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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Bradford & Bingley Building Society v Thorntons Plc [1998] ScotCS 78 (26 November 1998) URL: http://www.bailii.org/scot/cases/ScotCS/1998/78.html Cite as: [1998] ScotCS 78

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The pursuer is the landlord and the defender the tenant of shop premises comprising part of the ground floor and part of the basement at 99 Buchanan Street, Glasgow ("the shop premises"). That relationship is constituted by a sub-sub-lease entered into by the parties' respective predecessors in title (and by a third party) dated 13 August, 8 October and 20 October 1986 and registered in the Books of Council and Session on 2 June 1987. The shop premises comprise part of larger subjects at 95/99 Buchanan Street and 7/9 Gordon Street. The part of the basement at 99 Buchanan Street not comprised in the shop premises is occupied by another party in association with 7/9 Gordon Street. The part of the ground floor at 99 Buchanan Street not comprised in the shop premises remains in the possession of the pursuer as sub-tenant. That part is referred to in the sub-sub-lease and in this Opinion as "the office premises". The pursuer is also the proprietor (and head landlord) of the whole subjects at 95/99 Buchanan Street and 7/9 Gordon Street. It also owns immediately adjacent property at 91 Buchanan Street. The office premises do not enjoy direct access to Buchanan Street or to Gordon Street. At some stage an opening has been made in a wall of the office premises to allow them to be used in conjunction with the premises occupied by the pursuer at 95 and at 91 Buchanan Street.

The period of the sub-sub-lease is from 14 August 1986 (the date of entry) to 15 May 2008. Clause 1(a) provides:-

"The Rent shall be, subject to sub-clause (b) hereof TWENTY EIGHT THOUSAND POUNDS (£28,000) STERLING per annum, exclusive of rates payable half yearly in advance on the First March and First September in each year (each of which dates is hereinafter called a 'rental payment date'); the first instalment shall be payable on the date of entry in respect of the period from that date to the First day of September Nineteen hundred and eighty six".

Clause 1(b) provides for the rent to be reviewed on

A formula is then provided for such review. The machinery for review includes the delivery to the tenant by the landlord at any time not earlier than nine months prior to the relevant review date of a notice specifying the landlord's proposal for the full market rental value. In the event of failure of the parties to agree the full market rental value before the expiration of three calendar months immediately after the date of posting of the notice, that value is to be determined by an independent surveyor appointed by a prescribed mechanism. Clauses 1(c) and 1(d) are in the following terms:-

A rent review took place with respect to the rent review date falling on 8 September 1995. Parties having failed to agree upon the full market rental value, an independent surveyor was appointed to determine it. He ultimately published his determination. That publication was not made prior to the date of review. The indication at the bar was that it was a substantial time thereafter. Parties are at issue as to the date from which under sub-clause 1(c) interest is payable on the sum of money (the shortfall rent) payable under that sub-clause.

Parties are also at issue in respect of the apportionment inter se of a part of certain common repair costs incurred in 1994 and again in 1997 in respect of the larger subjects at 95/99 Buchanan Street and 7/9 Gordon Street. Those costs were incurred in the first instance by the pursuer as proprietor of those larger subjects. Those costs were apportioned as between the sub-leased subjects and the remainder of the larger subjects. There is no dispute about that apportionment. The dispute concerns the share to be borne by the defender as sub-sub-tenant of the shop premises of the costs apportioned to the sub-leased subjects.

Clause 4(d) of the sub-sub-lease provides as follows:-

Clause 4(d) of the sub-lease provided as follows:-

It is convenient to deal separately with the interest and the apportionment of costs issues.

Mr Lake for the defender submitted that, on a sound construction of sub-clause 1(c), "such date" appearing as the fourth and third last words was a reference to "the rental payment date immediately following the date on which such determination shall have been published" appearing earlier in that sub-clause. He drew attention to the terms of sub-clause 1(d) which provided, in relation to rent payments, that interest ran from the date when such payments were due. A like approach was indicated in relation to any sum payable under sub-clause 1(c) in respect of shortfall rent; it became due and payable on the rental payment date immediately following the publication of the surveyor's determination. If the pursuer's contention (that interest was payable under sub-clause 1(c) from the relevant rent review date) was correct, the result would be that the tenant would require to pay interest in respect of a period during which the shortfall payment was not due or payable. Moreover, if the surveyor's determination was not published until after the expiry of the half year following the relevant rent review, interest, on the pursuer's construction, would be payable from the review date on the whole shortfall sum, with the result that the landlord would receive more interest than if the reviewed rent had been in place following publication of the determination prior to the expiry of that period. The landlord thus would be over-compensated. Moreover, over-compensation would not be restricted to such circumstances. The rental payment dates were 1 March and 1 September in each year. The rent review date was, however, 8 September (in each fifth year). Rent was payable half yearly in advance with the result that the rent payment due on 1 September in a year of rent review would be at the unreviewed rate. Where reviewed rent was agreed or determined prior to the rent review date, the reviewed rent would first become payable (in respect of the half year then commencing) on 1 March in the year following the review. Publication of a reviewed rent after the rent review date but prior to the first rental payment date thereafter would result only in the reviewed rent being payable in respect of the period from that rental payment date. Thus, recovery of interest from the rent review date would in all circumstances over-compensate the landlord. The operative reference to date in sub-clause 1(c) was to the expiration of the interval referred to, the passage "provided that... in respect of said interval" serving only to define the shortfall sum to be paid.

