NEWS // Irritancy Provisions in Commercial Leases
Commercial leases invariably contain irritancy (forfeiture) provisions entitling the landlord to terminate the lease if the tenant fails to fulfil his obligations under the contract. The irritancy provisions will cover a failure to pay the rent or make payment of other sums due under the lease but will also extend to other material obligations of the tenant, for example, a failure to comply with the repair obligations.
Irritancy provisions were previously strictly enforced allowing the tenant no opportunity to remedy a breach once the irritancy notice had been served. A limited degree of statutory protection was introduced 20 years ago which requires the landlord to give the tenant advance notice and a reasonable period in which to remedy any breach which is capable of being remedied before the irritancy can take place. Additionally, the statute provides that the landlord is not entitled to rely on provisions within the lease entitling the landlord to terminate it or that the failure by the tenant is deemed to be a material breach of contract if 'in all the circumstances of the case a fair and reasonable landlord would not seek so to rely'.
A three judge appeal court in Edinburgh has recently issued a decision in a case involving a failure by the tenant to meet their repair obligations under the lease. The landlords were proprietors of a hotel in Banchory and their predecessors as proprietors had granted a 99 year lease of an area of ground within the hotel grounds for the construction of squash courts and the operation of a squash club. The tenants failed to meet their repair obligations in terms of the lease and the landlords served a Schedule of Dilapidations giving the tenants three month in which to carry out the works detailed in the Schedule of Dilapidations. The tenants failed to carry out the works within the three month period and the landlords applied for and were granted a Declarator of Irritancy by the Sheriff Court. The tenants appealed. The tenants advanced an ingenious argument that the correct date for determining the actings of a fair and reasonable landlord was not the date that the irritancy notice was served but the date of final submissions in the proof before the sheriff by which date the repairs had been carried out. The argument was that the words 'in all the circumstances of the case' and the use of the conditional present 'would not seek to rely' as opposed to the conditional perfect 'would not have sought to rely' indicated that the reliance envisaged in the statute was of a continuing nature. The court rejected this argument. It is already established that a failure to pay rent cannot be remedied subsequent to the issuing of an irritancy notice and the courts opinion was that the purpose of the Declarator is simply a judicial determination that at the earlier date the lease was validly terminated.
The inference for tenants is clear that a failure to meet the obligations under a lease whether for payment of the rent or other sums or in respect of other material obligations coupled with a failure to remedy these omissions within the reasonable time specified in an irritancy warning letter will result in the lease being terminated by the landlord.