Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION

[2017] CSOH 58

A35/13

OPINION OF LORD ERICHT

In the cause

KENNETH WHITCOMBE

Pursuer

against

BANK OF SCOTLAND PLC

Defender

Pursuer:  Sutherland;  Drummond Miller LLP

Defender:  Stalker;  DAC Beachcroft Scotland LLP

31 March 2017

Introduction
[1]        On 14 September 2012 this court granted decree in absence reducing a lease agreement between Mr Cation and the pursuer dated 15 February 2007 over 107 Lathro Park, Kinross (the “2007 Agreement”).  That action of reduction was brought by the current defender, Bank of Scotland Plc.

[2]        In the current action, the pursuer seeks reduction of that 2012 decree.  The pursuer avers that he has a valid defence to the action which had resulted in the 2012 reduction, and that he did not have the opportunity to state or prove such defence at that time due to mental health problems.

[3]        The case called before me on procedure roll on the issue of whether the 2007 Agreement between Mr Cation and the pursuer was correctly designated as a lease and in particular whether it contained an obligation to pay rent, which is one of the essential legal requirements for a lease.

Terms of  the 2007 Agreement
[4]        The 2007 Agreement bore to be a lease and provided in respect of rent as follows:

“1.  Rent Payable

The rent is payable by the Tenant monthly, in advance, on or before the 1^st day of each month.

The total monthly rent sum payable by the Tenant is £1,000 per month.

The rent payable under this agreement also forms part of a separate agreement between David McKenzie Cation and Kenneth Barry Whitcombe (the separate agreement), which contains provisions for the Tenant to offset rent charges as specified in that agreement.

The method of payment will be as specified in the separate agreement referred to above.”

Averments
[5]        The pursuer averred in some detail a history of the involvement of the pursuer and Mr Cation with the property at 107 Lathro Park, Kinross.  In summary, he averred that the pursuer and his then wife jointly purchased the property in 2000.  The pursuer had had mental health issues, and his wife and daughters had moved out of the property in 2003.  In March 2004 the pursuer’s wife initiated divorce proceedings, seeking a financial settlement.  In August 2004 the pursuer was sequestrated.  Various proposals were made by Mr Cation as to how he might assist the pursuer with his financial problems and in making financial arrangements with his wife and trustee and sequestration.  The pursuer and his wife divorced in June 2006  and Mr Cation obtained a disposition of Mrs Whitcombe’s share of the property.  On 8 December 2006 the sequestration was ended, the pursuer was re‑invested in his estate and the permanent trustee was discharged.

[6]        The pursuer averred:

“On or about [8 December 2006] the pursuer and David Cation made a draft agreement allowing the pursuer to continue to occupy the subjects whilst the pursuer repaid the money provided by David Cation to settle the pursuer’s financial difficulties.  Following this agreement the pursuer and David Cation continued discussions for a formal lease agreement which would secure the pursuer’s interest in his home whilst he repaid the money…  On or about 15^th February, 2007 the pursuer and David Cation signed a lease agreement and a separate agreement concerning repayment by the pursuer to David Cation of the sums already paid out by him in respect of his divorce settlement and the settlement with his creditors.  In terms of these agreements David Cation granted a lease of the subjects to the pursuer and money paid under the lease would be used to offset the debt owed by the pursuer to David Cation.  Said lease agreement commenced on 15^th February, 2007.  It’s stated duration was ‘10 years (3650 days)’ (sic).  The rent payable under said lease is £1,000 per month, payable in advance.  Said lease agreement is referred to for its whole terms, which for the sake of brevity are held to be incorporate herein.  Said lease agreement is an assured tenancy of the subjects under the Housing (Scotland) Act 1988.  Following the signing of the lease agreement the pursuer remained in possession of the subjects in terms of said lease and he paid rent to David Cation.  In subsequent dealings with third parties David Cation referred to the pursuer as his being his tenant.”

Submissions
Defender
[7]        Counsel for the defender invited me to sustain the defender’s first and third pleas‑in‑law and dismiss the action.

[8]        He did not advance the argument which he had on record that the signature on the lease had been forged:  that was a matter which would require proof.  Similarly, he reserved his position on his argument that the 2007 Agreement had not been consented to by the defenders as heritable creditor.  The issue for procedure roll  was the simple one of whether the 2007 Agreement met the legal requirements for the constitution of a lease.  If it did not constitute a lease, then it was not appropriate that the decree be reduced, as the current action disclosed no substantial defence to the reduction of the 2007 Agreement. (McKelvie v Scottish Steel Scaffolding Co 1938 SC 278 at 280 and 281, quoted in Royal Bank of Scotland v Mathieson 2013 SC 146 at para [34]).

