Pursuers and respondents: Logan; Balfour and Manson LLP

Defenders and reclaimers: Lindsay QC; Ledingham Chalmers LLP

7^th November 2012

Background and issues
[1] Contractual arrangements between the parties relating to the occupation by the reclaimers of premises at One/Three South Wardpark Place, Wardpark South Industrial Estate, Cumbernauld were regulated by a number of documents. In June 2007 the respondents acquired the tenant's interest in a lease ("head‑lease") of the premises. The premises had been sub‑let to the reclaimers. The respondents thus acquired the role of landlord or mid‑landlord in the sub‑lease to the reclaimers. The sub‑lease was originally due to expire in February 2008 but was continued by a minute of variation of lease so that the expiry date was postponed until 18 February 2009. On 30 December 1998 the respondents' predecessor as mid‑landlord entered into a minute of agreement with the reclaimers which regulated the terms on which the mid‑landlord consented to the carrying out of certain works to the premises by the reclaimers under the sub‑lease.

[2] These proceedings relate to the obligations upon the reclaimers in relation to dismantling and removing the works authorised in the minute of agreement and reinstating the premises on the expiry of the sub‑lease. The first issue is whether oral notice by the respondents requiring the reclaimers to reinstate the subjects was sufficient to trigger the reclaimers' obligation to reinstate. In the event that that is determined against the respondents, there is a second issue as to whether the reclaimers failed to comply in certain respects with a general maintenance, repairing and renewal obligation under the sub‑lease.

Form of notice required
[3] We turn now to address the first issue. In addition to prescribing the obligations of the reclaimers in relation to the alterations to the subjects to which it related, the minute contained the following provisions:

"5. Obligations of Tenant Incorporated into Lease
That during the execution of the Works and when the same shall have been completed all the undertakings and obligations on the part of the Sub‑Tenant herein contained shall be deemed to be incorporated in the Sub‑Lease and the power of irritancy contained in the Sub‑Lease shall be construed and have effect accordingly.

...

7. The Lease
Excepting so far as amended hereby the parties ratify and confirm the whole terms of the Sub‑Lease."

The obligation upon the appellants to reinstate the subjects at the end of the sub‑lease was set out in clause 2.5 of the minute of agreement as follows:

"2. The Sub‑Tenant's Obligations

...

2.5 By the expiration and sooner determination of the period of the Sub‑Lease (or as soon as the licence hereby granted shall become void) if so required by the Mid‑Landlord and at the cost of the Sub‑Tenant to dismantle and remove the Works and to reinstate and make good the Premises and to restore it to its appearance at the date of entry under the Sub‑Lease, such reinstatement to be carried out on the same terms (mutatis mutandis) as are stipulated in this Licence with respect to the carrying out of the Works in the first place (including as to consent, the manner of carrying out works, reinstatement, inspection, indemnity, costs and otherwise)."

To establish how effect was to be given to the condition that reinstatement depended upon the sub‑tenant being "so required" by the mid‑landlord requires reference to both the sub‑lease and the head‑lease.

[4] Clause 13 of the sub‑lease was as follows:

"13. Notices

The provisions for notices contained in Clause 5.8 of the Lease shall apply also under the Sub‑Lease as if 'the Mid‑Landlord' had been substituted for 'the Landlord' and 'the Sub‑Tenant' had been substituted for 'the Tenant'."

Clause 5.8 of the head‑ lease was as follows:

"Notices:

5.8

Any notice, request, demand or consent shall be in writing."

Clause 5.8 went on to specify what in various circumstances would amount to sufficient service and sufficient proof of service of a notice.

[5] It was conceded by counsel for the respondents, appropriately in our opinion, that intimation by the respondents that they required reinstatement in terms of the minute of agreement had to be given before expiry of the sub‑lease. It was also a matter of concession that the only indication given by the respondents that might be construed as a requirement had been given orally. The Temporary Lord Ordinary concluded that an oral requirement was sufficient. She decided that, unless the minute of agreement provided for a specific amendment to or departure from the terms of the sub‑lease, the general provisions of the sub‑lease continued to regulate the relationship between the parties. It followed, in her opinion, that, if a notice required to be served in terms of the minute of agreement, it might well be that the notice provisions of the head‑lease, incorporated into the sub‑lease, would apply. She then decided that clause 2.5 of the minute of agreement did not specify the means by which the appellants could be required to remove the works because it made no mention of a notice. She concluded her judgment on this issue in these terms:

