Careful What you Call It

The outcome of a debate in the case of Gatsby Retail Limited v The Edinburgh Woollen Mill Limited is a warning to be very careful about how incentives are described in Missives of Let, especially where matters with the outgoing tenant are unresolved.

This case concerns a dilapidations claim by Gatsby Retail Limited (“Gatsby”) against Edinburgh Woollen Mill Limited ("EWML") in relation to a property in Princes Street in Edinburgh. The lease to EWML had ended and Gatsby served a Terminal Schedule of Dilapidations on them in the amount of £170k. The dilapidations works were said to include removal of the defender’s fit out works, repairs to the damaged fabric of the premises, certain internal and external cleaning, the removal of redundant cabling and replacing damaged carpets. Prior to any agreement being reached with EWML on the dilapidations issue, Gatsby contracted to grant a new lease to Cafe Nero as part of which they agreed to pay the new tenant £110k in exchange for Nero taking on responsibility for certain works. This payment was called the ‘Landlord’s Contribution’ towards the ‘Tenant’s Works’ and the tenant’s works were described as the tenant’s fitting out works without any reference to existing dilapidations.

After the new letting to Café Nero, Gatsby sued EWML for the £110k payment made to Café Nero. EWML called for a debate and for Gatsby’s case to be dismissed on the basis that Gatsby had failed to prove a link between the payment to Café Nero and the dilapidations left by EWML. EWML focused on the description of the £110k payment in the missives between Gatsby and Café Nero as a contribution to the tenant’s fitting out works – arguing that was evidence that the money was not for repairs and as such did not represent Gatsby's loss. Gatsby on the other hand argued that the agreement with Nero was their way of mitigating their loss and that if a party avoids loss by incurring expense then those expenses are recoverable. EWML also referred heavily to the entire agreement clause in the missives between Gatsby and Café Nero – arguing that meant that the description of the £110k payment was conclusive and that reference could not be made to further evidence as to what the payment was to cover.

EWML’s position on the entire agreement clause was rejected by the court on the basis that EWML could not place reliance on the "entire agreement" clause in an agreement to which they were not a party and had no reliance. The court noted that Gatsby intended to lead evidence on the overlap of the dilapidations work and fitting out works and sent the case for proof.

It will be interesting to see the final decision on the link between the £110k payment to Café Nero and the dilapidations at proof. Regardless of the outcome, the arguments led on behalf of EWML are a warning to be mindful of the inference that could be drawn from the terms agreed with a new tenant while matters with the outgoing tenant are unresolved. If a payment is in lieu of repairs, call it that in the missives with the new tenant.