A commercial judge in an action by a landlord against their business tenant seeking damages worth over £12 million after the property was allegedly left in a bad state of repair has ruled that a clause in the schedule to the lease allowing the tenant to pay the landlord a certified sum instead of carrying out repairs themselves was the sole remedy available to the landlord.
HFD Glasgow 3 Ltd let premises in Bothwell Street, Glasgow, to The Student Loans Company until December 2023, and in addition to the certified sum of £9.143m it sought loss of rent during the period the property was unlettable, insurance costs, and other associated charges. The defender argued that the effect of the relevant paragraph of the schedule was that payment of the certified sum excluded the other heads of damages based on the construction of the clause.
The case was heard by Lord Lake in the Outer House of the Court of Session, with Walker KC and Horn, advocate, appearing for the pursuer and Garrity, advocate for the defender.
Wiping the slate clean
Under paragraph 12 of the schedule to the lease, the tenant was obliged to leave the premises in such state and condition as was consistent with “a diligent performance” by the tenant of the obligations of repair and maintenance contained in the lease. In the event that this was not done, it was stated that the landlord’s “sole remedy” was to require the tenant to pay a sum certified by a surveyor as being equal to the cost of carrying out such work as to put the premises into a state consistent with the diligent performance of the tenant’s obligations.
In its first conclusion, the pursuer sought payment of £9.143m in terms of the cost of implementing the payment obligation under the lease. In addition, it sought just over £3m for loss of rent during the period the property was unmarketable, insurance costs, rates, and legal fees, representing damages for breach of lease obligations and indemnity for the landlord for enforcing other terms of the lease.
The defender submitted that payment of the sums certified under paragraph 12 was the sole remedy available to the landlord in terms of the lease, to the exclusion of other heads of claim. This interpretation made commercial sense as it meant that the parties would be aware of their rights and obligations at the end of the lease in a way that was straightforward and could avoid litigation. Wiping the slate clean of breaches prior to the end of the lease was the whole purpose of the clause.
For the pursuer it was submitted that the obligation in paragraph 12 was an additional and separate obligation over and above the clauses of the lease. The wording in paragraph 12 was not sufficiently wide and sufficiently clear to exclude accrued liabilities under these other clauses. The wording of paragraph 12 makes it clear that it is in satisfaction only of “the work referred to in this proviso”.
Single aggregate remedy
In his decision, Lord Lake began by considering the ordinary meaning of paragraph 12: “The description of the obligation to pay the sums certified by surveyors as ‘the only remedy’ is easily understood. It means that this is the sole means by which the landlord may obtain payment/relief due. The question is then, for what is it the sole remedy? The closing words of the paragraph refer to it as being the tenant’s liability ‘quoad the work referred to in this proviso’.”
He continued: “Reading paragraph 12 in isolation, the payment of the certified sum is in lieu of carrying out work to put the premises in the stipulated condition. It therefore excludes only liability that may exist for prior breaches of other provisions of the lease and Part 4 of the Schedule which have contributed to the premises not being in that condition.”
Noting that it was accepted that the tenant was in breach of the lease, Lord Lake said: “The parties have therefore agreed in paragraph 12 the measure of loss for the breach and how it is to be quantified. Understood in that way, it is not an exclusion clause. It does not exclude a liability. It records an agreement as to how a liability is to be quantified and ascertained. At the end of the lease term, the condition of the premises will reflect all prior breaches of the tenant’s obligations. Paragraph 12 does not make the earlier breaches disappear, it provides a single aggregate remedy for them.”
He concluded: “While it was correct for the pursuer to say that parties would not know what the tenant’s liability would be at the end of the lease, they would have been aware it might well be an issue and, as a matter of providing certainty and avoiding litigation, it is understandable that both parties would want a simple procedure to determine that liability when the time came. I consider that that is what they have done in the lease. At the end of the term of the lease, the various obligations to clean, to paint, to keep in good and working order, to repair any anything else that relates to the condition of the premises is aggregated into an obligation to hand over the premises in a state consistent with all the obligations having been performed. That simplifies the position.”
Having accepted the defender’s position, the case was thereafter put out by order to consider how this decision may be applied.