Westbury Estates Ltd v Royal Bank Of Scotland Plc [2006] ScotCS CSOH

OUTER HOUSE, COURT OF SESSION

[2006] CSOH 177

CA72/04

OPINION OF LORD REED

in the cause

WESTBURY ESTATES LIMITED

Pursuers;

against

THE ROYAL BANK OF SCOTLAND PLC

Defenders:

________________

Pursuers: McNeill, QC, Simpson; Wright Johnston & Mackenzie

Defenders: Dean of Faculty, E Robertson; Dundas & Wilson, CS

22 November 2006

Introduction

[1] St Andrew Square, one of the principal squares of Edinburgh's New Town, has greatly changed in appearance and function since it was built in the late eighteenth century. It is only on the north side that most of the original houses remain, although somewhat altered. Number 26, in particular, was built in about 1772 as the residence of an Edinburgh merchant. The stucco frontage was later stripped off; the building was altered and extended in Victorian times; and it came to be used as offices, like most of the rest of the square. In 1979 it was let by the pursuers' predecessors to the defenders for a period of 25 years. The lease came to an end in 2004, and the defenders then vacated the subjects. The present action concerns their liability for repairs, under clause (Fifth) (Three) (1) of the lease (which I shall refer to for convenience as "the repairing covenant", although the obligations which it imposes go beyond repair as ordinarily understood).

[2 ] The repairing covenant provides:

"The Tenants accept the Let Subjects in their present condition notwithstanding all (if any) defects therein whether latent or otherwise and are held to have satisfied themselves that in all respects the Let Subjects are fit for their purposes and throughout the whole currency of this Lease the Tenants shall at all times uphold, maintain, repair and renew the Let Subjects both externally and internally so as to keep the Let Subjects in good and substantial repair and condition, it being declared that the Tenants' obligations shall extend to all work necessary upon the Let Subjects whether structural or otherwise and whether of the nature of maintenance, repair, renewal or rebuilding and whether normally the obligation of a Landlord or of a Tenant, the Landlords having no duties, liabilities or obligations in respect of such work or the cost thereof and further that the Tenants' obligations shall extend to the maintenance, repair, renewal and if necessary replacement of all services within and external to but serving the Let Subjects (either alone or in common with other subjects) including lifts, heating installations, ventilation or air conditioning systems, drainage system and gas, electricity and water supplies and any other services."

[3 ] The principal matter in dispute is whether the defenders are bound to pay for the replacement of certain electrical or mechanical items: the lifts, the fire alarm, the electrical wiring, the boiler and the convector heaters. The pursuers carried out an inspection of the subjects some months prior to the expiry of the lease. They then served a schedule of dilapidations on the defenders, calling on them to replace the items in question. The defenders did not do so. The pursuers maintain that they then carried out the works themselves, at a cost of £572,254.68. They also maintain that they were unable to let the subjects for a period of six months while the work was being carried out, and in consequence lost rental income totalling £73,022.35. They seek to recover those sums from the defenders.

[4 ] The novelty of the present action, so far as Scottish case law on commercial leases is concerned, is that the pursuers do not suggest that any of the items in question was defective or malfunctioning: they maintain, rather, that the items had to be replaced by the defenders in the light of certain guidelines relating to the economic life of such items published by the Chartered Institution of Building Services Engineers (CIBSE).

[5 ] In relation to the concept of economic life, the pursuers aver:

"The economic life of an item is the period of time at the end of which it is necessary to replace that item. The need to replace it arises because the item no longer represents the least expensive method of performing its function. This is owing to matters such as a commercially unacceptable risk of breakdowns. The risk is as to both the frequency and seriousness of breakdowns, and is coupled with increasing difficulty and expense of obtaining replacement parts and having the item repaired, the fact that the timing of any particular breakdown is unpredictable and the likelihood that breakdowns will cause significant business interruption."

[6 ] In relation to the CIBSE guidelines, the pursuers aver:

"Guidelines as regards the economic life of these items are issued by the Chartered Institution of Building Services Engineers ('CIBSE'). Those guidelines are accepted generally as appropriate standards in the building services industry, in particular in connection with when it is necessary to replace items in respect of which the guidelines specify an economic life. Both tenants and landlords of commercial property rely on advice from the building services industry in relation to maintenance and repair of premises. The CIBSE guidelines proceed on certain assumptions. These include a good standard of maintenance."

[7 ] The guidelines themselves are not before the Court (notwithstanding an averment purporting to incorporate them into the pursuers' pleadings, which I was invited on behalf of both parties to disregard). I was informed by counsel for the pursuers that the CIBSE was formed in 1976 by amalgamating the Institution of Heating and Ventilation Engineers with the Illuminating Engineering Society. Counsel did not know, and the pursuers do not offer to prove, when the guidelines were published, or when they came to be accepted in the manner averred; but it was accepted by counsel that that situation did not exist in 1979, when the lease was entered into.

