Cumbernauld and Kilsyth District Council v Dollar Land (Cumbernauld) Ltd
|England & Wales
|Lord Keith of Kinkel,Lord Bridge of Harwich,Lord Jauncey of Tullichettle,Lord Browne-Wilkinson,Lord Mustill,Lord Goff of Chieveley
|22 July 1993
|Judgment citation (vLex)
| UKHL J0722-3
|22 July 1993
|House of Lords
|No. 5,No. 31.
 UKHL J0521-1
House of Lords
Lord Keith of Kinkel
Lord Goff of Chieveley
Lord Jauncey of Tullichettle
I have read the speech to be delivered by my noble and learned friend, Lord Jauncey of Tullichettle and I agree with it. In particular, I agree that in the light of the decision in section 4 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985, following consideration of the matter by the Scottish Law Commission, it is not open to this House to bring about any more far-reaching development of the law in this field than was thought appropriate by Parliament. and of the limited reform of the law relating to irritancy clauses concerned with non-payment of monetary obligations in leases which Parliament enacted in
I am bound to say, however, that I do not regard the result in this case as satisfactory. The appellants will lose their investment of £2.2 million, which is the sum they paid for the assignation in their favour of the sub-lease, and the respondents will have the benefit of the whole development including not only the buildings, which they paid for, but the site, which they did not, for £1 per annum over a period of some 120 years. It is true that the appellants had over a considerable period been dilatory in the payment of rent and they failed to respond timeously to the warning given them on 15 December 1988 that failing payment of the 11 November instalment by 4 January 1989 the lease might be terminated. It may be that their failure was due to some extent to the intervention of the Christmas and New Year period and to unfamiliarity with the rigour of Scots law in this field as compared with the more benign regime in England, but whether the failure was due to inadvertence or to incompetence there can be no doubt that the penalty for it is a most severe one.
The basis of the distinction between a conventional irritancy in a feu contract, which is purgeable, and one in a lease, which is not purgeable. is said to be that a feu confers a right of property while a lease is merely a personal contract. But feus are in most instances granted with a view to a dwelling house or some other building being erected on the land, and it must be of some materiality that irritancy after that had been done would result in the value of the building being lost to the feuar. For practical purposes it is not possible to see a distinction of any real significance between a feu and a building lease for 99 or 125 years. While the rule excluding the opportunity of purgation may be entirely fair in cases where the payment of rent is the bare counterpart of the right of occupancy of, say, a farm, it is clearly capable of operating with extreme harshness in the case of a long building lease. In the case Lord Fraser of Tullybelton, at p. 72, observed that if a tenant had agreed to a lease containing an irritancy it was not in principle unfair to hold him to his bargain. However, the tenant may not himself have negotiated the lease but may be an assignee of it, as in this case.
A not uncommon situation in which irritancy of a lease may be incurred is where the tenant becomes bankrupt or goes into liquidation. It cannot be regarded as a satisfactory state of affairs that when this happens the landlord should receive the adventitious benefit of what may be extremely valuable buildings erected by the tenant on the land to the exclusion of the tenant's creditors. The Scottish Law Commission considered this matter in paragraphs 5.9 to 5.14 of its Report No. 75 of 1983, but did not think it practicable to make any recommendation about it. It did not consider as a possible solution that the ourt might be empowered to annex conditions to the exercise of a right of irritancy. The passage from the opinion of Lord Shand in , cited in the speech of my noble and learned friend, Lord Jauncey of Tullichettle, adumbrates the possibility of annexing conditions to the granting of a decree of irritancy. There does not, however, appear to be any reported case where this has been done. Had it not been for Parliament's intervention by section 4 of the Act of 1985, I should have considered favourably a submission that the law might appropriately be developed on those lines. There seems much to be said for the view that where irritancy of a lease would confer a substantial benefit on a landlord at the expense of the tenant or his creditors the landlord should as a condition of securing a decree of irritancy be required to pay compensation for the value of improvements to the subjects which have been brought about by the tenant or his predecessors in title. As the law now stands, the effect of it may well be to inhibit commercial development in Scotland. It is evident that a tenant whose principal asset is a lease containing an irritancy clause in the usual terms would have considerable difficulty in raising finance.
