Scottish Sheriff Court Decisions

(A1560/05)

JUDGMENT OF

SHERIFF PRINCIPAL EDWARD F BOWEN QC

 

in the appeal

in the cause

 

ASHFORD AND THISTLE SECURITIES LLP

Pursuers and Respondents

 

against

 

MAUREEN KERR

 

 

Act: J G Thompson, Advocate, instructed by DLA Piper Rudnick Gray Cary Scotland LLP

Alt: Barne, Advocate, instructed by Warners, Solicitors

 

 

EDINBURGH,      SEPTEMBER 2006

 

The Sheriff Principal, having resumed consideration of the cause, sustains the appeal and recalls the Sheriff's interlocutor complained of dated 19 December 2005; sustains the second plea-in-law for the defender and dismisses the action; reserves all questions of expenses.

 

 

 

NOTE:

1. The defender and appellant is a tenant of premises at 138 High Street, Dalkeith in terms of an undated lease granted by Parkcross Limited. The lease is for the period from 1 May 2004 until 30 April 2009 and the rent is stated as being £60 per week. Clause Twenty First of the lease provides that: "If at any time during the currency of this lease the tenant shall allow any payment of rent to remain unpaid for a period of 21 days...it shall be in the power of the landlord to put an end to the lease".

 

2. It is not in dispute that as at 11 February 2005 the defender had not paid any rent in respect of the subjects. According to her averments the reason was that she had an agreement with Parkcross Limited that, notwithstanding the terms of the lease, she would not pay rent until March 2009 but would carry out repairs and refurbishment work on the property.

 

3. On 11 February 2005 the pursuers and respondents presented for registration a Disposition of the subjects at 138 High Street, granted by Parkcross Limited in their favour. The date of entry was 31 January 2005. On 14 February their solicitors served on the defender a Notice in the following terms: "We refer to the lease between our clients Ashford and Thistle Securities LLP, 39 Castle Street, Edinburgh ("the landlords") and you, for all and whole those retail premises known as and forming 138 High street, Dalkeith. We note that the rental payment of £60 per week remains unpaid for a period in excess of 21 days. In particular, payment of rent has not been made since 30 June 2004. Therefore, the sums currently outstanding amount to at least £1,980.00. The sum of £1,980.00 requires to be received by our clients, in cleared funds within 14 days of the date of receipt of this letter. On behalf of the landlord we hereby give you notice in terms of the lease and the Law Reform Miscellaneous Provisions (Scotland) 1985 that our clients intend to irritate the lease on 2 March 2005 unless they receive £1.980.00 in cleared funds by that date". No payment of rent having been forthcoming a further Notice was served on 3 March 2005 stating: "We refer to our Notice of Irritancy dated 14 February 2005 on behalf of and as instructed by our clients Ashford and Thistle Securities LLP, we hereby give you notice that the lease between our clients and you in respect of the property is now irritated".

 

4. In the present action the pursuers seek to enforce that irritancy and have the defender removed from the subjects. They obtained decree, following debate, on 19 December 2005. Thereafter the defender marked an appeal. The matter came before me in relation to a motion for caution for violent profits and, as I observed in a Note appended to an interlocutor dealing with that matter dated 28 February 2006, at that stage the only line of defence which the defender sought to maintain subsequent to debate was based on the alleged verbal agreement with a representative of Parkcross Limited whereby no rent was to be payable as previously indicated. It falls to be emphasised, however, that the Note of Appeal lodged on 22 December 2005 commenced by stating that: "The learned Sheriff did not take into account what effect the verbal variation of the lease had on subsequent rights and liabilities of the defenders". It proceeded to contain contentions (a) that the Sheriff was wrong to proceed on the basis that the defender had admitted an averment by the pursuers that "as at 14 February 2005 the rent remained unpaid for a period in excess of 21 days"; (b) that "notwithstanding whether the verbal variation of the lease is unenforceable against singular successors or not"..the defender was not in arrears to Parkcross Limited as at 27 January 2005. By 14 February 2005 the rent had not remained unpaid for a period in excess of 21 days. In terms of the lease, the pursuers were not entitled to serve notice on the date they did. The notice of 14 February 2005 demanding payment is therefore invalid; and (c) that the successor landlord cannot be in a better position to enforce an obligation of the lease than the predecessor: assignatus utitur jure auctoris. The Notice of 14 February 2005 was invalid because the pursuers demanded in terms of it a sum to which they were not entitled. An attempt to irritate the lease on the basis of an invalid Notice fails.

 

5. Before turning to the arguments presented on behalf of parties to the appeal it is appropriate to identify the issues as presented to the Sheriff, and the manner in which these were disposed of by her. The opening part of Answer 3 for the defender is in the following terms: "Explained and averred that it was the previous owner Parkcross Limited who let the premises to the defender. Said company is now in receivership. No Notice of change of ownership from Parkcross Limited in receivership to Ashford and Thistle Securities LLP was intimated to the defender. The defender is entitled to look to Parkcross Limited , in receivership, as her landlord. Any Notice of Irritancy served by the pursuers is defective and incompetent. The pursuers had no title vis a vis the defender to serve such a Notice. Further explained and averred that prior to agreeing to enter into said lease the defender and Parkcross Limited agreed, that not withstanding the terms of the lease, no rent would be paid to the landlord until March 2009". Following detailed averments about the need to upgrade and repair the premises the averments proceed: "The agreement of Parkcross Limited and the defender as detailed above amended and varied the terms of the lease. The actings of Parkcross Limited and the defender following the agreement amounted to rei interventus". The averments go on: "The pursuers are bound by the terms of the lease and the variations that were made to the lease as per the agreement between Parkcross Limited and the defender as detailed as above".