Mr Tyre for the pursuer submitted that, on a sound construction of the sub-clause, interest was payable on the shortfall sum from the rent review date. In terms of sub-clause 1(a) rent was payable half yearly in advance. The rent review date did not coincide with either of the half yearly rental payment dates. The landlord should be receiving rent at the reviewed rate with effect from the rent review date. The payment mechanism, however, provided only for payment of the shortfall sum at a rental payment date. The interest provision in sub-clause 1(c) was designed to deal in a practical and common-sense way with the disadvantage which the landlord would sustain if the surveyor's determination was delayed. The defender's construction would have the effect that the provision for interest in sub-clause 1(c) was otiose. "Such date" in that provision referred to "the relevant review date" which appeared a little earlier in the sub-clause.

The proper antecedent to "such date" in sub-clause 1(c) cannot, in my view, be said to be wholly clear. However, I have come to the view that Mr Tyre's construction is to be preferred. The parties entered into a sub-sub-lease with entry at 14 August 1986 and with rent being initially payable at a specified rate. Provision was made for the rent to be reviewed on 8 September 1990 and at five yearly intervals thereafter. The rent review date did not coincide with either half yearly rental payment dates. Provision was made for a shortfall sum to be payable in respect of such difference as might arise between the existing rent and that determined on review. Counsel were agreed that, although sub-clause 1(c) referred to "the said sums", the use of the plural was a grammatical or typographical error. The opening words of the sub-clause refer to the date of review as to the date "upon which the rent so to be determined is to take effect". The reviewed yearly rent is to be "duly apportioned on a daily basis in respect of the [interval between the rent review date and the publication of the reviewed rent]". Those provisions point, in my view, to the intention of the parties being that the landlord should ultimately recover from the tenant under that sub-clause rent at the reviewed rate with effect from the date of review. Although the shortfall sum does not become due and payable until the rental payment date immediately following the publication of the determination, that sum is payable in respect of the period which commences on the relevant rent review date and from which it "is to take effect". It would be consistent with the provision in sub-clause 1(d) for interest on rent payments that interest should be payable on the shortfall sum from the date at the commencement of the period to which it relates and from which it is to have effect. This is also, in my view, the more natural reading of the sub-clause in which the closest antecedent to "such date" is "the relevant review date". It is true that the provision is not wholly logical. Sub-clause 1(c) only operates in the event of the surveyor's determination not having been published prior to the date of review. Accordingly, if it is published prior to that date or if the parties agree the reviewed rent, no shortfall sum is payable and accordingly no interest can be due on it; the tenant has the benefit of rent at the unreviewed rate until the half yearly payment date following the review date. Moreover, if the publication of the determination is delayed beyond the first rental payment date following the rent review date, the interest, on the pursuer's construction, will be on the cumulo sum from that rent review date; to an extent, therefore, there will be over-compensation. However, those logical inconsistencies do not persuade me that the intention of the parties was otherwise than that, in the event of the publication of the surveyor's determination being delayed beyond the rent review date, interest should be payable on the shortfall sum from that date. This is, in my view, consistent with the substance and effect of clause 1(d), albeit the shortfall sum does not become due as a debt until sometime after the relevant rent review date.

Accordingly, I find that, on a sound construction of the sub-sub-lease, interest is payable under sub-clause 1(c) on the shortfall sum from the relevant rent review date until payment.

