The Court of Session has considered the (i) validity of a payment demand and (ii) issues with surveyor’s certification of works in a recent dilapidations decision.
Coal Pensions Properties Limited, the landlord of business premises at Westhill, Aberdeenshire (“the property”) raised a claim for payment against their former tenant, Technip UK Limited.
The landlord had served a schedule of dilapidations on the tenant at the end of the lease term. Following discussions between the surveyors, the landlord served a formal demand for payment on the tenant together with their surveyor’s certificate of sums due. The tenant disputed the sums due.
The lease provided that the tenant was obliged to keep the property in good and substantial repair and condition throughout the term of the lease.
If at the end of the term the tenant had not complied with their repairing obligation, then either:
(a) the tenant must do the work necessary; or
(b) the tenant must pay to the landlord the reasonable sum certified by the landlord's surveyor as being equal to the cost of carrying out the required work.
The lease also provided that, if the tenant did not comply with its repairing obligation, they would be liable to pay a sum in respect of lost rent for the period that it would reasonably take to put the property into the required condition.
If the tenant paid the reasonable sum certified by the landlord's surveyor sum within 20 days of demand, the obligation to pay lost rent would be discharged.
The court considered the validity of the landlord’s demand for payment.
The principal issue for the court was the interpretation of the relevant provisions of the lease. In particular, the proper construction of the tenant’s obligation to “pay to the landlord the reasonable sum certified by the landlord's surveyor as being equal to the cost of carrying out such work”.
The court decided that the demand for payment issued on behalf of the landlord did not comply with the requirements of the lease. The demand sought payment of (i) the cost of the works and (ii) the loss of rent. However, the loss of rent was not actually due until 20 working days had passed without payment.
While the demand for loss of rent was not valid, the court held that the rest of the demand was okay. The claim for the cost of the works could proceed.
The court also considered the contractual scope of certification by the landlord’s surveyor – did it cover valuation of the repair works, or did it extend to determination of what repair works are required?
The court held that the certification clause gave parties an incentive to resolve disputes promptly. It allowed the repair works to proceed and the claim for loss of rent to be minimised. That is a significant benefit to the tenant. The quid pro quo of the tenant being able to discharge the rent loss claim was that they could not dispute the “reasonable sum” certified by the landlord’s surveyor.
The court highlighted that the clause does not provide that whatever sum is certified by the surveyor must be taken to be reasonable. Rather, it provides that the sum must be reasonable (within the reasonable range of sums that might be arrived at by a surveyor acting in good faith and exercising professional skill).
The court held that both parties were bound by the surveyor’s certification. Subject to the requirement for reasonableness (which had been met here), the parties had agreed to be bound by the total sum certified by the surveyor.
Finally, it was decided that the landlord’s alternative claim for damages could not succeed. Parties had agreed a contractual remedy and the landlord could not ignore that if it decided that it preferred an alternative basis of claim.
This decision is a reminder from the courts that all notices and demands for payment should be very carefully drafted to ensure they comply with the terms of the lease. Failure to do so could scupper any claim.
It is also a reminder of the merits of discussion and negotiation before launching into court action. In considering whether the landlord’s surveyor’s certification was reasonable, the court highlighted that the sum certified was not the sum that the pursuer’s surveyor proposed initially, but one arrived at after negotiation.
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