 

6. These averments might fairly be interpreted as indicating two lines of defence namely that the pursuers had no title to serve a Notice of Irritancy in the absence of intimation of the change of ownership and that the terms of the lease had been varied by a verbal agreement followed by rei interventus. The first of these lines of defence does not appear to have been maintained either by any appropriate plea-in-law or by argument at debate. In that situation it is not wholly surprising that the two issues which appear to have been focussed before the Sheriff were first, whether as a matter of law the written lease could be varied by verbal agreement and subsequent actings (a matter on which the Sheriff was prepared to allow a proof before answer), and second, whether any such agreement if valid was binding on singular successors. On the latter the Sheriff was satisfied that any such agreement would not be binding on singular successors and on that basis held the defences to be irrelevant.

 

7. I pause to observe that the defender's averments also contained an averment, immediately following those above quoted, that: "As no rent was due the defender did not incur an irritancy of the lease. The Irritancy Notices served by the pursuers on the defender on 14 February 2005 and 3 March 2005 are accordingly not valid". The first of these sentences takes on a particular significance in relation to the appeal because counsel for the defender and appellant did not seek to mount any direct attack on the Sheriff's decision. He submitted (1) that the Notice of Irritancy was defective because it overstated the amount due to the pursuers. (2) that it was defective because the pursuers were not due rent prior to the date of entry under the disposition; (3) that even if there was some form of assignation of pre-date of entry arrears the pursuers could not be in a better position in relation to arrears than the previous landlord and (4) that the pursuers had not set out a valid basis on which they had title to issue a Notice of Irritancy. As I think counsel for the defender accepted these submissions embraced a line of argument which was not advanced at debate. Counsel for the pursuers maintained that the argument was still not focussed by the pleadings and argued that if it had been he would have had an opportunity to investigate any question of the assignation of earlier rents in terms of the Missives between his clients and Parkcross. As matters have evolved I have a measure of sympathy with that contention, but it does seem to me that the argument as now formulated has been before the Court since the Note of Appeal was lodged and there is sufficient basis for it in the defender's averment that "as no rent was due the defender did not incur an irritancy of the lease". At all events it appears to me that the question as presented is one of fundamental importance. It is whether a new landlord, on taking over title to the subjects of let, is entitled to serve a Notice of Irritancy and proceed to enforce it on the basis of arrears of rent allegedly due to his predecessor in title without giving the tenant notice of the basis upon which arrears are owed to him. I propose to deal with it although it is not a matter on which I have the views of the Sheriff.

 

8. In support of his four submissions Counsel for the defender began by referring to section 4(2) of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 which requires a Notice of Irritancy, before it can be effective, to require the tenant "to make payment of the sum of which he has failed to pay". Section 4(2) had been judicially described as laying down "minimum requirements of an adequate notice": see Lord Morton of Shuna in CIN Properties v Dollar Land (Cumbernauld) Ltd 1990 SC 351 at 362. Not only did a notice have to contain the minimum requirements of section 4(2), it had to comply with the terms of the provisions in the lease on which it was founded: see Bencleuch Estates v Scottish Enterprise (unreported) Lord Reed 1 March 2006 at paragraph 121 et seq). Thus the notice in this case had to tell the tenant what he had to do to avoid the irritancy in a manner consistent with the parties' contractual agreement. That raised the question of entitlement to collect rent. Counsel observed that the statutory import of a clause of assignation of rents as set out in section 8 of the Titles to Land (Consolidation) Act 1868 had been superseded by section 16(3) of the Land Registration (Scotland) 1979. The position remained, as set out in leading textbooks (Rankine on Leases 3^rd Edition page 353; Halliday Conveyancing Law and Practice 2^nd Edition paragraph 37-13) that, in the absence of contrary agreement, a purchaser was entitled to rents for the period subsequent to the date of entry. A Disposition acted as an assignation of the right to rents, but the right to collect rent in the absence of intimation flowed from the date of registration of the new landlord's title: see MacDonald's Conveyancing Manual paragraph 10.6. In the present situation the pursuers were only entitled to collect rent from, at the earliest, 11 February 2005. The notice of 14 February thus related entirely to "pre entry" arrears to which the pursuers' entitlement was not set out.

