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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> McCall’s Entertainments (AYR) Ltd v South Ayrshire Council [1998] ScotCS 3 (7 May 1998) URL: http://www.bailii.org/scot/cases/ScotCS/1998/3.html Cite as: [1998] ScotCS 3

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The Pavilion at Ayr was built in about 1910 as a theatre. It was subsequently used as a dance hall and in more recent years as a discotheque. In about 1992 it was included as a listed building under Class B.

In 1973 its proprietor was the Royal Burgh of Ayr. In that year the Royal Burgh granted a lease to the pursuers. That lease was not before the court but secondary evidence indicated that its duration ran to May 1992 and that under it the landlord expressly undertook liability for external repairs.

By 1990 Kyle and Carrick District Council had succeeded to the landlord's interest. In that year, the pursuers learned that the District Council was considering selling the Pavilion. The pursuers made an unsuccessful offer to purchase. Another bidder was preferred but in the event that sale did not proceed to completion. The pursuers remained in possession beyond the expiry of the 1973 lease. The lease which is the subject matter of the present action ("the Lease") was executed on 11, 14 and 29 June 1993 with entry as at 29 May 1992. In April 1996, as a result of local government reorganisation, the defenders succeeded to the landlord's interest.

The duration of the Lease is thirty five years. The rent was declared to be £15,000 per annum together with any VAT charged thereon with provision in clause THIRD for rent review every five years. Condition SECOND A of the Lease provided as follows:-

Certain legal issues arising out of that condition were discussed at debate earlier in these proceedings. On 4 November 1997 I rejected certain contentions then advanced on behalf of the defenders (including a contention that condition SECOND A was void from uncertainty) but allowed a proof before answer on the remainder of the case. I refer to my opinion dated 4 November 1997 for the matters discussed and determined at that stage. The outstanding issue was essentially the inter-relationship in fact and in law between the purported exercise by the Tenants of the option to purchase provided by condition SECOND A and certain alleged breaches by them of obligations contained in other conditions of the Lease. Since November 1997, the parties have agreed that, in the event of a Feu Disposition being granted, the condition reasonably regulating the condition of the external appearance of the subjects will be in the following terms:-

The conditions containing obligations on the Tenants which are at issue in this case are, in so far as material, in the following terms:-

So far as appeared from the evidence, no Schedules of Condition were ever subscribed as relative to Condition TWELFTH,

By written notice dated 27 February 1997 the pursuers intimated their intention to exercise their option to purchase the subjects. By letter dated 24 March 1997 an officer of the defenders responded by stating that in view of certain specified matters the Council had decided that it was not prepared to enter into negotiations for the sale of the building to the pursuers but considered that the Lease should be formally terminated on the grounds of various breaches of the Tenants' obligations. A formal notice of termination was enclosed. The full terms of the pursuers' intimation and of the defenders' notice are set out in my Opinion of 4 November 1997. The specified contraventions relied on by the defenders were expressed as follows:-

Early in 1991 the pursuers, who were then contemplating offering to purchase the Pavilion, instructed Bell-Ingram Ltd to carry out an inspection of the building with a view to advising on its condition, with particular reference to defects relating to its external fabric. A report compiled by Mr Craig Smith, then employed as a building surveyor with Bell-Ingram Ltd, was dated 8 February 1991. It followed a relatively detailed examination of the external condition of the building and reported in some detail on that condition. Some observations were also made about the internal condition. In August 1992 Mr Smith carried out a further inspection on the instructions of the pursuers. His report, dated 25 August 1992, addressed both its external and internal condition in some detail. Consulting engineers had separately been instructed about the same time. By this stage the pursuers were contemplating the possibility of undertaking, with assistance from Ayrshire Enterprise and other sources of public funding, substantial works to the Pavilion amounting potentially to an expenditure of several hundred thousand pounds.

