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Leases: Material breach of contract

Crieff Highland Gathering Limited v Perth and Kinross Council: [2011] CSOH 78, 12 May 2011

In 1983 Crieff Highland Gathering Limited ("the Landlords") let "Market Park", a park in Crieff used annually for the Crieff Highland Gathering, to Perth and Kinross District Council. Perth and Kinross Council ("the Council") now holds the tenant's interest under the lease. The lease was for 60 years and imposed various maintenance obligations on the tenant, but no irritancy clause. The subjects were leased for use as a public recreation ground, with the Landlords having a right to use the subjects once a year for the Highland Gathering.

The Council allowed various boundary structures, and other parts of the park, including a pavilion, to fall into disrepair. In November 2007 the Landlords sent the Council a letter requesting them to carry out various specified works, failing which they would bring the lease to an end. The works were not carried out and in January 2009 a notice of termination of lease was sent to the Council.

The Landlords then raised a court action for declarator that the lease was validly terminated by the notice of January 2009 on the ground that the Council was in material breach of certain of its obligations under the lease. The Landlords also sought decree ordaining the Council to flit and remove from the subjects. The Council denied that it was in material breach of the lease and maintained that, in any event, a fair and reasonable landlord would not, in the whole circumstances, seek to terminate the lease.

In a judgement which contains a useful summary of authorities on what constitutes material breach of contract (see paragraphs 42-48), Lord Pentland ruled in favour of the Council. Lord Pentland didn't think any of the various breaches on the part of the Council (whether viewed singly or cumulatively) could properly be said to have been material. Lord Pentland wasn't persuaded that any of the deficiencies detracted in any substantial sense from the value and utility of the subjects as a worthwhile facility for public recreation. In other words, the deficiencies weren't serious enough to "touch the very existence of the contract".

Click here for the full judgement.

Leases: Dilapidations - ordinary and extraordinary repairs

Co-operative Insurance Society Ltd v Fife Council: [2011] CSOH 76: 11 May 2011

This was a dilapidations dispute between the landlords (the pursuers) and tenants (the defenders) of premises at The Kingdom Centre, Glenrothes. The lease in question was for a period of 25 years.

The pursuers alleged that the defenders were in breach of their repairing and maintenance obligations under the lease and that when the defenders vacated the subjects on 30 November 2006, they failed to surrender them in a state and condition consistent in all respects with there having been due performance by them of their obligations under the lease. They sought damages of £1.3 million.

The defenders argued that many of the alleged wants of repair identified by the pursuers arose by virtue of the impending expiry of the anticipated lifespan of certain component parts of the subjects and also involved wholesale replacement of substantial parts. They argued that such repairs were extraordinary repairs at common law, and in order for a lease to place the obligation to carry out extraordinary repairs upon a tenant, it would have to do so by clear stipulation or necessary inference, which was absent in this case.

A debate was held in court on the question of whether the terms of the lease were such as to displace the common law position and make the defenders liable for "extraordinary repairs".

The lease provided that the tenants should "at their own cost and expense to repair and keep in good and substantial repair and maintained, renewed and cleansed in every respect all to the satisfaction of the landlords the leased subjects and all additions thereto...".

The pursuers argued that the width of the definition of the subjects in the lease, and the inclusion of "renewed" in the repairing obligation meant that the defenders were responsible for extraordinary repairs.

The defenders argued that the parties had not intended to innovate on the common law as regards liability for extraordinary repairs. The obligation was not "to renew" the subjects, but rather to "keep in good and substantial repair and maintained, renewed and cleansed". In the defenders' view, maintenance, renewal and cleansing were all facets of good and substantial repair, and many ordinary repairs might involve some element of renewal. An obligation to carry out ordinary repairs might well be expressed in terms of renewing to the extent necessary.

The defenders argued further that to interpret a 25 year lease in such a manner as to mean a tenant had to give back a building which had been "renewed" in all material respects would be an "extraordinary and unreasonable" construction. It would require very clear wording if there were to be imposed on a tenant an obligation to renew an age-expired building.

