Scottish Sheriff Court Decisions

SHERIFFDOM OF LOTHIAN AND BORDERS AT LIVINGSTON

[2017] SC LIV 38

A197/16

NOTE

by

SHERIFF DOUGLAS A KINLOCH, Advocate

Sheriff of Lothian and Borders at Livingston

in causa

BRUCEFIELD ESTATE TRUSTEE COMPANY LIMITED, (As Trustee for the Brucefield Estate Unit Trust), (In Liquidation), a company incorporated in Jersey under registration number 90043 and having their Registered Office at 44 Esplanade, St Helier, Jersey, JE4 9WD and MICHAEL MAGNAY, Insolvency Practitioner, of Deloitte LLP, 20 Castle Street, Edinburgh and PHILIP STEPHEN BOWERS, Insolvency Practitioner, of Deloitte LLP, Athene Place, 66 Shoe Lane, London, the Liquidators thereof

Pursuers;

against

COMPUTACENTER (UK) LIMITED, a company incorporated under the Companies Acts and having its Registered Office at Computacenter, Hatfield Avenue, Hatfield, Hertfordshire, AL10 9TW

Defenders:

Act:  Hale; Maclay, Murray & Spens LLP

Alt:  Drummond; DLA Piper Scotland LLP

Livingston,     May 2017

The sheriff, having heard parties’ procurators in debate and having resumed consideration of the cause sustains the first, second, and fourth pleas in law for the pursuer and repels the first, third and fourth pleas in law for the defender; finds it unnecessary to deal with the parties’ remaining pleas in law; accordingly grants craves one and two for the pursuer and in terms thereof (1) finds and declares that the lease of the subjects known as Unit 1, Drummond Square, Brucefield South Industrial Park, Livingston, between Livingston Development Corporation and Computacenter (UK) Ltd (formerly known as Computacenter Ltd) dated 17 and 30 July and registered in the Books of Council and Session on 14 August 1990, in respect of which the pursuers hold the landlord’s interest, continued by tacit relocation for a period of one year from 29 May 2015 and was terminated with effect from 28 May 2016; (2) grants decree for payment by the defender to the pursuer of the sum of SEVENTY TWO THOUSAND SIX HUNDRED AND FORTY SEVEN POUNDS AND FORTY FOUR PENCE (£72,647.44) Sterling with interest thereon at the rate of 8% per annum from the date of citation until payment; continues all questions of expenses meantime.

NOTE

[1]        This is an action by the landlords of business premises known as Unit 1, Drummond Square, Brucefield South Industrial Park, Livingston, against the tenants.  The landlords’ first crave seeks a finding and declaration that the lease between the parties continued by tacit relocation for a period of one year from 29 May 2015 until 28 May 2016.  Their second crave seeks a decree for payment in the sum of £72,647.44, being the rent said to be due by the tenants.  The tenants deny that they are due to pay any rent on the basis that certain actions of the landlords amounted to notice to them that the lease was to come to an end as from its expiry date of 29 May 2015.  The tenants argue that any continuation of the lease by virtue of tacit relocation was accordingly excluded by the landlords’ actions, and argue that they have no liability to make payment of the rent. 

[2]        The case called before me on 2 May 2017 at Livingston Sheriff Court for a debate on the pursuers’ preliminary pleas-in-law.  The pursuers were represented by Mr Hale, Solicitor, Maclay Murray & Spens LLP, Edinburgh and the defenders by Mr Drummond, Solicitor, DLA Piper Scotland LLP, Edinburgh. 

