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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Mars Pension Trustees Ltd v County Properties & Developments Ltd & Anor [1998] ScotCS 8 (4 August 1998) URL: http://www.bailii.org/scot/cases/ScotCS/1998/8.html Cite as: [1998] ScotCS 8, 1999 SC 10

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In 1995 the pursuers were the persons in right to the Pollok Centre, Glasgow.

By lease dated 16 February and 23 March 1995 and registered in the Books of Council and Session on 4 April 1995 ("the Lease") the pursuers, under their then style Mars Security Limited, let to the first defenders certain units comprised within the Centre. Entry was at 1 November 1994. The duration of the lease was until 2 February 2015. In the course of 1997 the pursuers sold their interest as landlord under the Lease (and, it seems, their interests as landlords under leases of other subjects in the Centre) to the second defenders.

From about mid-1995 the pursuers carried out certain refurbishment and repair work to the Centre. There were subsequently issued to the first defenders two certificates each prepared by Messrs Jones Lang Wootton on behalf of the pursuers which respectively bore to certify the expenditure incurred by the pursuers in 1995 and in 1996 in respect of Common Services at the Centre. Those certificates also bore to certify in each case that the apportionment (namely, the apportioned sum) attached to the listed expenditure was the sum due by the first defenders of such expenditure.

The first defenders dispute liability to pay the sums so certified. As their challenge includes a contention which has implications for the new landlords, the second defenders, the latter have been convened as a party to this action. The first defenders have lodged a counterclaim in which, among other things, they put in issue the basis on which the proportion of the Common Service Cost falls properly to be attributed to them. The second defenders have, insofar as affects their interest, adopted a position identical to that adopted by the pursuers. Those parties, although earlier separately represented, were represented by the same counsel at the debate before me.

It is convenient first to identify and discuss an issue between the parties concerning liability for expenditure in respect of roof repairs to the Centre. In terms of the Lease the Landlords are bound, subject to the payment by the Tenants of the Service Charge, to carry out or procure the carrying out (to an objective standard of reasonable competence and in accordance with the principles of good estate management) of such of the Common Services as the Landlords consider appropriate from time to time. The Common Services include the maintaining, repairing, replacing, renewing and rebuilding of the main structure of the Centre, including its roofs. The Landlords are entitled to recover from the Tenants as part of the Service Charge a proportion of the costs incurred by the Landlords in carrying out such works.

The sum sued for in the present action includes among other elements a proportion attributed to the first defenders of costs in carrying out what appear to have been substantial works to the roofs of the Centre. The first defenders maintain that as at the date of entry under the Lease the Centre was not wind and water tight. They contend that the pursuers impliedly warranted that as at that date "the Centre was reasonably fit for the purpose for which it was let and was wind and water tight" and that the pursuers are not entitled to recover from the first defenders any proportion of the costs in rendering it so. The pursuers contend that they are entitled to recover from the first defenders the appropriate proportion of such costs.

A rule of the common law of Scotland applicable to urban tenements is that they shall be put into a habitable or tenantable condition by the landlord at entry (Rankine on Leases (3rd Ed) p 241). The rule applies to all urban subjects, including commercial subjects. Wind and water tightness is or may be an aspect of a tenantable condition. The implied warranty under a lease of reasonable fitness for the purpose for which the subjects are let may be excluded by agreement.

In the present case "the Leased Subjects" under the Lease comprise the units referred to, together with certain physical accesses to and from them, the interior surfaces of the units and the Landlords' fixtures and others exclusively serving those premises. They do not include any of the roofs of the Centre. However, the first defenders as Tenants are entitled to the rights in common with others specified in Part II of the Schedule to the Lease. Those rights include a right to use the pedestrian mall, walkways and others and a right of shelter and protection for the Leased Subjects from all parts of the building of which they form part as enjoyed or intended to be enjoyed by the Leased Subjects. Those rights may be affected by the state of the roofs of the Centre.

