Pursuers: McColl; HBJ Gateley Wareing

First Defender: Hawkes; Biggart Baillie

Third Party: Campbell; Archibald Campbell & Harley

15 December 2006

Introduction

[1] The pursuers claim to be vest in the landlord's interest in a lease between the Prudential Assurance Company Limited and Benefit Footware Limited dated 16 September and 17 October 1963. The lease was of the ground floor and basement of a building at 18 High Street, Paisley, and rights in the common parts including the foundations, walls and roof, close and common stair, drains, water, gas and soil pipes, electric mains and cables and so on. The defenders are vest in the tenant's interest in the lease. There is, in turn, a sub-lease of the property dated 31 January and 22 March 1991 between Footwear Property Limited and Clinton Cards Limited. The third party are vest in the sub-tenant's interest in that sub-lease. For convenience I shall, in some places, refer to the leases as the "Head Lease" and the "Sub-Lease" and to the parties as "landlord", "tenant" and "sub-tenant".

[2] The action concerns works to be carried out to the property in terms of a Schedule of Dilapidations prepared on behalf of the pursuers by their surveyors in about March 2004. The Schedule is in twelve sections. The first five sections identify work required to be done to the common parts of the building. The remaining sections concern works required to be carried out to the ground floor and basement. The pursuers contend that the defenders are bound to carry out all the works in the Schedule. The defenders accept that they are obliged to carry out the work identified in respect of the ground floor and basement but deny that they have to carry out that identified in respect of the common parts. They say that their obligation in respect of the work to the common parts is simply to reimburse the pursuers for such work as they, the pursuers, were required by law to carry out. The defenders seek to pass down to the third party the liability alleged against them by the pursuers. The third party, in turn, adopts substantially the same position against the defenders as the defenders adopted against the pursuers.

[3] The matter came before me on the Procedure Roll. I heard argument on the pursuers' general plea to the relevancy of the defenders' averments and on the defenders' plea to the relevancy on the third party's averment. A certain amount of agreement was reached during the course of the discussion and, in the end, the issues narrowed down to questions of construction of the relevant clauses of the Head Lease and the Sub-Lease.

[4] In the course of argument, I was reminded, under reference to Project Fishing International v CEPO Limited 2002 S.C.534, a case in which the Inner House sought to apply the observations of Lord Hoffmann in ICS Limited v West Bromwich Building Society [1988] 1 W.L.R.896, 913, that in a commercial document the Court should attempt to give the document a construction which reasonable men, versed in the type of business with which the document deals and being aware of the background relevant to the transaction, would have given it. I intend to follow that approach in dealing with the documents put before me.

[5] It is necessary to consider the two documents separately. Accordingly, I begin by considering the terms of the Head Lease.

The Head Lease

[6] The relevant repairing clauses in the Head Lease are those contained at Clause THIRD, sub-clauses (iv) and (v). Clause THIRD sets out a number of obligations on the tenants. The relevant sub-clauses provide as follows:

"(iv) From time to time and at all times during the currency of this Lease to repair, clean and keep in good and substantial repair and condition the subjects let and all additions thereto including pavement lights (if any) and all landlord's fixtures and fittings.

(v) At all times during the currency of this Lease to bear and pay all costs and expenses payable by either the landlord or the tenant in respect of the subjects let for making, repairing, maintaining, rebuilding and cleaning all passages, roads, footpaths, pavements, sewers, drains, pipes, watercourses, mutual walls, gables, roofs, foundations, fences, railings or other similar subjects which may form part of or be used in conjunction with the subjects let either alone or in common with other subjects and to free and relieve the Lessors of all such costs and expenses; to free and relieve the Lessors of any obligation to keep the subjects let wind and water tight or to execute any other repairs or replacements, the Lessees being bound to execute all repairs, replacements and redecorations which shall become necessary during the currency of this Lease and to carry out, perform and observe at all times all obligations, burdens, conditions, stipulations and others imposed on the owner or occupier of the subjects let whether by the title deeds thereof, by common law, by statute or otherwise".