Nature of tacit relocation

[3]        In his submissions Mr Hale, for the landlords, reminded me of the nature of tacit relocation.  It was, he said, one of the anomalies of the law of leases that the mere expiry of the agreed duration of a lease does not bring the lease to an end.  In every lease there is an implied agreement that whatever its stipulated period may be, that period may be extended by the tacit consent of the parties.  If neither party has given notice of his intention to terminate the lease, the parties are by their silence presumed to have agreed that the lease is to be prolonged.  Tacit relocation then operates to extend the period of the lease by one year.  In relation to the concept of tacit relocation I was referred to Hume’s Lectures, Vol. 4, p.101; the Stair Memorial Encyclopaedia Landlord & Tenant (Reissue) (2011), paras. 361, 370; Paton & Cameron, Landlord and Tenant, p. 222, 224, 225 and 272; Rankine, The Law of Leases, 3^rd Ed., p. 597 and 598.  I was also referred by Mr Drummond, for the tenants, to Rennie, Leases; McAllister, Scottish Law of Leases; Gerber, Commercial Leases in Scotland:  A Practitioner’s Guide; and Cockburn & Mitchell, Commercial Leases. 

Landlord’s submissions

[4]        In seeking decree de plano Mr Hale’s first argument on behalf of the landlords was that the action could be disposed of on a very simple basis.  This was that for tacit relocation to be excluded, and for the lease to come to an end at its expiry date, a notice in writing by at least one of the parties was required.  This was the result, he argued, of clause 9 of the lease, which was in the following terms:

“Any notice, request or consent under this lease shall be in writing …”.  

He pointed out that it was not suggested by the tenants in their averments that any notice in writing regarding termination of the lease had been given by either party.  The actions by the landlords which were said by the tenants to amount to notice to them that the lease was to end could not be looked at because of the effect of clause 9 of the lease.  The only way that the lease could have been brought to an end on its expiry date, he argued, was by either party notifying the other in writing that they did not wish it to continue.  In the absence of a written notice, the lease therefore, he argued, continued by virtue of tacit relocation.  He advised me that so far as he was aware there was no reported decision regarding the effect of a clause such as clause 9 in relation to the question of tacit relocation.

[5]        Expanding on his argument by reference to his written submissions, Mr Hale argued that the overall purpose of the clause was to provide the parties with certainty and to avoid the problems that can arise when notices are not in writing.  It was to ensure that matters which were of importance to the parties to the lease were documented in writing.  A requirement that a notice excluding the operation of tacit relocation had to be in writing would be entirely consistent with that purpose.  The parties would have understood that clause 9 included any notice by the landlords to the tenants of the necessity for the tenants to quit the premises, and similarly a notice by the tenants of their intention to remove from the premises at the termination of the lease.  Mr Hale suggested that I ought to have regard to the principles of interpretation of contacts as recently reviewed in the Supreme Court in the case of Arnold v Britton & others [2015] UKSC 36 in interpreting clause 9.

[6]        On behalf of the tenants Mr Drummond argued that written notice did not have to be served by either party in order to terminate the lease.  Although there were many examples within the lease of notice having to be served (for example under clauses 6 and 7), and such notices would therefore have to be served in writing by virtue of clause 9, the lease did not contain any specific provision requiring a notice to be given regarding tacit relocation.  The requirement to serve written notices in respect of certain specific matters as provided for in the lease should not be widened by implication to include the question of tacit relocation.  In this connection, it was well settled that at common law a notice to either party of a lease that tacit relocation was not to operate could be made verbally in the case of urban leases:  Paton & Cameron, p. 224; Gilchrist v Westren (1890) 17R 363; Cygnet Group plc v C & J Clark Retail Properties Limited 1996 SLT 1325.  This was an urban lease, and to hold that clause 9 required a written notice to exclude the operation of tacit relocation would be to remove the parties’ common law rights, and that was not an appropriate way of interpreting the lease.

Was a written notice required?

[7]        In Paton & Cameron, Landlord and Tenant, at p. 224, it is stated that: 

“It was for long the familiar practice for either the landlord or the tenant of urban subjects to intimate verbally his intention not to allow tacit relocation to occur, provided that the other party was made aware of his intention.” 

