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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Euro Properties Scotland Ltd v Alam & Anor [2000] ScotCS 170 (20 June 2000)
URL: http://www.bailii.org/scot/cases/ScotCS/2000/170.html
Cite as: [2000] ScotCS 170
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OUTER HOUSE, COURT OF SESSION |
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OPINION OF LORD MACFADYEN in the cause EURO PROPERTIES SCOTLAND LIMITED Pursuers; against (FIRST) KHURSHIED ALAM AND (SECOND) RANDALL MITCHELL Defenders:
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Pursuers: Nicoll; John G Gray & Co, S.S.C.
Second Defender: Robertson; Drummond Miller, W.S.
20 June 2000
Introduction
[1] The pursuers and the defenders are respectively the landlords and the tenants of heritable subjects at 117-119 Trongate, Glasgow ("the subjects"). In this action the pursuers conclude (1) for declarator of irritancy, (2) for removing and (3) for damages in the sum of £316,075. The first defender did not enter appearance. The second defender lodged defences in which he pled inter alia (in his second plea-in-law) that the dispute between the parties falls to be resolved by arbitration in terms of Clause SEVENTH of the Lease and (in his fourth plea-in-law) that the whole circumstances are such that a fair and reasonable landlord would not seek to rely on the defenders' alleged default as a ground for terminating the lease, and that accordingly decree of declarator of irritancy and of removing should not be pronounced. In the course of preliminary procedure it was accepted on behalf of the second defender that the arbitration clause in the lease did not cover the issue, which arose by virtue of section 5 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 ("the 1985 Act"), as to whether a fair and reasonable landlord would in the circumstances rely on the irritancy clause in the lease. It was therefore accepted that it was convenient to seek to resolve that issue in this process, even if, in the event of its being resolved in favour of the pursuers, there then remained issues which would require to be resolved by arbitration. In these circumstances, a proof was allowed in respect of the issue raised by the second defender's fourth plea-in-law.
The Subjects
[2] It is convenient to note at the outset a brief description of the subjects and a little of their history. They comprise a four storey building situated on the south side of Trongate, immediately to the east of New Wynd. On Trongate the subjects have an Italianate façade which was erected in 1857. The rear parts of the subjects incorporate older buildings, possibly built in the middle of the eighteenth century, which were originally used as warehouses. In 1868 the subjects were adapted to become the Britannia Music Hall. The auditorium was on the first floor. Access to it was obtained by a staircase leading from an entrance on the Trongate frontage. The remainder of the ground floor was used as shops. At second floor level there were galleries. The third floor contained attic accommodation above the auditorium ceiling. In the 1930s, the subjects became the Panopticon Cinema. The cinema closed down during the Second World War. In the early 1950s the seating in the auditorium was partially removed, and a false ceiling was installed so as to form at first floor level storage accommodation for use in conjunction with the ground floor shops. The ground floor entrance and main staircase to the auditorium were removed and the space was absorbed into the shops. In 1969, further alterations to the ground floor shops took place, and planning permission was granted for use of the first floor as workshops.
[3] In 1977 the subjects were listed by the Secretary of State for Scotland under section 52 of the Town and Country Planning (Scotland) Act 1972 ("the 1972 Act") as a building of special architectural or historic interest. They were listed in grade A, apparently because of the surviving elements of the music hall. The Theatres Trust of Great Britain has expressed the belief that the subjects constitute one of only six important music hall structures still surviving in the United Kingdom.
[4] In 1993 the second defender sought and, after appeal to the Secretary of State, obtained planning permission and listed building consent for use of part of the ground floor as an amusement arcade, and for certain internal alterations at ground and first floor levels. The reporter's decision letter is No. 6/4 of process. The permission and consent were subject to a number of conditions. One of these required the newly authorised use to be discontinued after five years. Since the expiry of that period the permission and consent have been extended from year to year.
The Lease
[5] The subjects were let by the pursuers to the defenders in terms of a lease dated 31 August and 23 September 1994 and registered in the Books of Council and Session on 3 May 1995 (No. 6/1 of process). The lease was, notwithstanding its date, for a period of twenty one years from 16 May 1994. The rent was £120,000 per annum, subject to five-yearly review. There were reserved to the landlords certain rights to share with the tenants the occupation of certain office premises on the first floor.
[6] In terms of Clause SECOND the tenants bound themselves inter alia:
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"2. |
From time to time and at all times during the currency of this Lease well and satisfactorily to repair, cleanse, maintain and (where reasonably necessary ...) to renew, and rebuild the premises ... which obligation shall subsist irrespective of the cause of damage or deterioration necessitating such repairs ..., declaring that the obligations hereinbefore specified shall extend to and include the obligation of maintaining the premises wind and water tight ... |
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3. |
Not to permit the premises or any part thereof to be used otherwise than for an amusement arcade ... and ancillary leisure purposes or such other business as the Landlords may from time to time approve in writing ... |
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7. |
Save where the obligations incumbent upon the Tenants in terms of this Clause would require the carrying out of any works to the premises or other subjects which are not the responsibility of the Tenants in terms of this Lease, at all times during the currency of this Lease to observe and comply ... in all respects with ... the ... requirements of any Local or Public Authority so far as relating to the premises ... and to keep the Landlords indemnified against all fees, penalties, charges, claims, payments and liabilities in respect thereto ... |
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12. |
... on written notice given by the landlords to the Tenants to remedy and repair or renew any defects, want or (sic) repair ... within the period specified in such notice being such reasonable period as may be appropriate in the circumstances; in the event of the Tenants failing within the said specified period fully to implement the terms of such notice the Landlords shall be entitled (but not bound) to enter on the premises for the purpose of carrying out such repairs ... and in such event the Landlords' reasonable costs and expenses properly incurred shall be a debt payable by the Tenants to the Landlords ..." |
[7] Clause FOURTH provides for irritancy in inter alia the following terms:
"Subject to the provisions of sections 4, 5 and 6 of [the 1985 Act], if at any time during the currency of this Lease the Tenants ... shall in any ... respect fail to comply with or shall contravene any of the conditions, provisions and restrictions hereinbefore contained or referred to ... then ... the Landlords at their option by notice in writing may bring this lease to an end forthwith ... Provided Always that (One) in the case of any breach, non-observance or non-performance by the Tenants which is capable of being remedied, the Landlords shall not exercise the option of irritancy unless and until it (sic) shall first have given written notice to the tenants ... requiring the same to be remedied and intimating its intention to exercise the option of irritancy herein contained in the event that such breach, non-observance or non-performance is not remedied within such reasonable period having regard to the nature and extent of the breach complained of as may be stated in the notice ... and the Tenants ... shall have failed to remedy the same within such period ..."