Parties were agreed that the annual values of relevant subjects appearing in the Valuation Roll in force during the years 1987, 1994 and 1997 were respectively as follows:-

Copies of the relative Valuation Rolls were also produced from which it is plain that the quoted figures appear under the headings "net annual value" and "rateable value", there being no entries under "gross annual value" for those commercial subjects. I shall return to this feature. Although there is no definition in the sub-sub-lease of "the relevant time" as used in sub-clause 4(d) and the expression is open to interpretation, there was no serious issue at debate on that matter. The relevant values were agreed to be those in the 1994 and/or the 1997 Rolls. There was no established explanation at the debate of why the entries in those Rolls for the office premises were in the terms stated. It may, however, be surmised that the nil entry in the 1994 Roll (expressed there as "-")is a consequence of the then unoccupied and essentially "landlocked" situation of those subjects (such that a nominal value may have been thought appropriate) and that their disappearance from the 1997 Roll is a consequence of their having been subsumed within the entry for the conjoined subjects at 95 and 91 Buchanan Street. An explanation for the state of the Rolls was not, however, regarded as germane to the issues discussed at debate.

The pursuer has, in respect of both the 1994 and 1997 repairs, charged the defender with the whole of the costs attributed to the sub-let subjects ie. one hundred per cent has been attributed to the shop premises and nil to the office premises; the pursuer has done so on the basis of a choice by it of respective annual values appearing on the relative Valuation Roll as the basis for allocation.

Mr Lake submitted that, in adopting the annual values option, the pursuer was in the circumstances not acting reasonably. An implied restriction to that effect on its power to choose was to be inferred from the terms of the sub-sub-lease, the surrounding circumstances and the relevant law. In any event, a restriction was to be inferred from the express reference to "an equitable share". Two surrounding circumstances were material. First, the sub-lease under which the pursuer held the larger subjects as tenant and which pre-dated and was referred to in the sub-sub-lease, made no reference to an equitable share, simply to apportionment proportionally to gross annual values. Secondly, as at 1986 there had appeared in the Valuation Roll a nil valuation for the office premises (the 1987 Roll indicated that that value had applied from October 1985). There had, accordingly, been introduced against that background an apportionment basis alternative to gross annual values together with the concept of an "equitable share". This pointed to recognition by the parties to the sub-sub-lease that an allocation on the then current annual values basis of 100/0 per cent would not result in an "equitable share". That concept involved an objective standard which placed a fetter on what would otherwise be a freedom in the landlord to choose between floor areas and annual values. In circumstances where there remained a nil entry or no entry in the Valuation Roll in respect of the office premises, the practical effect was to confine the landlord to the floor areas basis. Where a contract conferred on a party a choice between options, the law might import a mutual intention that the party with the choice must act reasonably (Gordon District Council v Wimpey Homes Holdings Limited 1989 S.L.T. 141, per Lord Clyde at pps. 142-3; Rockcliffe Estates PLC v Co-Operative Wholesale Society Limited 1994 S.L.T. 592, per Lord Maclean at pps. 595-6). Reference was also made to Hutton v Barrett & Another (26 October 1994, Lord Cameron of Lochbroom, unreported) and Taylor Woodrow Property Company Limited v Strathclyde Regional Council (15 December 1995, Lord Penrose, unreported). The type of option discussed in Prentice v Scottish Power PLC 1997 S.L.T. 1071 was distinguishable.

Mr Lake also submitted that, in the event of the Court being against him on the matter of construction, the pursuer had in fact already chosen to adopt apportionment on a floor areas basis. He referred to the minutes of a meeting held on 2 November 1994 attended by representatives of the parties and to a letter of 5 January 1995 sent to the defender's representative by the pursuer's factor. An inquiry, however, might be necessary on this aspect.

Mr Tyre submitted that sub-clause 4(d) meant what it said. It conferred on the pursuer as landlord under the sub-sub-lease a choice as between floor areas and annual values. The exercise of that choice conclusively determined what was "an equitable share". It was important to recognise the distinction between implying a restriction of reasonableness and revisiting the bargain (Rockcliffe Estates PLC v Co-Operative Wholesale Society Limited; Prentice v Scottish Power PLC). The test for the implication of a term was a strict one (Crawford v Bruce 1992 S.L.T. 524, especially at page 531). Where in the decided cases a restriction of reasonableness had been implied, that was because the particular bargain there discussed could not be given business efficacy without such implication. In the present case an express choice had been conferred on the landlord. To withdraw the landlord's right to choose between the two identified bases would involve making a new contract. There was nothing fundamentally wrong with a 100/0 per cent apportionment, particularly if the subjects to which the zero percentage was apportioned were unused and in practical terms unusable. The fact that the office premises had a nil value at the time when the sub-sub-lease was entered into indicated (if it was to be assumed that this was then known to the contracting parties) that the tenant was prepared in that knowledge to contract on terms which gave to the landlord the stipulated choice. There was no question of arbitrariness or capriciousness. It was simply that one of the options available to the landlord was in the event more favourable to him. That potential advantage was written into the contract. There were a number of formulae conventionally used in commercial leases for apportionment of service and other common charges. There were advantages and disadvantages in each (Ross & McKichan - Drafting and Negotiating Commercial Leases in Scotland (2nd Ed.) paras. 11.12 - 13). There was no necessary correlation between an apportioned share and the benefit enjoyed by a contributor. If, contrary to his submission, "equitable" was to be invested with an objective quality beyond the contractual choice, it could not be said that a 100/0 per cent allocation was in all circumstances inequitable. It would be necessary to explore in evidence why in the particular circumstances the choice of annual values had been made by the landlord.

