Landlord and tenant — Landlord and Tenant Act 1954 — Security of tenure — Section 38 exclusion order — Lease entered into differed in terms from lease authorised by court — Whether tenant held tenancy protected by Part II of 1954 Act — Lease contained break clauses — Whether lease was for ‘a term of years certain’ within meaning of section 38(4)
The appellant receiver is the freehold owner of land held as a
possible site for a new court or police purposes. In May 1993 a lease of the
land was granted to the respondent tenant for a term of five years. Prior to
the grant, the parties obtained a court order authorising them to enter into an
agreement in the form of a draft lease annexed to the order, which excluded the
security of tenure provisions of the Landlord and Tenant Act 1954; the draft
had a number of blanks that were later filled in when the lease was completed.
Under the draft and the executed lease, rent was payable, by implication of
law, annually in arrear. Shortly after the court order, the parties agreed that
rent was payable quarterly in advance.
In 1998 the tenant served a request for a new tenancy under section
26 of the 1954 Act. In the court below, the judge held that the tenant was
entitled to the protection of the 1954 Act; it was not possible to alter the
terms of the lease as authorised by the court. The agreement the parties
entered into was different from the document authorised by the court because of
the agreement that rent was payable quarterly in advance and not annually in
arrear. The receiver appealed. By a respondent’s notice, the tenant contended
that the court, in 1993, had no jurisdiction to authorise the lease as it
contained a break clause, alternatively was for five years and then from year
to year, and was not to be granted for a ‘term of years certain’ within the
meaning of section 38(4)(a).
application was neither empowered nor entitled to consider the fairness of the
bargain, as such, that the parties proposed to make. The reference to ‘that
tenancy’ in section 38(4)(a) of the 1954 Act, in relation to an
application to the court for an exclusion order, required the terms of the
final lease to bear a substantial similarity to that before the court when
authority was given. A change in the terms may be, in appropriate cases, a
relevant factor for the purposes of section 38(4)(a). Whether the rent
was payable in advance or in arrears was not relevant in this particular case.
The presence of a break clause did not prevent the term being a term of years
certain for the purposes of section 38(4) of the Act. The lease was for a term
of years certain, notwithstanding the terms it contained for termination.
The following cases are referred to in this report.
Dickinson v
St Aubyn [1944] KB 454; [1944] 1 All ER 370
Friends Provident
Life Office v British Railways Board [1996] 1 All ER 336; [1995] 2
EGLR 55; [1995] 48 EG 106
Garston v Scottish
Widows Fund & Life Assurance Society [1998] 1 WLR 1583; [1998] 3 All ER
596; [1998] 2 EGLR 73; [1998] 32 EG 88
Nicholls v Kinsey
[1994] QB 600; [1994] 2 WLR 622; (1994) 69 P&CR 438; [1994] 1 EGLR 131;
[1994] 16 EG 145
Prudential
Assurance Co Ltd v London Residuary Body [1992] 2 AC 386; [1992] 3
WLR 279; [1992] 3 All ER 504; [1992] 2 EGLR 56; [1992] 36 EG 129, HL
R v Lynsey
[1995] 3 All ER 654
Scholl
Manufacturing Co Ltd v Clifton (Slim-Line) Ltd [1967] Ch 41; [1966]
3 WLR 575; [1966] 3 All ER 16, CA; affirming [1966] Ch 298; [1966] 2 WLR 902;
[1966] 1 All ER 993
This was an appeal by the landlord, the Receiver for the
Metropolitan Police District, against a decision of William Barnett QC, sitting
in Central London County Court, giving judgment to the tenant, Palacegate
Properties Ltd, in proceedings by the landlord for possession and by the tenant
for a new tenancy.
Kim Lewison QC and Edward Cole (instructed by Winckworth Sherwood)
appeared for the landlord; Stephen Jourdan (instructed by Jay Benning &
Peltz) represented the tenant.