[8 ] In relation to the application of the guidelines to the items in question, the pursuers aver:

"The lift is over 25 years old. According to the guidelines, its economic life is at most 25 years. The fire alarm system is 25 years old. According to the guidelines, its economic life is between 20 and 25 years. The electrical wiring is 25 years old. According to the guidelines, its economic life is between 20 and 25 years. ... The boiler is between 15 and 20 years old. According to the guidelines, its economic life is between 15 and 25 years. .... The convector heaters are at least 15 years old. According to the guidelines their economic life is 15 to 20 years."

[9 ] The pursuers then draw an inference, from the application of the guidelines, as to the defenders' obligations under the repairing covenant:

"Each [of the items in question] has passed the end of its economic life or is in the age range within which it is expected that its economic life will end. As of 15^th May 2004 [when the lease expired], each was accordingly not in good and substantial repair. As of that date, the subjects were accordingly not in good and substantial repair and condition and were not fit for their purposes."

[10 ] The pursuers also make certain averments regarding the attitude of incoming tenants:

"An incoming tenant would not take a lease of subjects where these essential, integral parts of the services to the subjects were at the end of their economic life or were in the age range within which it was expected that their economic life would end. Specifically, an incoming tenant would not accept these items in the condition in which they were when the defender removed from the subjects.....The pursuer would not be able to lease the subjects to a new tenant were it not replacing these items, unless the terms of any new lease contained some financial adjustment in favour of a new tenant in respect of the need to replace them."

[11 ] In relation to the actual condition of the items in question, the pursuers aver:

"Each of the lift, the fire alarm, the electrical wiring, the boiler and the convector heaters were capable of being operated at the ish of the lease. ... [T]he reliability and cost of servicing the lift, fire alarm, electric wiring, boiler and convector heaters ... are not matters within the knowledge of the pursuer."

[12 ] The relevancy of the pursuers' pleadings in relation to the items in question having been challenged by the defenders, the pursuers sought to have that issue determined at debate.

The parties' submissions

[13 ] On behalf of the defenders, it was submitted that the defenders' obligation under the lease was to uphold and maintain the subjects in good and substantial repair and condition. The measure of that obligation was to be judged by what the reasonable tenant or occupier would do in respect of each of the items in question. The defenders' obligation was to be assessed on the basis of the reasonable requirements of the class of reasonably minded tenants likely to occupy the subjects. That matter was determined as at the commencement of the lease. The reasonable tenant or occupier who wished to continue to occupy the subjects would have assessed the advantages and disadvantages of maintaining or replacing the items in question by reference to a number of factors, including their reliability and the cost of servicing. The defenders' obligation was not to be determined by reference to what might be desired by a hypothetical tenant wishing to occupy the subjects under a new lease. It was apparent from the pursuers' pleadings that they had replaced the items in question without regard to their reliability or the cost of servicing. The fact that guidelines indicated that an item was within the age range when its economic life could be expected to end was not, of itself, a relevant basis for requiring that the item must be replaced.

[14 ] On behalf of the pursuers, it was submitted that the repairing covenant was to be interpreted as meaning that where an item had reached the end of its economic life, the subjects were not in good and substantial repair and condition within the meaning of the covenant. In deciding whether an item had reached the end of its economic life, the practice of the building services industry, of advising replacement when an item had reached the age range specified in the CIBSE guidelines, was conclusive, since both tenants and landlords relied on the advice of that industry. Alternatively, the guidelines created a presumption which it was for the tenant to rebut by proving that, notwithstanding that the item in question had reached the age range specified in the guidelines, nevertheless a reasonable landlord would not replace the item, and a reasonable tenant would take a lease of the subjects without the item in question being replaced or any financial adjustment being made on account of its having reached the end of its economic life.

[15 ] In support of their submissions, counsel for both parties cited largely the same authorities, to which I shall now turn.

The authorities

[16 ] In Anstruther-Gough-Calthorpe v McOscar [1924] 1 KB 716 Scrutton LJ observed (at page 729):

"The judge below appears to have read or had cited to him an enormous number of cases, and we allowed a few to be cited to us."

In the present case, counsel on both sides researched the law thoroughly and cited a large number of reported cases for the assistance of the court. The citation of reported cases on the construction of contracts is however of limited assistance, unless the case in question lays down a principle of interpretation, or the words under construction are a standard phrase which has come to have a settled meaning. As Scrutton LJ said in Westercott v Hahn [1918] 1 KB 495 at pages 511-512,

"The first thing to be done is to endeavour to ascertain from the words the parties have used in this case their actual intention. If they have used words which by a settled course of authority have acquired a technical meaning, the Court will give effect to those authorities; but, unless this is so, it appears to me very unprofitable to consider what Courts have thought that other words in other documents meant and to see which reported case has the least differences from the present".