As at August 1992 the building was in a severe state of dilapidation, both externally and internally. It had an elaborate roof structure, including a main pitched and slated roof and a number of flat roofs finished in various other substances. Its walls were constructed in brickwork with a painted roughcast rendering externally. Damaged and missing slates permitted access by rainwater; there were also defects in various of the other roof surfaces with consequential moisture penetration. The external walls showed signs of cracking in the rendering, particularly around lintels and brickwork supports. This was largely attributable to water ingress causing corrosion of supporting steel work built into the external walls. Lead gutters and downpipes showed material signs of corrosion. Windows were timber framed and single glazed; the majority showed signs of decay and of corrosion of fittings. High levels of moisture could be detected internally; there was evidence of outbreaks of dry rot. The state of dampness internally was exacerbated by the original ventilation system having become non-operable. That system had involved extraction of air through grilles in the main ceiling drawn by fan through an outlet box in the roof. Some years earlier the fan mechanism had seized and the louvres in the outlet box had largely been blocked up. No alternative system of ventilation had been provided. The toilet facilities were in poor condition.

The state of the building in August 1992 was to a large extent a consequence of its age, the manner of its construction and its subsequent history. Its construction had involved many timber surfaces being built without protection against decay and next to external walls. Its exposed situation close to the shore contributed to its deterioration. While some repairs had been carried out at various stages, these did not provide a long-term solution. Mr Craig, when preparing costings for refurbishment work, considered the possibility of demolition; he took the view, however, that, having regard to the listed status of the building and its landmark character in Ayr, that was unlikely to be an acceptable course.

The state of the building in August 1992 was not substantially different from its state at the earlier inspection in February 1991. It may reasonably be inferred that its state as at the date of entry under the Lease (in May 1992) and its state as at the date of execution of the Lease (in June 1993) were again not substantially different.

After the execution of the Lease the pursuers took forward their proposals for refurbishment works. By August 1994 architects had been instructed to initiate various external and internal works at an estimated cost of £289,725.00. It was at that stage anticipated that external work would be completed by March 1995. In the event matters moved more slowly. Tender documents were issued and returned; but no major refurbishment works had been commenced by November 1994.

Prior to March 1993 the pursuers held various public entertainment functions at the Pavilion, many of them involving dancing. They held in respect of the premises an entertainment licence under the Licensing (Scotland) 1976. On 13 March 1993 they commenced to hold on Saturday nights an entertainment known as "Hanger 13". That entertainment took the form of a discotheque and was popular with young people. One night in April 1994 several young people attending a "Hanger 13" event required medical attention, including hospitalisation. One young person died and another was very ill. Their conditions were attributed to the ingestion of illicit drugs. A further incident occurred in August of that year when another young person who had been attending a "Hanger 13" event died from a drug related condition. A fatal accident inquiry was subsequently held into those deaths. There was unchallenged evidence before me that the Sheriff had not made any findings critical of the pursuers' management of the premises. There was no evidence led in this case that the pursuers, who, following the March incident had taken various steps to inhibit and mitigate the effects of any drug abuse at "Hanger 13" events, were to any extent to blame for what had occurred. Against, however, public disquiet at those events, a complaint was made by the chief constable under Section 31 of the 1976 Act. Following a hearing on 22 November 1994 the Licensing Board suspended for a period of one year the licence for the premises. That order was made under Section 31(2)(b) of the Act. The pursuers appealed to the Sheriff against the order but in April 1995, on the morning of the hearing and on the basis of legal advice, abandoned that appeal. The effect was that the period of one year ran from April 1995 to April 1996.

The coming into effect of the suspension of that licence prevented the carrying on at the premises of any form of public entertainment. In June 1995 the pursuers applied for a public entertainment licence under Section 41 of the Civil Government (Scotland) Act 1982; that would have allowed them to hold certain public functions at the Pavilion, though without the facility to sell or supply alcoholic liquor. A number of objections were lodged to the application which delayed its disposal. It was ultimately granted in September and came into force in October 1995. By that time the summer season was over; the licence was subject to a number of conditions. In the event, no material use was made of that licence over the ensuing winter.

In the Spring of 1996 the pursuers made an application to the Licensing Board for renewal of the entertainment licence under the 1976 Act. A licence was granted on 25 March 1996 for a period of three years. It was subject to a number of conditions, including conditions requiring refurbishment, cleaning and repair to the satisfaction of the District Council's Environmental Health and Building Control Divisions prior to the re-opening of the premises to the public. A number of inspections were subsequently carried out by officials of the defenders, who had by that time succeeded the District Council as local authority. Lists of requirements were issued. Correspondence passed. Members of the Licensing Board made a site visit. Those measures took time. By August the outstanding issues had not been resolved.

