Landlord and tenant — Construction of rent review provisions in lease — Question as to whether in determining the ‘fair market yearly rack rent’ for review purposes there should be disregarded any diminishing effect on such rent of a failure by the tenant to repair the demised premises in breach of the tenant’s covenant to repair — In support of the proposition that such effect should be disregarded, the landlords invoked the general principle that no man shall take advantage of his own wrong, a principle sanctified by numerous dicta and applied to the present context in Family Management v Gray — Against this the tenants quoted passages in Fawke v Viscount Chelsea which seemed clearly to the contrary effect — Held, after examining the judgments in both cases, that the views expressed in Family Management v Gray were part of the ratio decidendi in that case, whereas the passages cited from Fawke v Viscount Chelsea related to the failure of a landlord to carry out his obligations and so, as regards the breach of a tenant’s covenant, had the status of dicta only — At any rate, the views in the former case were to be preferred and the relevant question in the present construction summons would be answered by a declaration that, in determining the fair market yearly rent for the purpose of the successive rent reviews provided for in the lease, there should be disregarded any diminishing effect on such rent of any failure by the tenants to repair the demised premises in breach of their obligations under their covenant
This was an
originating summons taken out by the plaintiff landlords, Harmsworth Pension
Funds Trustees Ltd, for the construction of provisions in the rent-review
clause of a lease of a warehouse, showroom and offices at Harfreys industrial
estate at Great Yarmouth. The lease was for 99 years from October 13 1975 and
the tenants, the present defendants, were Charringtons Industrial Holdings Ltd.
Gavin Lightman
QC and A Boyle (instructed by Swepstone Walsh & Son) appeared on behalf of
the plaintiffs; H W Burnett QC and A P S De Freitas (instructed by Loxleys)
represented the defendants.
Giving
judgment, WARNER J said: This is an originating summons for the construction of
certain provisions of a lease dated October 2 1975 made between ICFC
Developments Ltd as landlord and Charrington Gardner Locket & Co Ltd as
tenant. The lease was of a warehouse, showroom and offices erected at what is
described in the lease as ‘the landlord’s Harfreys industrial estate at Great Yarmouth’.
It was for a term of 99 years from October 13 1975 at a yearly rent of £39,000
for the first seven years and thenceforth at yearly rents to be determined
under a rent-review clause which is clause 2 of the lease and which I must now
read.
(1) The
landlord may from time to time give notice in writing to the tenant in
accordance with the provision of this clause requiring the rent payable
hereunder to be reviewed.
(2) Such a
notice may be given at any time not more than 12 months before the expiration
of each of any of the following years of the said term, that is to say the
seventh, twelfth, seventeenth, twentysecond, twentyseventh and thirtieth, and
at the expiration of every third year therefrom, and from and after the giving
of any such notice the following provisions of this clause shall take effect
for the purpose of reviewing the rent payable hereunder in accordance with such
notice and in such provisions the expression ‘the material date’ shall be
construed as meaning the end of the year of the said term in respect of which
such notice is given.
(3) If the
landlord and the tenant shall either themselves or through their respective
valuers reach agreement as to the amount of the increased rent, such agreement
shall be recorded in writing and a memorandum thereof endorsed on these
presents.
(4) If such
agreement is not reached within eight weeks of the service of such notice, the
landlord may make written application to the President for the time being of
the Royal Institution of Chartered Surveyors to appoint a valuer to certify in
writing as an expert and not as an arbitrator what in his opinion is the fair
market yearly rack rent of the premises comprised in and demised by this lease
on the basis hereinafter mentioned and the landlord and tenant respectively
will, if required, furnish such valuer with all such facilities for inspection
and with all such other information and facilities as the valuer may reasonably
require.
(5) The fair
market yearly rack rent is that which would be obtainable as from the material
date if the lease were not then subsisting upon a letting with vacant
possession of the demised premises for the then residue of the term hereby
granted and on the basis that the tenant would be obliged to perform and
observe the covenants and conditions on the part of the tenant herein
covenanted to be performed and observed by the tenant but excluding therefrom
the provisions of this clause and disregarding the value of any goodwill
attaching to any part of the demised premises by reasons of any trade or
business carried on thereon or arising by reason of any alterations or
additions which may have been made to the demised premises by the tenant
otherwise than in pursuance of their obligations to the landlord.
(6) If the
fair market yearly rack rent so agreed or certified by the said valuer shall be
greater than the rent hereinbefore reserved and payable immediately before the
material date, then as from the material date the rent so agreed or certified
shall be substituted for the yearly rent previously payable, but if the fair
market yearly rack rent so agreed or certified is the same as or less than the
yearly rent payable immediately before the material date, such yearly rent
shall be unchanged.