 

9. In response, Counsel for the pursuers contended that the point taken by the defender was not in the pleadings as they stood, and the Court should not entertain her argument without amendment. It was, in any event, in the nature of a contrived argument. Counsel accepted that section 4 of the 1985 Act set out the minimum requirements of a Notice of Irritancy. That in effect meant that the tenant had to be advised of the fact that monies were due and what should be done about it. There was never any room for doubt in the mind of the present defender as to the extent of the arrears of rent - she had never paid any. The fact that the notice may have "overstated" the amount due was inconsequential. The purpose of section 4 was to give the tenant notice as to what would happen if arrears of rent were not paid; it was open to her to pay part if she thought a lesser sum was due than that stated, and take issue with the remainder. Precise accuracy in the notice was not fundamental: see Bellevue Cash and Carry Ltd v Singh (Sheriff Lothian, Edinburgh Sheriff Court 8 September 1995) GWD 1996 4-220. As for intimation of the right to rent the position was simply that the pursuer had title to receive rent as infeft proprietors. Counsel advanced a tentative submission that if necessary the notice of 14 February 2005 could be treated as intimation of the assignation of the pursuers' right to rents prior to 31 January 2005. At all events he founded on the provisions of Clause Twenty First giving the landlord power to put an end to the lease if the rent was unpaid for a period of 21 days. There was no doubt that as at that date the rent was unpaid for more than 21 days. If there was a problem arising from the amount of rent stated in the notice of 14 February that was of no importance because the tenant was no in any doubt about the position.

 

10. In response to these submissions Counsel for the defender submitted that irritancy of a lease was a matter which could only be carried out by a landlord for the time being in relation to sums due to that landlord. He again emphasised, under reference to the case of Bencleuch Estates that the whole point of the notice was that the tenant should be able to identify what he required to do to avoid irritancy.

 

DECISION

 

11. As indicated in paragraph 7 above I am satisfied that the defender's pleadings contain sufficient by way of averment to provide a basis for the defence now argued. I accordingly reject the submission by Counsel for the pursuers that the line of argument presented at the appeal should not be entertained. As to the substance of the argument itself, I agree with both Counsel that a proper interpretation, and application, of the terms of section 4 of the 1985 Act is fundamental to the decision in this case. Sub-section 1 thereof provides that "A landlord shall not...be entitled to rely" on a provision of a lease which purports to terminate it, or enables him to terminate it, unless sub-section 2 or 5 applies. Sub-section 5 is not relevant to this case. Sub-section 2 applies if the landlord has served a notice "requiring the tenant to make payment of the sum which he has failed to pay" and the tenant fails to comply with that requirement. The combined effect of these provisions, it appears to me, is that a landlord can only proceed to irritancy if, as Counsel for the defender submitted, the tenant is told at the time of service of the notice what he is required to do to avoid irritancy. The words "require the tenant to make payment" are not followed by the words "to him" and it appears to be perfectly possible for a landlord to serve a Notice of Irritancy on the basis of arrears of rent owed to his predecessor. To make the provision workable - in the sense that a tenant is unlikely to be required to settle a debt with someone to whom it is not owed - and to comply with the intention of giving notice of what is required to avoid irritancy, such a situation would require intimation of a requirement to settle with the earlier landlord. The only sensible alternative would be for the new landlord to assert the basis on which the debt should be paid to him. The notice in the instant case does neither of these things.

 

12. The argument advanced on behalf of the pursuer relied too heavily, in my opinion, on the bold assertion that the rent was prima facie in arrears. It appears to exclude any possibility that it was not recoverable by the previous landlord. It is to be noted that the words used are "make payment of the sum which he has failed to pay" as distinct from "make payment of arrears" or "alleged arrears". They embrace the notion of payment of a sum to the person to whom it is owed; indeed the only interpretation which makes practical sense is that it involves payment of a sum to the person to whom it is owed. The Sheriff, it is to be noted, was prepared to allow a proof before answer on the issue of whether there was an agreement to waive rent with the pursuers' predecessors. If that approach was correct - and there seems no reason to doubt it - it would be open to the defender to prove, in a question with the original landlord, that there was no sum "which she had failed to pay". I accept the defender's Counsel's proposition that a successor landlord cannot be in a better position to enforce an obligation of a lease than his predecessor. That appears to me to strike at the basis upon which the Notice of Irritancy was served.

 

13. In these circumstances I am persuaded by the defender's Counsel's argument that the Notice of Irritancy founded upon by the pursuers in this case did not comply with the terms of section 4 of the 1985 Act. If, however, I am wrong in that view and all that such a notice requires is to inform the tenant that there are arrears and that they require to be settled, it nevertheless appears to me that as a matter of pleading the pursuers have failed to disclose why it is that rent allegedly due prior to 31 January 2004 should have been paid to them. That was what was required in terms of the notice and the absence of any averment to support that requirement in my view deprives it of its validity for the purposes of this action.

 

14. I accept that the argument which has succeeded in this case is one which has not been properly focussed until a late stage. It may be that the pursuers were granted an assignation of rents due in respect of the subjects prior to 31 January 2004 and indeed their Counsel hinted at that in the course of his submissions. As I have indicated the pursuers have nevertheless had notice of the line of argument since the Note of Appeal was lodged. In the absence of any amendment, or motion to amend it appears to me to be proper to recall the Sheriff's interlocutor and grant decree of dismissal. There are, however, significant questions of expenses which will require to be addressed in due course.

 

 

(signed) EFB