First Scottish Case Allowing Lease Termination For Dilapidations

A three-judge appeal court

in Edinburgh has issued an important commercial leasing decision on landlords'

options to terminate leases. At issue were two competing rights: the right of a

landlord to terminate by irritancy (forfeiture) based on the tenant's failure

to keep the property in good condition; versus the right of a tenant to put

matters right and be allowed to stay on. The court decided that once the

landlord had terminated the lease, there was no going back for the tenant even

if subsequently remedying the breach.

The Facts

Mr and Mrs Maris were in

partnership as hoteliers of the Tor-na-Coille Hotel, Banchory. The hotel

buildings and grounds were partnership property.

In 1979, the Banchory

Squash Racquets Club Ltd had been granted a 99-year lease of part of the hotel

grounds, for the purpose of building and operating their club. Hotel guests

were to be permitted to use the facilities on the same basis as members. Under

the lease, the tenant was responsible for maintaining the facilities in good

order.

By 2003, the facilities had

deteriorated. Mr and Mrs Maris had a 'schedule of dilapidations or wants of

repair' prepared. The squash club was given 3 months to do the work specified

in the schedule, failing which lease termination (irritancy) would follow.

The work was not done so

the landlord terminated the lease.

The Reasonable Landlord

Test

The squash club sought to

rely on section 5 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. This provides that a landlord under a commercial lease may not

terminate the lease where a reasonable landlord would not do so.

A relevant consideration is

whether the tenant has been given a reasonable opportunity to remedy the

breach.

The Decision

The squash club were in

material breach of the repairing obligation at the expiry of the 3-month

period, which had been a reasonable period in which to carry out the works.

A fair and reasonable

landlord may well have relied on the breach to terminate the lease. The lease

termination was therefore valid.

Sting in the Tail

The repairs were actually

completed during the course of the court action, after a third party donated

funds to the squash club to cover the cost.

The squash club appealed

the case and argued that the 'fair and reasonable landlord' test should have

been applied to the circumstances at the conclusion of the action (by which

time the repairs had been completed) rather than the expiry of the 3-month

period. This approach had...