Commercial property tenant’s rights in lease with landlord ended on dissolution, judges rule

Alan Love, the owner of Prestwick Hotels Limited (PHL), claimed that the lease with the landlords “continued as if there had been no interruption” as the company was later restored to the register.

However, judges in the Inner House of the Court of Session upheld a decision of the Sheriff Principal, who allowed an appeal by the landlords that the lease ended when the company was dissolved.

Lady Paton, Lady Smith and Sheriff Principal Stephen QC heard that PHL had a tenancy of the fifth floor of 166 Buchanan Street, Glasgow, in terms of a lease between PHL and the pursuers ELB Securities Limited.

But PHL was struck off the Companies Register and dissolved on 14 June 2013 as a result of its failure to comply with statutory obligations, including a failure to lodge company accounts over a six‑year period.

On 13 August 2013 the landlords raised an action in Glasgow Sheriff Court against the defenders PHL and a director Alan Love, seeking their removal from the fifth floor.

In September 2013 Mr Love petitioned Hamilton Sheriff Court to have PHL restored to the register.

It was averred that there had been administrative oversight; accounts would be prepared and produced; PHL was solvent, carrying on business, and wished to continue leasing the fifth floor despite the landlords’ action of declarator and removing.

The plea-in-law stated that, in the circumstances, it was “just and proper” that PHL should be restored to the register.

On 3 October 2013 the sheriff at Hamilton restored PHL to the register, issuing an interlocutor in the following terms: “The sheriff … orders that the name of the company Prestwick Hotels Limited be restored to the Register of Companies in terms of section 1031(1) of the Companies Act 2006 on the grounds that it is just and proper in the circumstances narrated and restores the company to the same position as if it had not been struck off …”

Thereafter, in their defence to the action for declarator and removing in Glasgow Sheriff Court, the defenders submitted that PHL having been restored to the register, the lease between PHL and the landlords continued as if there had been no interruption.

But the landlords’ contention was that, as a consequence of PHL’s dissolution and a notice of disclaimer issued by the Queen’s and Lord Treasurer’s Remembrancer (QLTR) dated 15 July 2013, the lease with PHL had come to an end on 15 July 2013 in terms of the Companies Act 2006.

After a debate in Glasgow Sheriff Court, Sheriff Crozier found in favour of the defenders and by interlocutor dated 4 April 2014 he dismissed the action for declarator and removing as irrelevant.

The landlords appealed to the Sheriff Principal, Craig Scott QC, who allowed the appeal, recalled the sheriff’s interlocutor, and granted decree de plano for declarator that PHL was dissolved on 14 June 2013 and that the lease was at an end; and for removal of the defenders from the premises.

The defenders appealed to the Court of Session, but the judges were not persuaded that the Sheriff Principal had erred and agreed with his observation that the construction contended for by the defenders would lead to “uncertainty and confusion in the commercial world”.

The court ruled that on the company’s dissolution, all its rights in the property were “brought to an end”.

Delivering the opinion of the court, Lady Paton said: “If the statutory scheme is applied in the present case, it can be seen that PHL was dissolved and struck off the register on 14 June 2013. On that date, its rights in the lease vested in the Crown as bona vacantia. However the Crown (the QLTR) issued a disclaimer on 15 July 2013. The effects of the disclaimer were first, that PHL’s rights in the lease terminated as from the date of the disclaimer (15 July 2013); and secondly, that any rights in the lease were deemed not to have vested in the Crown as bona vacantia.

“Accordingly PHL’s ‘rights, interests and liabilities’ in the lease, and the ‘property of the company’ in the lease came to an end on 15 July 2013 (section 1020(1)). In terms of sections 1021 and 1022 a court could, on an application by an interested party, make an order vesting the lease in any person ‘entitled to it’ or ‘to whom it may seem just that the should be delivered by way of compensation for ’. In the course of the debate before us it was not suggested, in our view correctly, that PHL qualifies in terms of these sections.

“Thus on a proper construction of the 2006 Act, ‘the general effect’ of the restoration of the company as provided for by section 1032, namely ‘that the company is deemed to have continued in existence as if it had not been dissolved or struck off the register’, merely provides for the general approach which is to be adopted in such circumstances; but that general approach must give way to the specific and detailed provisions concerning the company’s property as set out in sections 1012 to 1014 and 1020 to 1022. As a result, therefore, we consider that PHL’s rights in the lease came to an end on 15 July 2013.”