By about that time the pursuers had become pessimistic of their prospects of re-opening the Pavilion as a dance hall. They gave consideration to the possibility of alternative use. One possibility considered was use of the building as an indoor play area for children. In October 1996 the pursuers' Managing Director wrote to the defenders' Chief Executive asking for a meeting to discuss the pursuers' proposals. Meetings were convened between representatives of the pursuers and officials of the defenders in each of November 1996, December 1996 and January 1997. The November meeting proved abortive, the officials having erroneously supposed that the Lease had in the meantime come to an end. At the December meeting the pursuers' representatives explained their proposals. The defenders' Chief Executive responded that he wished first to be fully informed about the situation, including having a condition survey carried out on the premises. The meeting ended on the basis that such a survey would be carried out in early course. The pursuers took no objection. It was carried out, as described below, shortly before Christmas 1996. At the January meeting the pursuers' representatives reiterated their proposals for a children's play area. The defenders' Chief Executive was unenthusiastic. Another official in the course of the meeting waved a piece of paper which the pursuers' representatives were led to understand related to the recent survey, though they were not given an opportunity to examine it. At that meeting it was acknowledged on both sides that substantial amounts required to be expended on the property. The defenders' Chief Executive, however, indicated that, had it been the defenders' intention to terminate the Lease because of the condition of the property, the officials would not have been attending that meeting.

Following that meeting the pursuers had various plans and drawings prepared. On 27 February 1997 they sent to the defenders the written intimation under condition SECOND A of their intention to purchase. In their covering letter they offered to meet the defenders' officials with a view to beginning negotiations and to bringing them up to date with the progress of their plans. The defenders responded with the letter and formal notice of 24 March 1997.

The inspection on behalf of the defenders shortly before Christmas 1996 was carried out by several clerks of work in their employ under the general supervision of an architectural technician, Mr Lambie. An electrician also attended. Mr Lambie received his instructions from Mr Raeside, a principal architect with the defenders, who had in turn been instructed by the head of his department. Mr Raeburn's instructions to Mr Lambie were to carry out a full survey and to note any defects which would require to be remedied to bring the building up to a modern condition. Mr Lambie was not provided with a copy of the Lease; no reference was made to it for the purposes of the inspection or of any analysis of its findings. Nor did Mr Lambie or any other official have sight of either of Mr Smith's reports or of any other material bearing to record the state of the premises at or about the inception of the Lease. No comparative exercise was undertaken.

Detailed evidence was led on behalf of the defenders from four of the five Council employees who had attended the inspection. Evidence was also led in relation to costings which Mr Raeside, with the assistance of the defenders' principal Clerk of Works (Mr Grant), had estimated on the basis primarily of notes taken at the survey. Mr Henderson for the pursuers criticised the quality of the evidence led on those matters. I accept that there were some discrepancies among the witnesses in relation to what was observed on site. However, in my view it is unnecessary in the circumstances of this case to enter upon a detailed consideration of those discrepancies since there was in the end no substantial dispute as to the general state of the building. I shall return to the matter of the costings.

No major refurbishment works had been undertaken since Mr Craig's inspections in 1991 and 1992. Accordingly, the basic problems with the building remained unaddressed. Some incidental roof repairs and some temporary repairs to woodwork affected by damp had been carried out between then and December 1996. In addition, a substantial number of slates on the south facing pitched roof which had been dislodged in a storm in about November 1996 remained in that state at the time of the survey, though these were replaced early in the New Year prior to the correspondence in February and March. The fundamental problems affecting the roof as a result of its age and design not having been addressed, some water penetration through it remained. There also remained cracking in the rendering on external walls. Lead gutters and downpipes showed material signs of corrosion; one downpipe was missing. Window frames were rotted. In many instances the glazing in windows had been broken by acts of vandalism; the broken windows were boarded up from the inside to give some protection from the elements and to prevent the entry of birds. There were signs of moisture and of dry rot internally. The toilet facilities remained in need of upgrading and repair. Some internal redecoration had been carried out in 1993 and 1994 but by December 1996 the decorative state (at least on the ground floor) looked, as one witness put it, as if it "needed a facelift". This was primarily due to the effect of dampness on wallpaper, though ceilings and plaster work were also to some extent adversely affected by damp.