(7) The
certificate of the said valuer shall be final and binding on the landlord and
the tenant respectively and each party shall bear its own costs in respect of
the foregoing matters and a moiety of the fees of the said valuer.
Clause 3
contains the tenant’s covenants. It includes, in paragraph (e), a full covenant
to repair. The precise terms of it do not matter for present purposes.
Those are the
only provisions of the lease to which I need refer.
The plaintiff
in the present proceedings is the successor in title to ICFC Developments Ltd
and the defendant is Charrington Gardner Locket & Co Ltd under its new name
Charringtons Industrial Holdings Ltd.
On January 27
1982 the plaintiff’s solicitors served a notice under clause 2(1) of the lease
requiring the rent to be reviewed. Three questions are raised by the
originating summons. The first arises in this way. At the time when the lease
was granted the demised premises had been recently built by a developer, not
ICFC Developments Ltd. The defendant carries on at the premises the business of
a builders’ merchant. Soon after the start of its tenancy the floors of the
building began to sink. As a result of that, the defendant sued the developer.
The plaintiff, or its predecessors in title, did not join in those proceedings.
The developer proposed a scheme of remedial works and I understand that those
works are now in course of being carried out. The question is whether the
defects that those works are designed to remedy come within the covenant to
repair in clause 3(e) of the lease. To answer that question a good deal of
evidence, including expert evidence, will be required. However, if the third
question raised by the originating summons, which is a pure question of law, is
answered in a particular way, the first question will no longer arise. That third
question is whether, upon the true construction of the lease, in determining
the fair market yearly rack rent for the purposes of the successive reviews
provided for in clause 2 of the lease, there should be disregarded any
diminishing effect on such rent of any failure by the tenant to repair the
demised premises in breach of its obligations under clause 3(e) of the lease.
If that question is decided in favour of the defendant, the first question will
not arise. So I am
the originating summons I need not go into because there is now agreement
between the parties as to the way in which it should be answered.
The defendant
has served points of counterclaim which have the merit of showing how the
defendant would like to see the answer to the third question worded. The
defendant seeks:
A declaration
that upon the true construction of the lease dated October 2 1975 and made
between ICFC Developments Ltd of the one part and Charrington Gardner Locket
& Company of the other part the words ‘a letting with vacant possession of
the demised premises’ in clause 2(5) of the said lease mean a letting with
vacant possession of the demised premises in the condition which they were in
as at the material date referred to in the said clause 2(5).
Mr Lightman,
who appears for the plaintiff, the landlord, founds his case primarily on the
general principle that no man may take advantage of his own wrong. He submits
that in accordance with that principle, if defects result from a breach of
covenant by the tenant, they are, for the purposes of computing the rent
payable under the rent-review clause, to be ignored.
In support of
the existence of the general principle, he cited to me a number of authorities
beginning with Broome’s Legal Maxims, 10th ed at pp 191 to 193. Broome
there states the maxim in these terms:
It is a maxim
of law, recognised and established, that no man shall take advantage of his own
wrong; and this maxim, which is based on elementary principles, is fully
recognised in Courts of law and of equity and, indeed, admits of illustration
from every branch of legal procedure.
There follow
paragraphs which, among other things, demonstrate that the principle applies as
between landlord and tenant and also to cases where there has been default in
the performance of a contract.
In addition to
that textbook and to Halsbury’s Laws of England vol 9, para 533, which
is on a slightly different but analogous point, Mr Lightman relies on dicta of
eminent judges, such as dicta of Lord Ellenborough in Rede v Farr
(1817) 105 English Reports 1188, of Lord Finlay and Lord Atkinson in New
Zealand Shipping Co Ltd v Societe des Ateliers et Chantiers de France
[1919] AC 1 and, more recently, of Caulfield J in Hibernian Property Co Ltd
v Liverpool Corporation [1973] 1 WLR 751.
I do not think
that I need go into those authorities in detail because Mr Burnett accepts that
the principle relied on by Mr Lightman exists and that it is well established.
What he submits is that it does not apply here. He relies to some extent on the
fact that this lease is a commercial document negotiated at arm’s length, the
parties to which may, he submits, be taken to have been looking after their own
interests and to have expressed in it everything that was agreed between them.
It may well be, he says, that some clauses in the document operate unfairly to
the detriment of the tenant and some unfairly to the detriment of the landlord,
but that is no reason for importing or implying into this document provisions
that are not there. He does accept that some terms must be implied. He accepts,
for instance, that the tenant would not be entitled to go round the premises,
the day before what clause 2 of the lease calls ‘the material date’, doing as
much damage as possible so as to reduce the amount of the rent payable
thenceforward. He draws a distinction, however, between deliberate damage and
damage resulting from a failure to perform an obligation to repair.