The Relationships among the Parties
[8] In the second defender's pleadings some reference is made to the fact that the first defender has certain connections with the pursuers. It is convenient at this stage to set out the position, so far as disclosed in the evidence which I heard. The first defender, Khurshied Alam, has two brothers, Javed Alam and Rafiq Alam. He also has a sister, Mrs Shamshod Goheer, who is the wife of Maqbool Anwar Goheer. There are presently two directors of the pursuers, Euro Properties Scotland Limited, namely Maqbool Anwar Goheer, and Javed Alam, i.e. the first defender's brother-in-law and one of his brothers. In addition, the first defender was at one time himself a director of the pursuers. There is produced a Form 288b dated 6 August 1999 (No. 7/2 of process) bearing to record his resignation from office as a director on 3 November 1998. Maqbool Goheer said in evidence that the first defender had been a director for only a few months. The documents produced bear that out. The first defender appears as a director in the annual return as at 22 October 1998, but not in the preceding or the following annual return. The present directors, Maqbool Goheer and Javed Alam, each hold one share in the company. The remaining 99,998 shares are held in virtually equal numbers by (i) Mrs Imtiaz Alam, who is the wife of one of the first defender's brothers (on the basis of Maqbool Goheer's evidence I think she is the wife of Rafiq Alam rather than Javed Alam, but I may be mistaken about that), (ii) Mrs Shahida Alam, who is the wife of the first defender, and (iii) Mrs Shamshod Goheer, who is, as I have said, the wife of Maqbool Goheer and the sister of the first defender. The evidence was that the directors and shareholders were the same in December 1998 as they are now. The position thus then was and now is that the first defender is neither a shareholder in nor a director of the pursuers. He is, however, closely related to those who own and manage the pursuers.
[9] The tenants' interest in the lease is held jointly by the first and second defenders. The second defender's evidence was that when the premises in which he had previously carried on business were demolished, he approached Khurshied Alam to see if he had suitable premises available. Khurshied Alam told him that he had a few shops, but would have to discuss the matter with his family. Some time later, Khurshied Alam indicated that, while he could not let the subjects to the second defender, he would be willing to enter into a partnership with him to take a lease of them. That resulted in the lease granted by the pursuers in favour of the defenders jointly. Maqbool Goheer in his evidence denied that the negotiations for the lease had taken place between the second defender and Khurshied Alam, and maintained that the second defender had dealt with "all of us", i.e. himself and all three Alam brothers. He eventually accepted that it might have been Khurshied Alam who introduced the second defender to the others. Maqbool Goheer made the point that the application for planning permission took some time. He thought (mistakenly, if the heading of the decision letter, No. 6/4 of process, is accurate) that Khurshied Alam was a party to the planning application. At all events, the lease was eventually granted. The business carried on in the subjects is carried on by Mitchells Leisure Company Limited, in which, according to the evidence of the second defender, he and the first defender are both directors and are equal shareholders. It is evident that the relationship between the defenders is somewhat strained; as the second defender put it: "We do not see eye to eye". They take turns, week about, of attending to the day to day management of the arcade. An example of the differences between them is to be seen in the letter dated 18 December 1998 (No. 7/6 of process) by which the first defender granted Maqbool Goheer (not the pursuers) "permission ... to occupy the first floor of [the subjects] free of charge, without any liabilities until the duration of the lease". The second defender's evidence was that he had had a disagreement on that matter with Maqbool Goheer, and had maintained that he should pay rent if he was to use the first floor of the subjects for storage. The other obvious example of the differences between the defenders is in the positions which they have adopted in relation to this action. The second defender said in evidence that they had discussed the matter only briefly, and that the first defender had given no reasons for taking up the position that he would not defend the action.
[10] It seems to me that a proper understanding of the sequence of events leading up to the raising of the action requires note to be taken of the relationships which I have described. The position appears to me to be that there is a measure of estrangement between the two joint tenants, although they do appear to continue to conduct the business of the company of which they are directors and equal shareholders. The first defender, moreover, although neither a shareholder in nor at present a director of the pursuers, has strong family connections with those who are so involved.
The Sequence of Events
[11] On 19 May 1997 Glasgow City Council ("GCC") served on the proprietors and tenants of the subjects a notice under sections 104 and 105 of the 1972 Act ("the listed building repair notice", No. 6/2 of process). The notice identified the subjects to which it applied as "109-121 Trongate (former Britannia Music Hall) Glasgow". Notwithstanding the discrepancy between the street number given in the notice and that used to denote the subjects in the lease, there is no dispute that the notice applied to, and only to, the subjects of the lease. It is not disputed that the listed building repair notice was served on the pursuers. There was some conflict in the evidence as to whether a copy of it was served on the second defender. The second defender said in evidence that he did not personally get a copy of it, although he had seen it at some stage (at a date which he could not identify) in his office. Michael Fraser, the GCC planning officer who dealt with the matter, said, however, that a copy was served on the second defender at his home address. Of consent of both counsel, he was allowed to confirm his evidence on that point by reference to his file, which he had brought with him to court. I therefore prefer his evidence, and find it proved that a copy of the notice was served on the second defender by GCC. The notice narrated in very general terms the respects in which GCC considered that reasonable steps were not being taken to preserve the subjects, and required those on whom it was served within three months to carry out certain work. The required work was described in the following terms:
"Renew defective roof and floor timbers; replace roof; replace gutters, downpipes and flashings where necessary; eliminate any dry rot, wet rot or dampness in the building; reinstate plasterwork; repair and replace all stonework where necessary; make all windows or other openings wind and watertight; repair or otherwise stabilise all elements of supporting structure where necessary; leave in wind and watertight condition; all works urgently necessary for the preservation of a listed building and to be carried out to the satisfaction of the Director of Planning and Development."
The notice then went on to draw attention to GCC's powers of compulsory acquisition in the event that repairs were not carried out. Mr Fraser explained, however, that notwithstanding the terms of the notice, GCC were not looking for strict compliance with the timetable that it set. Their objective was to prompt the parties interested in the subjects to enter into discussion with them with a view to execution of the repairs - to "show willing". It was recognised by GCC that works of the scale demanded would not be completed in three months. Compulsory purchase was a last resort; it was a step which GCC would only take if there was a third party willing and able to take over the restoration of the subjects after such acquisition.
[12] On 3 June 1997 the pursuers' solicitors served on the defenders, by recorded delivery letter addressed to them both at the subjects, a notice (No. 6/11 of process) in inter alia the following terms:
"We enclose herewith a copy of the Listed Building Repairs Notice dated 19 May 1997 served on our clients by Glasgow City Council. On behalf of our clients, we hereby confirm that they require you to carry out in a satisfactory manner all of the repairs specified in the enclosed copy notice within one month of the date hereof. It is your responsibility as tenants to carry out at your expense all of the necessary repairs in terms of the Lease and, in particular, clause SECOND (2) and (7) of the said Lease.
If you do not carry out all of the specified repair works within the period specified above then our clients reserve the right to carry out the repair works themselves in which case they will be entitled to recover all costs and expenses incurred from you.
We trust that you will give the specified repair works your immediate attention."
It is to be noted that the sanction for non-compliance that the pursuers had in mind at that stage was not irritancy, but their power under Clause SECOND (12) to carry out the works themselves and claim reimbursement from the defenders of the cost of doing so. According to Maqbool Goheer, the tenants' response - he did not state from which of them it came - was to protest that the time allowed by the notice was too short, and to ask for an extension until August. According to the second defender he never received the notice of 3 June. Given that a single notice was sent addressed to both tenants, that is not impossible.
[13] Following the service of the listed building repair notice a meeting took place between officials of GCC and those interested in the subjects. The date of the meeting was identified by Michael Fraser as 10 July 1997, and it therefore appears that it took place after the service of the notice No. 6/11 of process. Mr Fraser attended the meeting, along with the head of his section, David Martin. Initially, when giving evidence according to his recollection, he indicated that the others who were present were Khurshied Alam, representing the owners, and a planning consultant, Stephen Beebe of Messrs Chapman Warren. Later he supplemented his recollection by reference to his file, and confirmed that he had noted that Khurshied Alam was present in the capacity of tenant, and Maqbool Goheer had been the representative of the pursuers who attended. That accorded with Maqbool Goheer's evidence. He said that he was "shocked" by the terms of the listed building repair notice, and in particular at the possibility of compulsory purchase. He took Khurshied Alam with him to the meeting with the GCC officials so that Khurshied Alam, as tenant, would realise how serious the position was - his previous attempts to get the tenants to take the notice seriously had "gone in one ear and out the other". My impressions from Maqbool Goheer's evidence are (i) that he was inclined to exaggerate the degree of his "shock" at the terms and possible consequences of the listed building repair notice - he accepted that Michael Fraser said that compulsory purchase could be avoided so long as it could be seen that something was being done about the state of repair of the subjects, and it was clear to me from Mr Fraser's evidence that his emphasis throughout the discussions was on achieving some practical progress with repairs; and (ii) that in so far as he had discussions with the tenants, they were with Khurshied Alam, not the second defender.