[7] Mr MacColl, for the pursuers, argued that sub-clause (iv) was plain and very wide in its ambit. It obliged the tenant to repair, clean and keep in good and substantial repair and condition "the subjects let". That expression included the ground floor and basement on the common parts. The obligation was unqualified. The fact that sub-clause (v) imposed an obligation on the tenant to bear and pay all costs and expenses payable by the landlord for making, repairing, maintaining, rebuilding and cleaning various parts of the subjects, including the common parts of the building, did not detract from the broad terms of sub-clause (iv). It simply covered the case where the landlord may have had to incur expenditure and therefore had a right of recoupment. For the tenant, Mr Hawkes put forward a different construction. He pointed out that sub-clause (v) was concerned with the common parts of the building. It provided a different regime in respect of the upkeep of these common parts, in that it required the tenant to reimburse the landlord in respect of the costs and expenses which the landlord was required to pay. This contrasted the position with sub-clause (iv), under which the tenant had the primary obligation of maintenance and repair. Reading the two sub-clauses together, it was plain that, despite its apparently wide wording, the ambit of sub-clause (iv) was properly to be understood as being the ground floor and basement part of the building and not the common parts. As regards the common parts, the only obligation was to reimburse the landlord, and that only when the landlord was required by law to make the payments. This latter proposition was derived, so Mr Hawkes argued, from the use of the word "payable" in the early part of sub-clause (v). This imported, as a pre‑condition of the tenants' liability to reimburse the landlord, the existence of an obligation on the landlord to carry out the works.

[8] When the discussion opened, it appeared to be common ground between Mr MacColl and Mr Hawkes that the expression "the subjects let" meant not only the ground floor and basement part of the building, but also the common parts. On this basis, there was clearly some force in Mr MacColl's argument that sub-clause (iv) was unqualified in respect of the parts of the building to which the repair and maintenance obligation applied. It applied to the whole of "the subjects let". It is, however, in my opinion, necessary to look somewhat more critically at that. The expression "the subjects let" appears in Clause FIRST of the Head Lease. In terms of the Head Lease, the landlord lets to the tenant:-

"ALL and WHOLE the subjects forming the ground floor and basement premises at Eighteen HIGH STREET, in the BURGH of PAISLEY and COUNTY of RENFREW described in Disposition by A.L. Scott & Son Limited in favour of The Prudential Assurance Company Limited dated the Nineteenth day of September and recorded in the Division of the General Register of Sasines for the County of Renfrew on the Fifth day of October, both in the year Nineteen hundred and sixty three: together with the whole rights, common, mutual and others described in the said Disposition, the whole pertinents thereof and the fixtures and fittings therein so far as belonging to the Lessors (which subjects are hereinafter referred to as 'the subjects let') .....".

The Disposition referred to in that passage identifies the property which is the subject thereof as being, in the first place:

"The subjects forming Eighteen .... High Street in the Burgh of Paisley and County of Renfrew comprising a ground floor shop and basement ....".

and goes on after identifying certain other matters to add this:

"together with (First) a right of common property jointly with the proprietors of the remainder of the said tenement in the solum .... (Second) a right of common property jointly with the said proprietors of the remainder of the said tenement in the foundations, walls and roof of the said tenement, the chimney stalks thereof, the close and common stair (but excluding the water closets and lavatories entering from the said common stair) and the common drains, soil, rain, water, gas and other pipes, electric mains, cables, wires and pipes therefor so far as used in common for the shops, offices and dwellinghouses in the said tenement ...."

Taking the terms of the Disposition as incorporated into Clause FIRST of the Head Lease, it is, of course, plain that "the subjects let" include not only the ground floor shop and basement of the building but also the rights of common property in the solum, the foundations, walls and roof and other parts of the tenement. These latter rights are held jointly with the proprietors of the other parts of the building.