Verbal notice, it seems, has therefore long been established as sufficient notice by either party of their intention to bring the lease to an end.  The lease does not specifically require either party to serve a written notice to prevent the operation of tacit relocation taking place.  It is possible that the lack of a specific provision regarding tacit relocation reflects a deliberate decision by the draftsman of the lease in order to maintain the common law position.  However, as set out above, the landlords argue that clause 9 is wide enough for it to mean that if either party wished the lease to terminate at its normal termination date, then they would have to give written notice to the other party.  Read in this way, clause 9 would be a clause which excludes the operation of the common law.  While it is no doubt possible, as suggested in the textbooks, for parties to a lease to exclude the operation of the common law, case law makes it clear that the exclusion of rights or remedies provided by the common law is not something to be readily implied.  For example, in McBryde, The Law of Contract in Scotland, 3^rd Ed., para. 9-09 it is said that:  “exclusion of the liability imposed by the general law needs a clear express term”.  Similarly, in the case of Pollock & Co v Macrae 1922 SC (HL) 192, it was said that a condition in a contract of sale intended to prevent a party seeking to use the ordinary remedies which the law gives him in the event of a breach of contract “to be effectual must be most clearly and unambiguously expressed, as is always necessary in cases where a well known common law liability is sought to be avoided.”  I agree with the submissions made on behalf of the tenants that the exclusion of the right of either party to give verbal notice of their intention to terminate the lease would require clear and express provisions in the lease. 

[8]        I therefore agree with the submissions made on behalf of the tenants that clause 9 should not be read in a wide way as to mean that it is excluding the common law right of the parties to intimate to the other verbally, or even by means of actions, that they wish the lease to terminate at its normal expiry date.  The common law does not require any specific form of notice to be given by either party, far less any written notice.  Verbal notice, the authorities make clear, is sufficient, but even the actions of the parties from which it can be inferred that they wish the lease to terminate can, as I understand it, be sufficient.  Thus it was said in the Cygnet Group case that:  “What is clear is that some mode of communicating to the landlord a tenant’s intention not to continue with the lease is required”.  All of this means, in my view, that clause 9 should not be read in such a way as to remove the parties’ right to give notice informally. 

[9]        It does not seem to me that the canons of interpretation as recently confirmed by the Supreme Court in the Arnold case are of any assistance here.   This is not really a case where a clause clearly covers a situation which has arisen but was badly expressed or vague, and where it is necessary to try and understand what the parties meant in the clause.  It is a case where the lease simply does not deal with tacit relocation at all, and in that sense no real interpretation is required. 

[10]      The lease does not specifically require a notice in writing to be given regarding tacit relocation.  I do not see that it is appropriate to interpret clause 9 as containing an implied requirement that there must be a notice in writing.  That would remove the parties’ common law rights.  I am not therefore persuaded by the pursuers’ argument that clause 9 requires notice by either party of their intention to terminate the lease to be given in writing. 

Actions of the parties
[11]      The curious feature of this case is that the tenants’ position is that they have no liability to pay any rent beyond the expiry date of the lease, but they do not aver anywhere that they ever did or said anything to make the landlords aware at or before the date when the lease was due to terminate that they wished the lease to come to an end.  Rather, they found on actions by (or on behalf of) the landlords which they say made it clear that the landlords wished the lease to come to an end, and that these actions were sufficient to prevent the lease continuing by tacit relocation. 

[12]      Although not the subject of averment, and therefore properly speaking not relevant, it is of some help in understanding the position to note that although the lease commenced in 1990 I was advised that, surprisingly, the property in question had lain empty for many years, until the tenants sublet it to another company in or around 2012.  That other company was called Lothian Recycling JS Limited (“Lothian”).  I was told that Lothian went into liquidation at about the time the lease was due to terminate, but on liquidation of Lothian the tenants did not seek to occupy the premises themselves, nor to find another subtenant.  Rather, when presented with demands by the landlords for payment of the rent, these demands were simply ignored, although I was told that there may have been some reference in correspondence to the claim that the lease had been terminated by the landlords. 