[14] It does not appear that much activity followed upon the meeting in July 1997. Maqbool Goheer's evidence was that he was expecting the tenants to proceed with the work identified in the listed building repair notice. They did not come forward with a repair scheme. He suggested in evidence that they might have put forward a proposal to carry out the repairs in stages, but they made no such proposal. His evidence was that the tenants made no effort to deal with the matter throughout 1997 and 1998. He spoke in somewhat disparaging terms of the tenants having formed "some sort of charitable trust" for the purpose of "buying time from" GCC. He was not involved in that, he said. The impression that Maqbool Goheer's evidence seemed designed to create was of responsibility having been passed unequivocally to the tenants, and of their having done nothing constructive, but merely set up the trust to create an impression of activity. That, in my view, was in several respects not a fair representation of the way in which matters were developing.
[15] The trust was not a temporising expedient devised by the tenants. It was a genuine attempt by interested individuals to raise the public profile of the subjects with a view to promoting their preservation. The prime mover in setting up the trust was Judith Bowers, who gave evidence. She is an historian and archaeologist who became aware of the history of the subjects and became interested in promoting their preservation. She made contact with Khurshied Alam, who (according to her evidence, which I have no reason to doubt) held himself out to her as the owner of the subjects. She gathered a committee of interested persons, including Khurshied Alam, with a view to setting up a trust to promote the preservation of the subjects. The committee first met in December 1997, the deed of trust constituting the Britannia Panopticon Music Hall Trust ("the Trust") was executed in January 1998 and the Trust was accorded charitable status in June 1998. In the event, Khurshied Alam did not become a trustee, because it was perceived that there would be a conflict of interest between his position as "owner" of the subjects and his holding office as a trustee.
[16] In January 1998 a further meeting took place between Mr Fraser of GCC and the other interested parties. Mr Fraser's recollection was that the same parties were present as at the meeting in July 1997, together with representatives of the Trust, but Maqbool Goheer's evidence was that he was not present at the second meeting. What seems to me to be clear, contrary to the impression Maqbool Goheer sought to convey that the matter was in the hands of the tenants, is that it was the pursuers who were at that stage seeking to take the matter of repair forward with GCC. Mr Fraser's evidence was that it appeared to him at that stage that there was some prospect of GCC working in tandem with the owners of the subjects to achieve restoration. In that context he asked (it is not clear whether he made the request at the meeting in January or thereafter) for a study to be carried out of the condition of the subjects. He asked that the study be carried out by April 1998, but in the event it came to hand somewhat later.
[17] The report on the subjects was prepared by James Jarvie FRICS. He was instructed (probably in about May 1998) by the pursuers through their planning consultants, Messrs Chapman Warren. In evidence, he said that he was provided with an earlier schedule of dilapidations and an engineers' report dating from 1991/92, and was asked to examine the building and report on the cost of complying with the listed building repair notice. He made a number of visits to the subjects and produced a report for the pursuers and their consultants which is the latter part of No. 6/3 of process ("the Jarvie report"). Although the report is undated, Mr Jarvie's evidence was that it was produced on 27 July 1998. Appended to the report is a schedule of items of repair with costs attributed to each item. The items are expressed in very general terms and the costs are expressed in round sums, e.g. "repairs to stonework - £3000". The last paragraph of the report was in inter alia the following terms:
"A further structural report on the building is currently being prepared in order to ascertain any additional items or further deterioration since the last structural report was prepared. A rot eradication specialist has been instructed to carry out a report on the extent of rot as it affects the main structure of the building. These reports are not yet to hand but it is considered essential that this first stage report is submitted to Glasgow District Council (sic). [As] soon as these reports [are] to hand this cost estimate will be updated and the required works will be categorised into urgent, essential and desirable. To this will be added a draft programme for the execution of the works required for the preservation of the building while the wider implications for its future use are restored (sic)."
It appears that the Jarvie report was submitted to GCC. Mr Fraser indicated that he regarded it as merely a list of items of work. What he hoped to see was the follow-up work foreshadowed in the passage quoted. He conveyed that information to Mr Beebe of Messrs Chapman Warren. He regarded the ball as being, at that stage, in the pursuers' court. No such additional material was ever forthcoming from them. Mr Jarvie's evidence was that no request was made to him to carry out further work. He was not asked in evidence to explain the passages in his report that indicated that further work by specialists had already been instructed. Maqbool Goheer in evidence first claimed that he never seen the Jarvie report before, then said that he remembered being given a copy by Khurshied Alam. If that was true evidence, it tends to suggest that Khurshied Alam was, at this stage and in this connection if in no other, acting in name of the pursuers.
[18] Nothing further appears to have happened until early December 1998. On 3 December Messrs Maxwell McLaren, solicitors acting for the pursuers, sent by recorded delivery a letter addressed to "Khurshied Alam & Randall Mitchell" at the subjects, which was in the following terms:
"Dear Mr Alam & Mr Randall (sic),
Euro Properties (Scotland) Limited
117/119 Trongate, Glasgow
We act on behalf of Euro Properties (Scotland) Limited who are your Landlords under the Lease of the above premises dated 31st August and 23rd September 1994 and registered in the Books of Council and Session on 3rd May 1995.
On 3rd June 1997 our clients served upon you a notice to complete repairs to the premises in terms of your obligations under the said Lease.
You have failed to comply with the terms of the said notice and accordingly are in breach of your obligations.
We hereby give you notice that unless the breach is remedied our clients intend to exercise their rights in terms of Clause Fourth of the said Lease and to exercise the option of irritancy.
Given the nature of the Lease we set out the following time scales with which you must comply to avoid termination of the Lease.
- Within seven days of the date hereof provide a written undertaking to complete the works in terms of the enclosed copy Report on Dilapidations prepared by James Jarvie, Chartered Quantity Surveyor.
- Within twenty one days of the date hereof have contractors on site to commence the remedial works required by the Report on Dilapidations.
- Within sixty days of the date hereof have completed in full to the satisfaction of the Landlords Surveyors the said remedical works required by the Report on Dilapidations.
We reserve our clients' rights to irritate the Lease in respect of other breaches of your obligations."
The Report on Dilapidations referred to in that letter was the Jarvie report.