Giving judgment, PILL LJ
said: This is an appeal against the judgment of Judge William Barnett QC,
sitting at Central London County Court on 30 July 1999, in which he held that a
lease of commercial premises executed on 12 May 1993 was not excluded from the
security of tenure provisions of the Landlord and Tenant Act 1954 (the 1954
Act) Part II, by an order made at the Mayor’s and City of London Court under
section 38(4)(a) of the Act on 23 April 1993.
Facts and section 38(4)(a) of the
1954 Act
The Receiver for the Metropolitan Police District (the landlord) is
the freehold owner of land adjoining the Roundhouse at Primrose Hill, Chalk
Farm Road, London. The land is held as a possible site for a new court or for
police purposes. Pending the emergence of a scheme, the land has been occupied
on tenancies or licences. The disputed lease to Palacegate Properties Ltd (the
tenant) was for five years, and allowed the tenant to use the land as a car
park and for the storage of vehicles and materials used in connection with the
Roundhouse.
The parties made a joint application to the court under section
38(4)(a) of the Act. As originally enacted, section 38 provided that:
‘Any agreement relating to a tenancy to which this Part of this Act
applies…shall be void in so far as it purports to preclude the tenant from
making an application or request under this Part of this Act…’. Part II is
entitled ‘Security of Tenure for Business, Professional and other Tenants’ and
provides, in sections 24 to 28 and other sections, for the continuation of
business tenancies and a procedure for the renewal of tenancies.
Section 38(1) of the Act was amended by the Law of Property Act
1969 section 5, so as to provide circumstances in which agreements under the
section are not void. Section 38(4) provides:
The court may —
(a) on the joint application of the persons who will be the
landlord and the tenant in relation to a tenancy to be granted for a term of
years certain which will be a tenancy to which this Part of this Act applies,
authorise an agreement excluding in relation to that tenancy the provisions of
sections 24 to 28 of this Act; and
(b) on the joint application of the persons who are the
landlord and the tenant in relation to a tenancy to which this Part of this Act
applies, authorise an agreement for the surrender of the tenancy on such date
or in such circumstances as may be specified in the agreement and on such terms
(if any) as may be so specified;
if the agreement is contained in or endorsed on the instrument
creating the tenancy or such other instrument as the court may specify; and an
agreement contained in or endorsed on an instrument in pursuance of an
authorisation
preceding provisions of this section.
A draft of the lease was submitted to the district judge when
application was made on 23 April 1993. Gaps were left in the draft for the date
of the lease, the date for commencement of the term and the date of the
proposed exclusion order. The draft lease reserved a rent of £22,000 pa, but
made no express provision for the dates upon which the rent was to be paid.
The parties appeared before the district judge by solicitors, and
the district judge made the following order:
UPON THE JOINT APPLICATION of the applicants IT IS ORDERED
pursuant to section 38(4) of the Landlord and Tenant Act 1954 (as amended by
section 5 of the Law of Property Act 1969) that the applicants be authorised to
enter into an agreement to exclude the provisions of sections 24-28 (inclusive)
of the Landlord and Tenant Act 1954 in the form of clause 4(6) to be contained
in a Lease of the above described property intended to be granted by the first
applicant as landlord to the second applicant as tenant a draft whereof is
annexed to the originating application and to exclude the said provisions.
On 12 May 1993 the lease was completed in the form of the draft,
with the blanks filled in and an alteration (not said to be material for
present purposes) to the address of the registered office of the tenant.
It is common ground that under the written agreement in draft and
as executed, rent was payable, by implication of law, annually in arrear.
However, it is also common ground that at all times the agreement was that the
rent would be payable quarterly in advance. Solicitors for both parties gave
evidence to that effect at the trial. On 7 May 1993 Mr Owston, the landlord’s
solicitor, wrote a letter to Mr Peltz, the tenant’s solicitor, recording that
they had agreed that the rent would be paid quarterly in advance, and, for
present purposes, that can be treated as a term of the lease.
On 12 February 1998 the tenant served a request for a new tenancy
under section 26 of the 1954 Act. It was thereby asserted that the tenant was
entitled to security of tenure and a new lease pursuant to the Act. The tenant
commenced proceedings for the grant of a new tenancy. The landlord commenced
proceedings for possession on the ground that the lease had ended and the
tenant was trespassing. The actions were consolidated and the judge agreed to
try preliminary issues that are the subject of this appeal.