My Lords, with considerable reluctance I would dismiss this appeal.
I have had the advantage of reading in draft the speeches prepared by my noble and learned friends Lord Keith of Kinkel and Lord Jauncey of Tullichettle. While sharing the anxiety expressed by the former, I agree with the latter that, for the reasons he gives, the appeal must be dismissed.
By agreement dated 30 May and 27 September 1979 ("the 1979 Agreement") the respondents and Cumbernauld Development Corporation ("CDC") it was agreed inter alia that CDC would grant to the respondents a head lease for 125 years of a site of 6.73 acres to be developed by CDC as a shopping centre with finance to be provided by the respondents to the extent of £5 million. The respondents undertook, on completion of the development, to grant a sub-lease thereof to CDC for a term of 99 years with an option in favour of CDC to extend such sub-lease for a further period of 26 years. In implement of the 1979 Agreement CDC by a head lease dated 4 and 12 March 1980 let the site to the respondents for 125 years at a yearly rent of £1. The development was duly completed and by sub-lease dated 8 November 1983 and 2 February 1984 the respondents let the site to CDC for 99 years, with an option to extend, at a rent payable in quarterly instalments which broadly speaking was 77.5 per cent. of the rents receivable by CDC from sub-sub-leases of the shops. The sub-lease contained the following irritancy clause:
"5. (i) PROVIDED ALWAYS AND IT IS HEREBY AGREED that these presents are made upon the express condition that if the rent or any other payment under this Lease or any part thereof shall be unpaid for twenty-one days after any of the days hereinbefore appointed for payment thereof whether the same shall have been lawfully demanded or not or if the Tenant while the leased premises or any part thereof remain vested in it shall be wound up compulsorily or voluntarily (except for reconstruction or amalgamation) or in the event of a receiver being appointed to any of the Tenant's property or in the case of an assignee of the Tenant not being a corporation shall become notour bankrupt or make any assignment for the benefit of his creditors or make any arrangement with his creditors for the liquidation of his debts by composition or otherwise or if the Tenant or its Subtenants or any other person deriving occupancy from it shall at any time fail to implement or shall contravene any of the conditions, provisions, restrictions and others herein contained then and in any of these events the Tenant shall forfeit all right and title under these presents and the Lease hereby granted and all transmissions and subleases thereof with all that has followed or can competently follow thereon shall become ipso facto void and null and that without the necessity of any declarator, process or removal or other procedure at law and the leased premises shall thereupon revert to the Landlord and it shall be lawful for the Landlord or any person or persons duly authorised by the Landlord in that behalf to enter upon he possession of the leased premises or any part thereof in name of the whole and to uplift rents, eject the Tenants Subtenants and occupiers and thereafter use, possess and enjoy the same free of all claims by the Tenant, Subtenants and others as if these presents had never been granted without prejudice to any right of action or remedy of the Landlord in respect of any antecedent breach by the Tenant, Subtenants and others of any of the conditions in this Lease which irritancy is hereby declared to be pactional and not penal and shall not be purgeable at the Bar; PROVIDED ALWAYS that this irritancy shall not be enforced in the case of any failure to implement or contravention of any of the conditions or obligations in this lease (including non-payment of rent or any other payments payable hereunder) until the Tenant has been given written notice of such failure or contravention and an opportunity to rectify such failure or contravention within a reasonable time which in the case of non-payment of rent or other payments shall be fourteen days from the service of such notice;…"
Thereafter CDC sold the town centre of Cumbernauld including their reversion under the head lease to the appellants for £10 million and by assignation dated 21 October 1987 assigned to the appellants their interest under the sub-lease. Your Lordships were informed that £2.2 million of the total of £10 million fell to be attributed to the value of CDC's interest under the sub-lease.
During 1988 the appellants' payments of quarterly rent were late and erratic. In July of that year...
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