From April 1995, when the appeal against the suspension of the licence had been abandoned, the main part of the premises, comprising the auditorium and ancillary accommodation, was not used for public leisure or entertainment events or activities. Attached to the premises on the west side and forming part of them was a cafe which continued to be operated seasonally between about the end of March and the end of October (subject to weather conditions). An associated kiosk for the sale of beach goods was also operated during the same season. Within the main body of the building was an office. This continued to be used for the general purposes of the pursuers' business, which consisted solely of the management of the Pavilion. Correspondence for the pursuers was sent to and from the Pavilion. In regular attendance at the office was Mr Fraser McIntyre, who was employed as Manager. A handyman was also employed on a full time basis. From about 1995 the main premises were not ordinarily heated; but in cold spells heating was provided to avoid burst pipes. In late 1995 the pursuers sought and obtained relief from local authority rates in respect of the premises on the ground that they were unoccupied.

The defenders contend that the pursuers were as at February 1996 disentitled to exercise the option to purchase conferred on them by condition SECOND A. They do so on the basis of submissions that (1)  the pursuers were, as at that time, in breach of clauses SEVENTH and NINTH (as read together) and of clause TWELFTH, (2)  those breaches were in the circumstances material and (3)  on principles of mutuality of contract the Tenants were disabled from exercising that option.

It is convenient to deal first with the alleged breach of condition TWELFTH. Mr Clark for the defenders, who led at the proof, submitted that on a sound construction of that clause the obligation on the Tenants to keep the subjects in good repair, condition and decoration in every respect, including maintaining all buildings forming part of the subjects wind and water tight, imported an obligation to put and thereafter to keep the subjects in such a state. It was immaterial whether the state of the subjects at the outset of the lease fell below those standards, which were to be objectively determined. The obligation to put into such a state was, it was accepted, not in the circumstances to do so instantly but to do so within a reasonable time. If as at February 1997 the subjects were not in a state which objectively assessed met those standards, there was a breach by the Tenants of that condition. He cited Taylor Woodrow Property Co Ltd v Strathclyde Regional Council (15th December 1995, Lord Penrose, unreported), Lowe v Quayle Munro Ltd 1997 SC 346, Napier v Ferrier (1847) 9D 1354, House of Fraser Plc v Prudential Assurance Co Ltd 1994 SLT 416, Proudfoot v Hart [1890] 25 QBD 42, Payne v Haine [1847] 16 M & W 541, Saner v Bilton [1878] 7 Ch.Div 815, Credit Suisse v Beegas Nominees Ltd [1994] 1 EGLR 76 and Wolfson v Forrester 1910 SC 675.

Mr Henderson for the pursuers submitted that clause TWELFTH was to be construed in the context of the common law of Scotland in relation to obligations under leases. In urban tenements there were, subject to express provision to the contrary, obligations on the landlord both to put the subjects into a habitable or tenantable condition and to uphold them in that condition; such obligations included rendering the subjects wind and water tight (Rankine on Leases (3rd edition) pages 241-2). Clear language would be required to impose on a tenant responsibility for extraordinary repairs or for replacement or renewal. There was in the context of the whole clause (including the acceptance of the subjects at the outset in their then present condition and the obligation to leave them at expiry or termination in a condition no less good and substantial than their present condition) no justification for holding the Tenants under a contractual obligation to carry out extensive and expensive works of improvement.

The critical expression for construction in condition TWELFTH is that by which the Tenants "bind themselves to keep at all times during the currency of this lease the subjects ... in good repair, condition and decoration in every respect". That expression requires, in my view, to be construed in the context of condition TWELFTH read as a whole. The condition opens with an acceptance by the tenants of the subjects in their present condition, as evidenced by specified documents, the fact that no such documents were in the event completed being, however, immaterial, in my view, to the issue of construction. The effect of those opening words is to relieve the Landlords of the obligation which would have been imposed on them under the common law of Scotland to put the subjects into a tenantable condition; but the absolving of the Landlords of an obligation does not of itself impose that obligation on the Tenants (Credit Suisse v Beegas Nominees, per Lindsay J. at page 85H-K). The concluding words of condition TWELFTH impose an obligation on the Tenants "to leave at the expiry or termination of this lease the subjects in a condition no less good and substantial than their present condition". That obligation carries one back to the opening words and to the condition purportedly evinced by the Schedules of Condition there referred to. That obligation would be discharged by the Tenants giving up possession of the subjects in the same general state as they were at the outset of the lease. The words are inconsistent with any obligation to leave the subjects in a state of overall improvement compared with their state at the outset. There are in the condition no express obligations of replacement, renewal or rebuilding. It is in that context that the obligation to keep in good repair etc must be construed. In my view, that obligation, which applies at all times during the currency of the Lease, is to be measured in general terms by comparison with the "present condition" of the subjects referred to at the beginning and at the end of the condition. It would be remarkable if the effect of the obligation to repair was to import an obligation significantly to improve the condition of the subjects and to maintain them in that improved state throughout the currency in circumstances where the obligation at the expiry was restricted to one to leave them in a condition no less good and substantial than their condition at the outset.