[13]      In any event, the tenants now found on certain actions by, or on behalf of, the landlords, which they say amounted to notice by the landlords that the lease was not to continue by means of tacit relocation.  The crucial averments by the tenants in this connection are brief and are as follows: 

“In or around May 2012, the Defender was granted consent by the Pursuer to sublet the Premises to Lothian Recycling JS Limited (“Lothian”).  In or around February 2015, the Pursuer’s property agent, Graeme Pollock of J A Pollock Property Consultants Limited, contacted Simon Capaldi at Knight Frank.  Mr Pollock contacted Mr Capaldi in order to inquire about the covenant strength of the then present subtenant of the premises, Lothian.  Mr Pollock contacted Mr Capaldi on the belief that Mr Capaldi was instructed on behalf of the defender.  Mr Capaldi understood that Mr Pollock was contacting him with a view to the continued occupation of Lothian in the premises at the end of the Defender’s Lease with the Pursuer.  Mr Capaldi intimated this information to Kevin Graham, Head of Facilities for the Defender.  There was an effective communication transfer to the Defender.”

[14]      According to these averments, therefore, an agent of the landlords contacted a person who was believed to be an agent of the tenants in order to “inquire about” the ability of the subtenants to pay the rent.  According to the averments the agent thought to be acting for the tenants notified an employee of the tenants that this inquiry had been made. 

[15]      The tenants make further averments which I must mention.  These relate to actings of both parties after the inquiry was made which are said to be “consistent with the termination of the lease”.  It is said that the landlords issued a final rent and service charge demand to the tenants for a period of one day, being the day on which the lease was due to terminate.  It is said that this indicates that the landlords regarded the lease as having come to an end.  Similar averments are made in respect of insurance premiums. 

Submissions

[16]      The tenants’ position, as I understood the arguments made on their behalf, is that the inquiry made by the landlords’ agent about the subtenant’s ability to pay the rent was sufficient to make it clear to the tenants that the landlords were seeking to terminate the lease with the tenants at its expiry date, and to put in place a new lease with the subtenants, whereby the subtenants would pay rent direct to the landlords.  This is the inference to be drawn, the tenants argue, from the fact that the landlords’ agent was seeking to ascertain “the covenant strength” of the subtenant.  It was argued that evidence should be allowed so that the actings of the parties could be explored properly.

[17]      The solicitor for the landlords argued that this inquiry by the landlords’ agent could never be enough to amount to notice being given to the tenants of the landlords’ intention to bring the lease to an end at its expiry date.  All that had happened, Mr Hale argued, was that according to the defenders’ averments, the landlords’ agent had made an inquiry about the ability of the subtenant to pay the rent.  Even assuming that the agent was authorised by the landlords to make this inquiry, it was just that, an inquiry and nothing more.  Far more than this was required to exclude the operation of tacit relocation.  Although verbal notice to the tenants of an intention to bring the lease to an end would suffice, the authorities made it clear that what was required was “a definite and unconditional intimation enabling the other to know exactly his position” (Stair Encyclopaedia, para. 395), or a notice that “must explicitly require the tenant to remove (Paton & Cameron, page 276), or notice, even informal, if it is “seriously made and explicit” (Rankine, page 597).  Mr Hale argued that all that the tenants had averred was a casual discussion between letting agents in relation to which it was not said that the discussion had come to any conclusion, and which could never be seen on any view as a clear and definitive indication by the landlords that the lease was to come to an end. 

Did the landlords’ actions amount to notice to terminate?

[18]      In relation to the landlords’ actions, it strikes me that it is not averred on behalf of the tenants that the landlords themselves had any knowledge of any inquiry carried out by their agent.  It is not averred by the tenants, for example, that the landlords instructed their agent to contact the tenants’ agent.  It is not even averred that the landlords knew that the discussions were taking place.  Unless it is said that the agents were given express authority to act, or that there was implied authority, or that the principals subsequently ratified the agents’ actings, it is difficult if not impossible to see that such discussions could ever be seen as a notice by or on behalf of the landlords.  To my mind this is fundamental, and for that reason alone, it seems to me, the actings of the landlords’ agent as founded upon by the tenants could not be sufficient to constitute notice to the tenants of the landlords’ intention to terminate the lease. 

