitable for any reasonable use, regardless of cost of repair; or (ii) where the cost of repair is excessive in relation to what it would cost to demolish and rebuild premises similar to the existing building.  In each of these cases (and I note that the tenant offers to prove in the present case that both of those descriptions apply), I consider that it is in accordance with commercial common sense to describe re-erection as “necessary”.  It must follow, as a matter of practicality, that demolition of the existing obsolete and/or uneconomic building is also “necessary” in order to allow re-erection to proceed.”

However, Lord Tyre also noted that the Landlord would be able to withhold consent not only to the detailed plans for re-development but also to the demolition preceding re-erection if (acting reasonably) it was not satisfied that the re-development was necessary (in terms of (i) and (ii) above).

The full judgement is available here.

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.