Mr Clark relied on a line of English authority to the effect that an obligation to keep in good repair imports an obligation, if necessary, to put in such repair (Payne v Haine, Proudfoot v Hart, Saner v Bilton and Credit Suisse v Beegas Nominees Ltd). In Credit Suisse, Lindsay J, while observing that, although Proudfoot v Hart had lost ground as to some parts of its reasoning and had been said often to have been misunderstood, stated at p.86H-J that "the notion illustrated by it that a covenant to keep in a specified state includes an obligation to put into that state has been acted upon, by now, in probably hundreds of cases and still survives".

The common law of England is not identical with the common law of Scotland in this field (Rankine on Leases (3rd edition) page 241) and English authority should, in my view, be used with caution. It was not suggested that the construction favoured in Proudfoot v Hart had been regularly followed in Scotland. Nor does that construction readily square with the observations of Lord Fullerton in Napier v Ferrier at page 1360 or with the reasoning of Lord Mackenzie at page 1359, the obligation on the tenant to do more than merely keep up the premises being derived, in Lord Mackenzie's view, from the special terms of the lease in that case; though there may be force in Mr Clark's submission that Lord President Boyle's views at p.1359 are, in so far as concerns ordinary repairs, to a different effect. In any event, any general implication must yield to the particular context where the expression is found. In none of the English cases was the expression to keep in good repair (or the like) contained in a clause which identified the condition to be satisfied at the expiry by reference to the condition present at the outset.

It is legitimate in addressing the issue of construction to have regard as part of the factual matrix to the general state of the subjects at the outset of the Lease. Although no Schedules of Conditions were subscribed and although there may be a question whether "present condition" refers to the time of execution of the Lease (in June 1993) or the date of entry under it (in May 1992), it is clear that at the material time the subjects were by reason of their age, situation and manner of construction already in an advanced state of dilapidation. The time had already come when, if the building was to have a long-term future, substantial works would require to be carried out to it. Such works would, in my view, have constituted or in any event included what be categorised under Scots law as "extraordinary repairs", a broad distinction between ordinary and extraordinary repairs having been recognised in the authorities (Napier v Ferrier, Turner's Trustees v Steel (1900) 2F 363 and House of Fraser Plc v Prudential Assurance Co Ltd 1993 SLT 519 (O.H.) and 1994 SLT 416 (I.H.)) - though as Lord Penrose observed in Lowe v Quayle Munro Ltd at page 350 contemporary practice amongst those responsible for the drafting of commercial leases appears to have departed from the relative simplicity of the forms discussed in Napier v Ferrier. It may not always be easy to identify the point of distinction between the two categories. However, Lord Kinnear in Turner's Trustees v Steel would, it seems, have included the inevitable deterioration of the structure owing to the long lapse of time as giving rise to extraordinary repairs for which the landlord was responsible, even where the express terms of the lease had the effect of imposing on the tenant responsibility for ordinary repairs. Had it been the intention of the parties in the present case that the Tenants should undertake contractual responsibility for making good the dilapidated state of the Pavilion (due as it was largely to its age, its inherent problems of design and possibly also to a lack of maintenance when under the previous lease the landlord had responsibility for external repairs), one would have expected clear words to that effect. In particular, an express obligation to replace or renew or rebuild as necessary regardless of the age or state of dilapidation of buildings (as was used in the lease discussed in Lowe v Quayle Munro Ltd) would have been expected - particularly against the common law background of the general responsibility of a landlord for repairs and his particular responsibility for extraordinary repairs. It may be that the parties deliberately shied away from the problem (Credit Suisse per Lindsay J. at page 85H); but, if they did, the consequence against the common law background is, my view, that the Landlords failed effectively to impose on the Tenants liability for the fundamental repairs of which by 1992/93 the Pavilion was in need.

