Schedule of Condition as a Non‑Exclusive Evidential Cap on Yielding-Up: Repair and Decoration Obligations in Long Commercial Sub-Leases

1) Introduction

This decision concerns dilapidations-style disputes arising at the end of a long commercial sub-lease of the Grosvenor Hilton Hotel, Glasgow. The pursuer/landlord (the “reclaimer”) sought declarators aimed at removing or sidelining a contractual limitation tied to a “Schedule of Condition”. The defender/tenant (the “respondent”) maintained that, on proper construction, its repairing and yielding-up obligations were capped so that it need not hand back the hotel in any better condition than at the sub-lease commencement in March 2001.

Two interpretive questions dominated:

• Repair/yielding up: whether “good and substantial repair” at expiry meant an objective standard as at 31 December 2021, or instead “no better than” the commencement condition.
• Decoration: whether the obligation to decorate “in accordance with the Operating Standards” carried through into the yielding-up/dilapidations assessment, or was curtailed by the same “no better than” cap.

2) Summary of the Judgment

2.1 Repairing and yielding-up standard

• The lease’s “no better than … evidenced by the Schedule of Condition” language in clause 3.5.1(a) and the proviso to clause 3.19 showed a clear intention: the tenant should not be obliged to improve the hotel beyond its commencement condition.
• The Schedule of Condition was not the contractual standard itself; it was an evidential tool to help prove the commencement condition at expiry.
• Accordingly, the tenant was not confined to the Schedule alone and could, in principle, rely on other evidence to show commencement condition—especially given the known non-exhaustive nature of the video schedule.

2.2 Decoration

• The “Operating Standards” decorating obligation (clause 3.5.2) primarily regulated how the hotel was run during the term.
• For end-of-term claims, clause 3.19 governed yielding-up comprehensively, and its proviso (“nothing herein…”) prevented the landlord from insisting on decoration to a standard better than that evidenced by the Schedule of Condition.
• The court rejected the landlord’s attempt to treat Operating Standards as an implied yielding-up benchmark.

3) Analysis

3.1 The contractual architecture and why it mattered

The court’s reasoning turned on reading the sub-lease “as a whole” and giving operative effect to the limitation language appearing twice:

• Clause 3.5.1(a): “nothing herein shall require the Tenant to deliver up the Hotel in a better state of repair and condition than that evidenced by the Schedule of Condition”.
• Clause 3.19 proviso: “nothing herein shall require the Tenant to deliver up the Hotel in a state and condition better than that evidenced by the Schedule of Condition”.

The duplication was treated as reinforcing a single commercial aim: no end-of-term betterment. That aim was consistent with the tenant “accept[ing] the hotel in its current condition” (clause 3.5.4.2), a familiar drafting move in leases of older/dilapidated premises where the landlord does not undertake to “put in order” at entry.

3.2 Precedents cited and how they were used

(a) General interpretation framework

• Ashtead Plant Hire v Granton Central Developments [2020] CSIH 2; 2020 SC 244: cited for the modern Scottish summary of contractual interpretation principles; the Inner House treated these as settled and applied them without restatement.
• Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900: invoked for the objective approach—what a reasonable person would understand from the language in context.

(b) Scottish authorities on repairing covenants and commencement condition caps

• McCall's Entertainments v South Ayrshire Council (No 2) 1998 SLT 1421:
  • Used as an instructive Scottish analogue where tenants accepted premises in a dilapidated “present condition” evidenced by schedules, and were obliged to leave them in no less good a condition than at the start.
  • The Inner House drew support from the proposition that such wording points away from an obligation of overall improvement and that absence/incompleteness of schedules does not alter the meaning of the covenant.
  • The Inner House also endorsed the commercial judge’s reliance on the absence of express “replacement/renewal/rebuilding” language as context for reading “keep in good repair” in a non-betterment way.
• @SIPP Pension Trs v Insight Travel Services [2015] CSIH 91; 2016 SC 243:
  • Used by both sides but distinguished on its facts. In @SIPP Pension Trs the absence of any schedule/record of commencement condition weighed against reading a commencement-condition limitation into an objective “good and substantial repair” obligation.
  • Here, by contrast, the parties did provide for a Schedule of Condition and used “no better than” limitation language twice—making the “commencement condition” cap textually and contextually stronger.
  • The Inner House also took from @SIPP Pension Trs the significance (in some cases) of whether the lease includes obligations to “renew, replace and rebuild”; the sub-lease did not.

(c) Other authorities supporting the construction adopted

• Crédit Suisse v Beegas Nominees, [1994] 4 All ER 803 (cited within the discussion of McCall's Entertainments):
  • Referenced for the distinction between relieving a landlord of common-law “put into tenantable condition” duties and positively imposing those duties on the tenant—an analytical background to “accept in current condition” clauses.
• Kilmac Properties Ltd v Tesco Stores Ltd [2021] CSOH 70; 2021 Hous LR 61:
  • Cited as support for treating the presence/absence of “renew/replace/reinstate/rebuild” language as relevant when assessing the true reach of repairing obligations.
• Dem-Master Demolition Limited v Healthcare Environmental Services Limited [2017] CSOH 14:
  • Used by the reclaimer to illustrate cases where the clause’s express terms require comparison with commencement condition; the Inner House treated such examples as clause-specific and not determinative here.
• Westbury Estates Ltd v The Royal Bank of Scotland PLC [2006] CSOH 177; 2006 SLT 1143:
  • Applied for the principle that contractual meaning is not altered by later events—here, the later-discovered incompleteness/limited scope of the video Schedule of Condition could not generate a different end-of-term standard.