"[19] In my opinion, it cannot be said to be a mandatory term of the minute of agreement that the mid‑landlords convey in writing to the sub‑tenants the requirement to remove the works unless it can be implied that service of some form of notice or request is part of that term. If written notification of the type envisaged in clause 5.8 of the head‑lease cannot be so implied, then clause 2.5 would seem to me to permit the pursuers to offer to prove that they required the defenders to remove the work by conveying that to them orally. I note in this context that the notice provision in clause 5.8 of the head‑lease contains no general words suggesting that any communications between the relevant parties required to be in writing. In accordance with the maxim expressio unius est exclusio alterius intimation that does not require to be by notice, request, demand or consent does not on the face of it require to be in writing because only those specified types of intimation fall within the specific wording of clause 5.8.

[20] It seems to me that the defenders' argument is predicated upon a notice being necessary for the purposes of clause 2.5. However, there is nothing in that provisions of the minute of agreement to support the contention that something formal was necessary before the sub‑tenants can be required to remove the works. For that reason I do not accept the submission that the notice provisions of the lease automatically apply to the 'if so required' provision of clause 2.5."

[6] It was the submission of Mr Lindsay QC for the reclaimers that the Temporary Lord Ordinary had erred in concluding that written notice was not required. The minute of agreement amended the sub‑lease to enable alterations to be made, but also ratified the provisions of the sub‑lease, including clause 13, which in turn incorporated the notice provisions in clause 5.8 of the head‑lease. That clause applied to "Any notice, request, demand or consent" which language plainly encompassed a "requirement". The Temporary Lord Ordinary had erred by confining her attention exclusively to the expression "notice" to the exclusion of consideration of the other expressions which gave the clause very wide-ranging scope not confined to formal notices. Anything falling within the ambit of the words "notice", "request", "demand" or "consent" required to be in writing.

[7] In response Mr Logan, counsel for the respondents, submitted that the minute of agreement should be read as a free‑standing contract, which was essentially unilateral, in that it imposed obligations almost exclusively on the respondents. It was not affected by the provisions of the sub-lease except to the extent that they were expressly incorporated into it. Clause 7 did not have the effect of incorporating the written intimation requirements of the head‑lease into the minute of agreement. The minute of agreement included provision (clause 2.1.2) for "written acknowledgement" that licences, consents and permission were satisfactory to the mid‑landlord. As a free‑standing contract the terms of the minute required to be construed in accordance with the ordinary meaning of the language used. "Required" did not presuppose the need for writing or any other formality - see Multi Link Leisure Developments Limited v North Lanarkshire Council [2011] UKSC 57, 2011 SC (UKSC) 57 and in particular the judgment of Lord Hope at paragraph 11. Reinstatement could be "required" in a variety of ways including by oral telephone conversation.

[8] While the detailed provisions of the minute of agreement concentrated largely on the obligations of the reclaimers in relation to the particular alterations to the subjects authorised thereby, the minute was clearly drawn as an agreement between the parties as mid-landlord and tenant in their sub-lease. In our opinion the combined effect of clauses 5 and 7 was to incorporate the minute of agreement into the sub-lease and confirm the terms of the sub-lease to be applicable to the minute and as a result to the arrangements regulating the alterations to the subjects and their ultimate reinstatement.

[9] We agree with the submission of Mr Lindsay that the Temporary Lord Ordinary appears to have failed to take account of the range of expressions used in clause 5.8 of the head‑lease to define the forms of intimation which must be in writing. She confined her attention to the first expression "notice" to the exclusion of an adequate consideration of the import of the others. We are in no doubt that a provision requiring written intimation drawn in such wide terms encompasses a "requirement".

[10] Had the Temporary Lord Ordinary reached that conclusion, then she would have found for the reclaimers on this issue, since she determined that the general provisions of the sub‑lease, including clause 13, regulated the relationship between the parties and applied to the matters dealt with in the minute of agreement except in so far as that document provided for specific amendment to, or departure from, the terms of the sub‑lease. We agree with the Temporary Lord Ordinary on that. In our opinion, the effect of clause 13 of the sub‑lease was to incorporate into the minute of agreement clause 5.8 of the head‑lease. It follows that in the absence of written notice before the expiry of the sub‑lease there was no obligation upon the reclaimers in terms of clause 2.5 of the minute of agreement to dismantle and remove the works and to reinstate the subjects.

