Original defenders Jamie and Louisa O’Rourke had sought to establish that their contract fell under the jurisdiction of the First-tier Tribunal for Scotland due to being a PRT. However, the sheriff preferred the arguments of pursuer Kirstin Sherriff, who raised the action seeking to recover possession of the property, and held that the agreement was a licence.

The appeal was heard by Sheriff Principal Nigel Ross in the Sheriff Appeal Court. Howie KC appeared for the appellants and Burnet KC for the respondent.

Context of a lease

The contract, dated 14 and 17 February 2020, was titled as a “licence to occupy” and referred to the parties as licensees and licensor. Under Clause 1.2, the appellants were allowed access “for the purposes notes in this Licence” and under Clause 1.3 the agreement explicitly said it did not create a Scottish Private Residential Tenancy. The contract went on to impose a long list of obligations on the licensees, with Clause 6.1 granting them quiet enjoyment of the property. Occasionally, the contract referred to the agreement as a “let”.

A preliminary proof before answer was held on the issue of jurisdiction at which the sheriff heard evidence and considered the terms of the contract in dispute. The sheriff considered that the evidence led by the appellants was of no assistance in construing the wording of the contract. Some of the elements of a lease were missing, namely rent, duration, and exclusive possession of the let subjects.

Counsel for the appellant submitted that, while the terminology was that of a licence, what the parties considered the document to be was irrelevant. There were so many clauses which made sense only in the context of a lease that they could not be dismissed as errors. It was not that the parties had blundered into creating a lease, but a matter of objective construction.

For the respondent attention was brought to the factual background. The licence was granted to allow the appellants to carry out approved works to the property prior to the respondent completing the purchase later in the year. The clauses relied upon by the appellants were equally consistent with lease or licence and on the evidence the intention of both parties was to conclude a licence.

At worst ambiguous

In his decision, Sheriff Principal Ross observed: “Whether or not the parties have, inadvertently or otherwise, created a tenancy, is a matter of contractual construction. Where, as here, the dispute is created by inconsistent or repugnant clauses, effect must be given to that part which is calculated to carry into effect the purpose of the contract. The purpose is identified from the instrument as a whole and the available background. To be inconsistent, a term must contradict another term or be in conflict with it, such that effect cannot fairly be given to both clauses.”

He continued: “The sheriff heard evidence from both sides, which covered a number of issues. From this he was able to establish that the parties did not enter into a sham arrangement, and that the appellants purported to rely on an extra-contractual, subsequent agreement with the respondent. The sheriff rejected the first appellant’s evidence on the latter point. The first appellant accepted in evidence that he knew he was signing a licence and not a lease.”

Assessing the construction of the contract, the Sheriff Principal said: “The contract is poorly drafted. It has a number of obvious and careless errors, such as misnumbering. It has drafting inconsistencies, such as referring to purposes where no purposes are set out. The contract contains mainly obligations, not purposes, and any purposes which can be identified require to be teased out of long lists of prohibitions and obligations. Occasionally words of lease creep in. Some clauses are apparently absurd in the context of a licence. It is riddled with poorly-applied standard terms. The penalty for poor drafting is litigation.”

However, he concluded: “Occupancy is necessary for the limited purpose of renovating the property, and can be exercised without residency. ‘Use as a private residence’ is consistent with merely reflecting that the property is a residential property. It is, at worst for the respondent, ambiguous. Even if it were construed to permit some element of residence, it does not bear to permit residence as a principal home. It does not prevent the operation of clause 1.3, which excludes the creation of a private residential tenancy.”

The appeal was therefore refused.