There is nothing in the Lease (such as a rent free period or a period at a reduced rental) positively to suggest that the parties intended that the Tenants were obliged to undertake replacement or renewal work at their own expense. Nor is there any material extraneous to the Lease positively to suggest that the level of rent was struck on the basis of such an obligation. The option to purchase within a limited timescale may reflect the possibility that the Tenants would be able to secure means to carry out a substantial renewal refurbishment within that period. There is, however, nothing in the Lease or otherwise to indicate that they were obliged to do so.

There is no doubt that as at February 1997 the Pavilion was, on the basis of an objective assessment at that time, in a state of significant disrepair. For the reasons given above that fact is not, in my view, sufficient to establish that the Tenants were in breach of clause TWELFTH . To establish such a breach it would have been necessary for the defenders to demonstrate that the then condition of the Pavilion was attributable to a material extent to failure by the pursuers to carry out during the currency of the Lease ordinary repairs to the premises. That, subject to the possible qualifications mentioned below, they have failed to do.

Mr Henderson accepted that the absence of any subscribed Schedules of Condition was not fatal to any comparative exercise; it would be legitimate to infer the "present condition " of the subjects in general terms from, for example, Mr Smith's inspection in August 1992. The general condition of the building, in relation in particular to ingress of water by reason of the state of the roofs, walls and rainwater fixtures (gutters and downpipes), was not at the time of the inspection in December 1996 (with the exception of the slates dislodged from the south facing pitched roof in November 1996 but replaced by February 1997) significantly different from its condition in August 1992. The same was true of timber window frames both externally and internally. Internal dampness with consequential areas of wood rot was caused by penetration of rain water and inadequate ventilation; it was not significantly different in character or extent as between December 1996 (or February 1997) and August 1992. In so far as there was a general worsening of those conditions, that was deterioration largely caused by inherent defects and the lapse of time. The general state of wind and water tightness was not materially different in February 1997 than it had been at the outset of the Lease. Although at neither time could the subjects be said to have been wind and water tight in an absolute sense, at neither time was that condition of a degree to render the subjects unfit for the purposes for which they were let.

Substantial broken window glazing with boarding up was a feature in August 1992, as it was in December 1996, although it was probably more extensive at the latter date due to the vulnerability of the building to the depredations of vandals. The internal decorative condition of the subjects was poor in August 1992. There had been redecoration to at least parts of the premises in about 1993 and 1994 but by December 1996 the internal decoration was again in a poor condition, particularly where dampness had affected wallpaper in the auditorium. It may be that rectification of the defects referred to in this paragraph fell within the scope of the pursuers' obligations under clause TWELFTH, though their failure for the time being to rectify these is readily understandable in the circumstances.

For these reasons, with the possible exceptions of the matters mentioned in the last paragraph, I am satisfied that the defenders have failed to prove that as at February 1997 the pursuers were in breach of condition TWELFTH. I should add that, even if I had held that under condition TWELFTH the pursuers' obligation of repair extended to substantial works of replacement and renewal, I should not have held that there was as at February 1997 a breach of that condition. Mr Clark accepted that any such obligation was subject to the qualification that it be performed within a reasonable time. The pursuers put significant efforts into advancing plans for the large scale refurbishment of the Pavilion. They incurred substantial expense (in the order of £40,000) in doing so. Their plans were put on hold when, without fault on their part, the licence was suspended. Given the circumstances subsequently encountered they were not in the event revived. Although a period of more than three years from execution of the Lease (nearly five from the date of entry under it) is prima facie a substantial period, in the context of a term of thirty five years and of the events within the period to February 1997, a reasonable time for the carrying out of such works had not, in my view, expired.