It seems to me
that the real issue between Mr Lightman and Mr Burnett is in which of two
fairly recent decisions of the Court of Appeal I should look for guidance. The
first of those decisions in point of time was Fawke v Viscount
Chelsea [1980] QB 441*, on which Mr Burnett relies. The second was Family
Management v Gray [1979] 253 EG 369, [1980] 1 EGLR 46, on which Mr
Lightman relies.
*Editor’s
note: Also reported at (1979) 250 EG 855, [1979] 1 EGLR 89.
Mr Burnett
accepts that, as Mr Lightman points out, Fawke v Viscount Chelsea
was a case that arose out of the failure of the landlord to carry out his
obligations to repair the exterior of the property. It was held that, in
determining an interim rent for the property under section 24A of the Landlord
and Tenant Act 1954, it was proper to have regard to the actual condition of
the premises at the date when the interim rent was assessed. That, of course,
would diminish the rent receivable by the landlord. There was no question in
that case of any breach by the tenant of his repairing obligations, so that no
argument of the kind that has been addressed to me was addressed to the Court
of Appeal on behalf of the landlord. However, it is fair to say that both Goff
LJ and Brandon LJ expressed themselves in their judgments as if the
consequences of a breach by the tenant of his repairing obligations would have
been the same as the consequences of the breach by the landlord of his. Goff LJ
said (at p 453):
The next
question is how the valuers should regard want of repair and breaches of
covenant when assessing an interim rent, and it seems to me they should
consider what would be a reasonable rent for the tenant to pay from the date
for commencement of that rent as a yearly tenant, having regard to the actual
condition and state of the premises at that date, and having regard to the
terms of the contractual tenancy so far as applicable to a yearly tenancy. This
will mean that the hypothetical tenant will have the benefit of any covenant to
repair on the part of the landlord and the burden of any on the part of the
tenant, or there may be no covenant to repair on either side.
He then cited
a passage in the judgment of the judge whose decision was under appeal and
commented on that and (at p 454) he continued:
The fixing of
an interim rent will not, however, affect the right of either party to sue the
other for any breach of the repairing covenants in the contractual tenancy,
which may have already occurred or may subsequently occur, save that in
assessing damages for diminution in value with respect to any period after the
determination of the contractual tenancy, credit must be given for the amount
by which the interim rent was reduced on account of the want of repair from
what it would have been if the premises had been in the state of repair
required by the covenants. This may be considerably less than the actual
diminution in value during the period of breach, since the valuation postulates
prompt repair. The fixing of an interim rent would also not affect a claim by
the tenant for damages for extra disturbance on the ground that the landlord’s
failure to repair after notice had made more extensive repairs necessary.
Brandon LJ
said (at p 457):
It is clear
that the market rent of premises may in general be affected not only by the
terms of the tenancy concerning the obligations of the lessor and lessee in relation
to repair, but also by the actual state of repair of the premises at the
commencement of the tenancy.
Then he took
an extreme example:
Let it be
supposed first, that, under the terms of the tenancy it is an obligation of the
lessor to put the premises into repair;
and
that the
premises are, at the commencement of the tenancy, so seriously out of repair,
by reason of previous fire or flood, that they are only of partial use to the
lease.
He then went
on:
Similar
considerations would, as it seems to me, apply if the premises were seriously
out of repair at the commencement of the tenancy, not by reason of previous
fire or flood, but by reason of the failure of the lessor or the lessee or both
to perform their previous obligations to repair. The cause or causes of the
premises being out of repair are not, for this purpose, significant; the fact
that they are out of repair, for whatever cause or causes, is so.
With those two
judgments Stephenson LJ agreed.
Mr Lightman
concedes that, if his argument in the present case is right, those passages in
the judgments of Goff LJ and Brandon LJ were, to say the least, inappropriately
worded in so far as they did not differentiate between the consequences of a
breach of an obligation to repair by the landlord and those of a similar breach
by the tenant. Mr Lightman invites me to disregard those dicta not only
because, in so far as they related to the consequences of a failure by the
tenant to repair, they were plainly obiter (and uttered without the
Court of Appeal having had the benefit of hearing the relevant argument) but
also because they are inconsistent with the later decision of the Court of
Appeal in Family Management v Gray. It seems to me that Mr
Lightman is right in that Family Management v Gray decides that
on an application for a new lease under the Landlord and Tenant Act 1954 a
tenant is not entitled to set up in reduction of the rent to be paid under the
lease defects in the premises arising from his own breach of covenant to
repair.
Mr Burnett
submitted that the case really turned on the evidence, and in particular on the
evidence of a Mr Winbourne, who had been called as an expert on behalf of the
tenant. The Court of Appeal held that that evidence had been misunderstood by
the judge in the court below. Mr Burnett submitted that the case decided little
else and that certain dicta to which I shall refer and which are material to
the present point were obiter.
