Irritancy in Scottish commercial leases: Lessons from Drury Street v Brightcrew

A recent decision of the Sheriff Appeal Court serves as a useful reminder to commercial landlords that its conduct and actions may waive its right to irritate (i.e. terminate) a lease.

When a commercial tenant is in breach of the lease, the landlord may terminate it early. This is known as irritancy (the equivalent in England is forfeiture). To irritate the lease, the landlord must first provide 14 days notice (although the period can be longer depending on the terms of the lease). If payment is not made timeously, the landlord can bring the lease to an end by serving an irritancy notice. 

However, the decision in Drury Street Ltd & DST Prop Hold Ltd v Brightcrew (Management) Limited underlines that, through its conduct and actions, a landlord may unintentionally waive its right of irritancy and/or be personally barred from enforcing it.  

Background

Drury Steet Ltd, the landlord, served an irritancy warning notice on Brightcrew (Management) Limited, the tenant, on 13 November 2020. The notice threatened to terminate the lease if rental arrears of £63,166.67 were not settled. The tenant did not make payment, and the landlord served an irritancy notice on 24 February 2021. The irritancy notice purported to terminate the lease with immediate effect.

However, the landlord did not take action to recover possession of the property. Instead, it issued a further irritancy warning notice on 26 March 2021. The notice:

• Demanded payment of the sum of £113,116.67. Crucially, this included rent due in the period from February 2021 to May 2021 (i.e. after the purported termination of the lease in February 2021);
• Stated that failure to pay would mean “the Lease may be terminated”; and
• Claimed to be served without prejudice to the irritancy notice served on 24 February 2021.

Thereafter, during a telephone conversation between the parties’ respective directors, the landlord indicated to the tenant that it could remain in occupation if payment was made. Thereafter, the tenant paid the sum of £113,166.67 in full. The landlord accepted payment and did not attempt to return the funds. 

Notwithstanding that the landlord retained the sum paid by the tenant it then proceeded to raise court proceedings to terminate the lease (relying upon the irritancy notice dated 24 February 2021) and remove the tenant from the property.  

The decision and principles

In the first instance, the Sheriff Court held the landlord had waived its right to irritancy. Its representations and conduct after the purported termination of the lease were not consistent with the lease having terminated. The decision was upheld by the Sheriff Appeal Court on the basis that: 

• The landlord had accepted and failed to return the payment of sums due after the purported irritancy date.  
• The subsequent irritancy warning notice dated 26 March 2021 was inconsistent with the lease having already come to an end because it stated “…the Lease may be terminated”.
• The tenant had acted in reliance of the waiver because it had settled the outstanding arrears in the belief the lease would continue.   

It was also found that the landlord was personally barred from enforcing the irritancy because the tenant had relied on the landlord’s conduct/representations to its material prejudice (i.e. it would not have paid the landlord significant sums if the landlord had not represented that the lease would continue). 

Key takeaways for landlords

Drury is a cautionary tale for landlords seeking to terminate a lease early by irritancy. Service of the irritancy notice is not the end of the process. In Drury, the landlord may have started with a strong position, but they gave that away by sending mixed signals and accepting payment. The court considered the whole picture. 

Drury carries important lessons for landlords, tenants, and legal practitioners including:

• Ensuring notices use clear language and are consistent.
• Seek to recover possession of the property as soon as possible after the termination date.
• Exercising caution before accepting payments after a termination notice has been served, particularly where those payments include future rent.
• Avoid informal or undocumented discussions about continued occupation or payment arrangements.
• Ensure all communications align with the landlord’s stated intention.

How we can help

We regularly advise commercial landlords and tenants on irritancy, notices, arrears and risk management. If you require advice in connection with an irritancy situation or in relation to enforcement options under a Scottish commercial lease, please do not hesitate to contact us.

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