[19] The tenants did not comply with any of the three time limits set in the letter of 3 December 1998. I shall discuss at a later stage the evidence bearing upon the practicability of their doing so. Although some minor temporary work has been carried out on the roof of the subjects, the repairs contemplated in the listed building repair notice have not been carried out or even begun. What did follow the service of the notice of 3 December was that there was some discussion between the second defender and the pursuers of the possibility of the second defender purchasing the subjects from the pursuers. A formal offer was made on 21 December 1998 in name of the second defender's wife to purchase the subjects at a price of £950,000 (No. 6/9 of process). The offer was conditional on finance being obtained from a lending institution. It also contained a clause which provided that compliance with any outstanding statutory notices would be the responsibility of the seller. The response from the pursuers' solicitors dated 6 January 1999 (No. 7/1 of process) indicated that while the price was acceptable in principle, the pursuers would not deal with the offer until the condition about finance had been purified. In addition the point was made that the purchaser would require to accept that the work required by the listed building repair notice had not been carried out. The negotiations appear not to have proceeded beyond that point. In these circumstances, without serving any such further notice as is contemplated in Clause FOURTH of the Lease, the pursuers raised the present action, which was signetted on 26 May 1999.
[20] Although the repairs have not been carried out, the second defender has not been inactive in the matter since the end of 1998. I had some difficulty, because of the vagueness of the second defender's evidence, particularly in matters of chronology, in identifying precisely when he began to take a more active interest in the matter. He was, as I understood him, aware of the listed building repair notice. He also knew that Maqbool Goheer and Khurshied Alam had met Mr Fraser to discuss the notice. At some stage, he said, Khurshied Alam told him not to worry about it because it was all being taken care of. Eventually he decided to go to see Mr Fraser himself. It was not clear from his evidence when he first did that. My impression is that it was not until 1998, because what he did after the meeting was speak to Judith Bowers, whom he described as "the girl in charge of the Theatre Trust". The second defender was himself a trustee of the Trust. The second defender's next step was to go back to see Mr Fraser again, taking with him on that occasion Mr David Millar, an architect who had taken an interest in the Trust. From Mr Millar's evidence it appeared that it was after the raising of the present action that the second defender first approached him. At the second defender's request, Mr Millar prepared a preliminary report (No. 7/3 of process) on the "overall soundness of the structural condition of [the subjects], together with an estimated cost breakdown of building repairs deemed to be essential to ensure [their] long terms survival". That report, which was dated September 1999, was submitted to Mr Fraser, who said in evidence that he regarded it as a "much more thorough, in-depth report" than the Jarvie report, although it did not touch upon (i) the question of rot or (ii) the extent of the stonework repairs required. Mr Millar explained that those matters were omitted because they required invasive investigation.
[21] Apart from taking forward the identification and costing of the works required, the second defender also addressed, in discussion with Mr Millar and Mr Fraser, the question of funding the repairs. He gained from Mr Fraser the impression that grant assistance would be available, although he did not gather what proportion of the cost would be borne by grants. The clearest source of evidence on that matter was Mr Fraser. He indicated that an A listed building has high eligibility for grant assistance. The level of the grant would take account of the financial status of the applicant who would require to "open his books" to Historic Scotland. Grant assistance could be available for up to 40% (or in rare cases 50%) of eligible costs. There were other, less certain, sources of funding, such as GCC and the Glasgow Development Agency. The restoration of the auditorium, which was the ultimate objective of the Trust, was a separate matter from the structural repairs. The restoration project might attract lottery funding, but that did not apply to the repair work.
[22] There had for some time been discussion of a feasibility study to assess the viability of the restoration project. Mr Fraser confirmed in evidence that after various delays, that study had finally got under way at the beginning of April 2000.
The Law
[23] Section 5 of the 1985 Act provides inter alia as follows:
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"(1) |
Subject to subsection (2) below, a landlord shall not, for the purpose of treating a lease as terminated or terminating it, be entitled to rely - |
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(a) |
on a provision in the lease which purports to terminate it, or to enable the landlord to terminate it, in the event of an act or omission by the tenant (other than such a failure as is mentioned in section 4(1)(a) of this Act) or of a change in the tenant's circumstances; or |
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(b) |
on the fact that such act or omission or change is, or is deemed by a provision of the lease to be, a material breach of contract, |
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if in all the circumstances of the case a fair and reasonable landlord would not seek so to rely. |
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(2) |
... |
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In the consideration, for the purposes of subsection (1)(a) or (b) above, of the circumstances of a case where - |
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(a) |
an act, omission or change is alleged to constitute a breach of a provision of the lease or a breach of contract; and |
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(b) |
the breach is capable of being remedied in a reasonable time, |
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regard shall be had to whether a reasonable opportunity has been afforded to the tenant to enable the breach to be remedied." |
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[24] Counsel referred me to two previous decisions made under section 5, namely Blythswood Investments (Scotland) Limited v Clydesdale Electrical Stores Limited (in receivership) 1995 SLT 150, and a decision of my own, Aubrey Investments Limited v DSC (Realisations) Limited 1999 SC 21 (also reported in respect of an earlier stage, a debate before Lord Penrose, sub nom. Aubrey Investments Limited v D. S. Crawford Limited (in receivership) 1998 SLT 628). Those decisions vouch the proposition, which both counsel accepted, that the "fair and reasonable landlord" test set by section 5 applies an objective standard which involves consideration of what a hypothetical fair and reasonable landlord would have done if placed in the position in which the actual landlord was (Blythswood Investmants per Lord Cullen at 155I; Aubrey Investments v D. S. Crawford per Lord Penrose at 635L; Aubrey Investments v DSC (Realisations) at 42F-H). Mr Robertson for the second defender submitted that the statutory test, in referring to a fair and reasonable landlord, was, by the use of the two words "fair" and "reasonable", emphasising different components of the attributes that the hypothetical landlords was to be taken to possess. Fairness involved holding a proper balance between the landlord's own interests and those of the tenant; reasonableness involved behaving rationally, not capriciously, and taking full account of all relevant factors. That submission is not, in my view, at variance with what I said in Aubrey Investments v DSC (Realisations)(at 44C-E):
"Counsel for the defenders submitted that the fair and reasonable landlord test did not involve two separate criteria, 'fairness' and 'reasonableness', but rather used the two overlapping expressions to define a single concept. That is in my view a sound point, although I am not sure that very much turns on it. It seems to me that 'fair' and 'reasonable' are ordinary words of the English language, and that it would not be helpful to attempt to define them, or substitute other words for those chosen or adopted by the legislature. As their dictionary definitions show, they are not synonyms, but there is a measure of overlap in their meanings. They have here been used in conjunction with each other to describe the attributes which are taken to be possessed by the hypothetical landlord whose conduct is to be used as a test of the conduct of the actual landlord. The purpose is to provide an objective criterion of conduct."
I remain of opinion that the section sets a single criterion, namely the way in which a fair and reasonable landlord would behave in the given circumstances, but I do not regard that as precluding examination of the separate elements of the criterion if different aspects of the circumstances of the case bring them into focus in different ways. In one case, a landlord may fail because what he seeks to do would be unfair. In another, he may fail because what he seeks to do would be unreasonable. In either event, he fails the "fair and reasonable landlord" test. Mr Robertson also submitted that it was important to bear in mind, when seeking to apply the "fair and reasonable landlord" test, that it had been introduced to avoid the mischief of penal invocation of the remedy of irritancy (Report of the Scottish Law Commission, Irritancies in Leases, Scot. Law Com. No. 75). In that context, he submitted, it could be concluded that a landlord who resorted to irritancy when another remedy less prejudicial to the tenant's interests would adequately protect his interests should be regarded as using the remedy of irritancy to penal effect, and therefore as acting in a way in which a fair and reasonable landlord would not act. Mr Nicoll for the pursuers submitted that penal effect was irrelevant, and the only proper test was the statutory one. He referred, for the pre- 1985 law, to Paton and Cameron, Landlord and Tenant, pp. 233-234. I adhere to the view that I expressed in Aubrey Investments v DSC (Realisations) at 42C-E, namely that while it is legitimate in applying the fair and reasonable landlord test to bear in mind that it was introduced to deal with the mischief of penal use of the remedy of irritancy, the statutory test is not expressed in terms of penal enforcement (see Blythswood Investments, per Lord Cullen at155F) but in terms of the actings of a fair and reasonable landlord. It is by the statutory test that the actual landlord's conduct must be measured.
