Sheriff allows proof in lease termination dispute between Aberdeen law firm and commercial landlord

About this case:

• Citation:
  [2022] SC STO 35
• Judgment:
  External link
• Court:
  Sheriff Court
• Judge:
  Sheriff Lamont

Iain Hingston, the sole director of Hingston’s Law Ltd, along with employees Graeme Murray and Louise Sutherland, sought declarator that their termination of a lease of premises let from Craigellen Assets Ltd was valid. The defender asserted that the lease was invalidly terminated as HLL was not a valid tenant of the premises for contractual purposes.

The case was heard by Sheriff Gordon Lamont. Garioch, solicitor advocate, appeared for the pursuers and E MacLean, advocate, for the defender.

Need for compliance

In 2009, the pursuers were partners in the firm of solicitors Graeme Murray & Co. They leased premises in Chapel Street, Aberdeen, from the defender in November of that year, in terms of which they were jointly and severally liable with the firm in respect of all tenant’s obligations under the lease. The lease contained a break option entitling the tenant to terminate the lease on 24 November of either 2014 or 2019 so long as six months of written notice were given.

The first pursuer purchased the assets of the firm following its sequestration in December 2016 and used them to set up HLL. The pursuers averred that LL had implemented all obligations of the tenant identified within the lease, including payment of rent and insurance premiums. In March 2019, agents of HLL issued a termination notice in respect of the lease. The body of the correspondence referred to Hingston’s Law Ltd as being the client but the lease as being between the pursuers and the defender.

It was the defender’s position that the notice was invalid on the basis that it was not sufficient to convey the necessary information to the recipient. On proper construction of the break clause, HLL could not be considered the tenant in terms of the lease, as no sub-lease or assignation in its favour had been created or consented to by the defender. Where a notice would effect a fundamental change in the parties’ relationship there was a greater need for strict compliance with the agreed requirements in the contract.

On behalf of the pursuers, it was submitted that there was a complex factual matrix, and a purposive approach required to be taken to the terms of the lease. In the current case there was no prejudice to the defender and insisting on strict compliance for its own sake served no useful purpose. It was further averred that the defender was personally barred from asserting that the notice was invalid due to its behaviour around the period the lease purported to be terminated.

Absurd result

In his decision, Sheriff Lamont observed: “The lease is between two specified parties who had agreed contractual terms in a commercial matter. In order for notices to have certainty in an area which brings about a fundamental change in the parties’ relationship, strict compliance requires that the notice requires to be sent on or on behalf of the tenant. It might simply be said what does it matter if a third party sends such a notice? Arguably, it is of little or no relevance whatsoever. What matters is the parties’ contractual relationship and the steps taken in accordance with the contractual terms.”

He continued: “If notices from third parties who were not party to the contact were to be considered relevant when considering break clauses then this leads to a considerable degree of ambiguity and uncertainty in the commercial world. A contracting party in receipt of such a notice would be left wondering whether this could have any impact on their contractual relationship. That is an absurd result.”

Turning to the personal bar issue, the sheriff said: “On the face of it the averments set out by the pursuer on the face of it set up a basis for leading evidence that the defenders acted in a way which was inconsistent with the lease terminating in November 2019. In addition, it is conceded by the defender that there might be scope for arguing limited positive conduct and a short period of inaction. Taking the pursuers’ pleadings at their highest the matter requires evidence to be led.”

He went on to say: “While care must be taken to separate out the pursuers and HLL as separate legal entities, the averments set up a basis that the pursuers (not HLL) lost a vehicle by which payments to the lease were made as a matter of fact. The averments can be read as the pursuers were therefore prejudiced by the loss of this vehicle. Accordingly, this matter requires evidence to be led.”

Sheriff Lamont concluded: “Taking the pursuers’ averments at their highest, I find that there are sufficient pleadings to merit a proof before answer into inconsistency. In addition, in relation to unfairness, I find that there are sufficient pleadings to merit a proof before answer in relation to two elements; namely a) that the pursuer reasonably believed the right would not be exercised and b) prejudice. While I have doubts about the other two 2 elements of unfairness it is appropriate not to exclude these from a proof before answer given there would be no real saving in court time.”

The sheriff therefore repelled the pursuers’ plea-in-law concerning the validity of the notice and allowed a proof in respect of personal bar and other remaining matters.