Mr McCormack for the first defenders referred to Blackwell and Others v Farmfoods (Aberdeen) Limited (Lord Weir, 6 December 1990, unreported but digested in 1991 GWD 4- 219) where landlords sought to recover from tenants of one of three units in a building a contribution in respect of expenditure incurred on a common part of that building. The claim was resisted on the ground that the defect, in the repair of which expenditure had been incurred, had pre-existed the commencement of the defenders' lease and that, in the absence of an express provision to the contrary, their obligation did not extend to paying for such repairs.

In that case, counsel for the landlords conceded that, as a matter of law, there was an implied warranty by a landlord that the premises were at entry, unless there was an express provision to the contrary, fit for the purposes for which they were let; that concession appears to have extended to the common parts of the building of which the subjects of let formed part. Lord Weir after hearing argument on other aspects held, in the absence of such an exclusion, that the tenants were not liable for the costs of making good damage to a common part where that part was in its defective state when the defenders entered on their tenancy.

A like concession as to the scope of the warranty implied at common law was made in this case by Mr Ross on behalf of the pursuers and second defenders. In these circumstances it is unnecessary for me to decide whether or not the implied warranty in respect of subjects of let extends to the common parts of a building or complex of which those subjects form only a part, the tenant having certain rights short of possession in respect of those common parts. In none of the authorities cited to me or to Lord Weir (Erskine - Institute II: 6:39; Bell's Principles (10th Ed.) para 1253 and Rankine on Leases (3rd Ed.) p. 240) is such an issue expressly discussed; I was referred to no authority in which the point was decided after argument. The concession may be soundly made but I reserve my opinion as to whether the warranty applies or in any event applies in the same way to common parts of larger subjects as it does to the subjects of let.

The argument before me turned on whether, the concession being made, the warranty which would otherwise have been implied at common law had been effectually excluded by agreement. The provision of the Lease relied on was clause 12. It is in the following terms:-

Mr McCormack submitted that this clause was ineffectual to exclude the Landlords' common law obligation. To exclude such an obligation it was necessary to use clear language to that effect. Reference was made to Cantors Properties (Scotland) Limited v Swears & Wells Limited 1978 SC 310, especially per Lord Cameron at p. 322, Redpath Dorman Long Limited v Cummins Engine Co Limited 1981 SC 370, especially per Lord Justice Clerk Wheatley at page 374 and Gilbert-Ash (Northern) Limited v Modern Engineering (Bristol) Limited [1974] AC 689. He also referred to my decision in McCall's Entertainments (Ayr) Limited v South Ayrshire Council, (7 May 1998, unreported) for the proposition that a contractual provision in a lease falls to be construed against the common law background. The position in relation to the Common Parts was to be contrasted with paragraph 4 of Part V of the Schedule to the Lease where the Tenants accepted the Leased Subjects in their condition at the outset of the Lease; that provision would also be surplusage if clause 12 covered the physical state of the elements there referred to. Clause 12 was too vague to bear the construction argued for the Landlords. It did not in its latter part identify for what suitability or fitness there was to be no warranty. The implication was that that part of the clause was concerned with matters of layout or design. Moreover, the opening phraseology of the clause was not apt to exclude a common law obligation. Reference was also made to Ross & McKichan - Drafting and Negotiating Commercial Leases in Scotland (2nd Ed.) para 8.2.

Mr Ross submitted that clause 12 was apt to exclude the implied warranty that the Centre was fit in the relevant sense, including being wind and water tight. The clause was, in respect of fitness, general in its terms. It was unnecessary to identify any specific aspect of fitness such as state of repair. The opening words of clause 12 were apt to exclude any warranty whether arising from the terms of the Lease or at common law. Exclusion of warranty under this clause as to the state of the Centre fitted with the Tenants' acceptance of the present condition of the Leased Subjects under paragraph 4 of Part V of the Schedule.