Sufficiency of averments of a requirement to reinstate
[11] As the respondents' pleadings stood at the outset of the procedure roll debate before the Temporary Lord Ordinary, there were no averments whatsoever in terms of which they offered to prove that they had required reinstatement of the premises prior to the expiry of the sub‑lease. Counsel for the respondents moved to amend their averments in terms of a minute drafted and tendered in the course of the hearing. Counsel for the reclaimers opposed amendment but, probably ill advisedly, did not seek an opportunity to answer the minute. The Temporary Lord Ordinary allowed amendment of the respondents' pleadings in terms of the minute.

[12] The minute narrated a telephone conversation prior to the termination of the sub‑lease, in which a chartered surveyor, instructed by the respondents to prepare a "schedule of dilapidations" in respect of the works to be undertaken in terms of clause 2.5 of the minute of agreement, obtained confirmation from a named employee of the reclaimers that the reclaimers were intending to depart from the premises in February 2009. The amendment continued as follows:

"He (the surveyor) then advised that they would therefore require access to prepare a schedule of dilapidations and that the pursuers would be requiring reinstatement of the premises to their original condition. She advised that she would facilitate access."

The Temporary Lord Ordinary decided that these averments were "just sufficient" to entitle the respondents to a proof before answer on the question whether or not they conveyed to the reclaimers, in terms of clause 2.5 prior to the expiry of the sub‑lease, a requirement to dismantle the works. The Temporary Lord Ordinary accepted that intimation would require to be clear and unambiguous and that the specific terms thereof would require to be proved.

[13] In light of the decision that we have reached on the need for a "requirement" to made in writing, this question no longer arises for determination by us. However, we think it appropriate to observe that there does appear to be force in the submission of Mr Lindsay that the amended pleadings are so lacking in specification, about the authority of those making and receiving the "requirement" and the terms of the requirement and its relationship to the provisions of the minute of agreement, as to render the case that an oral requirement in terms of clause 2.5 was made irrelevant.

General obligation of maintenance, repair and renewal
[14] To guard against the contingency that the first issue would be decided against them, a contingency realised in terms of our decision on that issue, the respondents also had an alternative, or esto, case that the reclaimers were in any event obliged by clause 5.1 of the sub‑lease to fulfil the maintenance, repairing and renewal obligations of the respondents as mid‑landlords in terms of the head‑lease. They relied on the provisions of clauses 5.3.1 and 5.3.2 of the sub‑lease as demonstrating that this obligation survived the termination of the sub‑lease.

[15] The maintenance, repairing and renewal obligations were specified at clause 3.12 of the head‑lease in the following terms:

"At all times throughout the Period of this Lease at the Tenant's expense well and substantially to repair, maintain and where necessary to renew, rebuild and reinstate and generally in all respects keep in good and tenantable condition the Premises..."

The relevant provisions of the sub‑lease referred to above were these:

"5. Sub‑Tenant's Further Obligations

The Sub‑Tenant also undertakes with the Mid‑Landlord and binds and obliges its successors and assignees whom so ever throughout the Period of the Sub‑Lease as follows:-

5.1 Fulfilment of Mid‑Landlords obligations;

save insofar as inconsistent with the express terms of the Sub‑Lease to fulfil, perform and observe to the relief of the Mid‑Landlord the obligations and restrictions of a non‑monetary nature undertaken by or imposed upon the Mid‑Landlord under the Lease so far as they relate to the Premises and as if references in the Lease to 'the Premises' were reference to the Premises as defined in the Sub‑Lease and that in accordance with the terms of the Lease;

...

5.3 Expenses:

to reimburse to the Mid‑Landlord all proper and reasonable costs and expenses incurred by the Mid‑Landlord:-

5.3.1 incidental to the preparation and service of all notices and schedules relating to deficiencies in repair or requiring the Sub‑Tenant to remedy the breach of any of its obligations under the Sub‑Lease whether the same be served before or after the Date of Expiry;

5.3.2 in the preparation and service of a schedule of dilapidations at any time before or after the Date of Expiry:

5.3.3 in procuring the remedy of any breach of any obligation on the part of the Sub‑Tenant under the Sub‑Lease."

Relying on these provisions the respondents, in the alternative to the principal claim, sought payment of the cost of repairing, reinstating and making good the subjects in respect of those matters that fell within the ambit of clause 3.12 of the head‑lease and clause 5 of the sub‑lease.