The logical fallacy involved in reasoning from the construction placed by other judges on other documents was explained by Sir George Jessel MR in Aspden v Seddon (1874) LR 10 Ch 394 (at page 397n). More recently, Hoffmann J observed in Norwich Union Life Assurance Society v British Railways Board [1987] 2 EGLR 137 (at page 138) that questions of construction are frequently a matter of impression and are not readily susceptible of precise explanation. I respectfully agree. I shall accordingly discuss only the authorities cited which appeared to me to offer some general guidance, or on which counsel placed particular reliance.

[17 ] It is also necessary to observe at the outset that almost all the authorities cited were English, although reference was made to some recent Scottish cases in which the English authorities had been considered. The common law of Scotland in relation to repairing obligations in leases is however different from that in England: in particular, the distinction drawn in Scots law between ordinary and extraordinary repairs appears to have no direct parallel in English law. In consequence, it is questionable whether some of the English authorities relied on would have been decided the same way in Scotland (the decisions in Proudfoot v Hart (1890) 25 QBD 42 and Lurcott v Wakeley [1911] 1 KB 905, for example, might be contrasted with the opinions in Napier v Ferrier (1847) 9 D 1354). Counsel however explained that the repairing covenant in the lease with which the present case is concerned was typical of the form of covenant which had evolved in England since the nineteenth century, and which was now generally adopted in commercial leases throughout the United Kingdom. Since such covenants were the result of a practice which had developed in England, and had evolved in the light of the decisions of the English courts, it was those decision which were relevant.

[18] Scots law is not as the law of the Medes and Persians, which altereth not: it has to reflect changes in social practices, in respect of the drafting of commercial leases as in other respects. It appears to me that the present repairing covenant, extending as it does to "all work necessary .... whether structural or otherwise and whether of the nature of .... rebuilding and whether normally the obligation of a landlord", is designed to cover what the older Scottish cases would have treated as extraordinary repairs. Like Lord Penrose in Lowe v Quayle Munro 1997 SC 346, I conclude that the distinction between ordinary and extraordinary repairs is not relevant for present purposes. In the circumstances, it does not appear to be necessary to embark, without counsel's assistance, on a consideration of the older Scottish authorities.

[19 ] The earliest case which has to be considered is Proudfoot v Hart, which concerned a short residential lease under which the tenant was obliged to keep the premises "in good tenantable repair". In the Court of Appeal, Lopes LJ considered (at page 55) the meaning of that phrase:

"What is the meaning of 'good tenantable repair'? That expression appears to me to mean such repair as, having regard to the age, character and locality of the house, would make it reasonably fit for the occupation of a reasonably-minded tenant of the class who would be likely to take it."

Lord Esher MR expressed his agreement with that definition. Considerable weight was placed upon these dicta by counsel for the pursuers.

[20 ] The next case cited was In re London Corporation [1910] 2 Ch 314, which concerned a lease of parts of Smithfield Meat Market, under which the tenant undertook that it would "well and sufficiently maintain, uphold, support, and keep in good, substantial, and tenantable repair" the demised premises. The question was whether the tenant was obliged to repair iron girders supporting the roof and superstructure, which had become corroded since the commencement of the lease, but remained sufficiently strong to secure the roof and superstructure. Eve J decided the case in favour of the landlord. This decision also was relied upon by counsel for the pursuers. It appears that the decision proceeded on the basis that the word "maintain" meant, in effect, "maintain in the condition subsisting at the date of the demise". Although the word "maintain" also appears in the repairing covenant with which the present case is concerned, no particular weight was placed upon it, and no argument was presented that it imported an obligation to maintain the subjects in the same condition as in 1979: the argument presented on behalf of the pursuers treated the phrase "so as to keep the Let Subjects in good and substantial repair and condition" as the measure of the tenant's obligation, and as qualifying all the preceding verbs ("uphold, maintain, repair and renew"). In those circumstances, I derive little assistance from In re London Corporation.

[21] The next case cited was Lurcott v Wakeley, which concerned a residential lease under which the tenant was obliged to "well and substantially repair ..... and keep in thorough repair and good condition" the demised premises. The issue was whether the tenant was obliged to re-build the front wall of the house, which had become dangerous as a result of age and consequent decay. The argument focused on the question whether "repair" included partial renewal; and the Court of Appeal held that it did. That question does not arise in the present case, and I accordingly find the case of limited assistance. I note however that the expression "good condition" was regarded as adding little to the significance of "thorough repair": see in particular what was said by Fletcher Moulton LJ at page 918 (with which the Court of Appeal expressed agreement in Smedley v Chumley & Hawke Ltd [1982] 1 EGLR 47 at page 48, where the obligation was "to keep .... in good structural repair and condition").