It should be added that, by a respondent’s notice, it is submitted
that, on its true construction, the lease created a term for five years and
thereafter from year to year. It is submitted that, for that reason, it is not
a term of years certain for the purposes of section 38(4) of the Act. It is
also submitted that the term of five years was, in any event, subject to break
clauses and was not, for that reason, a term of years certain.
Submissions on section 38(4)(a)
The argument for the tenant, which succeeded before the judge, was
that reliance can only be placed by the landlord on section 38(4) when the
lease is in the same terms as the draft placed before the judge. The judge
held:
what one cannot do is to alter the terms as authorised by the
court. You could, it seems to me, if you want to and if the court would do it,
authorise an agreement to be entered into merely referring to the bare bones of
the agreement: in other words, identifying the tenancy, identifying the rent
and identifying the period. It may well be that the court could say that as
long as those terms are in an agreement, the parties could decide for
themselves what they wanted to do. But that would then be what the court
authorises. Here I am quite satisfied that the document which was authorised by
the court was an entirely different agreement to the one that was entered into,
namely the difference between an agreement where the rent was to be paid
annually in arrear, which anyone reading it who knew about these things would
think to be the situation, as opposed to one where the rent was to be paid
quarterly in advance.
The judge had previously referred to the draft before the district
judge when the order pursuant to section 38(4) had been made as ‘the lease…
approved by the Court’ and stated that the court giving the section 38(4)
approval ‘has to have matters before it which it expressly authorises and that
is why it normally is the lease itself’. The judge drew an analogy, with
approval by the court, of infant settlements in personal injury cases.
In seeking to uphold the judge’s finding, Mr Stephen Jourdan relies
upon the words ‘in relation to that tenancy’ in section 38(4)(a). The
protection for tenants that the section contemplates can be provided only if,
when authority is given, the court has the actual terms of the proposed lease
before it. The tenant must know what he is giving up in relation to a specific
tenancy and in relation to the tenancy as a whole.
For the landlord, Mr Kim Lewison QC contrasts the brevity of
section 38(4) with the detailed procedure laid down in sections 24 to 36 in the
different situation in which a new tenancy is under consideration. He submits
that the judge was wrong to regard the procedure in section 38(4) as an
approval by the court of a lease. What the court is doing is authorising, on
the joint application of the parties, an agreement excluding the provisions of
sections 24 to 28 of the Act. That approval does not require an analysis of the
terms of the lease. If the approval is given, the lease need not be in the same
terms as the draft before the judge. The judge needs only to know, when giving
an authorisation under section 38(4)(a), the matters specified in the
paragraph, that is the identity of the persons who will be landlord and tenant,
the identity of the premises to be demised, that the lease is to be for a term
of years certain within the meaning of that term in the section and that the
agreement is ‘contained in or endorsed on the instrument creating the tenancy
or such other instrument as the court may specify’.
Mr Lewison referred to Friends Provident Life Office v British
Railways Board [1996] 1 All ER 336*, where it was held in this court that,
in construing a deed of variation of a lease, the court would give effect to
the intention of the parties unless it was compelled by the nature of the
changes made to hold that the effect of the deed was to bring about a surrender
and regrant by operation of law. Such an effect would only occur where the
variation affected the legal estate and either increased the extent of the
premises demised or the term for which they were held.
* Editor’s note: Also reported at [1995] 2 EGLR 55
Mr Lewison argues, by analogy, that a deed of variation, the effect
of which is to make the rent payable quarterly in advance, instead of annually
in arrear, would not prevent the lease being the same one before and after the
variation. For the purposes of section 38(4), it should be treated as the same
lease. Mr Jourdan understandably submits that if the analogy is a good one, it
must involve an acceptance that a change in the extent of the premises demised
or the term for which they are held would make the lease a different one, a
submission that Mr Lewison is not prepared to accept. Mr Lewison submits that
he is concerned only to establish that the change in the present case, which
does not go either to the extent of the premises or the term, is immaterial.