I have come to the view that the first defenders' contention is to be preferred. The term which the pursuers argue is effectually and wholly excluded by clause 12 is a term which would otherwise be implied under the general law. In these circumstances the pursuers must satisfy the court that, in respect of such a term, clause 12 has exempting effect. Clause 12 must accordingly for that purpose be construed as exemption clauses are construed. It is settled law that such clauses are to be construed strictly.

Clause 12 does not in structure have the appearance of a clause designed to exclude a term which would otherwise be implied by law. The opening words "Nothing, whether contained in this Lease or otherwise, shall be deemed to constitute any warranty by the Landlords..." appear prima facie to be designed to avoid a warranty being treated as brought in existence rather than to exclude a warranty which exists at common law. Thus, nothing contained in the Lease is to be treated as constituting any warranty of the kind after described. The phrase "or otherwise" has ready content in, for example, extra-contractual representations which likewise are not to be treated as constituting any such warranty. Terms otherwise implied by law can, of course, be excluded by words other than express words of exclusion. For example, the implied obligation in respect of tenantable condition and repair is commonly excluded by an express acceptance by a tenant that the subjects are in a particular condition and repair - as in paragraph 4 of Part V of the Schedule relative to the Leased Subjects; a similar or appropriately adapted acceptance by the tenants in respect of the Common Parts would have been apt to secure the same effect. The formulation adopted in the opening words of clause 12 is not, in my view, so readily apt to exclude that or any other term implied by law.

The subject matter of the warranty referred to in clause 12 must also be construed. I accept that the implied obligation as to the state of repair of the premises (including wind and water tightness) can be viewed as an aspect of fitness for the purposes of the lease. In Bell's Principles at paragraph 1253 it is stated:-

In Rankine on Leases (3rd Ed) the learned author at pages 241-2 states:-

Later at page 242 he discusses the application of that general rule to urban tenements including wind and water tightness. However, standing that, "fitness of any buildings ... comprised in ... any other part of the Centre" might on one construction extend to the state of repair of the roofs of the Centre, the question remains whether, in the context of a clause maintained to have exempting effect, the expression clearly and unambiguously so extends. The particular matter first referred to relates to authorisation for use under Planning Law, a matter clearly related to lawfulness of user. The more general matter then referred to is "suitability or fitness". For what the buildings and other works are not warranted as suitable or fit is not specified, though it may reasonably be supposed that it relates to the purposes of the lease, including the use of the Leased Subjects and the enjoyment of the rights exercisable in relation to other parts of the Centre. The word "fitness" in conjunction with the word "suitability" seems more readily referable in this context to matters such as situation, layout and design than to state of repair. In any event, while "fitness" might include state of repair, it might equally be concerned solely with matters such as situation, layout or design. If it had been intended that the clause applied to the state of repair of the Leased Subjects or the Centre, it would not have been difficult to say so expressly.

Viewing the clause as a whole and without, I believe, adopting a strained construction of it, I am driven to the conclusion that it does not clearly and without ambiguity exempt the Landlords from the obligation in relation to repair otherwise implied at common law. In these circumstances the first defenders are entitled to inquiry in relation to the state of wind and water tightness of the Centre as at their date of entry under the Lease. I should add that, although clause 12 has a marginal note "no warranty of use", counsel were agreed that in view of clause 16 (which expressly excludes such notes affecting the construction of the Lease) it was inappropriate to have regard to that note for the purposes of construction. I have accordingly not relied on it.

The other principal issue discussed at debate concerned whether the certificates issued to the first defenders were in the circumstances conclusive. The subjects let to the first defenders had formerly been used as remote storage for a supermarket which had occupied larger premises. The Leased Subjects are situated primarily on an upper floor and are let for use as a bingo hall. The first defenders maintain that, in terms of location and in other respects, the Leased Subjects suffer material disadvantages relative to other units in the Centre and that it is unreasonable to treat them in an identical way for the purposes of apportionment of the Common Service Cost. They seek to put in issue the apportionment adopted by the pursuers against which, it appears, the Service Charge brought out in the certificates has been arrived at.