Before proceeding to materiality of breach and to mutuality of obligations, it is convenient that I deal with the contentions that there were as at February 1997 breaches of conditions SEVENTH and NINTH. I am not satisfied that there was a breach of either of those conditions. Although the pursuers applied for and obtained relief from rates on the basis that the premises were unoccupied, they continued to conduct commercial activities at and from them, both seasonally in respect of the cafe and throughout the year in respect of the office activities. Although their range of activities was constrained by their inability lawfully to hold public entertainments, such trading as they did, which was not insignificant, was conducted from the premises. They continued to have possession and practical control over the whole premises and to carry out there repairs, such as the boarding up of windows and the replacement of slates, as were from time to time necessary. They protected the premises against damage consequent on the freezing of pipes. They continued, in my view, to occupy and trade from the subjects within the meaning of condition SEVENTH. As from April 1995 they ceased to use them primarily as a public venue for leisure or entertainment events and activities. That was essentially the result of the coming into effect at that time of the one year suspension of the 1976 Act licence. Thereafter and until that licence was restored or some alternative licence granted it was illegal for them to use the premises for the primary purpose specified in the lease. They took steps to obtain such a licence, initially under the 1982 Act and later under the 1976 Act. The fact that neither of those licences came into practical effect prior to February 1997 cannot be attributed to failure on the part of the pursuers to take reasonable steps to secure that result.

In those circumstances the issues of materiality of any breach and of mutuality of obligations do not arise, save possibly in relation to want of repair in respect of window glazing and internal decoration. The issues of materiality and mutuality can be dealt with briefly and together since in my view they are, in the present case, inter-related. Materiality in this context goes to whether any breach or breaches of the Tenants' obligations under the lease were of such a character and degree as to disable them, while such breaches persisted, from enforcing their option to purchase under condition SECOND A. The principles of mutuality as they might arise in the present case were discussed in my Opinion dated 4 November 1997.

It is plain, in my view, that in so far as there were breaches of condition TWELFTH in relation to failure to reglaze or recently to redecorate, such breaches were not of a character or degree to disable the pursuers from exercising their option to purchase, though it may that the pursuers are not entitled to rely on any such wants of repair to depress the purchase price.

Had I found that the pursuers were in breach of condition SEVENTH or condition NINTH or both of them, I would have found no acceptable basis on the evidence for holding that breach of either or both of those conditions was material for present purposes. While in general a building which is not actively used may be liable to deterioration, some types of active use may equally lead to deterioration. Here the building was largely unheated from about April 1995, thus to an extent reducing the conditions most favourable to the development of dry rot. Regular use of the premises for crowded discotheque events was likely to worsen the conditions of condensation which in turn were liable to contribute to the development of such rot. I am unable to find on the evidence that, assuming the basic problems of water penetration and condensation remained unresolved, the absence of use after April 1995 for public entertainment purposes caused materially greater or faster deterioration of the fabric of the building. Nor was it possible on the evidence to quantify financially any such effect.

If, contrary to my view, the pursuers had a contractual obligation to carry out the basic works of restoration and refurbishment appropriate to give it a long-term future and if, again contrary to my view, they had by February 1997 failed within a reasonable time to fulfil that obligation, the question would arise whether such breach was material and disabled the pursuers from exercising their option to purchase. That is not, on the evidence, an easy question to answer. At various times estimates were made of the prospective costs of large scale works. In about May 1994 an order of costs summary was prepared on behalf of the pursuers which brought out an estimated figure of £289,725. Mr Raeside and Mr Grant, having been provided in December 1996 with information about the results of the survey carried out by the defenders' employees, assessed the costs of remedial works at £525,000. The author of the 1994 estimate did not give evidence and the basis on which the broad categories referred to in that summary were evaluated is unknown. No bill of quantities, priced or unpriced, was referred to. The assessment made by Mr Raeside and Mr Grant proceeded on a very broad basis and was designed to be an indicative figure for the purposes of local authority budgeting. I do not find either figure to be wholly reliable and a comparative exercise is likely to be misreading. I reject Mr Clark's submission that I should conclude from those figures that the extent of remedial works had dramatically increased between those dates. All that can confidently be said about costs is that the expenditure required for restoration and refurbishment was at the outset and remained in the order of several hundred thousand pounds.

