Landlord and tenant — Lease containing unusual rent review clause – Freehold value of comparable land to be determined with similar rights and obligations — Percentage increase in capital value applied to increase rent — Planning permission available to construct a golf course — Valuation assumptions
The plaintiffs are the owners of agricultural land in Watton-at-Stone, Hertfordshire. Some 127 acres are let to the defendant under a tenancy dated November 1971. The tenancy contains a clause enabling the landlords to call for a rent review between the eighth and fourteenth years, and thereafter at each seven year interval.
Clause 4(a) of the lease contains the rent review formula and directs that “There shall be determined as at the date of commencement of any such seven year period the freehold value of an equivalent and comparable area of land in Hertfordshire with similar rights and obligations attaching thereto and with similar planning permission unlimited in time …”. Where the figure so determined showed an increase in value over a base value in the lease, which assumed planning permission for development authorised by the lease, the rent was to be increased by a similar percentage. The issue between the parties was whether, in effecting the valuation of the comparable land, the “similar rights and obligations” included all those in the tenancy agreement, including the rights and obligations that had application only to the relationship of landlord and tenant.
Held The rent review clause required a comparison of capital values: like had to be compared with like. It was clear that a freehold interest with vacant possession was to be valued; it could not be the value of land subject to a tenancy as this depended on the rent and rental value, and it was that that was being determined. In making a valuation of a freehold interest it would not be necessary to consider the rights and obligations of landlord and tenant as the increase in the rent depends on the increase in capital values and covenants between landlord and tenant cannot sensibly be taken into account.
The “rights and obligations” to be taken into account are those that would attach to the freehold interest; they are found in the lease and are not restricted to negative covenants only. Accordingly, a valuation must be made of a comparable area of land with the benefits of the rights in schedule 2 of the lease, and subject to the rights and liberties reserved by schedule 3. Schedule 2 grants various rights and easements to the tenant, including a right to construct a golf course and club house. Schedule 3 contains various reservations in favour of the landlords. The covenants on the the part of the landlords and the tenant, in those capacities, and as set down as clause 3 and in schedule 4 of the lease, must be disregarded.
Hazel Williamson (instructed by Longmores of Hertford) appeared for the plaintiff landlords; and Jonathan Brock (instructed by Chalmers Hunt & Grisby of Bishops Stortford) appeared for the defendant tenant.
