Introduction

The case of Ashthenne Caledonia Limited against Mahmood Saleem ([2023] CSOH 18) adjudicated by the Scottish Court of Session's Outer House on March 8, 2023, delves into the intricate aspects of dilapidations in commercial leases. This litigation is one of three claims initiated by the landlord concerning breaches of the repairing obligations by different tenants of warehouse units located at Nethermains Industrial Estate, Kilwinning.

The core dispute revolves around whether the tenants adequately fulfilled their repairing duties as stipulated in their respective lease agreements. The present action specifically pertains to Unit 2, Kelvin Avenue, where Mahmood Saleem is the defendant. The other two actions address Units 4, Kelvin Avenue, and Units 6-8, Simpson Place, involving Denny Enterprises Int'l Limited as tenants.

Summary of the Judgment

The landlord initiated claims for damages due to the tenants' alleged failure to maintain the premises as per the lease agreements. After renouncing probation, the court appointed Mr. Jon Rowling, a chartered surveyor, to assess and report on the dilapidations claims. Following the inspection and subsequent draft reports, the landlord raised objections regarding the surveyor's findings, particularly focusing on the interpretation of the repairing obligations.

Lord Harrower delivered the judgment addressing these objections. The key issues centered on whether the surveyor correctly applied the standard of repair, especially considering the property's age, character, and location. The court analyzed the surveyor's reliance on precedents like Proudfoot v Hart and evaluated whether the surveyor erred in law or exceeded his remit. Ultimately, the court upheld most of the surveyor’s findings but directed further action on specific objections related to the apportionment of certain costs.

Analysis

Precedents Cited

The judgment extensively references several legal precedents that have shaped the interpretation of repairing obligations in commercial leases:

• Proudfoot v Hart (1890): A seminal case that established the "Proudfoot formula," emphasizing that the standard of repair is relative to the property's age, character, and location.
• Newbigin v S&J Monk [2015]: Reinforced the application of the Proudfoot formula, highlighting its recognition among legal professionals.
• Taylor Woodrow Property Co Ltd v Strathclyde Regional Council (1995): An unreported but influential decision that differentiated between ordinary and extraordinary repairs.
• Westbury Estates Ltd v The Royal Bank of Scotland Plc (2006): Clarified the application of repairing obligations in the context of lease agreements.
• Dowding and Reynolds: An authoritative textbook that supports the interpretation and application of the Proudfoot formula in dilapidations assessments.

These precedents collectively guided the court in evaluating whether the surveyor's assessment was legally sound and adhered to established principles.

Legal Reasoning

The court's reasoning focused on whether the surveyor, Mr. Rowling, accurately applied the standard of repair as dictated by the lease and relevant law. Key points in the legal reasoning include:

• Application of the Proudfoot Formula: The surveyor considered the property's age (~30 years), character (a warehouse with unique architectural design), and location (Kilwinning) to determine a relatively low standard of repair. This approach aligns with the Proudfoot formula, which mandates that the standard be measured against what is reasonable for a premises of that nature.
• No Material Error in Law: Despite criticisms, the court found that the surveyor did not err materially in citing English precedents or in applying them within the Scottish legal context.
• Obligation to Repair: The surveyor acknowledged the tenant's responsibility to remedy pre-existing disrepair at the lease's commencement, reinforcing that obligations do not fluctuate throughout the lease term based on property deterioration.
• Caveats on Decoration: The surveyor clarified that, in absence of specific contractual obligations, the duty to decorate falls within the general repairing obligations and should be assessed based on the condition rather than adherence to a specific timeline or standard.

The court concluded that Mr. Rowling's interpretation was consistent with the lease terms and established legal standards, thereby dismissing the primary objections raised by the landlord.

Impact

This judgment has significant implications for future dilapidations claims in commercial leases within Scotland:

• Clarification of Repair Standards: Reinforces the application of the Proudfoot formula, emphasizing that repair obligations are relative to the property's characteristics at lease commencement.
• Surveyor's Role and Authority: Affirms the discretion and authority of surveyors in conducting dilapidations assessments, provided they adhere to legal standards and the lease's specific terms.
• Consistency in Legal Interpretation: Encourages consistency in interpreting repairing obligations, discouraging arbitrary or overly stringent assessments that do not consider the property's context.
• Precedential Value: Serves as a reference point for similar cases, particularly in disputes over the scope and standard of repair obligations in commercial leases.

Overall, the judgment bolsters the framework for assessing dilapidations, ensuring that obligations are balanced and contextually appropriate.

Complex Concepts Simplified

Conclusion

The ASHTENNE CALEDONIA LTD v MAHMOOD SALEEM judgment underscores the importance of contextualizing repair obligations within the specific attributes of the leased property. By reaffirming the applicability of the Proudfoot formula, the court ensures that repair standards remain fair and proportionate, avoiding undue burdens on tenants based on opportunistic or incompatible benchmarks.

For landlords and tenants alike, this case highlights the necessity of clearly defining repair obligations within lease agreements and understanding how these obligations will be interpreted in light of the property's unique characteristics. Moreover, it emphasizes the pivotal role of surveyors in objectively assessing dilapidations, ensuring that determinations are grounded in established legal principles rather than subjective assessments.

Ultimately, this judgment contributes to a more predictable and equitable framework for managing dilapidations in commercial leases, fostering clearer expectations and reducing the potential for contentious disputes in the future.