Outer House finds commercial landlord entitled to payment for repair costs following termination of lease

Coal Pension Properties Ltd let the premises in Westhill to Technip UK Ltd until July 2018. It argued that the provisions of the lease required the defender to reimburse them for the cost of work required to put the property in the state of repair it was at the beginning of the lease.

The case was heard by Lord Tyre. The pursuer was represented by Barne QC and the defender by P O’Brien QC.

Overly literal interpretation

Clause 6.1.1. of the lease required the defender to keep the property in good and substantial repair and condition throughout the term. At the end of the lease, Clause 17.1 allowed the landlord to either have the tenant carry out necessary repair work to the property at their own cost, or to pay to it a “reasonable sum certified by the Landlord’s surveyor” if the landlord chose carry out work themselves to put the property back into the required condition following the tenant’s vacation.

Following the termination of the lease, the pursuer served a terminal schedule of dilapidations on the defender and intimated that it was electing to claim payment to carry out the work itself as opposed to requiring the defender to do it. The defender did not accept that the sum claimed by the pursuer was reasonable and claimed that the sum did not reflect a correct understanding of the work it would have been required to carry out.

An estimate issued by the pursuer in March 2020 totalled the necessary costs at £380,207.27 for the works in accordance with the repairing obligations and well as £214.219.70 for loss of rent costs arising from the need to carry out the works. The pursuer sought decree for payment in these amounts, in addition to surveyor’s fees and the costs incurred in preparing and serving the notices and schedules of dilapidation, with interest.

It was argued by the defender that no valid demand for payment had been made. The certificate was defective as it purported to certify both the cost of required works and the lost rent claim. It was submitted that the pursuer’s interpretation of the contract was overly literal and did not accord with common commercial sense, with the tenant being unable to argue that an item of work was overpriced or that it should not be included at all.

It was submitted for the pursuer that a valid demand for payment had been made. It was accepted that the lease itself did not provide for certification of lost rent but the wording of the certificate, properly construed, both certified the remedial works and provided the defender with other requisite information. On a proper construction of the relevant parts of the contract, the certification was binding.

Speedy resolution

In his opinion, Lord Tyre first addressed whether there had been a valid demand for payment, saying: “It is unfortunate that the pursuer’s solicitors’ letter of demand dated 11 March 2020 was not drafted with more careful attention to the terms of clause 17.1. The demand was clearly disconform to the pursuer’s entitlement under that clause, in that it failed to allow for the defender’s right under clause 17.1.5 to discharge its entire liability under the clause by making payment within 20 days of the amount certified by the landlord’s surveyor as being equal to the cost of the repair works.”

However, he went on to say: “Although the terms of the certificate are also open to criticism in that it bears to certify not only the amount of the repair costs but also a further sum consisting of lost rent and reasonable fees, for which additional certification no provision was made in the lease, the first two lines (ie to the words ‘in accordance with the Tenant’s repairing obligations’) contain a clear and unequivocal certification in the terms required by clause 17.1.2(b).”

Turning to whether the certification could include lost rent, he said: “[Per Clause 17.1.2(b)] any liability for lost rent can be discharged by making payment of the sum certified for repair works within 20 days. This incentive would make no commercial sense if disputes as to what works were required were excluded from the scope of the surveyor’s certification and reserved for determination by the court.”

He continued: “The quid pro quo of that benefit is that the tenant will forego any entitlement to dispute either the ‘reasonable sum’ certified by the landlord’s surveyor for repair costs or the sum claimed by way of reasonable fees. In my opinion this is the appropriate purposive approach to interpretation of the clause, giving effect to the parties’ objective of achieving a speedy end to any argument about the tenant’s liability in relation to the condition of repair of the property at the end of the lease.”

Addressing whether the sum certified was binding on the parties, Lord Tyre said: “I agree with the pursuer’s submission that the certificate would otherwise, in the circumstances of this case, serve no purpose. It is the certification that creates the landlord’s entitlement to payment and the tenant’s obligation to pay. This is not a case in which the obligation subsisted independently of the certification; having opted for clause 17.1.2(b), the pursuer’s entitlement rested upon the certification by its surveyor of a reasonable sum.”

He concluded: “In clause 17.1.2(b) the words ‘sum’ and ‘cost’ appear in the singular. This seems to me to confirm that the parties did not envisage that the sum certified would be open to dissection with a view to identifying components with which one or other party disagreed. Again that would defeat the contractual purpose of speedy resolution to the benefit of both parties.”

For these reasons, Lord Tyre found that the pursuer was entitled to decree for payment in respect of the certified sum. The case was put out by order for further discussion of the sums due for surveyor’s fees and lost rent.