No professional evidence was adduced by the defenders in respect of any effect of want of repairs on the value of the subjects. The pursuers adduced as their final witness Mr Francis Cairney, F.R.I.C.S., a valuation surveyor employed by the local Bell-Ingram company. He had carried out a brief inspection of the premises in August 1996 and had prepared a report of his valuation of them at that time subject to the Lease. That report was lodged by the pursuers as a production. In it Mr Cairney recorded that the property "would appear to be in a similar condition to that as described within our building survey report dated 25 August 1992". The summary of evidence lodged by the pursuers in respect of Mr Cairney was limited to the statement "Evidence of condition of subjects in 1996 and 1997". In the course of Mr Cairney's evidence in chief, after he had without objection given certain evidence of the open market value of the subjects, an objection was taken to a line of evidence. This was initially directed to evidence in relation to particular comparable subjects of which no notice had been given. In the course of discussion of the objection, however, it became evident that Mr Henderson intended to lead from Mr Cairney technical valuation evidence in relation to the general question whether any breaches of obligation by the pursuers had resulted in a diminution of the potential purchase price which the defenders could expect to receive upon an exercise of the option to purchase. On that explanation being given, Mr Clark extended his objection to any further valuation evidence, including the line indicated by Mr Henderson. I sustained that objection on the ground that no proper notice of this line had been given by the pursuers. Ex facie of the summary of evidence Mr Cairney's prospective evidence was limited to the condition of the subjects in certain years, which he had observed albeit on a brief inspection. While, his report having been lodged as a production, notice of its contents and conclusions was given to the defenders, they were given no fair notice that technical valuation evidence going to the root of the issue of mutuality of obligations was to be given. They had closed their case without any such notice.

Notwithstanding the taking of this objection by the defenders and its being sustained by the court, Mr Clark in the course of cross-examination of Mr Cairney sought to explore with him issues of valuation touching on the effect on value of non-compliance by the Tenants of repairing obligations. Mr Henderson took objection to the line on the ground that, Mr Clark's earlier objection having been sustained, Mr Clark could not himself explore such issues. The precise scope of the line being at that stage unclear, I allowed the evidence to be admitted subject to competency and relevancy. In the course of the evidence admitted under that reservation Mr Cairney stated that, if in about 1997 some £500,000 were to have been expended on the premises to render them wind and water tight and in good repair and condition, their resultant value would perhaps be £300,000-£350,000. He had in chief given evidence without objection of an open market value of the premises in their state in 1992 at about £100,000 (at about £125,000-£150,000 in August 1996).

At the hearing on evidence Mr Clark sought to rely on a comparison of those figures in support of his submission that the pursuers had been in material breach of contract disabling them from exercising their option to purchase. In my view, Mr Clark was not in the circumstances entitled to rely on the specific figures given by Mr Cairney of values of the premises on the hypothesis given. Having themselves given no notice of an intention to lead valuation evidence and having successfully objected to the pursuers leading such evidence, it would not be in the interests of justice that the defenders be allowed to rely on such evidence elicited by them. I shall accordingly sustain Mr Henderson's objection to the competency of that line of evidence. Certain other objections to lines of evidence were taken in the course of the proof; but in the end these were not material and I find it unnecessary to discuss them.

It might be thought prima facie likely that, if the pursuers were contractually obliged to carry out substantial works of renewal and refurbishment, their failure to do so would have affected the value of the subjects and accordingly the price to be determined in the event of the option to purchase being exercised. It is, however, plain that, in relation to the subjects in question, expenditure on works would not be expected to be reflected in an equivalent increase in value. On the admissible evidence it has not been proved that the value of the premises would have been increased. In particular, it has not been proved on the basis of such evidence that, in the event of the option to purchase having been exercised in respect of renewed and refurbished subjects, the price to be fixed would materially have exceeded the minimum price (£180,000) specified under condition SECOND A.

There is no express provision in the lease making compliance by the Tenants with their obligations under it a condition of exercise of the option to purchase. However, as I held in my Opinion of 4 November 1997 that might not under Scots law have been fatal. The principle of mutuality might have sufficed to import it. It may in appropriate circumstances be invoked in respect of obligations, including repair obligations, under a lease (Macnab of Macnab v Willison 1959 SLT (N) 25). There may also, as Mr Henderson submitted, be an equitable and discretionary element in the application of that principle (Stobbs & Sons v Hislop 1948 SC 216 per Lord President Cooper at page 223; Brodie v Ker 1952 SC 216, per the consulted judges at page 226). In the present case the defenders have failed to establish facts and circumstances to allow of any such application.

No question was raised about the terms of the declarator (as amended) sought by the pursuers. I shall accordingly repel the defenders' fourth plea-in-law, sustain the pursuers' first plea-in-law (as amended) and grant decree of declarator in terms of the first conclusion of the summons (as amended). The conclusion for implement was not insisted on at this stage.