Mr Tyre also submitted that the documents relied on by the defender in respect of the allegedly exercised choice of floor areas as the basis of allocation did not support such a contention. The minutes were concerned with the allocation to the sub-let premises, not with any allocation as between the sub-sub-let shop and the remainder of the sub-let premises. The correspondence relied on was again concerned with the allocation to the sub-let premises.

In my view, the provision for payment of "an equitable share" does import some restraint on the freedom with which the landlord may choose between respective floor areas and respective annual values as the basis on which common costs incurred from time to time are to be borne. Had the intention of parties been that the landlord should have a wholly unfettered power to elect between those bases, there would have been no need to introduce the concept of "an equitable share". The introduction of that concept suggests that the parties intended to import into the exercise of choice at least a measure of objective fairness. It is possible that the introduction of this concept arose from a mutual dissatisfaction, against the physical and valuation arrangements existing at the time when the sub-sub-lease was entered into, with the more conventional formulae for distribution of common burdens. However that may be, I am not satisfied that the passage in parenthesis simply defines contractually the phrase "an equitable share". Although, in my view, it is unnecessary, given the express reference to an equitable share, to imply a condition of reasonableness, I find the reasoning of Lord Clyde in Gordon District Council v Wimpey Homes Holding Limited at pp. 142-3 both relevant and instructive. I construe sub-clause 4(d) as requiring the landlord to act equitably in any choice it may come to make under that sub-clause. However, the decision remains the landlord's. As Lord Penrose observed in relation to reasonableness in Taylor Woodrow Property Co Limited v Strathclyde Regional Council at pps. 14-15, in exercising the power the landlord will be entitled to have regard to his own interests as landlord as well as to those of the tenant. It may well be that in a particular situation either choice, albeit giving different results, could properly be regarded as an equitable decision. In such circumstances the landlord's choice will rule and his decision will not be invalid by reason only of the chosen alternative being more to his advantage. If, however, the choice made was not one which the landlord acting equitably could have made, it will be open to challenge. This conclusion does not, in my view, involve re-writing the parties' bargain; rather, it gives effect to the language which they have employed.

Prima facie the selection of a basis which results in the whole burden following on the tenant seems difficult to reconcile with the concept of "an equitable share". However, I cannot exclude the possibility that in some circumstances such a choice might be consistent with a due exercise of the power. If, for example, at the relevant time the office premises were, by reason of their "landlocked" character, commercially sterile and likely to remain so, there might be justification for allocating the whole costs of the sub-let subjects to the shop premises. It is more difficult to see such justification in circumstances where the office premises have become part of a larger commercially productive unit. Those are, however, only preliminary impressions which may fall to be modified or changed in the light of evidence. It will, in my view, be necessary to hear proof on this aspect of the case.

I should add that, when attention was drawn in the course of the discussion to the fact that none of the relevant Valuation Roll entries disclosed "gross annual values", Mr Lake suggested that the result was that the landlord was effectively confined to a floor areas apportionment. I am satisfied that that is not so. Although "gross annual value" had by 1986 ceased to be a relevant concept for the purposes of the valuation for rating of commercial subjects, the parties clearly intended that an option by reference to annual values on the Valuation Roll should be available. The patent error is open, in my view, to correction.

It is not possible on the information before me to reach a concluded view on the question whether the pursuer has disentitled itself, by reason of a prior election for allocation on the basis of respective floor areas, from electing for allocation on the basis of annual values. I simply observe that prima facie there appears to be substantial force in Mr Tyre's contention that the documentary materials relied on by the defender are concerned with another matter. If this contention is to be insisted on, proof will be required.

I shall accordingly make the finding earlier referred to in relation to the interest issue and put the case out By Order for discussion of further procedure.