Reasonable Opportunity to Remedy the Breach
[25] The first main branch of Mr Robertson's submission in support of the proposition that in the circumstances of the present case a fair and reasonable landlord would not rely on the irritancy clause was that the notice served on the tenants on 3 December 1998 did not afford them a reasonable opportunity of remedying any breach of their obligations under the lease to keep the subjects in good repair. Section 5(3) expressly directs that in considering the circumstances of the case regard should be had to whether, where the breach of contract is capable of being remedied in a reasonable time, the tenant has been afforded a reasonable opportunity to remedy it. In any event, in the application of the fair and reasonable landlord test, it was relevant to inquire whether a demand for remedial steps, made under threat of irritancy, was one with which the tenant could reasonably be expected to comply. A fair and reasonable landlord would not set the tenant an impossible task, then rely on his failure to achieve the impossible as ground for irritancy. On the evidence, it was submitted, the demands made in the letter of 3 December were demands with which the tenants could not in practice comply. Their failure to do so therefore did not afford ground for irritancy on which a fair and reasonable landlord would rely.
[26] Although this submission turned essentially on whether the evidence showed that the demands made in the letter of 3 December were impossible to meet, Mr Robertson sought to place those demands in the context of the history of the state of repair of the subjects. The pursuers had been aware from before the date on which the lease was granted that the subjects were in poor repair. They had the benefit of the earlier reports which Mr Jarvie had said had been provided to him (see paragraph [17] above). There was no evidence that those were ever passed to the tenants. Notwithstanding the tenants' repair obligations under the lease, the pursuers took no steps prior to the service of the listed building repair notice to have the tenants carry out repair. When they received the listed building repair notice, they made an unrealistic demand on the tenants that they carry out the work required by that notice within one month. The threatened sanction for failure to comply with that notice was not irritancy, but that the landlords would themselves carry out the work at the tenants' expense. By July 1997 it had been made clear to the pursuers by Mr Fraser that, notwithstanding the terms of the notice, GCC had no real intention of proceeding to compulsory purchase. The pursuers then, after the lapse of some time, and notwithstanding the terms of their letter of 3 June 1997 to the tenants, themselves took up the matter of repairs by having a further meeting with Mr Fraser in January 1998 and by instructing Mr Jarvie in about May 1998 to prepare his report. When Mr Fraser's view that more detailed work was required was conveyed to the pursuers' consultants, the pursuers appear to have fallen into inactivity for a time. The letter of 3 December was then sent.
[27] The letter of 3 December set three time limits. The first demanded within seven days a written undertaking to complete the works identified in the Jarvie report. The second required that contractors be on site within twenty one days to commence the works. The third required completion of the works within sixty days. It is to be noted that those three periods all run from the date of the notice, so that the period for completion of the works is only thirty nine days from the date of commencement. Mr Robertson sought support for the proposition that compliance with that timetable was impracticable in the evidence of the pursuers' witness, Mr Jarvie, as well as in the evidence of Mr Millar.
[28] In the first place, Mr Jarvie acknowledged that the work required could not be identified simply by reading his report. He could have provided additional material, but the letter simply referred to his report, a copy of which was attached. In the second place, Mr Jarvie maintained that it would be possible to have a contractor on site within twenty one days. He said that, having regard to the nature of the work, specialist contractors would be required. He accepted that it would not be possible to draw up Bills of Quantities and put the contract out for tender in the conventional way so as to achieve commencement of the work within twenty one days, but suggested that alternative methods of contracting, such as on a "cost plus" basis, could achieve commencement within the time limit. He acknowledged that because of the listed building status of the premises the concurrence of Historic Scotland would be required, and accepted that that could not be achieved in twenty one days, but suggested that some of the works, such as the roof works which involved like-for-like replacement, would be of less concern to Historic Scotland. In the third place, Mr Jarvie maintained that some of the work, such as the roofing works, could be completed within a working period of thirty nine days. But in general he accepted that the period set for completion of the work was too short. His view that three months would be more realistic, and indeed might be "a bit tight". He pointed out that with the notice served on 3 December, the timetable it set would be interrupted by the Christmas period when the building trade "closed down for two weeks".
[29] Mr Robertson also relied on the evidence of Mr Millar. Mr Millar emphasised the fact that because the premises are a grade A listed building, any repairs would require to be carried out to a high standard and with appropriate materials. He stressed the importance of not embarking upon repairs to an old building without a full understanding of its structure and of all that would require to be done to restore it to a sound condition. He estimated that three months (give or take a few weeks) would be required to discuss with the planning authority and Historic Scotland their requirements in the context of listed building consent. He accepted that that period could sometimes be shortened, but only if a full set of drawings and specifications were available, and they would take between one and two months to prepare. He confirmed that it was his view that the Jarvie report was not a sufficient basis on which to commence repair work. The detail of the work would require to be discussed with the planning authority in connection with the application for listed building consent. Listed building consent could not, in his view, be obtained in time for a start on site within twenty one days. Nor, in his view, could the necessary work be carried out in a further thirty nine days from commencement. The timetable covered the worst period of the year (in relation to weather conditions) for work such as removing a roof or carrying out stonework repairs. Even armed with the report which he subsequently prepared (No. 7/3 of process) he considered that further investigative work would be required which would take between two and three months. That would involve some structural monitoring which, by its nature, requires time. His estimate was that the whole process of identifying the required work, obtaining the necessary approval, and carrying out the work would take between nine and twelve months.
[30] Mr Nicoll submitted that the notice of 3 December 1998 should be seen against the background of the normal practice followed in securing the repair of premises let under commercial leases. He took from the evidence of the parties' respective expert witnesses, Mr Wilson and Mr Oswald, that it was normal for a landlord seeking to enforce the tenant's obligation to keep the subjects in repair to serve a schedule of dilapidations, and for a process of negotiation to follow resulting normally in agreement on the work to be carried out. In the present case, the service of the listed building repair notice and the pursuers' letter of 3 June 1997 on the tenants had served the purpose of a schedule of dilapidations. The ball was then in the tenants' court. The difficulty was that the tenants did not respond in the customary way. They were under obligation, by virtue both of the listed building repair notice and of the lease, to carry out the repairs, but they did nothing from June 1997 to December 1998. It made no difference to the tenants' position that the landlords engaged in some discussion with GCC, and instructed Mr Jarvie to carry out investigation. By December 1998, a reasonable landlord was entitled to have lost patience with the tenants because of their prolonged inaction, and to set a very tight timetable for further action. The objective of the notice of 3 December was to provoke the tenants into taking action. Instead, the second defender indulged in wilful blindness to the need for him to carry out repairs, and instead made an offer to purchase the subjects which, because it sought to place responsibility for the repairs on the sellers, was quite unrealistic. The first and second stages of the timetable set in the letter of 3 December could have been complied with. The tenants could have given the undertaking required within seven days and sought to negotiate extension of the other parts of the timetable. Instead they did nothing to respond to the notice. The pursuers did not proceed with the action until May 1999, but in the interval the tenants still did nothing.