Lord Glennie ruled in favour of the defenders. His judgement contains a useful summary and comments on the main authorities on the differences between ordinary and extraordinary repairs. He also comments (at paragraphs 23-26) on two recent cases (West Castle Properties 2004 SCLR 899, and Westbury Estates, 2006 SLT 1143) which indicate that there may be limits on the liability of tenants to renew, even under a lease couched in terms which, in principle, place upon them repairing and renewal obligations going beyond the common law exclusion of liability for extraordinary repairs.

Click here for the full judgement.

Tenements: Shop owners challenge allocation
of maintenance shares fixed by rateable value

A. Murray & Sons Ltd v Munro and Others: Lands Tribunal LTS/TC/2008/27: 18 April 2011

The owners of a shop on the ground floor of a tenement in Victoria Road, Glasgow ("the applicants"), applied to the Lands Tribunal for Scotland (under the Title Conditions (Scotland) Act 2003 ("the 2003 Act")) for variation of a title condition which apportioned common charges for maintenance etc among the owners of properties in the building on the basis of values fixed under the rating system. The title condition was included in a deed of conditions dating back to before the abolition of domestic rates. Section 111 of the Local Government Finance Act 1992 ("Section 111") provided for freezing values at 1 April 1989 so as to enable such provisions in title deeds to continue to be applied.

The tenement in question comprised two shops on the ground floor and 6 flats on 3 floors above. The title deeds allocated responsibility for just over 88% of the common charges to the ground floor shops between them. The application was opposed by owners of flats on the upper floors of the tenement.

The case raises an issue which might be of widespread significance because such provisions in titles are very common. Ground floor properties in tenements (especially those situated along main thoroughfares within towns and cities) are often used commercially, and such properties, at least on 1 April 1989, were, under the rating system, often valued very much higher than the flats above. It was suggested by the applicants in the present case that such apportionment doesn't accord with modern day conditions and values.

The applicants accepted that as things stood section 111 governed the situation, and they were bound to pay the proportion fixed on the basis of 1989 values, in their case 46.57%. They sought variation of the relevant title condition to reflect, as they put it, "an equitable share, under modern day conditions", between all the proprietors in the tenement. The flat owners who opposed the application argued that the effect of Section 111 was to freeze for all time the sharing arrangements which existed as at 1 April 1989 and therefore the Tribunal did not have jurisdiction to vary the respective shares. The applicants' view was that Section 111 related only to the mechanism of the obligation to pay the common charges and did not itself impose the obligation directly, and it was therefore open to the Tribunal to make an order the effect of which would be that Section 111 would not apply in the particular case, as in doing so the Tribunal would simply be exercising their jurisdiction to vary a private title condition.

The Lands Tribunal agreed with the applicants regarding Section 111. However, the Lands Tribunal were unsure as to whether it was competent for them to vary the title condition for another reason. The Tribunal pointed out that although the 2003 Act allows them to vary or discharge a title condition on the application of an owner of a burdened property in relation to that property, this power is subject to a proviso that it is not competent for the Tribunal to so vary a title condition if in doing so it would "impose a new obligation" on other properties, without the consent of the owners. The Lands Tribunal were undecided as to whether, in varying the respective shares of common charges in the tenement, and thus increasing the shares of the other flats, they would in effect be "imposing a new obligation" on the other flat owners without their consent. The Tribunal deferred their final decision to allow the parties to present their respective arguments on this issue.

If the Tribunal rule in favour of the applicants, this case is likely to be of considerable interest to owners of flats (most likely ground floor shops) in tenements who pay what they consider to be inequitable shares of common charges and can't persuade their neighbours to agree to a fairer allocation.

Click here for the full judgement.

Law reform: Law Commission consultation paper on easements
and covenants in England and Wales - June 2011 report

Further to the consultation paper on the law of easements and covenants in England and Wales published by the Law Commission in March 2008, the Law Commission have consulted widely and have now issued their final report with recommendations. These recommendations are designed to update and simplify the law in respect of easements such as rights of way and rights to light and covenants such as restrictive covenants limiting land use and positive covenants such as covenants to contribute towards the cost of repairing fences and shared accessways.