[22 ] The next case appears to me to be more relevant. In Anstruther-Gough-Calthorpe v McOscar the Court of Appeal was concerned with a 95 year lease of three houses under which the tenant undertook, put shortly, that he would keep the premises "well and sufficiently repaired". The character of the area where the houses were located, and in consequence the requirements of the class of tenants who were likely to let the houses, had changed greatly during the period of the lease (from 1824 to 1919). The judge at first instance decided, on the basis of Proudfoot v Hart, that the measure of the obligation depended on the requirements of the class of tenants likely to take the houses in 1919, rather than in 1824. That decision was reversed by the Court of Appeal.

[23 ] Bankes LJ expressed (at page 723) his disagreement with the view that Proudfoot v Hart supplied a useful working rule for normal covenants to repair, and remarked:

"No case, in my opinion, has been more misunderstood, or more frequently misapplied, than Proudfoot v Hart".

His Lordship also remarked (at pages 723-724)

"how misleading [as] a test of the obligations under a covenant to repair the supposed wants of an intending tenant at the expiration of a long term of years may be".

His Lordship concluded, in relation to that matter (at pages 726-728):

"In my opinion the case of Proudfoot v Hart lays down no rule of general application. The language used by the Lords Justices is quite appropriate to the facts of that case and must, I think, be read as applicable to those facts and to similar facts only....

....

In construing the covenant in the present case, or any other covenant, it is material to see what the subject matter was which the parties had in their contemplation when the covenant was entered into.... Here there is no doubt as to the subject matter. It was the three houses described in the lease, and the obligation undertaken was the repair of those houses. How can the extent of such an obligation be measured by the requirements of the class of tenants who happen to be occupying the premises ninety-five years afterwards? Proudfoot v Hart did not, in my opinion, lay down any such rule. When the facts of that case are looked into it is manifest that the Lords Justices who decided the case had no such question in their minds. What they were dealing with, and all they were dealing with, was a three years' agreement for a tenancy, in which case the class of tenants at the end of the tenancy was, in their view, no doubt, the same class as the class of tenants at the commencement. Upon that assumption, and upon that assumption only, is the rule laid down by Lopes L.J. and accepted by the Master of the Rolls, in my opinion, explicable or intelligible".

His Lordship referred (at page 728) to one of the alternative approaches to the interpretation of the obligation to keep the premises "well and sufficiently repaired" which had been suggested by the arbitrator in that case:

"putting the premises -

(a) into such condition as I should have expected to find them in had they been managed by a reasonably minded owner, having full regard to the age of the buildings, the locality, the class of tenant likely to occupy them, and the maintenance of the property in such a way that only an average amount of annual repair would be necessary in the future."

In relation to that interpretation, Bankes LJ said (at page 728):

"[P]rovided the age of the buildings is regarded as the dominant feature, and the locality and class of tenant is only taken into account in relation to, or as a consequence of, the age of the buildings, then I consider the rule laid down by the arbitrator a good working rule of general application. Had it been applied to the facts in Proudfoot v Hart it would have produced the same result as the rule framed by Lopes LJ for those facts. Not to apply that rule to the facts of the present case is, I think, to make an entirely new contract for the parties and to substitute a different standard of obligation for the one to which the parties did agree."

[24 ] Scrutton LJ appears to have considered that there was unlikely to be a substantial difference between differently expressed general covenants to repair, and that the relevant standard was essentially one of fitness for purpose. The question was then whether that standard was to be assessed on the basis of the circumstances subsisting at the time of the demise, or varied thereafter from time to time. In relation to these matters, his Lordship said (at page 729):

"I do not think there is any substantial difference in construction between 'repair,' which must mean 'repair reasonably or properly' and 'keep in good repair', or 'sufficient repair' or 'tenantable repair,' or most of the various phrases cited to us. There is an analysis of the meaning of 'repair' by Buckley LJ in Lurcott v Wakeley, with which, as far as it goes, I agree. The tenant must when necessary restore by reparation or renewal of subsidiary parts the subject matter demised to a condition in which it is reasonably fit for the purposes for which such a subject matter would ordinarily be used. The question in dispute seems to be whether, as the purposes for which such a subject matter is ordinarily used may vary from time to time, the standard of repair is to vary from time to time, or remains as it was when the subject matter was demised."

His Lordship considered that the second of those alternatives was established by previous authority, concluding (at page 731):

"Therefore in my view we are bound to look to the character of the house and its ordinary uses at the time of the demise. It must then be put in repair and kept in repair. An improvement of its tenants or its neighbourhood will not increase the standard of repair, nor will their deterioration lower that standard. It follows in this case that the principle put forward by the tenant was erroneous, and that the statement by the arbitrator in 1(a) of the supplementary case is accurate but must be limited to conditions at the time of the demise."

