Last month's edition of Open Door looked at a recent decision from the High Court in England on the remedies available to landlords under insolvency legislation in England against tenants who enter into administration. Similarly, in the recent case of Marinus Charles Maris and Mrs Roxanne Maria Sloane-Maris v Banchory Squash Racquets Club Limited, the Court of Session in Scotland has looked at the statutory arrangements north of the border in relation to irritancy, the Scottish term for what is called forfeiture in England.
In Scotland, the rights and obligations of landlord and tenant are in the main governed by the lease itself. Unlike England, Scotland is largely free from legislative interference in landlord/tenant relations. There is little legislation in Scotland to override the terms of a lease, although the main example of limited statutory intervention is the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 which introduced an element of reasonableness in relation to irritancy based on a tenant's monetary or non-monetary breach of a lease. This applies irrespective of the actual lease terms, so any irritancy provisions in the lease will be subject to the statutory provisions and over-ridden by them if they conflict.
Unlike the situation in England, in Scotland there is a specific requirement for the landlord to serve a notice of intention to irritate on the tenant in cases of non payment of rent, giving the tenant at least 14 days to remedy the breach. For non-monetary breaches, the tenant must be given a reasonable opportunity to remedy, and the lease can only be irritated in the case of a non-monetary breach if, in all the circumstances, a "fair and reasonable" landlord would do so.
The terms of the lease
Mr and Mrs Maris owned the Tor-na-Coilee Hotel in Banchory. In 1979, their predecessors granted a 99 year lease in favour of Banchory Squash Racquets Club Limited of an area of land within the hotel grounds. In accordance with the requirements of the lease, the squash club erected squash courts and associated offices and were thereafter required to maintain and repair them. The lease required the squash club to permit the hotel guests to use the squash courts and facilities and the hotel owners were required to provide facilities within the hotel for booking squash courts. No power was given to the landlords to enter the squash courts to carry out repairs and bill the tenants back, but there was an irritancy clause which provided that the landlords could terminate the lease if the tenants were in breach of their obligations of maintenance and repair.
Tenants' failure to maintain
By 1996 the squash court buildings were deteriorating both inside and out and the roof was leaking. Mr and Mrs Maris made various complaints to the squash club over the next few years but the squash club's response was that they lacked sufficient funds to enable them to do anything other than a few minor repairs. In 2003, the hotel owners instructed a firm of surveyors to prepare a schedule of dilapidations which reported on the condition of the buildings and in November of that year they served a Notice of Irritancy on the squash club. This notice enclosed the schedule of dilapidations specifying the repair works to be carried out by the tenants and stated that if the work specified was not carried out within three months of the date of the notice, the lease was terminated.
The squash club did not reply to the notice. Other than two very minor repairs, none of the works detailed in the schedule of dilapidations were carried out, or even commenced. When the three month period expired, the hotel owners raised court proceedings and in January 2006 the Sheriff Court granted decree of irritancy and removing.
Fair and reasonable test - when does it apply?
Meanwhile, thanks to a third party donation, the squash club were in fact able to carry out the repairs. This was more than a year after the hotel owners had commenced their court proceedings but prior to the closing submissions of the court case. This led the squash club to raise an appeal under Section 5 of the Law Reform (Miscellaneous Provisions)(Scotland) Act 1985, which imposes the "fair and reasonable" test on a landlord wishing to terminate a lease in the event of a material breach by its tenant. The squash club conceded that the hotel owners had acted reasonably in irritating the lease due to the state of disrepair of the buildings and in setting the three month timescale for completion of the works. However, their argument was in relation to the timing of the fair and reasonable test: the crucial point for the court to decide was whether this test should be applied -
- at the time at which the landlord exercises his right to terminate the lease; or
- at the time when the court has to decide whether to grant or refuse declarator of irritancy.
The squash club argued that the second option applied and the test should be applied at the later date, by which time they had completed the repair works.
Fair and reasonable at the exercise of the right to terminate
The court disagreed with the squash club and refused their appeal. The judges were of the opinion that the wording in Section 5 that "a landlord shall not, for the purpose of treating a lease as terminated or terminating it, be entitled to rely..." (emphasis added) indicated that the legislation contemplated reliance on the irritancy provisions of the lease as being for the purpose of terminating the lease. The fact that regard must be had as to whether a tenant has been afforded a reasonable opportunity to remedy the breach and that this reasonable opportunity must occur prior to the act of termination could not be reconciled with the squash club's argument. The court's decision on a case before them requesting declarator of irritancy therefore was simply a means of establishing judicially that, at an earlier date, the lease was validly terminated. Invoking events after the act of terminating the lease as matters relevant to what a fair and reasonable landlord might do, would involve looking not to the decision whether to treat the lease as terminated or not, but to the different question of whether there was agreement between the parties to restore the landlord and tenant relationship between them on a new or similar footing.
The court also pointed out the unacceptable practical difficulties which would result if the squash club were correct in their view. To find in their favour would mean that no one could confidently advise a landlord as to whether it might validly and conclusively terminate a lease based on the tenant's breach of obligations. Much would depend on the vagaries of the length of the court proceedings. Any reasonable opportunity or ultimatum given by the landlord would be much diminished by the fact that the tenant could ignore it, in reliance of the fact that it had the length of the court proceedings to remedy the breach.
A second chance for the squash club?
The squash club's second argument was to the effect that, if the timing of the fair and reasonable test was to be applied at the later date, by which time the repair works had been completed, no fair and reasonable landlord would have terminated the lease. Given that the squash club had failed to convince the court in its first argument on timing, it was unnecessary for the court to reach a concluded view on the tenant's second argument as this was dependant on the first. However, the court did comment that, given the squash club's history of failure to execute repairs due to lack of funds, and the fact that the repairs were only completed due to the generosity of a third party, it was far from obvious that the fair and reasonable landlord would have given them a further chance.
The law relating to irritancy in Scotland is under review, with the Scottish Law Commission having produced a report on the subject in June 2003. The November 2006 Edition of Open Door provided a summary of the proposals.