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Driven by nostalgia and changing attitudes towards digital streaming, VHS tapes appear to be making a niche comeback. In the recent case of Nicol’s Worsteds Limited v HLT Stakis Operator Limited, however, two VHS tapes proved to have a much more practical value, playing a critical role in determining a tenant’s liability for repairs under a commercial lease.

Commercial leases are complex documents. All too often, once the tenant has moved in, the motivation to deal with documents such as the Schedule of Condition is lost.  The Schedule records the condition of a leased property at the start of the lease.  Often finalised once the keys are handed over, the Schedule can be crucial in limiting the tenant’s responsibility for repairs at the end of the lease. But what if the Schedule is never finalised? Or what if it goes missing before the lease comes to an end?

Do not forget the Schedule of Condition

The Nicol’s Worsteds case serves as a reminder of the need to ensure the Schedule of Condition is approved and stored safely for future reference. The case concerned a dispute over the interpretation of a 20-year sublease of the Glasgow Grosvenor Hilton Hotel. The subtenant was required to keep the hotel in “good and substantial repair” but in “no better state of repair and condition than that evidenced by the Schedule of Condition”.

When the sublease expired in 2021, an authenticated copy of the Schedule of Condition could not be found. The landlord took the case to the Commercial Court, seeking around £8m in damages for repairs it claimed the subtenant was responsible for under the sublease.

During proceedings, the subtenant found an “Overview Report on Video Schedules of Condition on Hilton Hotels (11 No.)” dated March 2001 and two VHS cassettes labelled “Hilton Hotel Glasgow Grosvenor Survey 6/3/01”. The landlord argued that these materials did not constitute the Schedule of Condition and were not relevant when considering the subtenant’s responsibility for repairs. In the absence of an authenticated Schedule of Condition, the landlord argued that the subtenant’s responsibility should instead be judged based on the condition of the hotel when the sublease expired, despite the Overview Report and videos showing that the hotel was already in a poor state of repair at the start of the sublease.

What did the courts decide?

The Commercial Court held in favour of the subtenant, finding that the video surveys and accompanying report constituted the Schedule of Condition. The judge concluded that, as there was no evidence of any other Schedule of Condition, the parties must have intended for these materials to form the Schedule referred to in the sublease. As a result, the subtenant was only required to restore the hotel to no better a state of repair than that evidenced by the Overview Report and videos.

The landlord appealed to the Inner House of the Court of Session. Despite having accepted that the video and report constituted the Schedule of Condition, the landlord’s appeal centred on the content of the video itself. The footage provided an overview of the hotel’s condition but focused on a limited number of rooms rather than the entire hotel. As a result, the landlord claimed that the limitation on the subtenant’s responsibility for repairs should only apply to the areas captured in the video. The landlord argued that, outside the areas shown in the video, the subtenant remained fully responsible for repairs.

The Inner House upheld the decision of the Commercial Court. The provisions of the sublease clearly intended to limit the subtenant’s responsibility for repairs to the condition of the hotel at the start of the sublease. Nothing in the sublease suggested that the Schedule of Condition had to be comprehensive, or that the subtenant should be subject to two separate standards of repair. The Schedule of Condition was also not the only evidence that could be used to establish the condition of the hotel at the start of the sublease. Evidence could derive from other sources.

What can landlords and tenants learn from the case?

While the courts ultimately accepted the VHS tapes and accompanying report as the Schedule of Condition, it is worth recognising that the issues highlighted could have been avoided had an authenticated copy of a detailed Schedule of Condition been available when the lease expired.

The risk of important documents being lost may be reduced in today’s age of electronic filing – and, fortunately for this case, VHS players have not disappeared entirely.

Having said this, the case serves as a useful warning to ensure that any Schedule of Condition is properly referenced within the lease, approved and stored safely for future reference, preferably alongside the lease in question. The cost involved in finalising a well-drafted Schedule of Condition is significantly less than that of pursuing litigation or settling extensive repair costs at the end of a lease.

Should you require any advice regarding commercial leasing, Schedules of Condition or dilapidations liability, please do not hesitate to get in touch with Stronachs’ commercial property team here.

Article written by Partner Liz Stewart and Trainee Solicitor Jenna Starkey