[9]        Counsel submitted that what was described in the pursuer’s averments was not a lease but an arrangement in which Mr Cation paid the pursuer’s debts and the pursuer repaid him for that.  It was possible to have an arrangement whereby a landlord owes money to a tenant and this is set off against the rent, but in this case it was the tenant who owed money to the landlord.  Although the lease used the word rent, regard had to be had to the substance of the arrangements which was simply debt repayment.  He referred to Rennie on Leases (2015) paragraphs 1‑14, 1‑19 to 1‑21, Wallace v Simmers 1960 SC 255 Glasgow Tramway and Omnibus Co Ltd v Corporation of the City of Glasgow (1897) 24 R 628.

Pursuer’s Submissions
[10]      Counsel for the pursuer invited me to allow Proof Before Answer.  He submitted that it was not appropriate to deal with the defender’s third plea in law at procedure roll, as it went to the merits of the case.

[11]      Counsel submitted that prima facie the terms of the 2007 Agreement contained the essential requirements of a lease.  There was no reason not to take the document on its face value.  The 2007 Agreement was an enforceable agreement to pay rent.  The separate agreement averred or referred to in the 2017 Agreement was an ancillary agreement which did not affect the obligation to pay rent.  That separate agreement related to a distinct agreement between the pursuer and Mr Cation as to how rent money received by Mr Cation was to be used.  In any event even if money was used to repay the debt there was no reason in principle why this was not a proper rent.  Finally he submitted that in any event the case had to go to Proof before answer to allow the whole circumstances to be considered before a decision could be reached.  Assuming it is a lease, it will continue beyond 15 February 2017 by tacit relocation.  Counsel referred to Rankine on Leases p 144, Mann v Houston 1957 SLT 89 and Bo’ness Town‑Council v Assessor for Linlithgowshire 1907 SC 774;  Glasgow Tramway and Omnibus Co Ltd v Corporation of the City of Glasgow.

Discussion
[12]      The essential characteristics of a lease are summarised by Professor Rennie as follows:

“For a lease to exist there must be agreement in relation to the subjects of lease, there must be a rent, a specific period of terms and the agreement must be between two legally distinct parties.  The actual words or headings used in a particular document are not conclusive.  Thus a document which is called a lease may not satisfy the common law definition.” (para 1‑14).

[13]      In the current case, the issue is whether there was a rent.  There was no dispute that the other essential requirements of a lease were satisfied.

[14]      So far as rent is concerned, Rankine states:

“As to the rent, the parties are entitled to agree to any elusory rent;  to a rent in the shape of service;  or to rent set against payment of interest on debt due by the landlord to the tenant, or reserved for liquidation of the same, or for any purpose not rendered illegal by the general law of contract.” (p 114)

[15]      In my opinion, the pursuer has pled a sufficient case to allow the question of whether the agreement constitutes a lease to go to Proof Before Answer.  He avers that the 2007 Agreement sets out in terms a monthly rent of £1,000 per month.  The pursuer avers that he paid rent to Mr Cation.  These averments in themselves could satisfy the essential requirement of rent.

[16]      Whether they do so in this case will require a full consideration of the surrounding circumstances.  Whether that clear statement of rent being payable is derogated from by what is said in the 2007 Agreement about a separate agreement can only be decided after evidence is led.  It is clear from the passage quoted above from Rankine that the requirement for rent can be satisfied in many ways, so long as not illegal.  That can include, but is not limited to, offsetting monies due by the landlord to the tenant.  It is difficult to see a circumstance where rent could be satisfied by offsetting against the rent sums due by the tenant to the landlord as it would not be possible to offset one sum due by the tenant against another sum due by the tenant.    However, the 2007 Agreement does not say that rent is to be offset against another sum due by the tenant:  it goes no further than saying that the separate agreement “contains provisions for the tenant to offset rent charges as specified in that [separate] agreement”  

[17]      Accordingly, in my opinion the 2007 Agreement is capable of constituting a lease but whether it does or does not cannot be established without enquiry into all the facts and circumstances. For these reasons I shall refuse the defender’s motion and allow Proof Before Answer.  I reserve meantime all questions of expenses.