3.3 The court’s legal reasoning (repair and yielding up)

The Inner House’s reasoning can be distilled into five linked propositions:

1. The parties’ aim was “no betterment at expiry”. The repeated “nothing herein shall require…” language was read as a deliberate allocation of risk: whatever “good and substantial repair” might otherwise mean, the tenant’s end-of-term liability was capped so the landlord could not demand an improved hotel relative to commencement.
2. The Schedule of Condition was evidential, not constitutive. The words “evidenced by” were given ordinary meaning: the Schedule provides evidence of the commencement condition; it does not define that condition exhaustively nor exclude other probative material.
3. Avoidance of “two standards” at lease end. Given the known limitations of the video schedule (e.g., plant/services not recorded), the reclaimer’s approach would create an arbitrary split: one standard for recorded items (commencement condition) and another (objective “good and substantial repair”) for unrecorded items. The court treated that as inconsistent with the overall scheme and commercial purpose.
4. Absence of “renew/replace/rebuild” language supported a non-betterment reading. This feature, emphasised in Scottish authority, aligned with the idea that the tenant’s obligations were to maintain without being compelled into long-life renewals that would inevitably produce betterment beyond commencement condition.
5. Practical evidential difficulty is not a construction tool. The reclaimer’s point that it may be hard to prove 2001 condition in 2021 was not treated as assisting interpretation; intention is fixed at contracting, and the lease itself contemplated proof problems by using a Schedule—without making it exclusive.

3.4 The court’s legal reasoning (decoration)

The reclaimer attempted to elevate “Operating Standards” into an end-of-term yardstick, arguing that yielding-up should reflect compliance with the operational standard throughout. The court rejected this because:

• Clause 3.19 is the yielding-up code. It “deals comprehensively” with end-of-term obligations, and its proviso bars any requirement to deliver up in a better decorative condition than evidenced by the Schedule.
• Operating Standards are inherently “during the term”. They regulate operation of a first-class hotel while the tenant is trading, not the landlord’s post-expiry position.
• Commercial sense at expiry. It was “no practical sense” to require handing back “as a Hilton hotel” when the sub-lease had ended; the operational brand-standard is not naturally a yielding-up baseline absent clear language.

3.5 Impact and significance

(a) Drafting and litigation consequences

• Schedules of Condition may cap liability without being exclusive evidence. Where a lease says “no better than … evidenced by” a schedule, parties should expect courts to treat the schedule as probative but not necessarily exhaustive—unless exclusivity is clearly expressed.
• Beware of non-exhaustive schedules (especially video schedules). The decision highlights the evidential and forensic risks of “overview” video schedules in complex assets (hotels, industrial buildings) where services/plant are major dilapidations drivers.
• “Operating standards” clauses will not automatically drive end-of-term dilapidations. Landlords seeking an “operational standard at expiry” must draft it explicitly and reconcile it with any yielding-up provisos that bar betterment.

(b) Doctrinal clarification in Scots lease interpretation

• The case sits alongside @SIPP Pension Trs v Insight Travel Services and McCall's Entertainments v South Ayrshire Council (No 2) as a further modern Inner House illustration that the meaning of “good and substantial repair” is not abstract; it is clause- and context-dependent, particularly where the lease contains (i) commencement-condition limitations and (ii) no “renew/replace/rebuild” language.
• It also underscores a methodological point: courts will resist interpretations that create internally incoherent dual standards at termination unless compelled by clear wording.

4) Complex concepts simplified

• “Yield up”: the tenant’s obligation to hand back the premises at lease end in the contractually required state.
• “Good and substantial repair”: an apparently objective standard, but its practical effect can be limited by other lease language (e.g., “no better than at commencement” provisos).
• Schedule of Condition: a record (here, video plus report) showing the property’s state at a point in time; this case holds that “evidenced by” points to an evidential function and does not necessarily exclude other evidence.
• Betterment: requiring a tenant to return property in a better condition than it was at entry. Clauses 3.5.1(a) and the proviso to clause 3.19 were interpreted as anti-betterment provisions.
• Scott Schedule: a tabulated document commonly used in construction/dilapidations disputes to set out item-by-item claims and responses (often including costings and positions on liability).
• “Exclude from probation” (Scots procedure): to prevent a party leading evidence on averments because they are legally irrelevant (even if factually true).
• Reclaiming motion: an appeal to the Inner House from certain decisions of a Lord Ordinary/commercial judge.

5) Conclusion

The Inner House in [2026] CSIH 43 confirms that where a commercial lease contains express anti-betterment yielding-up language tied to a Schedule of Condition (“no better than … evidenced by”), the tenant’s end-of-term obligation is ordinarily capped at the commencement condition. Crucially, unless the lease clearly says otherwise, the Schedule operates as evidence of that condition rather than the exclusive source of proof—so supplementary evidence may be led, especially where the schedule is known to be non-exhaustive.

The court also draws a clean line between (i) operational/brand-style standards governing occupation and trading during the term (here, “Operating Standards”), and (ii) the contractual yielding-up code at expiry (clause 3.19), which in this case prevented the landlord from converting operational standards into an end-of-term dilapidations benchmark.