[25 ] Atkins LJ attached greater importance to the terms of the covenant in question, observing (at pages 731-732):

"I see no reason for construing the words of covenants in leases dealing with obligations to repair in any other way than one would construe any other covenant. Effect should be given if possible to every word used by the parties: see per Fletcher Moulton LJ in Lurcott v Wakeley. It does not appear to me useful to refer to such covenants as the usual covenants to repair, or general repairing covenants, and then consider only what is the meaning of 'repair'. It appears to me still less useful to take a number of terms which may be found in different leases, treat them all as synonymous, and so impute to all of them a special meaning attached by authority to one of them."

His Lordship concluded (at page 732) that the construction of "tenantable" laid down in Proudfoot v Hart could not be used as the basis for construing a covenant in which the word "tenantable" was nowhere to be found. His Lordship also explained (at page 732) why the standard of repair required by a repairing covenant could not ordinarily depend on the requirements of tenants as at the date at which the premises were to be yielded up:

"To apply such a test to a repairing covenant taken upon a ninety-five years' term seems to me to expose both landlord and tenant to possibilities of the most astonishing variation of obligation and rights. The obligation is a continuing obligation, and therefore would presumably vary with the requirements of the hypothetical possible tenant during each moment of the tenancy."

His Lordship did not favour a test of fitness for purpose, and, accepting the decision in Proudfoot v Hart as binding upon him, explained (at page 733) how it might be applied:

"For my own part I should be very reluctant to introduce into covenants in leases considerations of fitness for a particular purpose which cause much difficulty in contracts of a different kind. Unguided I should have thought that the original and proper sense of 'tenantable' was fit to be tenanted, that is, occupied, and that the word meant no more than, if it meant as much as, 'habitable'. But Proudfoot v Hart binds me to hold that in a three years' agreement it has reference to the reasonable requirements of a tenant of the class who would be likely to take it. Accepting that construction I have no doubt that the requirements of such a tenant are deemed to continue the same during the term, or if not, are to be estimated by the requirements of such a tenant as would be likely to take the premises at the commencement of the term."

His Lordship concluded (at pages 733-734):

"Once one is extricated from the clutch of the hypothetical tenant I do not think there is much difficulty in construing the covenant in this case to 'well and sufficiently repair ..... maintain .... paint, pave .... amend and keep' the premises 'in by and with all and all manner of needful and necessary reparations and amendments whatsoever, and .... so .... amended and kept .... yield up.' There is a very full discussion of what is meant by 'repair' in the judgments of Fletcher Moulton and Buckley LJJ in Lurcott v Wakeley with which I respectfully concur. Repair is not confined to houses; it applies to chattels, and it connotes the idea of making good damage so as to leave the subject so far as possible as though it had not been damaged. It involves renewal of subsidiary parts; it does not involve renewal of the whole. Time must be taken into account; an old article is not to be made new; but so far as repair can make good, or protect against the ravages of time and the elements, it must be undertaken. Speaking generally, I have not seen a better statement of the duties of a tenant under such a covenant as this than the statement in the present case by the arbitrator of the principles on which he proceeded in arriving at the higher sum, which has been read by my Lord. It is true that he refers to the class of tenant likely to occupy them as being one of the matters a prudent owner would have regard to, but I gather from the whole report that he does not regard this consideration as involving a fluctuating standard. I would myself prefer to eliminate the possible tenant, and would be content with the arbitrator's earlier test when he is dealing with the pointing as being 'needful and necessary for the maintenance of the structure so that it may be expected to last for its normal life if properly kept in repair.'"

[26 ] I note that the test suggested by the arbitrator, in the passage with which all the members of the court expressed their agreement, was that of "a reasonably minded owner" (or, in the phrase used by Atkin LJ, "a prudent owner"). It is apparent from the judgments that, insofar as such an owner would have regard to relevant matters in determining the appropriate standard in which the premises are to be kept, those matters are to be taken as they stood "at the time of the demise" (in the words of Scrutton LJ): the standard does not fluctuate.

[27 ] Apart from Proudfoot v Hart, the authority on which counsel for the pursuers placed most emphasis was Crédit Suisse v Beegas Nominees Ltd [1994] 4 All ER 803. The case concerned a lease of newly constructed commercial premises, under which the landlord was required to "maintain repair amend renew... and otherwise keep [the premises] in good and tenantable condition". I note that Lindsay J emphasised the word "otherwise", in the phrase which I have quoted; and, as was noted in Welsh v Greenwich LBC (1996) 81 P & C R 144 at page 149 per Robert Walker LJ, it seems to have made a significant contribution to his conclusion that the obligation to "keep in good and tenantable condition" added materially to the obligation to repair. Water leaked into the interior of the premises through the external cladding, which had been defectively constructed. The question was whether the landlord was obliged to make the building watertight. It was decided that the landlord was so obliged. In the course of his judgment, Lindsay J observed (at page 821):

"Next, whilst I accept the inevitability of the conclusion of the Court of Appeal in Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055 that one cannot have an existing obligation to repair unless and until there is a disrepair, that reasoning does not apply to a covenant to keep (and put) into good and tenantable condition. One cannot sensibly proceed from 'no disrepair, ergo no need to repair' to 'no disrepair, ergo no need to put or keep in the required condition'. Leaving aside cases, such as this, where there is special provision for there to have been prior knowledge or notice in the covenantor, all that is needed, in general terms, to trigger a need for activity under an obligation to keep in (and put into) a given condition is that the subject matter is out of that condition."

