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Keep-open provisions: ‘Half-hearted’ trading isn’t enough

Marks & Spencer breached a court order to enforce a “keep-open” provision in one of its leases, when it carried on business only in a “half-hearted” manner.

Marks & Spencer recently narrowly escaped being found in contempt of court, after the Court of Session decided that it has breached an interim order to re-open and keep open for business the whole of its store at the Plaza in East Kilbride, as required by a ‘keep-open’ provision in its lease.

What is a keep-open provision?

Leases of retail premises, particularly those within shopping centres, sometimes contain an obligation on the tenant to keep the premises open for business during normal trading hours throughout the duration of the lease. Such obligations are included because the landlord is concerned about the effect that closed units have on the shopping centre as a whole. The landlord will want to avoid a downward spiral of tenants closing or restricting their stores’ opening hours leading to a drop in footfall, leading in turn to other tenants not renewing their leases and moving out.

How are they enforced?

It is now well-established that, in Scotland, a party to a contract is generally entitled to enforce contractual obligations, such as keep-open provisions, by a decree of specific implement, subject to the court’s discretion to refuse it. The courts will order tenants to comply with keep-open provisions, except in circumstances of exceptional hardship or where the remedy would be inconvenient or unjust. An interim order for specific implement can also be made by a court, requiring a tenant to comply with the terms of a keep-open provision pending final determination of the action.

A decree of specific implement must be sufficiently precise in its terms, as to allow the tenant to know what must be done to comply with it. Terms requiring the tenant to trade from the premises as a whole during normal business hours for the retail trade have been held to be sufficiently precise. This has raised the question of precisely what the tenant is required to do, in order to comply with such a decree. The courts have been reluctant to provide guidance, in advance, on what would constitute a breach of the order. In the leading case, it was said that it is not necessary “to be able to define a breach in advance in order to be confident of recognising it when it appears.” In the same case, the court said that it had no duty to advise a large commercial undertaking “how close to the wind it could sail”.

Wilful disobedience of a decree (or interim order) for specific implement is contempt of court and can be punished by (in the case of a company) a fine.

The Marks & Spencer case

For commercial reasons, Marks & Spencer wanted to close its branch in the Plaza, East Kilbride. It made no secret of that. However, its lease included a keep-open obligation.

During the first COVID-19 lockdown, the store was required to close, apart from the Foodhall, which remained open for the sale of essential foodstuffs. When the lockdown restrictions were lifted, M&S did not re-open the rest of the store and stock levels in the Foodhall became increasingly depleted.

The landlord raised an action in the Court of Session, seeking specific implement of the keep-open provision. An interim order was made, based on the terms of the keep-open provision in the lease, requiring M&S to:

“re-open the whole of the premises […] and thereafter […] to keep them open for business during normal business hours […] as a retail store with related administrative offices, stockrooms and staffrooms […] and to keep the premises sufficiently staffed, stocked, furnished and otherwise equipped for that purpose.”

In response, rather than re-opening the whole store and trading in the same way as it had before the lockdown, M&S re-opened the premises as an outlet store, with much less stock than previously and operated by a skeleton staff. It also only kept one entrance open. The entrance from the mall remained closed and darkened, so that from within the shopping centre it was not apparent that the store was open.

The landlord brought contempt of court proceedings. M&S argued that the order could not require it to do more than the lease, and all either the order or the lease required it to do was to open the store and trade from it. In essence, the tenant’s position was that, having re-opened the store, it was up to it, how it traded.

The judge, Lord Braid, rejected M&S’s argument. The order had to be read against the background of how M&S had operated from the premises previously and the standard way that it operated its other stores. The necessary implication of the order (and of the keep-open provision in the lease) was to require the tenant to trade in good faith and not to carry on business half-heartedly. The way M&S had re-opened the store was driven by its objective of running down, and ultimately closing, the store, so it was not trading in good faith. M&S was found to have breached the order.

M&S narrowly escaped punishment, however, because the judge gave the tenant the benefit of the doubt that it had not deliberately disobeyed the order, in that there was some degree of uncertainty as what was required, and M&S had placed reliance on legal advice regarding what it was required to do. The judge indicated, though, that further breach of the order could result in a substantial fine.

The judge stated that it is now for M&S to decide what action it proposed to take to comply with the order. He said that M&S could “put the matter beyond doubt by trading as it did before, or as it does in its other stores.”

The key message

The key message from this decision is to re-iterate that, in Scotland, keep-open provisions have teeth and cannot easily be ignored or avoided. While the courts will not specify in advance what might amount to compliance with or breach of an order for specific implement, it seems that there will be an expectation that the tenant should trade in good faith. Carrying on in a half-hearted manner is unlikely to be enough.

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. © Shoosmiths LLP 2022.

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