To identify the issue it is necessary to set out certain of the terms of the Lease.

Clause 4 provides:-

Part IV of the Schedule provides:-

The "Common Service Cost" is defined by clause 1.6 of the Lease as meaning

The Common Services are identified in Part VI of the Schedule and include, in addition to repair, a wide range of services in respect of the Centre generally.

The "Service Charge" is defined by clause 1.22 as meaning

Clause 1.22.3 envisages the notification to the Tenants of the Landlords' determination from time to time of the proportion referred to in that sub-clause. Paragraph 4.2 of Part IV of the Schedule makes no provision for the inclusion in any certificate issued under that paragraph of identification of the proportion of the Common Service Cost attributable to the Leased Subjects but only for the detailing of the Common Service Cost (ie. for the whole Centre) and the confirming of the Service Charge attributable to the Leased Subjects (being the aggregate sum brought out by the addition of the elements referred to in clauses 1.22.1, 1.22.2 and 1.22.3). However, so far as appears from the information before me, no notification was given to the first defenders of any determination by the Landlords under clause 1.22.3 except insofar as any such notification may appear on the certificates issued by Messrs Jones Lang Wootton. Each of those certificates, in addition to detailing the Common Service Cost, divides those costs into schedules (two in the first certificate and five in the second) and sets out an apportionment to the first defenders in respect of each schedule distinctly, a different percentage share being apportioned in respect of each schedule. Mr Ross was unable to explain to me at the debate the basis for division of the Common Service Cost into distinct schedules or how such division and the distinct apportionments related to the Lease provisions. The absence of an explanation does not preclude consideration of the issues of interpretation raised.

Mr McCormack submitted that it was crucial to recognise that the figure brought out and certified as the Service Charge was the result of a two-stage process - (1) the determination by the Landlords under clause 1.22.3 of the relative proportion and (2) the application, under paragraph 4.2 of Part IV of the Schedule, of that proportion to the Common Service Cost. The first stage was one which the Landlords themselves had to determine, the second stage was one which they could cause another person to carry out. If the issue of a certificate under paragraph 4.2 was to be conclusive as to the proportion attributed to the Tenants, such issue would preclude or defeat a challenge by the Tenants to the proportion which fell to be notified to them under clause 1.22.3. That could not be right. Clause 1.22.3 made no provision for the Landlords' determination being conclusive and its language indicated an objective test, viz, a fair proportion properly attributable on an equitable basis. Paragraph 4.2, on a sound construction, afforded conclusiveness to the application of the duly determined proportion to the actual cost but not to the determination of that proportion. It was devised to avoid petty accountancy disputes. In Farnborough Properties Limited v Scottish Enterprise (Lord Penrose, 14 June 1996, unreported) it had been held that a certificate in similar terms was not conclusive to exclude a contention that certain costs did not fall within the ambit of the relative contractual provisions. The first defenders he argued, were entitled to inquiry into their contention that no landlord acting reasonably would in the circumstances have apportioned costs to the first defenders in the manner adopted by the pursuers.

