Crossing the Line between Business Common Sense and Perceived Fairness in Contractual Interpretation
| Pages | 378-383 |
| Date | 01 September 2015 |
| Published date | 01 September 2015 |
| DOI | 10.3366/elr.2015.0298 |
In a lease concluded in August 1986 the appellants leased a unit on Germiston Industrial Estate, Glasgow from the Scottish Development Agency. Ownership of the property was subsequently transferred to the respondents. The lease expired on 15 May 2011. Surveyors acting for the landlords had prepared a Schedule of Dilapidations in October 2007, which was served on the tenants on 19 September 2008 with a notice requiring them to carry out the works detailed in the Schedule. This the tenants failed to do prior to the expiry of the lease. The landlords claimed the sum of £10,299,912, which was the figure brought out in the Schedule as the total cost of remedying the defects said to exist in the premises.
The obligation to make good dilapidations on termination of the lease was contained in Article Twelfth of the lease:
The tenants bind themselves to flit and remove from the premises at the expiry or sooner termination of this lease …, to repair any damage done by the removal of fittings belonging to them and to pay to the landlords the total value of the Schedule of Dilapidations prepared by the landlords in respect of the tenants' obligations under Articles Fifth and Sixth hereof declaring that the landlords shall be free to expend all moneys recovered as dilapidations as they think fit and the tenants may, with the prior written agreement of the landlords, elect to carry out the whole or any part of the said Schedule of Dilapidations but that provided such work is completed to the landlords' reasonable satisfaction.
In terms of Article Sixth the tenants were under an obligation to return the premises to the landlords at the expiry of the lease in “good and habitable condition and repair … all to the sight and satisfaction of the landlords.” That same article provided:… in the event of the tenants failing to execute promptly any repairs and renewals to the premises which the landlords shall reasonably consider necessary or failing to observe or to perform any of the other obligations hereinbefore described and referred to in this Article, the landlords shall be entitled, but shall not be bound, to execute or have executed the same as the case may be and the tenants shall be bound on demand by the landlords to repay to the landlords the amount or amounts disbursed or expended by the landlords in consequence of the same … Further declaring that on expiry or earlier termination of this lease the landlords may require the tenants to make a financial settlement with the landlords in lieu of their obligations under this Article which the landlords consider to be outstanding at the date of expiry or earlier termination.
The landlords argued that, under Article Twelfth, the tenants were obliged to make payment of a sum representing the total value brought out in the Schedule of Dilapidations, subject only to any challenge by the tenants as to the proper ascertainment of that value. They explained: “It does not matter whether the ‘cost of repairs’ measure of loss accurately reflects the landlords' true loss or would be disproportionate.”
Para 4.
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