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Lease Interpretation: Tenant's Consent Required For Landlord's Works

Lease Interpretation: Tenant's Consent Required For Landlord's Works

The Court of Session issued an interesting decision earlier this spring regarding the interpretation of a lease of a unit at Gyle Shopping Centre.

Marks & Spencer Plc’s lease included a right to a one third share in the car park and other common areas at the Centre. Their landlord, Gyle Shopping Centre General Partners Limited, entered into a contract to build a new store at the Centre for Primark, on land that included part of the car park. The decision to carry out the development works was approved by the shopping centre management committee, on which M & S were represented. Following a review of the title and lease documentation, Gyle subsequently requested formal consent to the development works from M & S in their capacity as tenant. M & S refused to grant consent.

Determined that their development plans would not be thwarted, the landlord raised a series of court actions seeking an interpretation of the lease that would allow them to proceed. They were unsuccessful in the first two. The court decided that the one third share in the car park was not merely a contractual right granted by the previous owner of the property, but a “real” right that ran with the land and could be enforced by M & S against successive owners of the Centre. The decision by the shopping centre management committee did not constitute a binding consent by M & S, and if Gyle constructed the Primark store on the car park without obtaining their consent, they would be in breach of the lease.

In the third court action, Gyle sought to rely on a lease clause which stated that works could be carried out to shared areas, provided that the representatives on the shopping centre management committee agreed that the mall and shared areas would not be rendered materially less “adequate, commodious or convenient.” The landlord argued that M & S were in breach of that clause by unreasonably withholding their consent to the Primark development.

The landlord’s argument was successful before the Outer House, but M & S appealed that decision. In the recent Inner House judgement, the court rejected the landlord’s interpretation of the lease and decided that the clause should be interpreted narrowly and did not cover the landlord’s proposed development works. The removal of the right to the shared car park area would permanently amend M & S’s long leasehold title, which would require the registration of a deed. It would be ill-advised to deal with the variation in an informal manner, as the property register would be inaccurate. The court decided that the lease contained no provision that the usual conveyancing procedures would be dispensed with and the formal consent of M & S was required. This was clearly a very unfortunate outcome for the landlord, who had entered into a contract with Primark in the expectation that they could rely on the “consent” given by the shopping centre management committee.

The case highlights that landlords must carefully review the title and lease documentation to ensure that they obtain all necessary consents from their tenants, before making binding arrangements for the alteration or development of common parts. Failure to do so may be a breach of the terms of the leases that they have granted.

Laura Hay
Associate

Burness admin