Mr Ross submitted that the issue required to be addressed as a matter of contract (Farnborough Properties Ltd v Scottish Enterprise at p. 15). Reference was also made to Jones v Sherwood Computer Services Plc [1992] 1 WLR 277, Campbell v Edwards [1976] 1 WLR 403 and Arenson v Arenson & Others [1973] 1 Ch. 346, especially per Lord Denning M.R. at pp. 361-3. Although those cases were concerned with determinations by a third party, no relevant distinction was to be made with a contractual provision under which the determination was to be made by one of the parties. For good economic reasons parties might abrogate what otherwise would be their general rights in order to achieve a practical mechanism for fixing the amounts of liabilities. By clause 4 of the Lease the Tenants had agreed to make payment of the Service Charge in accordance with the provisions contained in Part IV of the Schedule. This provision had primacy, even if it might appear to override the possibility of a challenge to the Landlords' determination under clause 1.22.3. The practical operation of the timing arrangements in paragraphs 4.2 and 4.3 of Part IV pointed to the conclusiveness of the certificates. The function of a certificate, insofar as relating to the Service Charge, was (1) expressly to state the amount of the Service Charge, (2) implicitly to state that it was made up of the three elements referred to in clause 1.22.1, 1.22.2 and 1.22.3 and (3) implicitly to state that the amount had been arrived at on the basis of these three sub-clauses. The certificate thus had the effect of conclusively certifying that the requirements of clause 1.22.3 had been satisfied. Although a certificate was open to challenge on the basis of manifest error, this was a very limited exception and applied where on the face of the certificate an entry had been improperly made. The information to be included in a certificate as envisaged in paragraph 4.2 did not allow for identification of the proportion determined under clause 1.22.3 and accordingly it could not give rise to manifest error. The obligation to make payment in terms of the certified Service Charge was in accordance with the plain provisions of the Lease, the overall structure of its provisions (including coherence and practicability) and the overall intention of the parties. The Lease had been carefully drafted and was designed to be practicable and workable. While the provision in clause 1.22.3 for determination on an equitable basis was available as a touchstone as to what should happen, it was not open to the Tenants to challenge the certificate under paragraph 4.2 on the basis that it proceeded on an apportionment inconsistent with due operation of clause 1.22.3. So far as there was any conflict or possibility of conflict, the certification procedure had priority and afforded conclusiveness. The defences and counterclaim insofar as directed to a challenge of the certificates should be dismissed.

If contrary to that submission the certificates were challengeable, any challenge, Mr Ross argued, could only be on the ground that no landlord, acting reasonably and having regard to his own interests as landlord, could have done what the pursuers had done. It was accordingly a "subjective" standard, not one involving a "Clapham omnibus" type of objectivity. Reference was made to Taylor Woodrow Property Co Ltd v Strathclyde Regional Council (Lord Penrose, 15 December 1995, unreported) and to Gordon District Council v Wimpey Homes Holdings Limited 1989 SLT 141. It was acknowledged that the first defenders' averments in their counter-claim sufficiently addressed the requisite test but those in their defences did not.

In my view it is necessary when considering the nature and scope of the finality provision in paragraph 4.2 to have regard to the Lease as a whole. In modern commercial leases it is not uncommon for provision to be made for the issuing of a certificate, commonly by a professional person, in respect of service charges and for such a certificate to be conclusive of the sum payable. It is, however, in relation to each lease a matter of construction how far that finality extends. In Farnborough Properties Limited v Scottish Enterprise the tenant bound itself:-

The Landlord's Surveyor issued certificates in respect of a number of premises comprised within the same office block but held on separate leases in which the cost and expense attributed to each of the leased premises respectively was certified. No question arose in that case about the apportionment among the tenants. It was, however, contended that, while the certificates were final and conclusive in relation to matters of quantification, they were not final and conclusive in relation to classification of the works carried out. Lord Penrose, after referring to Jones v Sherwood Computer Services Plc and Campbell v Edwards, observed that the question was simply one of contract and at pages 16-17 concluded, after examination of the relative leases, that,

Thus, while a certificate may ex facie bear to be within the scope of the certified provision and to have conclusive effect in terms of it, it may be based on a matter which, on a true construction of the agreement, is not within the remit of the certifier to determine.

In Farnborough the matter which was held to be outwith the scope of the finality provision was whether the costs claimed fell within those which, on a sound construction and application of the leases, were chargeable to the tenants. In the present case the issue is whether the attribution to the defenders of a proportion of the Common Service Cost is outwith the scope of the equivalent provision. In my view it is. Clause 1.22.3 provides for determination by the Landlords on the basis of a defined criterion of the fair proportion of the Common Service Cost which is properly attributable to the Leased Subjects. No provision is made in that clause that such determination be final as between the parties. It would have been open to the parties contractually to agree that an apportionment be conclusive (and such a course might have been highly convenient), though it might perhaps have been more usual to find such determination remitted to a surveyor or other professional. However that may be, no finality is expressly conferred by clause 1.22.3 on the Landlords' determination and none is, at least in the immediate context of the clause, in my view to be implied. Any such determination also falls by force of that sub-clause to be notified to the Tenants. Those provisions prima facie indicate, in my view, that a notified determination by the Landlords was not intended to be immune from challenge by aggrieved Tenants on the ground that it did not satisfy the defined criterion.

