By John Stirling – partner, property litigation & dispute resolution – Gillespie Macandrew
How irritancy works in practice
Many commercial property leases contain provisions known as irritancy clauses. They identify terms so fundamental, or said to be, that their breach automatically, and prematurely, terminate the lease. In effect, they set out the ‘sudden death’ red lines in the landlord-tenant relationship. Those red lines can be many. They reflect the balance of power within the parties’ relationship and, sometimes, wider considerations at the time the lease was signed.
Leases can run for many years, and inevitably circumstances change, so the law steps in to protect both parties. This is an area where simply reading the lease will not give you the whole story. It is one instance where the contents do not behave as the words on the tin suggest.
The lease may grant the landlord the option of irritation, but that may not be the best remedy. Equally, what appears to be a strict obligation may, in practice, provide a break for the tenant. There is a great deal to consider.
What do tenants need to know?
Money breaches: the rules and safeguards
For there to be a lease there must be a rent, but its timeous payment is not necessarily the most important obligation. Take a development lease, where the rent is low but the landlord leases a site and ultimately receives a building. In that scenario, the building and maintenance obligations are key. That insight reflects the law.
There are money breaches and ‘actions’ breaches. Different rules apply depending on which type of breach is involved.
Whatever the importance of the rent, non-payment is a money breach. A landlord must issue a formal warning (a ‘Pre-irritancy Notice’) before they may bring the lease to an end. Mistakes happen, so the law requires this warning as a first step. It protects both sides from a radical remedy. The tenant may not use his own breach as a pretext to break the lease, and the landlord still has a significant lever to protect his cashflow (and the property’s capital value). If the Pre-irritancy Notice expires unpaid, the landlord must still go to court to formally evict the tenant, but if the notice is valid, the court will uphold the eviction.
Actions breaches: a reasonableness test
When it comes to actions breaches, what a court will do is less clear. Unlike money breaches, no warning notice is required. However, the law demands landlords to act reasonably when seeking eviction.The lease may define what counts as a breach justifying irritancy but definitions can be artificial or overly broad. In a hard case, a court might question whether all such obligations should be treated as red lines.
There is a balance to be struck. Warnings are often given to reassure the court. Warning and offering a second chance, underlines the importance of the action to the landlord. But warn and forgive too often, and you may evidence the opposite.
Many leases require the tenant to be a good neighbour. Can you irritate for not taking out the bins? In a trading estate, can you irritate for using another occupier’s delivery bays? What about interfering with deliveries? Preventing customer’s parking? Stealing? There is a continuum. At one end a warning letter is not required. At the other, it may not be enough, and further or repeated breaches and warnings may be necessary.
What is reasonable in the circumstances will depend on the facts, but tenants should be aware of the contractual irritancies they have agreed to; the Devil always lives in the detail. Take care not to give a pretext.
Act promptly if you receive a Pre-irritancy Notice or other warning, and seek legal advice to understand your rights and next best steps.
What do landlords need to know?
Preparing for irritancy: evidence and procedure
Remember that the primary remedy for breach of contract in Scotland is an order for performance. Irritating a lease removes that right and replaces it with recovery of possession and a claim for money. Sometimes money is not adequate. Rents (and capital values) are highest in a buzzy, fully occupied, trading estate and keeping the tenant trading may deliver the best overall value.
When looking to recover rent arrears, and/or the property itself, a landlord must have good evidence of the breach and of any warnings given, so that the threat of irritancy is not idle. Landlords should always be mindful that any warning or Pre-irritancy Notice can escalate into a dispute. For money breaches, the detail must be correct. Who is the tenant? Under what lease? What sum is due? Have you calculated the waiting period correctly? Have you served the notice correctly under the lease or, if it’s silent, according to the general law
Commercial considerations for landlords
It is also worth considering whether you really want the property back? A demand for payment may crystalise a void that could otherwise have been prevented. Would it be better to sue for arrears, particularly if the lease permits summary diligence? Then you are in charge of the debt recovery process.
Similarly, considerations apply to actions breaches. Serving a warning, or not, may have consequences for the landlord’s relationship with the neighbouring occupiers. How many warnings are required for reasonableness? What do the neighbours think? If they are also your tenants, their views matter to the value of your portfolio and generally. A single problematic tenant may create a desert.
In every case, the facts and the lease terms must be carefully considered. Thought must be given to the potential consequences of any notice. There may be a more effective remedy than bringing the lease to an end.
Vacant possession can be worth a huge amount to a landlord, but of course, irritancy may be a critical blow to the tenant. Understanding your position and your rights, whether landlord or tenant, is key. There is a lot to consider and not all of it written on the tin.