[31] In my view the history of events between May 1997 and December 1998 has some bearing on the assessment of whether a fair and reasonable landlord would rely on the tenants' failure to comply with the notice of 3 December 1998 as ground for irritancy, but the terms of the notice itself and the practicability of complying with it according to its terms are the more significant considerations.
[32] It is no doubt right that the service of the listed building repair notice, supplemented by the pursuers' letter of 3 June 1997, made it clear to the tenants that the subjects were in need of substantial repair. I do not consider, however, that the analogy with a schedule of dilapidations is a perfect one. The degree of specification given in the listed building repair notice was less than one would ordinarily expect in a schedule of dilapidations. I have no hesitation in accepting the view expressed both by the second defender's expert witness, Mr Oswald, and by the pursuers' expert witness, Mr Wilson, to that effect. It fell a long way short of identifying the precise nature and scope of the works required. Moreover, given that the pursuers' letter, although calling on the tenants to carry out repairs, went on to threaten (if they did not do so) to carry out the repairs themselves at the tenants' expense (as the lease entitled them to do), and that the pursuers then embarked on discussions themselves with GCC and instructed professional advisers to carry out further investigation of the work required, it seems to me to be an oversimplification to say that the ball was in the tenants' court. By the time the discussions between the pursuers and GCC petered out when Mr Fraser told Mr Beebe that more detailed work was required and the pursuers did nothing further, it seems to me to be a tenable view that the ball was actually in the pursuers' court. At all events, I do not consider that the situation disclosed by the evidence can fairly be regarded as one in which the tenants, in full knowledge (i) of exactly what repairs were required and (ii) of the fact that they and they alone were expected to carry them out, failed for eighteen months to do so.
[33] I do not consider that it can be said that the pursuers acted unreasonably in making the first of the three demands set out in the letter of 3 December. The point can be made that because the Jarvie report was so inspecific as to the content of the various items of work mentioned in it, and had not previously been provided to the tenants, they were being asked to give very quickly an undertaking of unknown scope. On the other hand, against the background of the tenants' obligations under the lease, and the service of the listed building repair notice and the pursuers' letter of 3 June 1997, a landlord could in my view by that stage reasonably look for an unequivocal acknowledgement from the tenants that they recognised in principle their obligation to carry out the necessary repair. A tenant, faced with that demand in isolation, might well give the qualified undertaking that he would carry out the works, subject to further discussion of the precise scope of what was required. I do not consider, however, that it is appropriate to examine the reasonableness of each of the three demands individually. They each form a component of a timetable that the pursuers were seeking to impose, and it is the reasonableness of that timetable that must, in my view, be considered.
[34] I propose to discuss the second and third demands together. They required the works to be commenced within twenty one days and completed within sixty days (i.e. within thirty nine days from commencement). I have no hesitation in holding it proved that it would have been impossible for the tenants (or for anyone else) to comply with that timetable. That conclusion is in my view supported not only by the evidence of Mr Millar, but also by aspects of the evidence of Mr Jarvie (see paragraphs [27] and [28] above). I regarded both of them as credible witnesses. In so far as there were differences of opinion between them, I prefer the evidence of Mr Millar. He impressed me as a very careful witness with a considerable depth of experience in dealing with the repair of old and listed buildings. It did not seem to me that Mr Jarvie was so well versed in the complications of repairing listed buildings, and in some respects his evidence betrayed a somewhat cavalier approach to the formalities. It seems to me to be clear that the only proper way of approaching the task of repairing the subjects was to obtain the appropriate listed building consent. Although discussion in advance with the planning authority and Historic Scotland might not have been indispensable, I am satisfied that such discussion would have been likely to expedite rather than interfere with progress. I accept Mr Millar's evidence that about three months is a reasonable estimate of the time required to obtain listed building consent. I also accept his evidence that further investigation would be required before the works could prudently be commenced. He gave evidence about various other matters that might delay progress, such as ordering the materials necessary for the stonework repairs. It is not necessary to discuss those points in detail. I am quite satisfied that Mr Millar's estimate that the entire process would take between nine and twelve months was realistic. The margin between that duration and the timetable set in the letter of 3 December is so great that in my view it is proper to conclude that it was unreasonable of the landlords to demand commencement of the works in twenty one days and completion in sixty. Although Mr Millar did not adopt the point, Mr Jarvie's evidence about the Christmas break taken by the building trade seems to me to underline the fact that the time limits set in the letter of 3 December paid no attention to what was practicable.
[35] It seems to me that the structure of the letter of 3 December may be analysed as follows. First, it advanced the proposition that the tenants' failure to complete the repairs required by the letter of 3 June 1997 constituted a breach of their obligations under the lease. Secondly it gave notice that if the breach was not remedied, the pursuers proposed to irritate the lease. Thirdly, it set out the timetable according to which remedial action required to be taken if irritancy was to be avoided. The letter therefore seems to me to have been designed to address the terms of section 5(3) of the 1985 Act (as well as proviso (One) to Clause FOURTH of the lease). There was an allegation of an omission said to constitute a breach of the lease. The breach was capable of being remedied. In that situation, section 5(3) directs attention to whether the tenant has been offered a reasonable opportunity to remedy the breach. For the reasons I have already discussed I am of opinion that the letter did not afford the tenants a reasonable opportunity to remedy the breach. By this stage the question (pace the pursuers' expert witness, Mr Wilson) was not whether the period that had elapsed since the service of the listed building repair notice was a reasonable period in which to carry out the repairs, but whether the future timetable set by the pursuers afforded the tenants a reasonable opportunity to remedy their breach of their obligations under the lease. Whatever the history of the matter was, at its date the letter set the tenants an impossible task. Having regard to its terms, it is not open to the pursuers, in my opinion, to argue, as Mr Nicoll sought to do, that it was intended to do no more than provoke the tenants into action, so that they might have responded by asking for more time. In its terms it threatened irritancy if the tenants did not adhere to an impracticable timetable. I therefore proceed on the basis, in my consideration of all the circumstances of the case under section 5(1), that when the possibility of irritancy was first raised in the letter of 3 December, the pursuers not only did not afford the tenants a reasonable opportunity of remedying the breach which they proposed to found upon, but also positively demanded that the tenants attain the impossible.
The Landlords' Choice of Remedy
[36] The second main branch of Mr Robertson's submissions was that the pursuers acted unreasonably in electing to pursue the remedy of irritancy when they had available the alternative remedy of carrying out the repairs themselves at the tenants' expense. His contention was that the fair and reasonable would act rationally in the selection of his remedy. He would not, in general, opt for irritancy if there was another remedy available by which he could secure his own legitimate interests. In the circumstances of this case, it would have been more in the interests of the pursuers as landlords to carry out the repairs themselves and obtain reimbursement of the cost of doing so from the tenants.
[37] This aspect of the case turns to a material extent on the evidence of the parties' respective expert witnesses, both of whom are chartered surveyors with long experience of all aspects of the letting of commercial property, Mr Wilson being a director of Jones Lang LaSalle and Mr Oswald being a partner in Knight Frank. I found it interesting that they both regarded irritancy of a commercial lease for breach of a non-monetary obligation as a very unusual step for a landlord to take. Mr Wilson said that he had never previously encountered an instance of such irritancy, and Mr Oswald could not remember ever having done so.