[9] As between the pursuer and the other proprietor or proprietors of the remainder of the tenement, any repairs to the common parts will be likely to require discussion and agreement between them. In terms of that agreement it is likely that each will bear a proportion of the costs of the work. Whilst, therefore, in terms of the Head Lease, it is readily understandable that the landlord should wish to transfer to the tenant a maintenance and repairing obligation in respect of the ground floor shop and basement of the building, it is less easy to see how this works in terms of the common parts. The pursuer cannot divest himself, vis-à-vis the other proprietor(s) of the tenement, of the responsibility for negotiating and carrying out all or part of the work simply by virtue of having entered into a lease with a tenant. Nor can the tenant insist on interposing himself into that relationship. One might therefore expect that the repair and maintenance obligations imposed on a tenant in terms of a lease of the ground floor and basement of the building should differentiate between those parts over which the tenant has full and exclusive use, where he could be expected to carry out maintenance and repair without reference to other parties, and the common parts where the identification of the work to be done and carrying out of that work would be a matter of agreement between the landlord and the other proprietor(s) of the tenement. Further, it is difficult to see why in such a Lease a tenant of one part only of the building should be expected to assume the direct and complete responsibility for maintenance and repair of the common parts. That is a responsibility which one would expect to see shared with the proprietor(s) or tenants of other parts of the building.

[10] I approach the construction of sub-clause (iv) of Clause THIRD of the Head Lease, therefore, on the footing that although the argument advanced by Mr MacColl is a plausible one on the strict meaning of the words used in the sub-clause, it is not a meaning which would necessarily attract itself to reasonable persons in the position of the parties to the Head Lease. In other words, it is not a construction which makes a great deal of commercial sense. Nor, in my opinion, is it the only literal construction that can be placed upon that sub-clause. Thus, whilst it is possible to talk of an obligation to maintain and repair the ground floor shop and basement, those being physical premises capable of maintenance and repair, it is not possible to talk in the same sense of an obligation to maintain and repair "a right of common property". The distinction is to be drawn between the common property itself, which of course could be made the subject of a repair and maintenance agreement, and the right of common property, which is a right to the enjoyment of property along with others. How can such "a right" be maintained or repaired? To my mind it is this difference which underpins the distinction between sub-clauses (iv) and (v). Sub-clause (v) is focused on the common property. It is anticipated that the landlord may have to pay for maintenance, repairs, rebuilding, etc, of all or part of the common property. He will no doubt bear only a proportion of those costs and expenses. The tenant is required under sub-clause (v) to pay the landlord the amount of the landlord's expenditure in that respect. That seems to me to be the most obvious way in which to fix the tenant with responsibility for repairs to common property. It is the way the parties have agreed in this case.

[11] Accordingly, therefore, I am not persuaded by Mr MacColl's argument for the pursuer as to the proper interpretation of sub-clauses (iv) and (v) of the Head Lease. I shall allow a proof before answer as between pursuer and defender, reserving all pleas.

The Sub-Lease

[12] The arguments under the Sub-Lease took a similar form to those under the Head Lease. However, there were differences between the terms of the two documents. For example, in the Sub-Lease the tenant (referred to therein as "the Landlord") lets to the sub-tenant (referred to as "the Tenant") "the premises". The expression "the premises" is defined in Clause THREE(v) of the Sub-Lease as follows:

"(5) The expression 'the premises' shall mean ALL and WHOLE the subjects known as and forming the ground floor and basement premises at Eighteen High Street in the Burgh of Paisley and County of Renfrew described in the Disposition by A.L. Scott & Son Limited in favour of The Prudential Assurance Company Limited dated Nineteenth September and recorded in the Division of the General Register of Sasines applicable to the County of Renfrew on Fifth October both nineteen hundred and sixty three, being the subjects leased in terms of the Head Lease (as hereinafter defined) and (insofar as let by the Head Lease) including the fixtures and fittings therein so far as belonging to the Landlord or the Head Landlord".

Mr Campbell, who appeared for the third party, pointed out that that definition did not incorporate from the Head Lease the precise expression "the subjects let". Instead it referred to "the subjects leased in terms of the Head Lease". He suggested that this was a deliberate omission to use the term of art used and defined in the Head Lease. That may be so, but taking the clause as a whole, it does not seem to me that the meaning of "the premises" in the Sub-Lease differs in any material respect from the meaning of "the subjects let" in the Head Lease.