Lindsay J construed the phrase "good and tenantable condition" by transposing the dicta in Proudfoot v Hart directed to 'tenantable repair', and inferred (at page 822):

"Next, if the meaning I have attributed to 'good and tenantable condition' is right, then the required condition in which the premises are to be kept and into which they are to be put falls to be judged not (if they differ) by reference to the actual state of the building as at the date of the demise but rather to what at that time were the requirements as to condition of the hypothetical reasonably minded tenant of the class likely to take that building."

I note that this case again concerned a covenant which was expressed in terms of the premises being "tenantable". I also note that the requirements of the hypothetical tenant were assessed as at the date of the demise.

[28 ] The authority on which counsel for the defenders principally relied was Fluor Daniel Properties Ltd v Shortlands Investments Ltd [2001] 2 EGLR 103. The case concerned a lease of an office building under which the landlords covenanted to "uphold maintain repair and renew cleanse and redecorate and otherwise keep in good and substantial condition and as the case may be in good working order and repair" certain elements of the building, including plant and machinery. The landlords were entitled to recover from the tenants the cost of works carried out in compliance with the covenant. The landlords proposed to replace certain plant on the basis that it had reached the end of its recommended lifespan as suggested in the CIBSE guidelines. On behalf of the landlords it was argued inter alia that the proposed works were such as a reasonable owner might decide upon, and accorded with current building practice. On behalf of the tenants, it was argued that the repairing covenant did not cover the replacement of plant which was not in disrepair and which remained in proper working order, in satisfactory physical condition, and for all practical purposes able to perform as efficiently as if new. Plant was not in disrepair, nor was replacing it "repair", simply because it was at the end of its age range in the CIBSE tables. The obligation to "amend" added nothing, because it meant no more than "mend", thereby implying a state of disrepair. "Renew" presupposed that the physical condition of the item in question was such that renewal was reasonably necessary. In that regard, counsel submitted that the standard to apply was that laid down by Proudfoot v Hart (ie having regard to the age, character and locality of the building, was the condition of the items in question reasonably acceptable to a reasonably minded tenant of the kind likely to take a lease of the building?).

[29] These submissions on behalf of the tenant were accepted by Blackburne J (at page 110):

"While accepting (as did Lindsay J in Credit Suisse v Beegas Nominees in relation to the similarly worded provisions in that case) that [the repairing covenant] extends to the doing of works that go beyond repair strictly so called, I accept [counsel for the tenants'] submission that the obligations contained in the clause presuppose that the item in question suffers from some defect (ie some physical damage or deterioration or, in the case of plant, some malfunctioning), such that repair, amendment or renewal is reasonably necessary. I further accept his submission that the condition of the item in question must be such as to be no longer reasonably acceptable, having regard to the age, character and locality of the premises, to a reasonably minded office tenant of the kind likely to take a lease of the building. Whether, once those conditions are established, the item must be repaired or renewed is a question of fact and degree, having regard to the nature and extent of the defect and, not least, to the costs likely to be involved."

[30 ] The last case I need consider is Mason v Total Fina Elf UK Ltd (2003) EWHC 1604, [2003] 3 EGLR 91. The case concerned a 35 year lease of a petrol filling station entered into in 1964, under which the tenant undertook that it would "well and substantially uphold support maintain repair decorate and keep in good condition the demised premises". One of the issues which arose on the expiry of the lease was whether the tenant was bound to replace the underground storage tanks. There was no evidence that the tanks were defective: they had not been tested or examined for corrosion. The case for their replacement was based on their age, and on the application of a statistics-based technique for predicting when an underground storage tank was likely to fail. Blackburne J found (at paragraph 137) that that was not enough to establish that the tanks were not in the condition required by the covenant. His Lordship also accepted (at paragraph 138) a submission

"that the fact that these days, when there is a greatly increased concern about environmental issues, someone wishing to acquire a petrol filling station may only be willing to do so if the underground storage tanks are new or are of an age which falls far short of their statistical life expectancy, is not sufficient to constitute a breach of a covenant in the terms of [the repairing covenant] entered into in 1964".

[31 ] In addition to the foregoing cases, reference was also made to AB v CB 1937 SC 696, Penman v White 1958 SC 338, Post Office v Aquarius Properties Ltd [1987] 1 All ER 1055, Ladbroke Hotels Ltd v Sandhu (1996) 72 P & C R 498, Scottish Mutual Assurance plc v Jardine Public Relations Ltd [1999] EGCS 43, McCall's Entertainments (Ayr) Ltd v South Ayrshire Council 1998 SLT 1421 and West Castle Properties Ltd v Scottish Ministers 2004 SCLR 899.

