A recent judgment is a harsh reminder for tenants, say Alistair Drummond and Gavin Deeprose.

Commercial landlords may be able to recover the cost of repairs from departing ­tenants without demonstrating that they will carry out the work, following a recent decision of the Inner House of the Court of Session.

Landlords and tenants have argued about repairs for a long time. Standard commercial lease agreements require the tenant to take responsibility for keeping the property in “good and substantial repair” during the term of the lease. This can be a heavy burden as leases often last for many years and items such as roofs, ­windows, electrics and heating are costly to maintain.

The lease usually allows the landlord to ask the tenant to carry out ­necessary repairs at any time.

However, to avoid causing problems during the tenancy landlords often wait until the end of the lease before serving a “schedule of dilapidations”.

This lists the required repairs along with an estimate of the cost of remedial works. The tenant then decides whether to do the repairs or reach a negotiated financial settlement. If an agreement can’t be reached the ­landlord will usually go to court.

Claims normally proceed as a breach of contract claim and the tenant would have the usual array of defences available, including challenging the landlord to prove their alleged loss. In an attempt to negate these defences, landlords have taken to including a “payment clause” in the lease, which makes the tenant contractually liable for payment of costs in the schedule of dilapidations.

This, in effect, makes payment of the repair costs part of the proper operation of the contract, instead of ­damages for breach or failure to properly operate the contract.

However, a string of cases have ­suggested such payment clauses are not enforceable unless the landlord can prove the remedial work has been done or will be done. This has, arguably, defeated the main ­purpose of the clauses and made life difficult for landlords who can’t show the dilapidations will be actioned promptly.

The court’s position changed in December with an Inner House of the Court of Session judgment. The landlord, @Sipp Pension Trustees, sought £1m-plus in dilapidation costs from its tenant, Insight Travel, at the end of a 24-year occupancy of a commercial building in Port Glasgow.

The tenant argued the landlord wasn’t due any payment as it planned to sell the premises and therefore wasn’t going to carry out remedial work. The landlord disagreed. It claimed the lease said, unambiguously, that it could recover from the tenant a sum equal to the cost of putting the property into “good and substantial repair” and this provision applied irrespective of whether it intended to carry out the work.

In a unanimous decision, the judges agreed with the landlord. They decided the clause was clearly drafted as a payment and if the tenant didn’t carry out the work, the landlord was entitled to a payment ­calculated on the basis of the schedule of dilapidations. The judges believed that, on the wording of the lease, it was irrelevant whether the landlord intended to do the repairs.

The decision is good news for ­commercial property owners who can now expect the courts to uphold lease agreements which make it expressly clear that dilapidations claims are to be calculated by reference to the cost of the remedial works. This will be the case even if the owner does not ultimately intend to carry out those works. For tenants the decision is less positive. They are likely to have more problems resisting large scale dilapidations claims.

The judgment is a harsh reminder that there is no general rule in Scots law that commercial contracts need to be fair.