There is no equivalent of landlord and tenant legislation in Scotland as there is south of the border - so it was therefore always important to advise clients on the terms which are set out within each lease document.
However, over the past few years, the Scottish courts have been adopting a far more purposive approach in the interpretation of the provisions of all contracts, including leases.
My colleague, Heather Nisbet, commented last year on the Grove Investments case where the courts viewed the dilapidations obligations under the lease through the prism of "business common sense" resulting in (arguably) an unusual result i.e. that the landlord could not rely on the contractual remedies that were apparently available to it under the lease following the tenant's failure to carry out dilapidation works.
Ground lease tenant could demolish and rebuild - rather than repair
Another lease case last month was decided on similar principles. Richard Derek Vernon William Malin and others -v- Crown Aerosols UK Limited was an Outer House case involving a ground lease on a four acre site on Houston Industrial Estate in Livingston.
On the property concerned there was a building which had been in place since the lease was granted in 1977. In terms of the lease, the tenant was obliged to "maintain in good order and when necessary to erect" any buildings on the site.
The tenants wished to demolish the building (and then rebuild) rather than to repair the existing building because (in their view) to repair it would involve incurring unreasonable sums of money.
The landlord said that the tenants had to maintain the building in good order in accordance with the provisions of the lease and that re-erection would only be available as an option to the tenants if the building was completely destroyed. So, in other words, the strict wording of the lease needed to be followed.
The Outer House decided that the lease obligations should be viewed in a manner consistent with what would have been understood by a reasonable person with background knowledge reasonably available to the parties at the time of the contract.
On that basis, Lord Tyre stated, "I accept the tenant's alternative submission that there may be circumstances where re-erection of a building is 'necessary' even although an existing building is still standing on the site... [and] I consider that it is in accordance with common commercial 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."
Therefore, the Courts have again interpreted a lease provision using the principle of "common commercial sense" (or business common sense as referred to in the Grove Investments case) rather than relying solely on the strict wording of the lease.
Difficulty of predicting what view the courts will take
So, where does that leave commercial landlords and tenants?
The recent spate of case law does throw some doubt on the extent to which landlords can rely on the dilapidations wording contained within any commercial lease. This won’t apply in every case of course - it all turns on the facts and circumstances of any particular property and the dilapidations issue in question. However, from both landlords and tenants' perspectives the key issue is to ensure that there are no surprises.
As regards to new leases, if parties (usually the landlord) want to be able to rely on a lease provision that could be viewed (by a reasonable man) as not commercially sensible, then the lease wording should make what has been agreed crystal clear, so that the courts can have no scope to argue that this cannot have been what was intended.
For existing leases, in the run up to lease expiry, both sides should be carrying out a full assessment of their lease obligations - in tandem with appropriate legal advice and the advice from qualified building surveyors - to avoid potentially costly disputes at a later date.