In the recent case of Trustees of The Buchanan House Unit Trust v Scott Wilson Railways Limited, a court was asked to consider the scope of the equitable principle of abatement of rent in circumstances where, through no fault of either party, substantial remedial works were required to a leased property.
The Trustees of the Buchanan House Unit Trust (‘the Trustees’) and Scott Wilson Railways (Scotland) Limited (‘the Company’) were the Landlord and Tenant respectively under a lease originally entered into by different parties. The leased property (‘the property’) was the north wing of the 6th floor of an office building in Glasgow. The dispute arose out of works required to remediate curtain walling that had been defectively installed prior to the commencement of the lease. To allow the repairs to go ahead, the parties entered into a Remedial Works Agreement in terms of which the original contractor, M&H Limited (‘M&H’), agreed to complete the remedial works at no cost. The works were scheduled to last 93 weeks, from September 2016 to July 2018, but overran.
The Trustees subsequently raised an action against the Company for the recovery of rent and other charges due and payable under the lease between February and September 2019. The Company counterclaimed, first, that it was entitled to abate rent having being denied access to part or all of the property while the remedial works were ongoing and, second, that it was entitled to recover sums paid to the Trustees during that period on the basis of unjustified enrichment. The court was required to determine the following key issues:
- Did the circumstances in this case give rise to a right of abatement?
- Was such a right excluded by the terms of the lease?
- Were the Trustees entitled to retain sums already paid during the period for which a rent abatement was now sought?
In considering the first of these questions, the court made reference to the leading authority on the principle of abatement, Muir v McIntyre, in which Lord President Inglis stated that abatement of rent ‘is to be allowed if a tenant loses the beneficial enjoyment of any part of the subject let to him either through the fault of the landlord or through some unforeseen calamity which the tenant was not able to prevent’.
In the present case, it was accepted that the remedial work was not caused by the fault of either party. The question to be determined therefore became whether the circumstances represented an ‘unforeseen calamity’ of the nature contemplated in Muir v McIntyre.
Was the Company denied the beneficial enjoyment of the building through some unforeseen calamity?
The Company sought to prove that, as a consequence of the substantial remedial works, it was denied access to part or all of the property and thus to the beneficial enjoyment it had contracted for in terms of the lease. It argued that such circumstances, if established, would amount to an ‘unforeseen calamity’ entitling it to an abatement of rent. Taking a different view, the Trustees argued that the state of disrepair of the common parts was not an ‘unforeseen’ event, but one that had been provided for in the lease and thus ‘anticipated’ by the parties. They concluded on that basis that the right of abatement was not engaged.
The court rejected the Trustees’ arguments, pointing to the fact that the substantial and intrusive works required to remediate the property were not known to, or within the contemplation of, either of the parties when they entered into the lease. Those works were ‘unforeseen’ and therefore distinguishable from the ‘common repairs’ and ‘insured risks’ provided for in the lease.
Was the Company able to prevent the ‘unforeseen calamity’?
The Trustees submitted that, notwithstanding that the timescales for completion of the works overran, the Company could not seek to claim an abatement of rent in circumstances where they agreed to allow M&H access to the property. By signing the Remedial Works Agreement, the Trustees argued, the Company had effectively agreed to allow its occupancy rights to be infringed for the duration envisaged in that agreement.
The court acknowledged the attractiveness of that argument, before ultimately rejecting it as ‘flawed’. It deemed the agreement of the Company as ‘irrelevant’ to the issue of abatement on the basis that, had consent been refused, the remedial works could still have been instructed by the Trustees pursuant to their repairing obligations under the lease.
The court concluded by way of analogy that, unlike the typical situation where a tenant allows contractors access for refitting or improvement, in this case the Company had no real ‘choice’ as to whether or not the remedial works were carried out. In reality, its only ‘choice’ was whether or not those works went ahead with its approval.
Had the parties contracted out of the availability of the remedy of abatement?
In answer to this question, the Trustees made reference to Clause 4.1 of the lease, which obliged the Company to pay rent as a ‘clear sum’, with no right to ‘withhold the rent’ or to seek ‘compensation’ or ‘set off’. The Trustees argued that this clause was broad enough in its terms to also exclude by necessary implication the right to abate rent.
The court disagreed with that analysis. In doing so, it drew out the distinction between the equitable principle of abatement, which arises automatically out of common law, and the remedies of retention of rent, set-off and compensation, which flow from the law of contract.
Were the Trustees entitled to retain the rent already paid under the lease?
In this case, the Company sought to recover rent and other charges paid under the lease during the period over which a rent abatement was sought on the ground that they were paid by mistake. The Trustees argued that, at the time of those payments, there was a valid and subsisting contract between the parties and therefore a legal ground justifying the retention of the sums paid. On that basis, they concluded, the remedy of ‘unjustified enrichment’ was not available.
The Court rejected the Trustees’ argument. It was satisfied that, in circumstances where it had concluded that the Company was entitled to an abatement of rent, the Company had a relevant claim against the Trustees for unjustified enrichment. In reaching its decision, the court once again quoted the case of Muir v McIntyre in which the Court explained that a tenant ‘ceases to be the debtor of his landlord to the extent to which he is entitled to an abatement’.
The court in this case ultimately concluded that the Company was entitled to abate rent, albeit the extent of that abatement remains a matter to be determined at a further evidential hearing. In reaching its decision, the court was keen to emphasise that the principle of abatement is based on the fact that a tenant should not pay for rights he never enjoyed. It went on to explain that, if the right to abate had not been available in this case, the Company would have had no remedy and thus would have been required to pay rent for a property to which it had been denied access. Such a result, the court concluded, would be inconsistent with the principle of abatement, being one which is ‘founded on the highest equity’.