In these circumstances it would be surprising if a provision concerned with intimation of the detail of the Common Service Cost for an Accounting Period and of the particular amount of that Cost attributable to the Tenants were intended to foreclose a challenge to the exercise of apportionment by the Landlords. Paragraph 4.2 is, in my view, on a fair reading not concerned with such apportionment. The Certificate, in addition to detailing the Common Service Cost (an act essentially of management or accountancy), is concerned with "confirming" the Service Charge attributable to the Leased Subjects. Confirmation under paragraph 4.2 appears to be an act of finalisation of the Service Charge which has hitherto been charged under paragraph 4.1 on an estimated basis. As such it is again essentially an act of management or accountancy. Insofar as "confirming" under paragraph 4.2 may be concerned with apportionment, it can only reflect arithmetically, insofar as the Service Charge comprises an element under clause 1.22.3, the result of the apportionment already carried out by the Landlords under that sub-clause. In these circumstances it is unsurprising to find that paragraph 4.2 provides for the Landlords causing the Certificate to be prepared and issued and for the actual certificates to have been prepared and issued by a property accounts department.

In these circumstances the conclusiveness conferred on certificates issued under paragraph 4.2 is, in my view, a conclusiveness related primarily to accounting and calculation and does not extend to the matter of apportionment.

It may be that as a matter of convenience the Landlords have caused the apportionment determined by them to be notified in the body of the certificates; but notification in that form does not render conclusive an exercise which is not contractually intended to have such effect.

No question arises in respect of "manifest error", the first defenders not relying on that exception. The provision of an exception of that kind is, however, consistent, in my view, with a finality restricted to matters of accountancy and calculation.

I accept Mr Ross's submission that the issue to be addressed is one of contract. So addressing it, I am satisfied that the construction urged by him does not give due effect to the intention of the parties as expressed in the contract read as a whole. In particular, it would deprive clause 1.22.3 of substance and effect. I do not accept that the Tenants by entering into a lease including clause 4 and paragraph 4.2 of Part IV of the Schedule have in effect abrogated all opportunity to question whether the Landlords have apportioned the Common Service Cost in accordance with the contractual criterion. Paragraph 4.2 contains within it references to the Service Charge which of necessity involves consideration of that expression as defined in clause 1.22, including the element described in sub-clause 1.22.3; although that description occurs in a definition it gives rise, in my view, to rights and obligations. Nor do I accept that the construction which I favour leads to impracticability or commercial inconvenience. It is in the Landlords' hands to make an apportionment and to notify it to the Tenants well before a Certificate falls to be issued under paragraph 4.2.

In these circumstances the first defenders are, in my view, entitled to inquiry on this aspect of the case also. That being so, I regard it as inadvisable to attempt at this stage to resolve any question whether an "objective" or a "subjective" test falls to be applied in relation to the operation of clause 1.22.3 - or indeed whether there is, in truth, in this context any material difference between such tests.

It was acknowledged by Mr McCormack that the first defenders' averments in their defences were not wholly in line with the equivalent averments in their counter-claim; he sought an opportunity to adjust the latter to achieve alignment. Mr Ross also indicated that, if I were against him on his primary argument on the matter of apportionment, he would wish an opportunity to expand on the pursuers' existing averments in relation to how they had in fact gone about apportionment. In order to give effect to my conclusion on clause 12 of the Lease, I shall exclude from probation paragraph (a) in Article 5 of the pursuers' Condescendence. I shall then put the case out By Order for discussion in the light of this Opinion of further procedure, including any appropriate adjustment to the pleadings.