Crystal or Mud?  A recent decision reinforces the importance of clear drafting, particularly when varying a document

The recent commercial case of K/S Meadow Way v DGM London Road Limited [2019] CSOH 20 demonstrates the importance of ensuring that variations are carefully thought through to ensure they do not have unintended consequences. The case concerned an assignation clause in a lease and whether an assignation required landlord’s consent.

Grant of Lease

Meadow Way were tenant of a nursing home and DGM the landlord. The lease was entered into between the landlord's predecessor and the tenant as a last minute alternative to a sale, and was a ground lease with a premium payable upfront and a rent of £1 per annum. The lease was for 175 years and the landlord had no liability for repair and maintenance.

The Variation

The lease, as originally drafted, stated at Clause 2 that “the Landlord LETS to the Tenant but excluding assignees and sub-tenants except as expressly permitted in terms of this Lease, the Property”. There were various references in the lease to permitted successors in substitution for the tenant. The lease was varied some years later, with the only variation being to remove the words “except as expressly permitted in terms of this Lease” where they appear in Clause 2 of the Lease. So as varied Clause 2 read: “the Landlord LETS to the Tenant but excluding assignees and sub-tenants, the Property”.

The Problem

The point in dispute between the parties was whether the tenant was permitted to assign the lease or whether the variation amounted to a prohibition. Meadow Way argued that a commercial entity would not set out to purchase an asset for such a large sum, and for such a long period, if the asset would never be available for transfer to a third party. DGM submitted only that there were no legal factual foundations for finding in Meadow Way’s favour.

The Decision

The court held that Clause 2 as varied was clear and unambiguous and prohibited assignation by the tenant. The references to permitted assignation in other clauses were, in the court’s view, subordinate to Clause 2 and did not overrule its clear terms. These other Clauses would be operative in the event that the landlord did agree to an assignation, notwithstanding that the landlord would be under no obligation to do so.The court stressed that, even with a long lease, there is nothing inherently repugnant to Scots law abouta landlord and tenant agreeing that assignation is not possible. The court went on to say: "It is common in practice for leases to make specific provision in relation to landlord’s consent. For example, parties might agree to a lease not being assignable without written consent of the landlord, which consent is not to be unreasonably withheld. Such provisions reduce the scope for there being a ransom demand. However, the parties to the Lease have chosen not to include such a provision. The pursuer must take the consequences of that choice.”

What Next?

Meadow Way also sought an alternative declarator for rectification of the lease and the case will now continue to allow the parties to develop their arguments on this, and to determine the success or otherwise of the action for declaratory. Regardless of the outcome, the case is a reminder of the importance of unambiguous drafting.