Judge tells landlord to resolve dispute with tenant over derelict building ‘without further court procedure’

The owners of an industrial site who raised an action for interdict to prevent a tenant from demolishing a derelict building have been told by a Court of Session judge to resolve their dispute without further court procedure.

Lord Tyre heard that the pursuers Richard Malin and others are the owners of a four-acre site at the Houstoun Industrial Estate in Livingston and the defender Crown Aerosols UK Limited is the tenant, pursuant to a lease granted to it in 1977 by Livingston Development Corporation (LDC), the pursuers’ predecessor in title.

At the time when the lease was granted, an industrial building constructed in 1972 by LDC stood on the site, but the building had been lying empty since about 2011 when it was vacated by a sub-tenant and its condition deteriorated.

The landlord claimed the condition of the building deteriorated because the tenant failed to fulfil its maintenance obligations, but the tenant averred that the building was “past its economic lifespan” and was “obsolete” in respect of the tenant’s business.

The tenant intimated to the landlord its intention to demolish the building and, thereafter, to produce proposals for re-development of the site for the landlord’s approval.

The principal issue in the case was whether the tenant had a right in terms of the lease to demolish the building - the tenant contended that it did, but the landlord contended that it did not.

The tenant’s fall-back argument was that even if it did not have an absolute right to demolish the building, the circumstances rendered erection of a new building “necessary”, with the consequence that demolition of the existing building was also “necessary.

The landlord sought interdict against the tenant from demolishing the building in whole or in part, but the judge decided not to grant the interdict or dismiss the action after observing that the primary positions adopted by the parties were both “misconceived”.

In a written opinion, Lord Tyre said: “On the one hand, I reject the landlord’s argument that the parties to the lease envisaged that the building erected on the site at the time when the lease was entered into would remain in existence and maintained in good order for at least 90 years, unless destroyed by an external event such as fire.

“There is no justification in the terms of the lease for attaching such importance to that particular building. Nor is there any commercial justification for restricting references to “re-erection” to circumstances in which the building is destroyed by an external cause.

“On the other hand, I reject also the tenant’s contention that an absolute right to demolish can be read into the lease…If the tenant was at liberty to demolish before beginning to discuss with the landlord the question of consent to re-erection, there could be considerable practical difficulties in the event that the tenant failed, for whatever reason, to present a reasonable proposal for the landlord’s approval.”

The judge held that the “proper interpretation” of the lease accorded more closely with the parties’ respective fall-back positions which were “not very far apart from one another”.

He continued: “The key issue, in my view, is the scope to be attributed to the words ‘when necessary’ in clause sixth. I accept the tenant’s alternative submission that there may be circumstances where re-erection of a building is ‘necessary’ even though an existing building is still standing on the site.

“These might include (i) where the existing building is obsolete and unsuitable for any reasonable use, regardless of cost of repair; or (ii) where the cost of repair is excessive in relation to what it would cost to demolish and rebuild premises similar to the existing building.

“In each of these cases (and I note that the tenant offers to prove in the present case that both of those descriptions apply), I consider that it is in accordance with commercial common sense to describe re-erection as ‘necessary’. It must follow, as a matter of practicality, that demolition of the existing obsolete and/or uneconomic building is also ‘necessary’ in order to allow re-erection to proceed.”

Lord Tyre accepted that the landlord’s approval was required not only of the detailed plans for re-development but also of the demolition that precedes re-erection.

He explained: “It must be open to the landlord reasonably to withhold approval of a proposed re-development plan on the ground that the landlord is not satisfied that it is necessary – in the sense that I have construed that word – for the existing building to be demolished and replaced at all.

“That would not, however, entitle the landlord to withhold approval merely on the ground that the need for replacement has arisen as a consequence of breach of the tenant’s obligation to maintain.”

Lord Tyre added: “In the light of my conclusion, it is not appropriate at this stage either to grant decree for interdict as concluded for or to dismiss the action. If parties are not agreed on whether demolition of the existing building and erection of a new building is ‘necessary’, then proof may be required.

“I would, however, express the hope that the foregoing opinion affords sufficient guidance to enable the dispute to be resolved without further substantive court procedure.”