[16] Mr Lindsay for the reclaimers submitted that no relevant case in support of the respondents' seventh plea in law for payment of the cost of that work had been made. The obligation in clause 5.1 of the sub‑lease was to relieve the respondents of their obligations and restrictions of a non‑monetary nature under the head‑lease so far as they related to the premises of the sub‑lease. There was no averment that during the currency of the sub‑lease any indication had been given to the reclaimers by the respondents of the need for any work to be done in terms of the reclaimers' relieving obligation. Only then could an obligation to execute works arise and be enforceable by an action for implement or alternatively damages. All that the respondents had pled was a vague claim for payment of the cost of works set out in a schedule sent to the reclaimers following the expiry of the sub‑lease. Reference was also made to clauses 3.14 and 3.15 of the head‑lease, requiring regular decoration of the subjects externally once every three years and internally once every five years during the period of the head‑lease, and also in each case during the last year of the period of that lease. There was nothing to indicate that these periods coincided with the expiry of the sub‑lease and could give rise to any obligation on the part of the reclaimers.

[17] In his response Mr Logan maintained that the reclaimers' obligation depended upon the facts about which evidence should be allowed. In particular clause 3.12 of the head‑lease imposed a general obligation of maintenance, repair and renewal throughout the term of the head‑lease which therefore included the term of the sub‑lease. The relevancy of the claim for the cost of remedial work, including painting, in the alternative claim depended on evidence showing that there were deficiencies in compliance with the obligation to keep the subjects in substantial repair and in good and tenantable condition in terms of clause 3.12 of the head‑lease.

[18] It is regrettable that the Temporary Lord Ordinary has not addressed these arguments in her opinion. Having decided that a proof before answer should be allowed in respect of the first issue, and noting that some of the matters relating to the schedule of works would require to be spoken to in evidence, she decided that the issue of the extent of any obligation on the reclaimers on this alternative basis would best be answered following proof. We do not agree. In our opinion the esto case and the submissions made thereon required to be addressed independently of the issue whether there should be a proof on the first issue. The reclaimers' submission raised questions about the legal basis on which the esto case was advanced. The respondents did not attempt in their averments to identify what obligations were incumbent upon them and in respect of which they were entitled to relief. That is a necessary prerequisite of further action to enforce the obligation of relief. It is only then that, if the reclaimers were to fail to undertake the work identified as necessary to comply with their relieving obligation, then action might be taken for specific implement and alternatively damages. The respondents' pleadings do not set out such a case for relief. The case is stated in the baldest of terms in article IV of condescendence as follows:

"... the defenders in any event were obliged by clause 5.1 of the sub‑lease to fulfil the mid‑landlord's obligations in terms of the lease. These obligations existed independent of the termination of the sub‑lease as specified in clauses 5.3.1 and 5.3.2. The maintenance obligations of the mid‑landlord were specified at clause 3.12 of the Lease which stipulates that:

'At all times throughout the period of this Lease at the Tenant's expense well and substantially to repair, maintain and where necessary to renew, rebuild and reinstate and generally in all respects keep in good and tenantable condition the premises...'

Independent of any obligation to reinstate the works specified in the Minute of Agreement the defenders were obliged to reinstate and make good defects in the Premises all as specified in the column described as 'Costs Ex Strip Out' in the revised schedule..."

The associated plea in law states equally baldly:

"... the defenders had an obligation to make good defects of the subjects and the cost of these being reasonably assessed as second concluded for decree therefore be granted in the alternative."

The works required and the cost were intimated in a schedule following the expiry of the lease. In our opinion the respondents have failed to aver a relevant basis in law for the alternative claim stated and second concluded for.

[19] There was a further specific argument that work relating to external walls of the subjects was wrongly included at the full cost. Mr Lindsay's contention was that the external walls fell within the definition of "Common Parts of the Building" in the sub‑lease in respect of which the reclaimers' obligation was confined to 21% of the cost. In view of the decision we have reached on both of the main issues, it is unnecessary to address this particular question.

Interlocutors
[20] At the outset of the summar roll hearing Mr Lindsay drew to our attention that the interlocutor of the Temporary Lord Ordinary of 20 December 2011 repelled the first plea in law for the defenders and reclaimers while allowing a proof before answer of all averments. We record that purely for completeness. In the event, the appropriate course for us to follow is allow the reclaiming motion, recall the interlocutor of the Temporary Lord Ordinary of 20 December 2011, sustain the first plea in law for the reclaimers and dismiss the action.