Discussion

[32] The issue in this case turns on the construction of the repairing covenant. The proper starting point is therefore the language of the covenant, which differs in some material respects from the language of other covenants discussed in the authorities. As was made clear by Fletcher Moulton LJ in Lurcott v Wakeley and by Atkin LJ in Anstruther-Gough-Calthorpe v McOscar, the Court should in principle give full effect to each word used, while recognising, as Robert Walker LJ observed in Welsh v Greenwich LBC at page 148, that in commercial leases the style of drafting may leave the court with little need or scope for finding a different shade of meaning for every word used.

[33 ] Under the covenant, the tenants' obligation applies "throughout the whole currency of this lease": it therefore applied, and had the same meaning, on the first day of the lease, in 1979, as on the last day, in 2004. The obligation is to

"at all times uphold, maintain, repair and renew the Let Subjects .... so as to keep the Let Subjects in good and substantial repair and condition".

I shall return to those words. There then follows a declaration, which must be intended to clarify the scope of the obligation, and is in two parts. First,

"it [is] declared that the Tenants' obligations shall extend to all work necessary... whether structural or otherwise and whether of the nature of maintenance, repair, renewal or rebuilding and whether normally the obligation of a Landlord or of a Tenant".

That part of the declaration makes it clear that the obligation is not limited to "repair" as defined in the authorities (such as Lurcott v Wakeley and Post Office v Aquarius Properties Ltd). The second part of the declaration is concerned specifically with services elements, such as the items with which the present case is concerned, and declares:

"that the Tenants' obligations shall extend to the maintenance, repair, renewal and if necessary replacement of all services... including lifts, heating installations ... electricity... supplies and any other services".

It is to be noted that, in relation to the replacement of services elements, the test is one of necessity: replacement, rather than "maintenance, repair [or] renewal", is required only "if necessary". The strictness of that test doubtless reflects the onerous nature of the obligation imposed (a factor which militates against giving the obligation an expansive interpretation: see eg. Gibson Investments Ltd v Chesterton plc [2002] 2 P & CR 494 at page 503 per Neuberger J). In the context of the earlier words of the clause, "if necessary" must mean "if necessary so as to keep the subjects in good and substantial repair and condition".

[34 ] Like Fletcher Moulton LJ in Lurcott v Wakeley and the Court of Appeal in Smedley v Chumley & Hawke Ltd, I am doubtful whether the words "and condition", in the phrase "good and substantial repair and condition", introduce a different concept from that of "good and substantial repair": cases in which a contrary view has been taken, such as Crédit Suisse v Beegas Nominees Ltd and Welsh v Greenwich LBC, appear to me to depend on their particular circumstances (notably, the specific terms of the provision in the former case, and the context of the lease in the latter case). That issue does not however appear to me to be of critical importance to the question with which I am concerned: on either view, the obligation is concerned with the physical condition of the subjects, including the items in question, and requires that the physical condition of the subjects be maintained to a given standard. In order for the obligation to be triggered, the physical condition of the subjects must therefore fall short of the requisite standard. In relation to items of the kind with which the present case is concerned, in particular, the obligation would be triggered if the item was in a state of disrepair (Post Office v Aquarius Properties Ltd; Southwark LBC v Mills [2001] 1 AC 1 at page 8 per Lord Hoffmann), or (on the wider view adopted in Crédit Suisse v Beegas Nominees Ltd) was in a defective condition by reason of an inherent defect. I also accept that the obligation might be triggered if an item of plant was unreliable and prone to breakdowns: the standard of "good and substantial repair and condition" can be understood as encompassing, in relation to plant and services, a reasonable degree of reliability.

[35] The pursuers' case however proceeds on a materially different basis. Their averment is that it is "necessary" to replace an item when "the item no longer represents the least expensive method of performing its function". Whether an item of plant "represents the least expensive method of performing its function" appears to me to be an entirely different question from whether its replacement is necessary "so as to keep the subjects in good and substantial repair and condition." The fact that the item is less efficient than a more modern equivalent tells one nothing about whether the item is in "good and substantial repair and condition".

[36 ] It therefore appears to me that the fact that an item is at the end of its economic life, in the particular sense in which that expression is defined in the pursuers' averments, does not entail that the tenant is necessarily obliged under the repairing covenant to replace it. Equally, the fact that an item is of a given age, and that (as averred) the CIBSE guidelines indicate that an item of that age is at or approaching the end of its economic life (presumably, in the same sense in which that expression is defined in the pursuers' averments), does not ipso facto entail that the subjects are other than in "good and substantial repair and condition", particularly when it is also averred that the items are capable of being operated, and that the pursuers have no knowledge of their reliability or servicing costs.