The issue raised does, however, with respect, require the court to adopt a
principled approach to section 38(4). Mr Lewison’s submission as to the
principle governing the operation of the section is that the court giving
authority is not concerned with the fairness of the bargain or whether it is
fair to have an exclusion clause. The court is concerned only with whether
there is an informed consent to the exclusion of protection. As long as a
tenant knows that he is giving up protection with respect to the proposed
tenancy, the parties may thereafter agree such terms as they see fit.
Conclusion on section 38(4)(a)
I agree with Mr Lewison that the court hearing the joint
application is neither empowered nor entitled to consider the fairness of the
bargain, as such, that the parties propose to make. The subsection is not
intended to empower the court to dictate to the parties to a lease what the
terms of the lease should be. Had parliament intended, under section 38(4), a
court to investigate the fairness of bargains, a more specific and detailed
procedure would have been laid down. Such a procedure has been laid down, when
a protected tenant requests a new tenancy, in Part II of the Act, including
sections 33 to 35. I accept that the purpose of section 38(4)(a) is to
enable a court to satisfy itself that the prospective tenant
However, effect must be given to the words ‘in relation to that tenancy’ in the
subsection. Attractive though it may be, in terms of freedom of contract, to
limit the effect of the subsection in the manner advocated by Mr Lewison, I do
not consider that a section that provides that an agreement to waive protection
needs the sanction of the court gives a green light to a landlord to make
wholesale changes to the draft tenancy submitted to the court when approval was
sought. The words ‘that tenancy’ in section 38(4)(a) require its terms
to bear a substantial similarity to that before the court when authority was
given. In particular, changes material to the need for protection may nullify
the authority granted. For example, the length of the term would be a material
consideration in the case of a lease that contemplated substantial capital
expenditure by the tenant. A court authorising an agreement excluding
protection would be expected to make greater inquiry as to the proposed
tenant’s consent if the term is a short one than if the term is a long one, and
a change that substantially shortens the term would be material. A court may be
expected to satisfy itself that the prospective tenant knows what he is giving
up, and the extent of the inquiry will depend upon the terms proposed. It
follows that a change in the terms may be a relevant factor for the purposes of
section 38(4)(a).
I do not find the Friends Provident principle helpful to a
consideration of section 38(4), and Mr Lewison does not need to rely on it. In
my view, analysis of section 38(4) and its purpose need not involve
consideration of the distinction between when a lease is varied and when there
is a surrender and regrant.
Mr Jourdan frankly accepts that there is no merit in this tenant
being permitted to resile from an agreement freely made on the ground that the
draft lease before the court giving approval had the effect of inaccurately
providing for what the parties had agreed as to the dates on which rent was
payable. The fact that the draft before the court was in this respect different
from the terms of the lease does not invalidate the authorised agreement by
which the provisions of sections 24 to 28 were excluded. I would have reached
the same conclusion even had the agreement that rent was payable in advance
been made subsequent to the court approval. In the present context, that could
have had no bearing upon whether or not the court should grant authority. The
court is concerned with whether the tenant understands he is giving up
protection. Whether the rent is payable in advance or in arrears has, in
present circumstances, no bearing whatever upon that function.
Term of years certain
By a respondent’s notice, the tenant submits that the court had no
jurisdiction on 23 April 1993 to authorise the agreement because the tenancy
was not to be granted ‘for a term of years certain’. Reliance is placed upon
the admitted presence of a break clause or clauses in the lease.
There is no definition of the expression ‘term of years certain’ in
the interpretation section (section 69) of the 1954 Act. The researches of
counsel have not discovered any clear authority as to the meaning of the
expression at common law. Section 205(1)(xxvii) of the Law of Property Act 1925
provides that a ‘term of years absolute’ means ‘a term of years… either certain
or liable to determination by notice, re-entry, operation of law, or by a
provision for cesser on redemption, or in any other event (other than the
dropping of a life, or the determination of a determinable life interest);…’.
While the definition does distinguish ‘certain’ from ‘liable to determination
by notice’, it does not appear to me to throw light on the meaning of the
expression in the 1954 Act, of which it is a creature.