Currently easements can be acquired by several methods involving long use including pursuant to the Prescription Act 1832 and by the doctrine of lost modern grant. The Law Commission propose a simpler prescription scheme which would require 20 years' qualifying use of a right, such use to be without force, without stealth and without permission. This is essentially simplifying and codifying the current law.

At present, when a piece of a larger landholding is transferred, the land sold off will, pursuant to section 62 of the Law of Property Act 1925, benefit from implied rights over the retained land (unless expressly excluded in the transfer). No similar rights are implied to benefit the retained land. The Law Commission propose a single statutory scheme to replace the current rather arbitrary method of acquisition pursuant to section 62 and propose that rights should be implied to benefit both land sold off and retained land where necessary for the reasonable enjoyment of such land. They suggest five factors to determine the rights granted/reserved on a sale of part including:

• the use of the land at the time of the disposal
• the presence on the land of any relevant physical features
• the intention for the future use of the land known to both parties at the time of the transfer
• the available routes for the rights
• the potential interference with the land or inconvenience to the owner of the land.

As regards rights to light the Law Commission want to make the "Custom of London", which permits building notwithstanding interference to light to adjoining windows, override the acquisition of rights to light by long use. Currently rights to light acquired by long use under the Prescription Act 1832 override this custom so this change would aid development in the City of London, but conversely could see owners of buildings in the City have light to their windows diminished.

The Law Commission propose that a technical issue which prevents a right to park a car existing as an easement, as it excludes the burdened owner from his land, should be overruled by statute so a right to park a car can exist as an easement.

Currently easements cannot be created over land in single ownership. The Law Commission recommend that easements should be capable of being created over land in a single ownership. Such a reform would be particularly beneficial when land is being developed and obligations over a large estate can then be created before the first plot is sold off rather than developing as each individual plot is sold.

The Law Commission have considered the perceived problem of obsolete easements. In respect of covenants, a landowner can apply to a Lands Tribunal for a ruling that they may be deemed obsolete or should be modified due to changes in the locality since the covenants were entered into.

There is currently no such analogous procedure in respect of easements which are considered obsolete. The Law Commission recommend that the Lands Tribunal's jurisdiction should be widened to include applications for the modification or discharge of obsolete easements.

They also suggest raising a presumption of an intention to abandon a right following 20 years' non use of an easement. It is not hard to think of examples where this could cause potential unintended consequences, for example where an elderly couple have not exercised rights of way over a shared driveway because they do not own a car.

As regards covenants, the Law Commission have considered the problem that positive covenants, such as ones to contribute towards the cost of repair of common items such as fences and accessways, will not bind successors in title to the party giving the covenants so once the land has been sold the methods of binding successors in title are legally complex and involve either creating estate rentcharges or creating obligations for purchasers to enter into deeds of covenant potentially backed by restrictions on the title to the burdened land. This legal complexity creates increased costs for landowners and further costs are incurred when the property is sold. The Law Commission recommend the creation of a new "land obligation" which can be a positive or negative obligation. Such a land obligation would be binding on successors in title of the person giving it so in future positive covenants would be capable of being enforced against successors in title. The Law Commission are not prepared to recommend that existing positive covenants burdening land should be enforceable against successors in title to the original covenantor.

The Law Commission also recommend that the benefit and burden of new land obligations should be registered against the respective titles to the benefiting and burdened land and so the owners of the relevant land benefiting and burdened can easily be identified.

Generally, the proposed changes, in particular to make positive covenants enforceable against successors in title are to be welcomed as potentially simplifying conveyancing.

Click here for the Law Commission's report.

Contact us

If you think your business may be affected by any of the above, or if you have any other questions, please contact:

Gordon Aitken
Partner
0141 271 5747
gordon.aitken@mms.co.uk

Iain Macniven
Partner
0141 271 5763
iain.macniven@mms.co.uk

This briefing is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to any particular matter.