Landlord and tenant — Rent review clause — Determination of preliminary point of law under section 2 of Arbitration Act 1979 — Matter referred to court with consent of arbitrator — Construction of provision in rent review clause which defined the ‘current rack rental value’ as the rent at which, inter alia, ‘the demised premises might reasonably be expected to be let for office purposes’ — Whether arbitrator should assume in determining the rent that planning permission for the use of the premises for offices had been granted — In fact no planning permission for the use of the premises as a whole for offices had ever been granted, although there was a permitted user for offices in the case of two floors — Landlords contended that it should be assumed for the purpose of the notional lease under the rent review provisions that planning permission must be assumed for the notional user for offices — Tenants submitted that the premises should be valued as they actually were, with or without planning consent, as the case might be, and that the landlords’ argument involved reading in words which were not there, such as ‘with benefit of planning consent’ — Held, upholding landlords’ contention, that it should be assumed that the notional willing lessee could use the premises for the notional user without illegality or breach of covenant, ie with planning permission — Decision of Fox J in Trust House Forte Albany Hotels Ltd v Daejan Investments Ltd followed
The applicants
in this reference under section 2 of the Arbitration Act 1979 were Bovis Group
Pension Fund Ltd, lessors under a subunderlease of premises at 41-42 Bernard
Street, London WC1. The respondents to the application, G C Flooring &
Furnishing Ltd, were the lessees under the subunderlease.
Ronald
Bernstein QC and David Neuberger (instructed by Masons) appeared on behalf of
the applicants; A A R Thompson QC and I Grainger (instructed by Zeffertt Heard
& Morley Lawson) represented the respondents.
Giving
judgment, LLOYD J said: This is an application for the determination of a
preliminary question of law arising in the course of a reference under section
2(1) of the Arbitration Act 1979. The question turns on the construction of a
rent review clause in a lease. It is said to raise a point of some general
importance. The lease, or more accurately, the subunderlease, is dated May 8
1972. It relates to premises at 41-42 Bernard Street, London WC1. The premises
consist of a basement, ground floor and five other floors. They are in multiple
occupation.
The claimants,
Bovis Group Pension Fund Ltd, are the successors in title to the landlords
named in the lease. The respondents, G C Flooring & Furnishing Ltd, are the
tenants. The lease is for 25 years from May 8 1972. There is provision for rent
review every five years. I am concerned with the second rent review for which
the review date was May 8 1981.
The parties
were unable to agree on the revised rent. The matter came before Mr Jack Collis
JP, of De Groot Collis & Co, as arbitrator. He held a preliminary meeting
on March 17 1982. In the course of that meeting it became apparent that there
was a fundamental difference between the parties as to the correct construction
of the rent review clause. Very sensibly, if I may say so, it was agreed
between the parties that the question of construction should be referred, with
the consent of the arbitrator, to the court for a decision under section 2 of
the Arbitration Act 1979. Very sensibly also, the parties agreed alternative
figures for the revised rent according to which of the two possible meanings of
the rent review clause is held to be correct. Once the court has decided that
question of construction, the arbitrator will have nothing left to do but to
issue his award accordingly. If the claimants are right, the rent will be
£85,000 per annum. If the respondents are right, the rent will be £75,000 per
annum.
The lease
contains, in clause 2(14), a user clause which is worthy of a place in the law
reports even if nothing else in this judgment is. It provides that the tenants
should not permit or suffer the premises to be used for:
. . . any of
the trades hereinafter mentioned (that is to say) the trades of a brewer
distiller vintner victualler or retailer of beer coppersmiths cooper trunkmaker
coachmaker working brazier founder melter of iron working smith letter press
founder printer pipe burner tripe boiler baker sugar baker scavenger nightman
butcher slaughterman farrier dyer tanner fellmonger fishmonger cheesemonger
soap boiler melter of tallow maker of varnish
hand clothes or second hand boots or shoes blacking maker or hat manufacturer
nor use nor permit the demised premises or any part thereof to be used as or
for a brothel or for any purposes of gambling or for beating of carpets or beds
or for a coal shed or for any other offensive or noxious trade or business
and then it
ends
and in
particular will only allow the said premises to be used as professional
offices.