[13] The obligations on the sub-tenant are set out in Clause FIVE of the Sub-Lease. The material parts are sub-clauses (3) and (5). They provide as follows:

"(3) Items of Common Use or Benefit

To pay to the Landlord within seven days of demand a fair proportion (to be determined by the Landlord's Surveyor acting properly and reasonably so far as concerns matters of fact whose determination will be binding on the Landlord and the Tenant save in the case of manifest error) of all expenses (including the proper and reasonable charges of the factors (if any) of the building of which the premises form part (but excluding any charge incurred in the collection of rent) incurred by the Landlord in the supplying of any services, facilities or amenities whatsoever to the premises or in the cleaning, painting, lighting, repairing, maintaining, and where necessary renewing or rebuilding of any part of the premises which is not within the Tenant's liability under Clause 5(6) hereof or in the maintenance, repair, cleaning, and where necessary renewal, remaking and rebuilding of all roads, ways, passages, pavements, conduits, party walls, party structures and other items which may belong to or be used by or for the premises in common with other premises, and of any expense incurred by the Landlord in complying with any requirements of a competent authority relating to the premises or any part thereof, and to keep the Landlord indemnified against such proportion of such expenses".

This approximates to Clause THIRD(v) of the Head Lease. Clause 3(6) approximates to Clause THIRD(iv) of the Head Lease. It is in the following terms:

"(6) Repairs

(a) To keep the whole of the 'premises' clean and tidy and clear of rubbish and in good and substantial repair and condition and as often as may be necessary to rebuild reinstate or replace the premises or any part thereof to the Landlord's reasonable satisfaction so that the Tenant's liability shall not be limited by the age or state of the premises (damage by any of the insured risks excepted save to the extent that ...)".

[14] Although I heard careful argument from Mr Campbell and Mr Hawkes in respect of the proper meaning to be given to these clauses, this argument took place largely against the background that Mr Hawkes, on behalf of the defender, was mainly concerned to cover the possibility that the defender might be liable to the pursuer for the whole of the works set out in the Schedule of Dilapidations, including the works to the common parts. He therefore sought to stress how unlikely it would be that a party in the position of the defender, a tenant under the Head Lease, should intend to leave himself liable to the landlord for repairs and maintenance to the common parts without extracting a similar obligation from the sub-tenant. For his part, Mr Campbell was concerned to emphasise how under the Sub-Lease, whatever might be the position under the Head Lease, the obligation on the sub-tenant did not extend to maintaining and repairing the common parts, but only to making payment in respect thereof under Clause 5(3). Standing my decision about the Head Lease, this argument becomes less pressing, since the defender cannot realistically seek to pass on to the third party more than that for which he is liable to the pursuer. Suffice it to say, therefore, that my reason for rejecting the pursuer's argument in respect of the Head Lease would have led me to reject the defender's argument in respect of the Sub-Lease.

[15] I should add that, in addition to relying upon Clause 5(3) and (6), Mr Hawkes also relied upon Clause 5(25) which he described as a sweep-up clause. This provides, so far as material, as follows:

"(25) Head Lease Obligations

Subject as aftermentioned, (1) to perform and observe the Lessee's obligations (other than the obligation to pay rent or other sums) and the restrictions referred to in the Head Lease so far as they relate to the premises or the building of which the premises form part ('the building') ...."

Mr Hawkes submitted that whether or not the sub-tenants were caught by Clause 5(6), they were obliged in terms of Clause 5(25) to perform and observe the tenant's obligations referred to in the Head Lease so far as they related to the premises or the building of which the premises formed part. Whilst the reference to "the building of which the premises form part", might lend some support for Mr Campbell's argument that "the premises" had a narrower meaning, it made it clear that the obligations on the sub-tenant extended to the whole of the tenant's obligations in respect of the common parts. Mr Campbell responded by suggesting that a proviso (which I have not quoted) showed that the obligation was only an obligation to pay by contributing to the cost. However, Mr Hawkes in response pointed out that that proviso dealt only with restoring and rebuilding the common parts, rather than ordinary obligations of maintenance and repair. I consider that Mr Hawkes was right in drawing this distinction. Accordingly, had the point been relevant, I would have held on the strength of Clause 5(25) that the obligations of the sub-tenant matched those of the tenant under the Head Lease. As it is, however, the point does not arise.

[16] In those circumstances I shall allow a proof before answer as between the defender and the third party, reserving all pleas.

Disposal

[17] I shall allow both the defender and the third party a proof before answer of their respective averments on Record.