It may sound trite to suggest that verbal agreements should always be put in writing, but it is often the case that parties rely too heavily on the spoken word without protecting their position by committing what has been said to writing. This was illustrated in the recent Sheriff Court case of Ashford and Thistle Securities LLP v Maureen Kerr.
The facts of the case
- Ms Kerr was a tenant of premises at 138 High Street, Dalkeith under a lease granted by Parkcross Limited from May 2004 to April 2009.
- The lease provided that if rent remained unpaid for a period of 21 days it would be "in the power of the landlord to put an end to the lease".
- During the tenancy, Ms Kerr did not pay any rent as she was of the opinion that she had made a verbal agreement with Parkcross allowing her to carry out repairs and refurbishment work on the premises in lieu of rent until March 2009.
- In February 2005, Parkcross sold the property to Ashford and Thistle Securities (ATS).
- ATS served a notice on Ms Kerr advising her of its intention to irritate, or terminate, the lease if the outstanding rent was not received.
- Since no payment of the outstanding rent was forthcoming, this was followed by a second notice by ATS formally irritating the lease on 3 March 2005.
Two issues facing the court
The case was to be decided on two issues: -
- if there was a verbal agreement between Parkcross and Ms Kerr, would that be binding on ATS as Parkcross' successors?
- could the lease be effectively terminated by ATS in terms of the notices they had served on her, particularly where Ms Kerr had never received any intimation of the change of ownership?
Initially, the sheriff decided that any verbal agreement could not be binding on the landlord's successors as owners of the property. Ms Kerr appealed this decision, asking the sheriff principal to consider a different question of whether a new landlord, on taking over title to the property, is entitled to serve a Notice of Irritancy and proceed to enforce it on the basis of rent allegedly owed to its predecessor without giving the tenant notice of the basis on which the arrears are owed to him? This was not something that the original sheriff had considered, but the sheriff principal on appeal felt that it was of fundamental importance to the case.
Statutory protection to tenants
In Scotland, statutory protection is afforded to tenants in terms of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 which sets out the procedure which a landlord requires to follow if it wishes to validly irritate a lease. The notices served on Ms Kerr by ATS therefore were scrutinised by the court to see if they complied with the Act. The court was of the opinion that the combined effect of the statutory provisions was that the landlord could only proceed to irritancy if the tenant was told at the time of service of the notice what she was required to do to avoid irritancy.
ATS's initial Notice contained the words "require the tenant to make payment" but was not followed by the words "to him" and the court decided that it was perfectly possible for a landlord to serve a Notice of Irritancy on the basis of rent previously owed to his predecessor. In essence, to make the provision workable would require intimation of a requirement to settle with the original landlord since a tenant is unlikely to be required to settle a debt with someone other than the person who is owed it. This would also comply with the statutory intention of giving notice to a tenant of what is required to avoid irritancy.
What the court decided
The court was of the opinion that ATS had relied too heavily on the bold assertion that the rent was simply in arrears. This excluded the possibility that it was not recoverable by the original landlord and the notice ultimately did not comply with the 1985 Act. The sheriff principal pointed out that, even if he was wrong in his view and the correct interpretation was that all a Notice of Irritancy requires to do is to inform the tenant that arrears exist and require to be paid, ATS had still failed to state why it was that rent allegedly due prior to their ownership should have been paid to them, rather than to Parkcross. It may have been that ATS had a right to the unpaid rents due to an assignation in their favour – but, crucially, this had not been disclosed to the court.
This case teaches us a few lessons for the future: -
- commit all verbal agreements to writing or run the risk of not being able to enforce them
- intimate changes of ownership to your tenants timeously, and
- check and double check the wording of irritancy notices.
The full text of the case can be found on the Scottish Courts website at http://www.scotcourts.gov.uk/opinions/A1560_05.html.