Background
The case of Malin and Others v Crown Aerosols UK Limited concerned a lease of an industrial building constructed in 1972. The building still exists but has deteriorated significantly and has been lying empty since 2011.
The tenant contended that the building was beyond economic repair. They proposed demolition and re-development of the site rather than repair and maintenance.
The landlords raised proceedings in the Court of Session seeking interdict against the tenant to prevent it from demolishing the building. The landlord claimed that the deterioration had been caused by the tenant's failure to comply with its repair and maintenance obligations under the lease.
Decision
The landlord argued that the tenant's repair and maintenance obligation was 'wholly inconsistent' with an entitlement to demolish. The tenant submitted that the lease should be interpreted in accordance with commercial common sense. The repair and maintenance obligation in the lease referred to 're-erection' so it was clearly in the contemplation of the parties when the lease was entered into that demolition and re-development may be required.
The Court considered that the primary position of both parties was 'misconceived.' There was no justification for restricting references in the lease to "re-erection" to circumstances in which the building is destroyed by an external event, as suggested by the landlord. However, the tenant's contention that an absolute right to demolish could be read into the lease was also ill-founded.
Lord Tyre was more favourable towards the tenant's alternative argument that the lease should be construed as permitting development when circumstances rendered re-erection necessary. As the building was obsolete, re-erection was required and, as a matter of practicality, demolition of the building was required to facilitate re-erection.
The reference in the lease to re-erection "when necessary" should extend to where the building has fallen obsolete, even where disrepair has been caused by the tenant's breach of the repair and maintenance obligation. However, the landlord's approval is required not only for the plans for re-development but also for the demolition that precedes re-erection. The landlord owns the building and must be able to withhold approval if it is not satisfied that the redevelopment is "necessary."
Comment
The Court considered that it was not appropriate to grant decree for interdict nor to dismiss the action. However, Lord Tyre expressed the hope that sufficient guidance had been provided by the Court to avoid further procedure between the parties on the merits.
The guidance that the Court provided is clearly in favour of a 'commercial common sense' approach. It referred to the well-established principle that a commercial contract ought to be given the meaning that would be attributed to it by the reasonable person with reasonable background information at the time that the contract was entered into. By finding that there may be circumstances in which re-erection is "necessary" and that re-erection may also require demolition, the Court avoided the 'narrow and impracticable' result that a tenanted building must remain standing even when it is beyond economic repair.
Disclaimer
The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.