[37 ] The difference between an obligation to replace an item whenever it ceases to represent the least expensive method of performing its function, on the one hand, and an obligation to replace it if necessary "so as to keep the Let Subjects in good and substantial repair and condition", on the other hand, cannot be bridged by offering to prove that the CIBSE guidelines "are accepted generally as appropriate standards in the building services industry" and that "tenants and landlords of commercial property rely on advice from the building services industry". I do not doubt that it is often helpful, in applying a repairing covenant, to consider whether particular works would be undertaken by a prudent owner; but an affirmative answer to that question cannot bring the works in question within the scope of the covenant if the language of the covenant does not admit them. The intention of the parties to the lease has to be determined from the language which they have used. There is, in particular, a danger of confusing the question whether it would be economic for a prudent building owner to replace an item of plant with the question whether the plant is in such a state that the subjects cannot be said to be in good and substantial repair and condition. Equally, there is a danger of confusing the question whether an incoming tenant would regard the item as old-fashioned or under-specified or liable to cause problems at some point in the future, with the question whether the subjects are, as matters stand, in good and substantial repair and condition. I would observe that the test of the hypothetical tenant which was adopted in Proudfoot v Hart was concerned not with what a tenant would expect or accept (something which might depend on market conditions, rent and the other terms of the lease), but with what would make the premises reasonably fit for occupation. Even if it were proved, for example, that commercial landlords would normally replace a boiler which was 15 years old (and that incoming tenants would normally expect such a boiler to have been replaced), that would not entail that subjects with a 15 year old boiler, which remained in perfect working order and continued to perform satisfactorily, were not in "good and substantial repair and condition".

[38 ] Although I have begun by considering the language of the repairing covenant, since that is the logical starting place, I also arrive at the same conclusion by a simpler route. As I have mentioned, it is accepted on behalf of the pursuers that the guidelines were not in general acceptance (and may not even have existed) when the lease was entered into in 1979. A lease, like any other contract, is to be interpreted in the sense which the words bore at the time it was entered into; its meaning cannot change as a result of changes in circumstances arising ex post facto. That elementary point is illustrated by several of the authorities cited, including in particular Anstruther-Gough-Calthorpe v McOscar. Unless a lease contemplates a varying standard of repair (as, for example, in Gooderham & Worts Ltd v Canadian Broadcasting Corporation [1947] AC 66), the appropriate standard is therefore to be ascertained by reference to the circumstances existing at the date of the lease. As Robert Walker J observed in Ladbroke Hotels Ltd v Sandhu (at page 505):

"the decision of the Court of Appeal [in Anstruther-Gough-Calthorpe v McOscar] does firmly establish the general proposition that the standard of repair required by a repairing covenant is to be determined by the parties' expectations at the time the lease is granted; and to rely on a diminished expectation of commercial life occurring in the course of the term runs counter to that general proposition, just as much as reliance on a lowering of standards in the neighbourhood that (sic) occurring in the course of the term".

I respectfully agree; and, if one were to substitute "economic life" for "commercial life" in that dictum, it would be apposite to the present case. The practice of landlords and tenants in 2004 is therefore not the test, if that practice is different from the practice which the parties to the lease had in their contemplation in 1979.

[39] I can deal briefly with the pursuers' remaining argument, that it is sufficient for them to refer in their pleadings to the CIBSE guidelines, and that it is then for the defenders to establish that the items in question did not require to be replaced. I reject that contention. The pursuers are seeking damages from the defenders for breach of contract. It is for the pursuers to prove that the defenders failed to fulfil their obligations. It is therefore for the pursuers to prove that the defenders failed to keep the subjects in "good and substantial repair and condition". As I interpret those words, it is therefore for the pursuers to prove that the actual condition of the subjects - and, in particular, of the items in question - fell short of that standard. The fact (if it be a fact) that boilers generally last between 15 and 25 years does not mean that a particular boiler which is between 15 and 20 years old requires to be replaced. I have no difficulty in accepting that the CIBSE guidelines may be of evidential significance; but the legal burden of proof rests with the pursuers. They cannot relevantly aver nothing about the actual condition of the items in question beyond that they were capable of being operated.

Conclusion
[40 ] In the circumstances, I shall sustain the defenders' plea to the relevancy of the pursuers' averments concerning the items in question. As requested by counsel, the case will be put out for a hearing By Order for a consideration of further procedure.

	[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Westbury Estates Ltd v Royal Bank Of Scotland Plc [2006] ScotCS CSOH_177 (22 November 2006) URL: http://www.bailii.org/scot/cases/ScotCS/2006/CSOH_177.html Cite as: [2006] ScotCS CSOH_177, 2006 SLT 1143, [2006] CSOH 177

Scottish Court of Session Decisions