Can payment obligations “wipe the slate clean” and act as single aggregate remedy for repair and maintenance liability at the end of a lease? According to the Court of Session in HFD Glasgow 3 Limited v Student Loans Company Limited [2025] CSOH 101, the answer seems to be yes.
HFD Glasgow 3 Limited (“Landlord”) had let commercial premises at Bothwell Street, Glasgow to the Student Loans Company Limited (“Tenant”). Following the end of the Lease in December 2023, the Landlord sought payment of sums in excess of £12 million to remedy the state of disrepair that the premises had been left in by the Tenant.
The Clause
The dispute centred on the legal effect of the payment obligation in the Lease.
It provided that the Tenant was obliged to leave the premises in such a state and condition as was “consistent with diligent performance of the obligations contained within the lease.” To the extent that the Tenant failed to do so, the “Landlord’s only remedy shall be to require the Tenant to pay to the Landlord the sum certified by the Landlords Surveyors acting reasonably or in the event of dispute or disagreement, as certified by the Building Surveyor.”
Dispute
The Landlord sued for £9.143 million in dilaps.
The Landlord also sued for: (i) loss of rent (ii) insurance costs; (ii) rates; (iii) service charge; and (iii) legal fees. With the exception of the legal fees, the other sums all related to the period in which the premises wereunlettable due to the Tenant’s failure to comply with the maintenance and repairing obligations under the Lease.
The central point before the Court was whether the payment obligation for dilaps was the Landlord’s only remedy for all losses, including loss of rent, with the result being that the Landlord could effectively only recover dilaps and had agreed to give up any right to any other losses that flowed from the dilaps (such as loss of rent and loss of insurance).
Tenant’s Argument: “Wiping the Slate Clean”
The Tenant made the following arguments:
- Payment of the certified sum under the payment obligation was the Landlord’s sole remedy for the relevant breaches of the Lease.
- Such a reading of the payment obligation made commercial sense as it ensured that parties were aware of their rights and obligations at the outset of the Lease. This would make things more straightforward and would help to prevent litigation.
- The purpose of Clause 12 was “wiping the slate clean” of breaches prior to the end of the Lease. That was what parties had intended.
Landlord’s Argument: “Additional and separate Obligation”
The Landlord argued:
- The payment obligation was an “additional and separate obligation” over and above the other clauses permitting recovery contained within the Lease.
- The wording of payment obligation was “not sufficiently wide” or “clear” to exclude other liabilities accrued under these other clauses to leave only a claim for want of repair. It was clear that the wording only applied to the works referred to in the payment obligation itself.
- It would be commercially arbitrary to preclude liability for other types of loss by operation of payment obligation.
Court’s Decision
The Court favoured the Tenant’s interpretation of the payment obligation.
It decided that the payment obligation was the Landlord’s “only remedy” for all liabilities relating to the condition of the premises at the end of the Lease.
Central to the Court’s analysis, was that from a commercial perspective, it would not make sense for the payment obligation to require payment of the certified sum and at the same time, leave it open to the Landlord to pursue separate remedies in respect of each of the other breaches of the Lease that had ultimately led to the condition of the premises.
Key Takeaways
If you are landlord or tenant to a commercial lease, you should carefully review the terms to ensure that you understand the extent and limitations of any payment clauses contained within the lease. Payment obligations are normally helpful to a landlord, but this case shows that they can also limit a landlord’s claim
For more advice on payment obligations and commercial leases in Scotland, please do not hesitate to get in touch with our Real Estate Litigation team or your usual Brodies contact.
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