Mr Jourdan accepts it is clear that in other sections in the 1954
Act a ‘term of years certain’ does include leases subject to break clauses.
However, he submits that it should bear a different meaning in section 38(4)
because of the legislative purpose of that subsection. It seeks to prevent the
withdrawal of protection in cases where the tenant does not know, in advance,
the period during which he would be guaranteed the right to remain in the
property, provided he paid the rent and performed his obligations. The
principle of consistency should not be permitted to subvert the policy of the
subsection. Parliamentary draftsmen do sometimes make mistakes: see R v Lynsey
[1995] 3 All ER 654. Parliament cannot have intended that protection was
capable of being given up when, by reason of a break clause, there could be an
early termination of a lease, and termination at a time impossible to predict.
In section 38(4) the expression meant a fixed term.
Reference was made to Scholl Manufacturing Co Ltd v Clifton
(Slim-Line) Ltd [1967] Ch 41. The case turned on whether a landlord could
exercise a right to break a lease by serving a notice under section 25 of the
Act (Termination of tenancy by the landlord), and the present point did not
arise for decision. In a recital of facts at the beginning of his judgment,
Harman LJ referred to the date of expiry of the lease and added that ‘this,
however, was not a term certain because’ of the break clause. In his judgment,
at p49C Diplock LJ stated:
Under the common law, apart from surrender or forfeiture, a
tenancy may come to an end by effluxion of time, if for a term of years
certain, or by notice given by the tenant to the landlord or by the landlord to
the tenant, if a periodic tenancy, or a tenancy for a term of years certain
subject to a break clause.
Winn LJ agreed with both judgments, but added that, had there been
any need, he would have tried to deal with the matter ‘on the same lines as
Diplock LJ has followed and to have expressed the same views as those he has expressed’.
Mr Lewison relies upon the speech of Lord Templeman in Prudential
Assurance Co Ltd v London Residuary Body [1992] 2 AC 386*. It was
concerned with a memorandum of agreement, which provided that ‘the tenancy
shall continue until the… land is required by the Council for the purpose of
the widening of’ the highway. The lease purportedly created under that
memorandum, being for an uncertain period, was void possession, and the land
was held on a yearly tenancy created by virtue of the tenant’s and payment of
yearly rent.
* Editor’s note: Also reported at [1992] 2 EGLR 56
Lord Templeman referred to section 1(1) of the Validation of War-time
Leases Act 1944, which provided that an agreement that purported to grant a
tenancy for the duration of the war ‘shall have effect as if granted or
provided for the grant of a tenancy for a term of 10 years, subject to a right
exercisable either by the landlord or the tenant to determine the tenancy, if
the war ends before the expiration of that term, by at least one month’s notice
in writing given after the end of the war;…’. Lord Templeman stated that
parliament had granted ‘the fixed and certain term which the agreements between
the parties lacked in the case of tenancies for the duration of the war’. Lord
Templeman added at p395A:
A lease can be made for five years subject to the tenant’s right
to determine if the war ends before the expiry of five years. A lease can be
made from year to year subject to a fetter on the right of the landlord to
determine the lease before the expiry of five years unless the war ends. Both
leases are valid because they create a determinable certain term of five years.
I accept the reservations of Mr Jourdan, first, that Lord Templeman
uses the expression ‘certain term of five years’ and not ‘term of years
certain’, and, second, the submission on the policy of section 38(4), but both
Lord Templeman in Prudential and Diplock LJ in Scholl find no
inconsistency between the certainty of a term and the presence in the lease of
a break clause. If Harman LJ in Scholl was using the expression ‘term
certain’ as a term of art, I would respectfully prefer the opinion of Diplock
LJ.
