The Inner House of the Court of Session has today determined that a landlord does not necessarily need to prove that works will in fact be carried out in order to succeed in a claim for dilapidations.
In @SIPP Pension Trustees v Insight Travel Services Limited,  CSIH 91, the Inner House reversed the decision of the Lord Ordinary at first instance that, in order to succeed in a claim for payment in respect of dilapidations under a clause of a lease entitling a landlord to payment of a sum equal to the cost of the works, the landlord had to also prove that the works would be carried out. The Lord Ordinary had previously held that the purpose of the clause was to compensate a landlord for losses sustained by a tenant’s failure to carry out works; not to result in a windfall payment.
However, in reversing that decision, the court reinstated the position as previously understood, namely that if the lease specifies that an obligation to pay exists, then it must be interpreted in the usual way. It is not appropriate to import some additional qualification not otherwise provided for.
In delivering the opinion of the court, Lady Smith stated:-
“We consider it to be clear from the wording of clause 7 that there is no doubt about the measure to be employed… In short, the words clearly indicate that parties intended that if the subjects were not, at termination, in the condition in which they would have been if the tenant had complied with its repairing obligations then the landlord was to be entitled to payment of a sum equal to the cost of bringing them up to that standard... We see no potential for importing into the words “a sum equal to the amount required” a meaning to the effect that the landlord must intend to use the money to carry out the works, failing which repair costs become wholly irrelevant and actual capital loss suffered, to which no reference is made at all, becomes the only matter of any relevance at all.”
The court also determined that where the tenant’s obligation was to “repair and keep in good and substantial repair and condition”, then the minimum standard that the property must be in at termination is “good and substantial repair”. In this case, reference was made in the lease to a schedule of condition that was not attached. As such, the default position reverted to “good and substantial repair and condition”. That meant that, if at commencement the condition of the property was less than that standard, the tenant would nevertheless need to leave that property in the better state.
Going forward, tenants would be wise to take specific advice on the extent of their repairing obligations prior to entering a lease. As confirmed by the Inner House, the correct question is what the parties intended at the commencement of the lease, and it is then that steps must be taken to safeguard against claims by landlords seeking a windfall rather than a recovery of losses.
For landlords, this decision will be a welcome return to normality. Now… as you were.
The decision of the Inner House can be found in full here.
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