It is in fact
difficult to tell from the judgments precisely what evidence it was that Mr
Winbourne gave and to what point it was directed. That is because the account
of his evidence given by Shaw LJ at p 371 of the report differs from the
account of it given by Waller LJ at p 372; and Megaw LJ agreed with both
judgments. He did not
What, however,
seems to me perfectly plain from the report is that both Shaw LJ and Waller LJ
decided the case as they did because they accepted an argument that had been
put forward by Mr Stimpson on behalf of the appellant. That argument was
summarised by Shaw LJ in this way. After referring to a hypothetical situation
about which Mr Winbourne had been asked in cross-examination, Shaw LJ said:
It was not the
real situation because of the operation of section 34 of the Landlord and
Tenant Act 1954, and because there were business tenants in occupation who
obviously had an interest themselves to protect and of whom it might be said
that the almost certainty was that they would claim new leases under the
provisions of section 34 when the occasion arose. As Mr Stimpson has urged in
this court, when the negotiation of the terms of those new leases came to be
dealt with between the reversioners and the prospective lessees they could not,
in diminution of what was the proper rent to be paid, urge their own default in
having failed to comply with the repairing covenants under the lease as a
justification reason for a lower rent, whether arrived at by negotiation or
determined by the court.
That has been
the crux and gravamen of Mr Stimpson’s submissions in this court, and he has
said that it is clear from a reading of the judgment in which section 34 of the
1954 Act is nowhere specifically referred to, that the learned judge had taken
Mr Winbourne’s evidence as if it were evidence relating to the actual facts of
the case, instead of being evidence which related to a hypothetical situation
which had been put to him by counsel for the landlord.
Waller LJ put
it this way:
For the
reasons which my Lord has already mentioned, citing the case of Smiley v
Townshend, the proper basis for the valuation of this reversion is based
on the rent which it would be likely to produce immediately following the
termination of the lease, there being disregarded — and I quote section
34(1)(a) — ‘any effect on rent of the fact that the tenant has or his
predecessors in title have been in occupation of the holding’.
Mr Stimpson
has submitted that if the tenants, who had in their lease a repairing covenant,
were to get the benefit of the fact that no repairs had been done, they would
be getting a double benefit. He submits that the effect of Mr Winbourne’s
evidence and the effect of that section really drives one to the conclusion
that if the judge had applied the proper test, he would have come to the
conclusion that the rent — and again I quote, ‘. . . the holding might
reasonably be expected to be let in the open market by a willing lessor, there
being disregarded . . .’ that factor and, indeed, the factor of goodwill — would
be the rent at which these premises were, in fact, let. Therefore, the value of
the reversion as at Christmas 1974 would be that at which the premises were, in
fact, let, it being almost certain that the tenants in occupation with a right
to renew the lease if the rent could be properly negotiated would remain in
occupation at that rent.
It seems to me
plain from those passages that the proposition that the subtenants could not
rely, in diminution of the rents that they were to pay under their new leases,
on the want of repair of the premises attributable to their own breaches of
covenant formed part of the ratio decidendi of the case. That is the
view taken also by the learned editors of Woodfall’s Law of Landlord and
Tenant, 28th ed, vol 1. There is at p 637 of that work a footnote which
says this about Family Management v Gray:
The Court of
Appeal held that the damage to the reversion arising from the breaches of the
head lease was nil or de minimis because it was to be expected that the
subtenants would apply to the court for the grant of a new tenancy and because,
on that application, they could not, having regard to section 34 of the Act of
1954, in diminution of the market rent to be paid by them, urge their own
default under their own repairing obligations.
I was referred
to a passage in Bernstein and Reynolds’ Handbook of Rent Review (at p
408) where they say:
The arguments
relied upon by Shaw LJ in Family Management v Gray (above) and by
Caulfield J in the Hibernian case (above)
that
the tenant
will be gaining a benefit from his own breach of covenant are not necessarily
valid, at least in the context of rent review. For in so far as the
dilapidations result in the tenant paying a substantially lower rent on review,
the value of the landlord’s reversion will have been substantially prejudiced
by the breaches and the landlord will be entitled to damages equal to the
amount by which his reversion has been diminished in value.
Mr Lightman
points out, and I agree with him, that that is not a very satisfactory way of
looking at things from the landlord’s point of view because a landlord’s right
to sue his tenant for damages may be of little or no value if the tenant is in
financial difficulties.
I therefore
propose in answer to question 3 in the originating summons to declare that upon
the true construction of the lease, in determining the fair market yearly rack
rent for the purposes of the successive reviews provided for in clause 2 of the
lease, there should be disregarded any diminishing effect on such rent of any
failure by the tenant to repair the demised premises in breach of its
obligations under clause 3(e).
