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.

Outer House case considering the repairing obligations contained in a lease and sub-lease of 3 floors of Riverside House at Riverside Drive in Aberdeen.

The lease and sublease referred to common parts which included a car park. Defects were found in the concrete decking of the car park and remedial works had to be carried out. The question for the court was whether, in terms of the lease and sublease, the cost of the works was to be met by the sub-tenant or by the landlord.

The lease (between the landlord and tenant) was a full repairing and insuring lease under which the tenant was obliged to pay a service charge which was defined by reference to “Service Expenditure” which was incurred by the landlord in carrying out “Landlord Services” (which included repairs). An express exception from the Service Expenditure was “expenditure incurred in respect of or pertaining to the initial construction of the Building or the Service Systems”.

In terms of the sub-lease, the sub-tenant was obliged to pay to the tenant the sums which the tenant was obliged to pay to the landlord by way of the service charge under the lease.

The tenant paid the costs of remedial works to the car park as part of the service charge and sought to recover those from the sub-tenant. However, the sub-tenant argued that in terms of the exception from Service Expenditure, latent defects (such as the defects in the car park) “pertained to” the initial construction of the building and could not be recovered by way of the service charge.

Lord Tyre rejected the sub-tenants argument finding that it was appropriate to place emphasis[1] on the fact that the lease was a full repairing and insuring lease under which it was intended that the tenant would relieve the landlord of the cost of repair and rebuilding even in relation to inherent or latent defects.

 In Lord Tyre’s view, a reasonable person having all the background knowledge available to the parties would have understood the phrase “in respect of or pertaining to the initial construction of the Building” extended only to works carried out during the construction phase and any related snagging. The sub- tenants interpretation placed too much weight upon the words “or pertaining to”.  Lord Tyre found that those words could be seen as a reference to costs such as professional fees associated with the construction of the building, which were not strictly costs of construction.

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] Per the approach in @SIPP Pension Trustees v Insight Travel Services Ltd 2016 SLT 131

Outer House case considering the extent of a repairing obligation under a lease of industrial premises in Shotts.

Background
Demi-Master were the landlords and HES, the tenants. Demi-Master sought declarator that the lease had been terminated in terms of notices of irritancy which they had served following HES’s failure to respond to notices requiring HES to comply with the repairing obligations under the lease and also to make the premises clean and tidy in terms of the repairing clause in the lease.

The repairing clause provided:

“The Tenants accept the Premises as being in such condition as shown on the attached Photographic Schedule and in all respects fit for the Tenants’ purposes and shall at their sole expense and, to the reasonable satisfaction of the Landlords, repair and maintain and renew (and, if necessary for the purposes of maintenance and repair, to replace and rebuild) and decorate and keep the Premises and all permitted additions and new buildings, if any, in like condition as is evidenced on the said Photographic Schedule and in a clean and tidy condition, clear of all rubbish, for the Duration…”

Although the repairing clause referred to a photographic schedule detailing the condition of the premises at the commencement of the lease, neither party had a copy of the schedule and it may have been that it had never existed.

Arguments
Dem-master, who were seeking a summary decree (which can be granted where, even if a defender succeeds in proving the substance of its defence, its case must fail), argued that as HES had (in terms of the repairing obligation) accepted the Premises as being “in all respects fit for the tenants’ purposes” at the date of entry, they had accepted that the Premises were in a tenantable condition at that time.

On the other hand, HES argued that, the premises were already badly dilapidated at the date of entry.  They were not wind and water tight and had not been for some years previously.  The reference to the premises being fit for the tenants’ purpose in the lease was not an acceptance that the premises were wind and watertight or otherwise in a good state of repair. HES’s use of the Premises did not require them to be wind and watertight and, in contrast to Dem-master’s assertion, the effect of the reference was to make it clear that the premises had not been wind and watertight or in a tenantable condition at the date of entry.

Decision
Lord Doherty found that he was not in a position to determine the meaning of the repairing clause without an inquiry into the material circumstances surrounding the signing of the lease and, in particular, the state of the premises at the date of entry (finding that HES were not bound to fail in their defence and he could not grant summary decree in favour of Dem-Master) and put the case out by order for a discussion as to further procedure.

The full judgement is available from Scottish Courts here.