Clause 6(a)
provides the machinery for the rent review. I need not refer to it further
except to say that it provides that the revised rent is to be equal to the
current rack rental value. Clause 6(b) defines current rack rental value for
the purposes of the clause as being:
the rent at
which having regard to the terms hereof (other than as to rent and user) the
demised premises might reasonably be expected to be let for office purposes
without premium in the open market by a willing lessor to a willing lessee it
being assumed that the demised premises are to be let with vacant possession
and in good repair and condition and for the residue of the said term remaining
unexpired at the commencement of the relevant revision year or (in the case of
revision other than in a revision year) at the commencement of the last
preceding revision year as the case may be no account being taken of any
goodwill attributable to the demised premises by reason of the trade or
business carried on therein by the lessee or any subunderlessee.
The dispute
between the parties turns on the meaning of the first few lines of that clause,
and in particular on the words ‘the rent at which . . . the demised premises
might reasonably be expected to be let for office purposes’.
The claimants
say that you assume, for the purpose of the notional lease, that there is
planning consent for the notional user, namely, office purposes. The
respondents say that you take the actual user at the time of the rent review.
According to
an affidavit of Mr Stuart Sandler, a partner in the firm of Smith, Melzack
& Co, who had the management of these premises for many years past, the
permitted user under the various subleases at May 8 1981 was as follows:
The basement,
the ground floor and the first three floors, showrooms and stock rooms with
ancillary offices. The fourth floor and the fifth floor offices.
As I understand
it, no planning consent for the use of the building as a whole for offices has
ever been granted.
The issue
between the parties is crystallised in the memorandum prepared by the
arbitrator dated May 13 1982. Para 5 of that memorandum provides:
The parties
have further agreed that the rental of the demised premises as at the date of
review aforesaid shall be £85,000 per annum related to full office user or
£75,000 per annum if based upon the actual user, where same varied from office
user and which would be subject to consideration of the planning regulations as
may be applicable.
Mr Thompson
submits, in support of the respondents’ construction, that clause 6(b) contains
a code, complete in itself, of what can and cannot be taken into account by the
arbitrator. It requires the arbitrator to make various assumptions; for
example, that the premises are to be let with vacant possession. It requires
the arbitrator to disregard certain facts; for example, any goodwill
attributable to a trade or business actually carried on. Subject to those
specific matters the premises are to be valued as they actually are, with or
without planning consent, as the case may be. According to Mr Thompson, the
claimants’ argument would involve the arbitrator in making a further
assumption, not justified by clause 6(b) and contrary to the facts, namely,
that planning consent for office purposes has been granted. Putting it another
way, he submits that the claimants’ construction involves reading in the words
‘with benefit of planning consent’ after the words ‘for office purposes’. There
is, he submits, no necessity for reading in such words in order to give
business efficacy to the rent review clause and, therefore, on ordinary
principles, such words must not be read in. In that connection he refers me to
the decision of the House of Lords in Trollope & Colls Ltd v North
West Metropolitan Regional Hospital Board [1973] 2 All ER 260 and in
particular to the speech of Lord Pearson.
I agree with
Mr Thompson this far, that my task is to construe the words as they stand
without reading in anything unless I must. But I do not agree that the claimants’
construction involves reading in anything at all. The question, quite simply,
is what the parties intended when they required the arbitrator to assess the
rent at which the premises might be expected to be let for office purposes;
having already required the arbitrator to disregard the actual user permitted
under the existing lease. It seems to me quite obvious, if I may say so, that
in requiring the arbitrator to go through that notional exercise they required
him to assume that planning permission for the notional user had been granted.