[38] Mr Oswald's evidence was that a landlord seeking to have a tenant fulfil his repairing obligations under a lease would normally serve a schedule of dilapidations, which in his view would normally contain a more detailed description of the work required than was to be found either in the listed building repair notice or in the Jarvie report. If the tenant failed to respond satisfactorily to service of such a schedule, further pressure would be exerted on the tenant by correspondence, and if that failed the landlord would be likely to resort to his power to have the work carried out himself and seek reimbursement of the cost from the tenant. It would not ordinarily be in the landlord's interest to irritate. If he did so, he would lose the benefit of the existing rent stream, and might find it difficult to find a replacement tenant. There would, in any event, be likely to be a hiatus before the new tenant began paying rent. In the present case, the subjects were in a secondary location, and Mr Oswald said that he was not convinced that there would be very much demand for them. The outstanding listed building repair notice would in any event stand in the way of attracting a new tenant. The use of the subjects as an amusement arcade did, he accepted, enhance their value, but he pointed out that the planning permission for such use was temporary, and that there could be no guarantee that it would continue in the event of a change of tenant. When it was suggested to Mr Oswald that the tenants' record of rental payment was not good, he acknowledged that a fair and reasonable landlord would be entitled to take that into consideration when deciding whether or not to irritate for non-repair, but said that a landlord would not ordinarily remove a tenant for being a month late in paying an instalment of rent. Mr Oswald expressed the further view that if the landlord irritated the lease, he would be likely to prejudice his own financial interest in recovering the cost of repair from the tenant. Irritancy would bring to an end the business conducted by the tenants from the subjects. After irritancy they would thus be less well placed to meet the cost of the repairs when the landlord had them carried out than they would be if the landlord carried out the repairs himself and looked to the tenants for reimbursement under Clause SECOND (12) while the tenant continued to trade (it not being suggested that the tenants' business would have to close during the carrying out of the works). In cross examination Mr Oswald accepted that if the landlord thought that by irritating the existing lease and re-letting the subjects he would obtain a higher rent, that might influence him towards irritancy, but he pointed out that the possibility of enhanced rent would have to be weighed against the risk of not re-letting. His opinion was that in the circumstances of the present case the pursuers would not improve their position by irritating the lease. In re-examination he expressed the view, based on further work that he had carried out since beginning his evidence, that the current market rental value of the subjects was the passing rent of £120,000, which in his view had been above the market value at the date of the lease.
[39] When asked for his opinion on the reasonableness of the pursuers' opting for irritancy rather than the alternative remedy of carrying out the repairs at the tenants' expense, Mr Wilson said that he had "thought about that long and hard". That answer came as something of a surprise to me, because his written Opinion (No. 6/10 of process) was completely silent on the point. Be that as it may, Mr Wilson went on to say that in the circumstances of the case, including the high cost of the required repairs in relation to the capital and rental values of the subjects and the fact (as he understood it) that the tenants were "struggling to pay the rent", the landlords might reasonably choose to "take one step back in order to go two forward". Re-letting prospects were, in his view, good. Rental levels had been increasing in the Trongate as well as in the prime locations in the centre of the city, albeit to a lesser extent. The prospects of letting the subjects were radically improved by the availability of use as an amusement arcade. The tenants' competitors in the operation of such establishments would be keen to take on the lease, and to do so for a longer period than the outstanding term of the present lease. In his view the open market rental value of the subjects for retail use was about £125,000, but for amusement arcade use he would not be surprised if an annual rent of £140,000 or £150,000 could be obtained. When asked whether the temporary nature of the planning permission for amusement arcade use would affect the matter, he suggested that the new tenant might be protected against the eventuality of loss of the temporary planning permission by the rent being structured in two layers, a basic rent reflecting retail value and a premium rent reflecting use as an amusement arcade and payable only so long as such use remained permitted. Mr Wilson expressed the view that a reasonable landlord, in deciding whether or not to pursue irritancy in order to be free to re-let the subjects, would take professional advice about re-letting prospects and rental levels. Mr Wilson was himself first consulted by the pursuers in March 2000 (and there was no evidence from any other source that the pursuers had obtained such advice from another professional adviser in or before December 1998).
[40] On the basis of that evidence I conclude that irritancy for failure to implement repair obligations is a course rarely adopted by fair and reasonable landlords. I accept Mr Oswald's evidence that irritancy is not ordinarily a course preferable, from the landlord's point of view, to carrying out the repairs himself and recovering the cost from the tenant. It seems to me that whether he irritates or not, the landlord will look to the tenant for reimbursement of the repair costs. Reimbursement of those costs is therefore not an additional advantage attained by irritancy. On the contrary, I accept the point made by Mr Oswald that by irritating, and thus depriving the tenant of the opportunity of carrying on the business conducted from the subjects, the prospects of recovering the cost of the repairs from the tenants are liable to be, if anything, harmed. Moreover, by irritating, the landlord deprives himself of the income stream arising under the lease. It is likely that there will be at least a delay in the resumption of the income stream until a new tenant is in place. Irritancy would therefore be the better course in the landlords' interest only if by that route a more favourable lease could be entered into generating a future rental stream better than the former rental stream by a sufficient margin to outweigh the short term disadvantage in interrupting the rental stream. I did not understand Mr Wilson to disagree with that reasoning in principle. The difference between Mr Oswald and Mr Wilson lay in their respective assessments of the prospects for re-letting the subjects.
[41] Mr Oswald's assessment was that the prospects of re-letting were not sufficiently good to tip the balance of advantage, from the landlord's point of view, in favour of irritancy. He rated the market in the Trongate less favourably than Mr Wilson did, and saw additional difficulties in (i) the fact that there is the outstanding listed buildings repair notice and (ii) the temporary nature of the admittedly advantageous planning permission for use as an amusement arcade. Mr Wilson, on the other hand took a more optimistic view of the market in the Trongate generally, and in particular based his conclusion on his view that there would be keen competition for the subjects from the defenders' competitors as amusement arcade operators. He spoke of the opportunity of obtaining a premium rent of between £15,000 and £25,000 for that use. He attached less significance than Mr Oswald did to the temporary nature of the planning permission, and suggested the device of a separately identified premium rent for that use, payable only so long as the permission subsisted, as a means of protecting the new tenant against loss of the permission. In my view Mr Oswald's was the more prudent assessment of the prospects of re-letting the subjects. It seemed to me that Mr Wilson (a) underestimated the dampening effect on the market of the outstanding listed building repair notice (which the pursuers, if they were permitted to irritate the lease, would be dealing with from a standing start, having done nothing about it since mid-1998); (b) underestimated the depressing effect on the special market for the subjects for use as an amusement arcade of the fact that the planning permission for such use is temporary; his proposed solution of a separate element of premium rent payable only so long as the permission remained in force seemed to me to underestimate the extent to which amusement arcade operators would only be interested in premises that could be used as an amusement arcade; and (c) was to a material extent speculating about the measure of the premium rent that amusement arcade use would attract. I am therefore not satisfied that it has been shown that a reasonable landlord would have preferred irritancy to the alternative remedy on the ground that the prospects of re-letting at a premium rent were so good as to outweigh the financial disadvantages of interrupting the rental stream by irritancy.
[42] I bear in mind, of course, that I must not assume that the view which I take of the situation is the only view that a fair and reasonable landlord might take. A fair and reasonable landlord, if advised by Mr Wilson, might accept his view and act upon it. But it seems to me in that context that one short passage in Mr Wilson's evidence was important. He said that a fair and reasonable landlord, considering whether or not to irritate in order to re-let, would take the advice of a property professional (unless, I assume, the landlord himself had the necessary experience of the property market to make his own decision). Irritancy might therefore, it seems to me, be the course adopted by a fair and reasonable landlord who (through professional advice or by his own experience) was of opinion that irritancy would operate to his financial advantage by permitting advantageous re-letting. It would not in my view follow that irritancy would be a course adopted by a fair and reasonable landlord who had not sought such advice and had not (in reliance on such advice or his own experience) formed the view that it would be to his financial advantage.