In my judgment, the presence of a break clause does not prevent the
term being a term of years certain for the purposes of section 38(4) of the
Act. The term must be construed in the context of the Act. Section 69(1)
defines ‘notice to quit’ as meaning a notice to terminate a tenancy (whether a
periodical tenancy or a tenancy for a term of years certain) given in
accordance with the provisions (whether express or implied) of that tenancy. In
the context of a term of years certain, the only notice to quit that can be
given is a notice exercising a right to break. The statutory meaning of notice
to quit covers a notice exercising a break clause and clearly contemplates that
a fixed term tenancy determinable
Jourdan accepts, the expression ‘term of years certain’ must include a tenancy
subject to break clauses in other sections of the Act: sections 24(3), 26(1),
27(1), 27(2) and 33. There is a strong presumption that it bears the same
meaning in section 38(4) of the Act. That meaning is consistent with the use of
the word ‘certain’ in the other cases to which I have referred. That sense is
not, in my judgment, proscribed by assigning to the subsection a statutory
purpose that, in my judgment, cannot be assumed.
Mr Jourdan also referred to Garston v Scottish Widows
Fund & Life Assurance Society [1998] 3 All ER 596*. That case turned
upon the construction of the proviso to section 26(2) of the Act (Tenant’s
request for a new tenancy) and whether the proviso contemplates ‘one relevant
date only in respect of a given tenancy’. It was held that it did, and that the
relevant date in the case of a lease for a term of years was the date on which
the lease would have come to an end by effluxion of time. The right to request
a new tenancy when the tenancy ‘could be brought to an end by notice to quit
given by the tenant’ was held not to apply to a lease for a term of years. That
is not inconsistent with a lease containing a break clause being for a term of
years certain.
* Editor’s note: Also reported at [1998] 2 EGLR 73
Construction of lease
Mr Jourdan makes the further submission that, on its true
construction, the lease created a term of five years and thereafter from year
to year, and, as such, was not for a term of years certain. The landlord
contends that the lease created a fixed term of five years commencing on 23
April 1993 and ending on 22 April 1998. The habendum provides:
To hold the same unto the tenant for the term of five years
commencing on 23rd day of April one thousand and ninety three (‘the Term’) and
thereafter determinable by six months prior written notice on the part of the
landlord taking effect at any time after 1st June 1995 as hereinafter provided…
Clause 4(5) provides:
The landlord or the tenant shall be entitled to determine the term
hereby granted by giving to the other party hereto not less than six months
notice in writing expiring at any time after 25th December 1994 whereupon this
lease shall absolutely determine but without prejudice to any claim that the
parties hereto may have in respect of any antecedent debt or obligation.
Mr Jourdan submits that if the landlord had a right under clause
4(5) to determine the term on six months’ notice, taking effect at any time
after 25 December 1994, he would not need a separate right to determine the
term on six months’ notice taking effect at any time after 1 June 1995. On that
footing, the clause 1 right would be otiose. If the lease did create a tenancy
for five years and thereafter from year to year, it was not for a ‘term of
years certain’: see Nicholls v Kinsey (1994) 69 P&CR 438†.
† Editor’s note: Also reported at [1994] 1 EGLR 131
Given that an ambiguity must be construed in the tenant’s favour (Dickinson
v St Aubyn [1944] 1 All ER 370), it is submitted that the landlord’s
right in clause 1 should be construed as applying after the expiry of the term
of five years, with the tenancy continuing as a yearly tenancy unless and until
terminated by notice to quit. The word ‘thereafter’ in clause 1 means after the
expiry of ‘the term of five years’.
I do not accept that submission. The court must try to give effect
to the intention of the parties as expressed in the lease. Clause 1
contemplates written notice being given after 1 June 1995, which is well within
the five-year term. That being so, the word ‘thereafter’ refers not to a time
after the term of five years, but a date after 23 April 1993. The presence of a
separate right to terminate in clause 4(5) does not go to defeat that
construction.
In my judgment, the judge was correct upon the two points raised in
the respondent’s notice, and his conclusion that the tenant enjoyed the
protection of sections 24 to 28 of the 1954 Act cannot be upheld on the grounds
raised in the respondent’s notice. For the reasons given earlier in this
judgment, however, I would allow the appeal and hold that the lease expired by
effluxion of time on 22 April 1998 and that the landlord is entitled to
possession.
MUMMERY LJ and
SIR RONALD WATERHOUSE
agreed and did not add anything.
Appeal allowed.
