Shopping centre partial redevelopment - existing tenant objects
In this case, the landlord wanted to lease part of the car park at the Gyle Shopping Centre, Edinburgh to Primark for the construction of a new store. M&S (one of the existing tenants at the centre) objected. They relied on a term in their own 127 year lease which had let to them a one third share in the car park (i.e. more than just a right to use) and also on a provision that required M&S' consent to any change to the mall or the common parts, which consent was "not to be unreasonably withheld".
The M&S lease said a bit more than that.
- It provided that changes to the mall, the car park, and other similar "mutual areas" were delegated to a management committee. Many shopping centres have such committees in order to discuss aspects of the centre's operation e.g. opening times, upcoming events etc. At the Gyle, the management committee has an active role in overseeing future mall developments.
- The lease went on to say that the management committee could only prevent works if they rendered the mutual areas of the Gyle materially less adequate and convenient than the current set up. In other words, if the proposed change resulted in a worse deal, M&S (through its management committee representative) could veto the proposal.
Third line time lucky for the landlord
This most recent case was the third attempt by the landlord to get what it needed to allow the development of the new Primark unit to go ahead. It had lost its first two actions.
- In the first action the landlord claimed that the M&S's consent to the proposal, given by a M&S representative at a management committee meeting, amounted to a variation of the lease. This was rejected by the court. See Heather Nisbet's article last year about this first attempt.
- In the second action the landlord claimed that M&S were personally barred from objecting to the landlord's proposed development because they had already agreed to it at that committee meeting. This too was rejected.
The landlord was persistent and came back and won with this third action, in which it claimed that M&S were unreasonably withholding consent to the proposed works. The court agreed.
Contrast this with the court's decision in the Aviva v McDonalds case last year, commented on in Amy Entwistle's article. In this case the court decided that McDonalds had not unreasonably withheld their consent to a proposed redevelopment of part of a car park (that was a common part) to allow the construction of a new Costa unit.
Two interesting aspects
For me, there are two aspects which jump out of this third Gyle case - and those are:
- the court's willingness essentially to allow the landlord unilaterally to vary the extent of property in which a share had been let to the tenant; and
- the difficulty now of predicting how courts will use the "business common sense" rule in their interpretation of the words actually used in contracts.
As mentioned earlier, M&S, had more than a passing interest in the car park; they actually had a lease of a share of the car park - which (in their view) gave them a veto over any proposed development of it. M&S were on strong ground in that contention, however the court chose to approach the issue from a slightly different angle. It applied the strict test of permitted development as detailed in the lease and decided (based on the expert evidence) that the proposed development was not to the detriment of the shopping centre and so M&S's refusal to consent was unreasonable.
The court applied business common sense - and said that a 127 year lease must be interpreted in the context that, during such a lengthy term, things will inevitably change and future development will be required to reflect circumstances.
I personally have reservations about "business common sense" being applied by the courts where the wording in the contract is, on the face of it, clear. The Scottish Courts had historically been reluctant to rescue a party from a "bad bargain" - but this is increasingly becoming blurred by the use of concepts such as "business common sense" and "commercial efficacy" in interpretation of wording considered to be capable of more than one meaning.
So at the moment (where there is potential ambiguity) you need to read the actual words used in isolation, then extrapolate their likely meaning in the context of the entire lease; and finally you must then apply the test of what the ordinary business person would have considered the wording to mean.
I shall explain to my spouse next time she makes such an accusation that the test of reasonableness cannot be viewed in isolation but a matrix of factors must be considered. I anticipate her response shall be robust.