[43] It is therefore in my view important to examine the basis on which the pursuers explained their decision to irritate. Maqbool Goheer, when asked for the pursuers' reason for serving the letter of 3 December, said that what concerned them was the danger of losing the building. The concern, he said, was that GCC "will take it off me, or there will be no building there". I find that evidence difficult to reconcile with Mr Fraser's evidence, which I accept, that he had made it clear to the pursuers that compulsory acquisition was a last resort. Fear that the building would fall down is difficult to reconcile with the pursuers' own inaction on the matter of repairs. According to Maqbool Goheer, an additional reason for opting for irritancy was the tenants' poor history of rental payment. He said that he had no option but to follow the irritancy route. When asked what the pursuers would do if irritancy proceeded, he said that they would let the subjects out or use them themselves. He thought they would have to carry out the repairs first. It was no part of his evidence in chief that the pursuers had in mind that it would be possible to re-let on advantageous terms that would outweigh the disadvantage of interrupting the rental stream. In cross-examination, when specifically asked why the pursuers did not carry out the repairs themselves and seek reimbursement from the tenants, he said merely that they "did not want to do that". At that point, for the first time, he suggested that they might obtain more rent for the repaired subjects. There was no suggestion in his evidence that the pursuers had taken professional advice about the prospects of re-letting or the level of rent that might be achieved.
[44] In these circumstances, I am of opinion that in opting to pursue irritancy in the circumstances in which they did so, the pursuers acted in a way in which a fair and reasonable landlord would not have acted in those circumstances. I am of opinion that it is not prima facie fair and reasonable to opt for irritancy when there is available an alternative remedy (by way of the landlord carrying out the repairs and obtaining from the tenant reimbursement of the costs of doing so) which would (a) not deprive the tenant of his interest in the lease but (b) nevertheless adequately protect the landlord's interests. I quite accept that there may be circumstances which enable the landlord to show in such a case that it is nevertheless fair and reasonable to insist on irritancy. I accept that such circumstances could include a belief on the landlord's part, properly founded on his own experience or on relevant professional advice that he had obtained, that if he irritated he would be able to re-let on advantageous terms. But I do not consider that any such circumstances prevailed in the present case. As I have said I was not persuaded by Mr Wilson's evidence that irritancy and re-letting was in this case an advantageous option, but more importantly, such reasoning played no part in the basis on which the pursuers actually decided to pursue the option of irritancy. On the contrary, they appear to have decided to follow that course without any real assessment of whether there was another option that would serve their purposes as well or better.
The Relevancy of Events after the Irritancy Notice
[45] A question arose in the course of counsel's submissions as to whether events which took place after the pursuers had opted for irritancy could bear upon whether their actings were those of a fair and reasonable landlord. In Aubrey Investments v DSC (Realisations) I expressed the view (at 44B) that the time at which the fair and reasonable landlord test falls to be applied is the time at which a formal attempt to rely on the irritancy is made. In the present case the irritancy clause (Clause FOURTH) contemplates that the option to irritate will be exercised "by notice in writing". The pursuers, however, served no further notice after the letter of 3 December 1998. Mr Nicoll submitted that the absence of a further notice was immaterial, and the summons in the present action should be taken as giving the formal "notice in writing". That is, in my view, probably correct. The point which then arises is that Mr Robertson sought to rely, and maintained that he was entitled to rely, on the steps taken by the second defender, after the action had been raised, to pursue the question of repair, by involving Mr Millar, instructing him to prepare a report to be presented to GCC, and entering upon discussion about grant funding for the repairs (see paragraphs [20] to [22] above). Mr Nicoll submitted that those matters, coming after the pursuers had opted to rely on the irritancy, could not be taken into account in deciding whether a fair and reasonable landlord would have so relied. At first sight I was of opinion that Mr Nicoll's point was sound. His submission appeared to be in accordance with the views that I expressed in Aubrey Investments v DSC (Realisations) at 44B. But in that case, no question of taking into account events after the date of the irritancy notice arose. The point that I had under consideration was whether an earlier date was the relevant tempus inspiciendum. Having reconsidered the matter in the somewhat different circumstances of the present case, I have come to the conclusion that the phrase "all the circumstances of the case" in section 5(1) is wide enough to include events taking place after service of the notice of irritancy (or in this case the service of the summons). I take that view because it seems to me to be conceivable that there could be a case in which it could be affirmed that, at the date of the irritancy notice, a fair and reasonable landlord would rely on the irritancy, but in which before the court reached a decision on the matter further events had taken place which would have led a fair and reasonable landlord to change his mind and decline to rely on the irritancy. The matter is not closed, it seems to me, until the court has granted or refused declarator of irritancy. In the event, however, I am not of opinion that having regard to the events subsequent to the service of the summons has any material bearing on the result in the present case. While those events may show the second defender in a better light than his inactivity prior to the service of the summons, I do not find it necessary to place any weight on them in reaching my conclusion on the application of the fair and reasonable landlord test.
The Position of Khurshied Alam
[46] Mr Robertson made a brief submission to the effect that in view of Khurshied Alam's close connection with the pursuers (see paragraphs [8] to [10] above), a fair and reasonable landlord in the position of the pursuers would have been aware of the potential conflict of interest and would have considered the interests of the first and second defenders separately. In particular, they would have made sure that the second defender was at all times kept fully aware of what was being demanded of the tenants, and of what steps were being taken by the pursuers. The progress that had been made since the second defender actively involved himself in the matter showed the significance of this consideration.
[47] Had the second defender been a more satisfactory witness, and had it been clear that there was any collusion between the pursuers and Khurshied Alam to exclude him from involvement in the matter of the repairs, there might have been some force in this point. In my opinion, however, there was nothing put before me that could safely be regarded as evidence of collusion. As I have said before, I found the second defender a vague and unsatisfactory witness. I have difficulty in accepting that his memory was in all respects as poor as he claimed that it was, or that his understanding of what was being done about the listed building repair notice was as imperfect as he maintained. I am not satisfied that it would be appropriate for me to rely on this submission in support of the conclusion that in relying on the irritancy the pursuers acted otherwise than a fair and reasonable landlord would have done.
Result
[48] Having considered the whole circumstances of the case, the conclusion which I have reached is that a fair and reasonable landlord in the position of the pursuers would not rely on the defenders' failure to obtemper their repair obligations incumbent on them by virtue of Clause SECOND 2 and 7 of the lease, and in particular to carry out the repairs required to comply with the listed building repair notice, for the purpose of terminating the lease. I shall accordingly sustain the second defender's fourth plea-in-law, repel the pursuers' first plea-in-law, and assoilzie the defenders from the first and second conclusions of the summons.
[49] In these circumstances, a question arises as to what should be done in relation to the third conclusion of the summons, a claim for damages for breach of contract. It seems to me that that is a claim that was advanced in the context of the irritancy of the lease. So long as the lease remains in existence, the claim in the form in which it is expressed is not, in my view, a relevant one. I therefore consider that the appropriate course is for me to sustain the second defender's first plea-in-law so far as directed against the third conclusion, and grant decree of dismissal in respect of that conclusion.
[50] Counsel concurred in submitting that expenses should follow success. I shall accordingly find the pursuers liable to the second defender in the expenses of the action. Mr Robertson moved me to certify Mr Oswald as a skilled witness. In my view it is appropriate to do so.