Just how badly does a landlord require to act to justify a tenant terminating the lease as a result of its wrongdoing? This was the question posed in the recent Court of Session case of Central Car Auctions Limited v House of Sher (UK) Limited.
The facts of the case
- Central Car Auctions (CCA) conducted a car auction business from multi-storey premises at 15 Scotland Street, Glasgow, which it leased from House of Sher (HS) in terms of a lease running until September 2014.
- CCA ceased trading and vacated the premises in April 2002, but continued to pay rent.
- Without CCA's knowledge, HS allowed T-Mobile to install and operate telecommunications equipment on the roof of the building.
- CCA served a notice on HS, terminating their lease.
Main issues to be considered
In this action, the court had to decide two things:-
- whether HS's actings constituted a material breach of the terms of the lease with CCA; and
- whether CCA was entitled to terminate the lease without first giving HS notice of its intention to do so unless the breach was rectified.
Material breach or not?
At the outset, Lord Mackay considered that by allowing T-Mobile to access the building and install telecommunications equipment on the roof, HS had acted in breach of its obligations to CCA under the lease. HS was obliged to maintain and defend CCA as tenants in peaceable possession of the building during the currency of the lease. HS's actions had either caused a measure of actual interference with CCA's peaceable possession of the building, or were calculated to lead to such interference.
However, Lord Mackay was of the opinion that HS's actings had not resulted in any material interference with CCA's ability to carry on its business at the premises, which involved storing and working on cars. Nothing that HS had done indicated any intention that the lease should not remain in existence or that HS was not prepared to fulfil its obligations as landlord. It was also relevant that there was nothing in the lease nor in the design of the building to suggest that CCA would require to make any use of the roof throughout the tenancy. The court considered it significant that T-Mobile had in fact postponed agreeing a formal lease with HS pending the outcome of CCA's case as any breach that had taken place thus far could be rectified since T-Mobile's occupation had not been formalised.
Absence of notice of intention to terminate
Having come to the conclusion that HS's breach was not material and that it could be rectified, the court held that CCA had not been entitled to terminate the lease without first giving HS notice of its intention to do so. CCA did not give HS the opportunity to rectify their breach.
Given the fact that CCA were no longer trading from the premises, they would evidently have been keen to terminate the lease and appear to have pounced on the opportunity to do so. Unfortunately for them, the court was of the opinion that they had taken a step too far by not giving HS the opportunity to remedy their wrongdoing.
There is also a lesson to be learned here for landlords who must not forget that, even where a tenant has vacated the premises, if the lease remains in place then the landlord must treat the premises as if they continued to be occupied by the tenants who are entitled to re-occupy the premises at any time. They cannot allow another tenant to take occupation without having first negotiated an early renunciation of the original lease or they run the risk of action being taken against them.
The full text of the case can be found on the Scottish Courts' website at http://www.scotcourts.gov.uk/opinions/2006CSOH137.html