Often, the first thing that springs to mind when a landlord is faced with a defaulting tenant is to irritate the lease, get the offending tenant out, and re-let the premises. While this may turn out to be the best course of action, the recent Court of Session case of Marcus Dean t/a Abbey Mill Business Centre v Tony Russell Freeman serves as a reminder to landlords to review the situation before serving a notice to irritate to the tenant, as otherwise they may well find that the effect of the notice is not what they had intended.
Summary - the practical implications
It is not advisable to serve a notice to irritate as a knee-jerk reaction. The decision to irritate should not be taken lightly, particularly where there are significant dilapidations issues. Landlords must take account of the fact that, where the lease has been irritated, the terminal conditions relating to repair, which come into effect at the end of the lease, will no longer apply.
The facts of the case
- Mr Dean, trading as Abbey Mill Business Centre in Paisley, sought payment from the guarantor of a former tenant of a number of units within the centre for various sums of money for the redecoration of the units.
- The tenant had undertaken in terms of its leases to carry out certain repairing and redecoration works when it vacated the premises at the end of the leases, a normal term for leases of this nature.
- The tenant went into liquidation and Mr Dean reacted by immediately serving a notice of irritancy.
- However, as a result, he disabled the tenant from performing its repairing obligations and lost his right to found on its non-performance.
Irritancy - why it was the wrong thing to do
Prior to the Court of Session action, Mr Dean tried, but failed, to establish that the irritancy was in fact invalid and that, in any event, the liquidator had agreed that the leases should continue notwithstanding the service of the notice to irritate. He evidently had not been aware that the practical implications of the service of the notice to irritate would prevent the tenant from complying with its obligations to repair and re-decorate at the termination of the leases.
The Court's decision - repairing obligations "before" and "after"
The Court of Session decided that, as a result of the irritancy, Mr Dean's claim against the guarantor for redecorating and re-carpeting costs could only be brought if the costs fell within the clauses of the leases concerning the tenant's repairing obligations during the currency of the leases, and not the terminal repairing obligations. A distinction was therefore to be made between so-called working conditions which applied during the term of the leases, on the one hand, and terminal conditions, which appied at the end of the lease, on the other. The court held that the landlord's claim for payment could only succeed if the degree of wear and tear was to such an extent as to require renewal or repair when viewed from the standpoint of a reasonable person in occupation of the premises.
Although the court accepted that for the purposes of re-letting, redecoration might be required, they rejected Mr Dean's argument that a unit automatically ceased to be in good decorative order whenever the tenant affixed something to it because there might then arise a need to redecorate when the affixed article was eventually removed.
After a range of evidence was led in relation to the condition of the units, it became apparent that the image and condition of the accommodation had been important to the tenant and that, on the whole, there was nothing to indicate that the premises had not been maintained in a good state of decoration during the currency of the tenancies.
The importance of the deposits
In the end, the court found that there was damage to one carpet and two cracked window panes within the premises sufficient to justify Mr Dean's claim. However, the tenant had paid deposits at the commencement of the leases and these amounted to a sum in excess of the financial quantification of the damage. Mr Dean could simply deduct a sum representing the damage caused to his property from the deposits which he held. Accordingly, it was decided that no liability attached to the guarantor and he was absolved from any claim by Mr Dean.
A lesson learned
So what can be learnt from Mr Dean's unfortunate experience? Clearly it is not advisable to serve a notice to irritate as a knee-jerk reaction. The decision to irritate should not be taken lightly, particularly where there are significant dilapidations issues. Landlords must take account of the fact that, where the lease has been irritated, the terminal conditions relating to repair will no longer apply.
The full text of the decision can be found on the Scottish Courts website at www.scotcourts.gov.uk/opinions/2006CSOH91.html