@sipp (pension Trustees) Limited Against Insight Travel Services Limited
| Jurisdiction | Scotland |
| Judge | Lord Tyre |
| Neutral Citation | [2014] CSOH 137 |
| Court | Court of Session |
| Published date | 04 September 2014 |
| Year | 2014 |
| Docket Number | CA148/12 |
| Date | 04 September 2014 |
OUTER HOUSE, COURT OF SESSION
[2014] CSOH 137
CA148/12
OPINION OF LORD TYRE
In the cause
@SIPP (PENSION TRUSTEES) LIMITED
Pursuer;
against
INSIGHT TRAVEL SERVICES LIMITED
Defender:
Pursuer: Reid QC, Brown; McClure Naismith LLP
Defender: Sandison QC; Brodies LLP
4 September 2014
Introduction
[1] The pursuer is the proprietor of a commercial building known as Gareloch House, Port Glasgow, having acquired it in 2007. The defender was formerly the tenant of the building under a lease that was granted by the pursuer’s predecessor in 2005, although the defender had been in occupation of the subjects under leases which had subsisted continuously since 1988. The 2005 lease was granted for a period of five years to 31 December 2009 and was renewed by tacit relocation until it came to an end on 31 May 2012, when the defender gave up possession. The pursuer avers that at the date of termination of the lease the subjects were not in good and substantial repair. The parties are in dispute as to the nature and extent of the tenant’s obligations in terms of the lease. The case came before me principally for debate of two issues of interpretation.
[2] The first issue is whether, on a proper construction of the lease, the defender’s obligation at termination is limited to putting the premises into the condition in which they were accepted by it at the commencement of the lease.
[3] The second issue is whether, on a proper construction of the lease, the pursuer is entitled to payment of a sum equal to the cost of putting the premises into the relevant state of repair, regardless of whether it actually intends to carry out any such work.
[4] The defender raised a number of other issues concerning the relevancy and specification of aspects of the pursuer’s claim. With one exception, the pursuer’s response was to invite me to issue my decision on the two principal issues debated, and to allow the pursuer time to consider whether, in the light of that decision, amendment was necessary with regard to any or all of the aspects challenged. I shall accede to that invitation. The exception was a challenge by the defender to the pursuer’s claim for interest at the judicial rate from 31 May 2012 until payment. I understood senior counsel for the pursuer to concede that the pursuer was entitled only to interest at the rate specified in the lease, both pre‑and post‑decree.
The relevant provisions of the lease
[5] The tenant’s obligations are set out in part III of a schedule annexed to the lease. So far as material, they include the following:
“(Three)
- To accept the leased subjects in their present condition and at their own cost and expense to repair and keep in good and substantial repair and maintained, paved, heated, aired and cleansed in every respect all to the satisfaction of the Landlord and to replace or renew or rebuild whenever necessary the leased subjects and all additions thereto and all drains, soil and other pipes, sewers, sanitary and water apparatus, glass, pavings, access roads, (other than public roads serving the leased Subjects) parking areas, walls, fences, railings, vaults, pavement lights, landscaped areas and parts, pertinents and others therein and thereon in at least as good condition as they are accepted by the Tenant all to the satisfaction of the Landlord and that regardless of the age or state of dilapidation of the buildings or others for the time being comprised in the leased subjects: Declaring however that there shall be excepted from the Tenant’s liability under this and the two following Clauses works for the repair of damage to the extent the reinstatement of the same is the Landlord’s responsibility under Clause 5 (One)(a) of the foregoing Lease.
- Without prejudice to the foregoing provisions of this Clause, to keep all lighting, heating, ventilation, security and drainage systems, all water supply, gas and other installations, all fire fighting equipment and all other machinery in or serving the leased subjects (including, without prejudice to the foregoing generality, electric wiring, gas and oil and other necessary pipes) in good working order, repair or condition to the satisfaction of the Landlord and, from time to time, when requisite or when reasonably required by the Landlord, to replace the same or any of them by suitable articles or equipment of similar and modern kind, all to the satisfaction of the Landlord.