[19]      Even if I am wrong in that view, what is averred on behalf of the tenants is that the landlords’ agent contacted the tenants’ agent in order to “inquire about” the ability of the subtenants to pay the rent.  Even if this action could be seen to indicate that the landlords knew of the inquiry and were considering entering into a new lease with the subtenants, an inquiry about the subtenants’ ability to pay the rent could never in my view amount to the “explicit” notice to the tenants that the lease was being brought to an end.  An inquiry is just that, an inquiry.  It is not a definite and unconditional intimation to the tenants that the lease was being brought to an end.  And so even if, as averred, an employee of the tenants became aware of the inquiry, all that was communicated to the tenants was the same inquiry and no more. 

[20]      In relation to the averments regarding the subsequent actings of the parties, it is important to note that the tenants do not suggest that these actings actually constituted notice by either party of the termination of the lease.  What is said is that the notice to terminate was constituted by the inquiry made by the landlords, and that these subsequent actings are consistent with notice to terminate having been given and accepted.  I have considered whether these other averments mean that it would be appropriate for a proof to take place to allow the court to hear evidence of all that happened.  The answer to that question, it seems to me, is that because the crucial averments fall so far short of constituting notice by the landlords of the termination of the lease, the subsequent actings of the parties simply cannot alter that position so as to turn the earlier inquiry into a notice of termination. 

[21]      I am very conscious that the sum sought by the landlords is over £72,000, which is, on the face of it, a substantial sum of money, although I do not know the scale of the tenants’ operations, and the significance of such a sum to them.  Granting decree for such a sum without hearing any evidence, which is what the landlords ask me to do, is a quite a big step to take. I am conscious also that Lord Glennie, in the Inner House (in the cases of Heather Capital Limited &c v Levy & McRae 2017 SLT 376, and JD v Lothian Health Board unreported 28 April 2017), has recently emphasised the undesirability of deciding certain cases on the pleadings without hearing evidence.  He said, for example, in the Heather Capital case that: 

“In many cases issues of credibility might arise, the evidence may be far more nuanced than it is possible to convey on paper, explanations may be given more fully and persuasively than can come over in the pleadings, and … it does seem to me that the cases with which we are concerned illustrate the danger of the court being drawn into deciding cases on detailed averments of fact when it would be more appropriate that all the evidence be heard before any decision is made.”       

However, although in this case at this stage I am concerned only with the defenders’ pleadings, it appears from a perusal of the pursuers’ pleadings that no questions of credibility will arise in relation to the crucial averments made by the tenants as set out above.  There is also nothing in the landlords’ averments (so far as they might be relevant) regarding communications between the parties’ agents which suggests that tacit relocation was excluded.  Moreover, no matter what nuances might emerge from evidence in this case, it seems to me that nothing could turn an inquiry into a definite notice to quit.  Nothing could take the averments as to the landlords’ actings to the level that they might be seen as clear notice to the tenants that the lease was to come to an end. 

[22]      For all those reasons I have come to the conclusion that this is a case where even if the tenants prove all their averments they simply cannot succeed with their defence.  I have come to the conclusion that the averments in question do not, no matter how they are read, even come close to averments which would justify the court holding that the landlords had given notice to the tenants that the lease was to come to an end.  The defenders pleadings do not disclose any dispute in relation to the sum sued for, save for their contention that the lease terminated on 28 May 2015.  The defenders do not have any pleadings to suggest that the sum sued for is excessive.  I proceed on the basis that there is no dispute over the amount of rent, only whether it is due at all.   This is therefore a case in which, in my view, it is appropriate to grant decree de plano in order to avoid a fruitless and possibly lengthy proof taking place.  It seems to me that this is one of these, possibly fairly rare, cases where the court can dispose of the action without hearing any evidence.

[23]      I will accordingly sustain the pursuers’ preliminary pleas and grant decree de plano against the defenders in terms of which there will be a declarator under crave 1 and decree for payment under crave 2.  I was not addressed in relation to expenses, and the case will need to be put out for another hearing on the question of expenses, unless the matter can be agreed.