04 Dec 2019

The recent Scottish case of Drum Income Plus Ltd v LS Buchanan Ltd involved a claim for dilapidations by a landlord against their former tenant for payment of the costs of repairing the leased premises at the expiry of a lease. Neither the tenant nor the landlord had carried out the work and the landlord did not offer to prove that he would carry out the works in the future.

When the various leases came to an end, the tenant was required to return the premises to their original condition. To complicate matters, the tenant had granted licences to occupy and the licensee adapted the premises to suit their requirements. The structure of landlord-tenant-licensee created by the leases and licenses came to an end when the leases and licenses came to an end on 18 January 2019.

On 19 January 2019, the landlord did not take occupation of the premises to carry out any works. Instead, the landlord granted new licences directly with the licensee who was already in occupation. In short, the structure of landlord-tenant-licensee was replaced with a structure of landlord-licensee.

The question for the court to determine was whether in this scenario the landlord was entitled to sue the tenant for payment of the fair cost of the works required to bring the property into the condition required under the leases regardless of whether the landlord had carried out, or intended to carry out, such work. The landlord did not offer to prove that they had any intention of carrying out works. 

The tenant argued that as the landlord had no intention to carry out the works no payment was due. The landlord argued that the lease required that the defender was bound to pay the "fair cost" of the works required whether the works would actually be done or not. 

Lord Ericht held that on a proper interpretation of the leases, the landlord was entitled to a payment of the sum equal to the fair cost of the work although the landlord had not carried out nor intended to carry out the work. The tenant ran a secondary argument that the landlord had waived his right to payment by entering into new arrangements with the existing licensee which was also dismissed. 

This might seem like a very unfair result for the tenant given that the landlord had no intention of doing the works and will be receiving a cash windfall but stresses the importance of considering dilapidations liability when entering into leases, subleases or licenses.