Following on from our recent article in the case of Grove Investments Limited v. Cape Building Products Limited  CSIH 43 (read here), there have been two further recent cases which have also favoured the tenants’ interpretation of the lease in respect of dilapidations at lease expiry.
The most recent case, Mapeley Acquisition Co (3) Limited (In Receivership) v City of Edinburgh Council  CSOH 29 (full judgement available here) concerned property let to the City of Edinburgh Council at Chesser House in Edinburgh.
In this commercial action the landlord sought payment from the council of the sum of £8,062,006.91 on the basis that the tenant failed to discharge their repairing obligations under the lease and that on the expiry of the lease the premises were not in the state and condition they ought to have been had the tenant performed its obligations under the lease.
The main issue for consideration by the court was whether, on a proper construction of the lease, clause 3.37.2 entitled the landlord to payment of a sum equal to the cost of putting the premises into the relevant state of repair, regardless of whether or not it actually intends to carry out any such work.
The lease stated:
“...the Premises shall not be in such good and substantial repair and condition then at the option of the Landlord either (i) the Tenant shall carry out at its entire cost the works necessary to put the Premises into such repair and condition or (ii) the Tenant shall pay to the Landlord such reasonable sum as shall be certified by the Landlord’s Surveyors as being equal to the cost of carrying out such work..."
The tenant argued that the proper construction of clause 3.37.2 did not entitle the landlord to payment where the landlord had not undertaken and does not intend to undertake the works in question.
The landlord cautioned the court against following the position in Grove and sought to distinguish the case and instead argued that the provision contained in the lease was in addition to a right of common law damages. The landlord argued that; (a) it was irrelevant whether the works were to be carried out or not and (b) that there was no need for the landlord to prove his loss on the basis that the wording in the lease was clear.
Generally, where a provision within a contract (such as a lease) is capable of more than one meaning, the court should adopt that which best accords with commercial common sense.
In this case, Lord Doherty sided with the submissions of the tenant and stated that:
“The tenant’s construction… is consonant with the common law in that it does not enable the landlord to recover notional costs which it has not and will not incur. By contrast, the landlord’s construction…would be a radical departure from the landlord’s entitlement at common law.”
Whilst each case will ultimately turn on the precise wording contained within the lease, these three recent cases are definitely a win for the tenant. The recent spate of cases suggests a judicial trend to establishing loss which accords with the common law position.
It might be that we see landlords looking at different methods of calculating loss, such as diminution in value or indeed it might be that the landlord carries out the work and proceeds to raise proceedings having incurred crystallised losses.This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.