…
(Seven) At the expiry or sooner termination of the foregoing Lease and subject to the Tenant carrying out, to the satisfaction of the Landlord, all restoration works called for by the Landlord in terms of Clause (Twelve) of this Part of this Schedule quietly and without any warning away or other process of law notwithstanding any law or practice to the contrary to surrender to the Landlord the leased subjects together with all additions and improvements made thereto and all fixtures (other than trade or tenants’ fixtures affixed by the Tenant or any sub-tenant which shall be removed by the Tenant) in or upon the leased subjects or which during the currency of the foregoing lease may have been affixed or fastened to or upon the same that in such state and condition as shall in all respects be consistent with a full and due performance by the Tenant of the obligations herein contained. Without prejudice to the foregoing generality at his own cost and expense to repair and make good to the satisfaction of the Landlord all damage including damage to paint work caused by the removal of trade or tenant’s fixtures affixed to the leased subjects by the tenant or any sub-tenant: Provided Always that if the Landlord shall so desire at the expiry or sooner termination of the foregoing Lease they may call upon the Tenant, by notice in writing (in which event the Tenant shall be bound), to pay to the Landlord at the determination date (with interest thereon as provided in Clause (One) (b) hereof), a sum equal to the amount required to put the leased subjects into good and substantial repair and in good decorative condition in accordance with the obligations and conditions on the part of the Tenant herein contained in lieu of requiring the Tenant himself to carry out the work.”
The pursuer’s claim and the defender’s response
[6] The pursuer has produced a schedule of dilapidations listing the works which it considers are required to put the subjects into good and substantial repair and good decorative condition. The total estimated cost of these works, inclusive of professional fees, is £1,051,086.25 plus VAT. The pursuer claims to be entitled, in terms of the proviso at the end of clause seven above, to payment of this sum. The defender avers that if it had carried out works which it accepts ought to have been carried out before the termination date, the capital value of the subjects would have increased by £75,000, and that, even if it had carried out all of the works in the schedule of dilapidations, the capital value would only have increased by £175,000. The defender avers that no reasonable landlord would carry out these works and that it is believed and averred that the pursuer does not intend to do so. The pursuer’s claim should accordingly be quantified by reference to diminution in capital value and not the cost of carrying out the works. I understand that, in financial terms, the second of the two issues identified above accounts for most of the difference between the parties; the first issue gives rise to a relatively modest difference of around £8,000.
The first issue: relevance of condition at time of acceptance
Argument for pursuer (landlord)
[7] The lease fell to be interpreted in accordance with the modern approach to construction of commercial contracts. The test was what the reasonable objective person, aware of the context, would have understood the parties to the lease to have meant by the language they used (Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, Lord Clarke of Stone‑cum-Ebony at paragraph 14). The only relevant aspect of the factual matrix was that the lease was the last in a line dating back to 1988. It required to be read as a whole and content given, so far as possible, to all of its provisions. As the exercise depended upon the words used in a particular lease, analysis in other cases might be of little assistance. Clause three (b) was unambiguous: it imposed an objective standard – good working order, repair or condition – but with an ostensibly subjective qualification that the condition must be to the landlord’s satisfaction, although there was an implied obligation of reasonableness on the part of the landlord. There was no reference in this sub‑clause to actual condition at the date of commencement of the lease and nothing to tie the repairing obligation to such condition. Clause three (a) was more ambiguous. The reference to the subjects being replaced, renewed or rebuilt in at least as good a condition as they were accepted did not sit easily with the remainder of the clause which imposed clear and familiar obligations to repair and to keep in good and substantial repair and maintained etc in every respect to the landlord’s satisfaction. All of the other elements of the clause, however, were internally consistent with one another, with clause three (b), and with other clauses in the lease. The words “regardless of the age or state of dilapidation…” connoted, in isolation, an express disregard of the condition of the subjects at the commencement date and had the effect of making the tenant liable for works which would be extraordinary repairs according to Scots common law. Inclusion of the words “in at least as good a condition as they are accepted by the Tenant” did not compel a different conclusion. If they connoted an obligation only to keep the subjects in their state of repair at commencement of the lease, the words “good and substantial repair” were rendered otiose. There would be no purpose in requiring works to...
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