It is true that there is no express reference to that assumption in clause
6(b), but to my mind it is an assumption which is inherent in the exercise
itself; otherwise, as Mr Bernstein submitted, it is difficult to see what
object the parties can have had in mind in referring to office purposes at all.
On any
question of construction, it is almost always possible for both parties to
argue that the other party’s construction involves reading something in. The
reason is that it is almost always possible to tilt the meaning of words
further one way or the other by adding extra words. In the present case there
is no more justification for saying that the claimants’ construction involves
adding the words ‘with benefit of planning permission’ than for saying that the
respondents’ construction involves adding the words ‘subject to existing
planning permission, if any’. Taking the words as they are, and without adding
anything at all, it seems to me that the meaning of the words is perfectly
clear and is in favour of the claimants’ construction.
Mr Thompson
relies on the decision of Fox J, as he then was, in the case of Trust House
Forte Albany Hotels Ltd v Daejan Investments Ltd reported in (1980)
256 ESTATES GAZETTE 915. That was a case concerning the Strand Palace Hotel.
The rent
review clause in that case required that the rent for certain areas within the
demised premises should be assessed on the basis:
. . . that
those areas are actually let for or are available for letting for shopping and
retail purposes.
The areas in
question were quite unsuitable to be let for shops. The question was whether it
was to be assumed that the areas had been converted for the proposed use. Fox J
held not; the premises were to be valued in their existing state without
presupposing any reconstruction or conversion. I do not find anything in that
decision which supports the respondents’ contentions in the present case.
Indeed, if anything, the decision seems to me the other way. For Fox J goes on
in his judgment [last line on p 915] to accept that the clause does require
certain suppositions other than physical reconstruction or conversion; for
example, the granting of any necessary planning permission for the proposed
user. I will read the passage in full:
It is pointed
out by way of preliminary on behalf of the defendants that the clause does
require certain suppositions to be made if sensible effect is to be given to
it; for example, that any necessary planning permission to enable user for shopping
or retail purposes has been given, and that any provisions in the underlease
which might prevent such user or alteration of the premises for such user have
been suitably varied or waived or appropriate consents given. These
considerations do not, I think, advance the defendants’ contentions. The clause
requires one to assume that the areas in question, which are now used for hotel
purposes, should be available for letting for shopping and retail purposes. Any
question of contravention of planning control or of the provisions of the
underlease goes directly to availability. I do not think that the premises are
‘available’ for a purpose if there are in existence lawful prohibitions,
whether statutory or contractual, against the user of the premises for such
purpose. But it seems to me that premises can be available for shopping and
retail purposes irrespective of their physical condition. Availability, I
think, does no more than assume that the premises are on offer with vacant
possession and that they can be used for the specified general purpose without
illegality or breach of covenant. The supposed new lessee may or may not need
physical alterations of the premises to carry out the shopping or retail user
which he contemplates, but the premises are available for shopping and retail
purposes, and it is a matter for the lessee how he utilises that availability.
The degree of alteration which is appropriate will vary widely according to the
precise nature of the user.
I read that
passage as being, on the face of it, in support of the claimants’ construction
in the present case. Mr Thompson seeks to explain it by saying that it depended
on the inclusion of the words ‘or are available for letting’, which words are
not present in the present case. I do not accept that. In my view Fox J would
have reached exactly the same conclusion as he did in that case on the language
of the present clause. In other words, you take the premises in their existing
physical condition but you presuppose that the notional willing lessee can use
the premises for the notional assumed user without illegality or breach of
covenant. In other words, with the necessary planning consent.
Finally, Mr
Thompson referred me to a passage in Hill & Redman’s Law of Landlord and
Tenant, 17th ed, para 202, and the notes thereunder; but I find nothing in
that passage which is contrary to the view which I have formed. It follows that
I answer the question of construction in favour of the landlord claimants.
