Leasehold Property (Repairs) Act 1938 — Claim to forfeit tenancy — Appeal by tenants from master’s decision allowing plaintiff landlords leave to take proceedings for the forfeiture of lease by reason of breaches of covenant — The lease in question was for a term of 99 years from July 1 1950 — The subject-matter was land on which there had been an operating dry dock but its present state was one of total dilapidation, an abandoned dry dock now in a deplorable state — The rent had been fixed from 1965 at the sum of £4,000 per annum, payable at that sum into the middle of the next century — The lease contained covenants by the tenants to keep in good order and to use as a dry dock only, and there were extensive repairing covenants — The plaintiffs had served on the defendant tenants a far-reaching schedule of dilapidations, which quantified the cost of making good the dilapidations at £270,000 and the cost of making good and restoring plant and equipment at £342,000
circumstances the master decided that leave to proceed should be granted, the
plaintiffs having satisfied the lowly standards of proof which applied: Land
Securities plc v Receiver for the Metropolitan Police District [1983] 1 WLR 439, per
Sir Robert Megarry V-C at p 445 — On this basis the plaintiffs had proved,
pursuant to section 1(5) of the 1938 Act, that the immediate remedying of the
breaches was requisite for preventing substantial diminution in the value of
the reversion and also that the value of the reversion had been substantially diminished
was argued by the appellant tenants that no substantial diminution of the
landlords’ reversion could be proved — The reversion did not come into
possession until the year 2049 and the buildings, which were of no value today
for the purpose of the dry dock business, would be of no value in 2049 — These
arguments were rejected by Harman J — It did not follow that the buildings
would be of no value to the landlords at the time when the lease expired; and
they were entitled to have the buildings maintained under covenant so that they
did not fall down — It was sufficient that the plaintiffs had made a good
arguable case and it was not the function of the judge to evaluate any
rebutting evidence put forward by the defendants — Finally, the court had to
decide whether to exercise its discretion by granting leave to issue a writ —
In the present case the discretion should plainly be exercised in favour of the
plaintiffs — The court was dealing not with the small tenants who needed the
protection mentioned by Goddard LJ (as he then was) in National Real Estate
& Finance Co Ltd v Hassan but with two substantial companies well able to conduct
litigation, one of whom, the defendant company, appeared prima facie to have
extensively broken its contractual obligations — It was not satisfactory to
leave the plaintiffs to sue for damages; they should be given the chance of
relief by forfeiture — Appeal from master dismissed
The following
cases are referred to in this report.
Land
Securities plc v Receiver for the Metropolitan
Police District [1983] 1 WLR 439; [1983] 2 All ER 254; (1983) 46 P&CR
347; [1983] EGD 531; 267 EG 675
National
Real Estate & Finance Co Ltd v Hassan [1939]
2 KB 61
Palser
v Grinling [1948] AC 291; (1948) 64 TLR 2;
[1948] 1 All ER 1, HL
This was an
appeal, directed to be heard in open court, from a decision of Master
Cholmondeley Clarke, whereby he gave the plaintiffs, Associated British Ports,
leave to take proceedings for forfeiture, on the ground of breaches of
covenant, against the defendants, C H Bailey plc, in respect of land at Barry
Docks, South Wales.
Kim Lewison
(instructed by Le Brasseur, Davis & Sons, of Newport, Gwent) appeared on
behalf of the appellants (defendants); P Birts (instructed by R V Pearce,
solicitors’ department, Associated British Ports) represented the respondents
(plaintiffs).
Giving
judgment, HARMAN J said: I have before me an appeal against a decision of
Master Cholmondeley Clarke on May 6 this year, whereby he gave the plaintiff,
Associated British Ports, leave to take proceedings for enforcement of a right
of re-entry by reason of breaches of covenant in a lease. The appeal was
entered by notice of May 11 and comes on before me by my direction in open
court, since there seems to be nothing that is in any way confidential or
requires the matter to be heard in chambers and there is some little public
interest in it.
The plaintiff
seeks leave under the Leasehold Property (Repairs) Act 1938 to issue a writ by
reason of the fact that that Act requires leave to be obtained in almost all
cases affecting long leases. Originally the Act was intended, as that great
judge, then Goddard LJ, said in National Real Estate & Finance Co Ltd v
Hassan [1939] 2 KB 61 at p 78, to protect individuals against the
mischief of:
speculators
buying up small property in an indifferent state of repair, and then serving a
schedule of dilapidations upon the tenants, which the tenants cannot comply
with.
That general
mischief, which was well known, led inevitably to oppression of persons of
comparatively small means living in modest houses who had not the resources to
face an action for forfeiture in the courts (that was of course in 1939,
pre-legal aid) and who, if they had, would probably be unable in perhaps the
80th or 85th year of a 99-year lease of a small dwelling-house to finance the
quite extensive works of repair that might be necessary. These people were
living in such houses as their homes at ground rents which were modest and they
were oppressed by this method of conduct, which Parliament therefore legislated
to prevent.
As I think
unhappily, Parliament in 1954 extended that provision to affect all long
leases, and in the result I have before me today, on appeal from the master, an
application for leave to issue a writ by a very large public company, which
originated from a privatisation made some three or four years ago, against
another substantial public company, C H Bailey plc. The idea that either of
those is likely to or capable of oppressing the other by an action for forfeiture
has very little to do with any possible facts. It is a fiction that there is
any question of oppression here. Further, it is a case where the two parties,
or rather the predecessor of the plaintiff, the then British Transport
Commission, and the defendant, entered into a lease in 1955 (the lease was
dated February 15 1955) for a term of 99 years from July 1 1950. The lease
therefore does not expire until the middle of the next century, a time likely
to be beyond the knowledge of any of those persons present in this court today.
That
commercial lease was in terms which, it seems likely, have become totally
inappropriate to the operating of the enterprise on the premises let. The
premises let were a substantial area of land quantified as 26,040 square yards,
on which exists a dry dock which C H Bailey, then Ltd, had expanded at their
own expense to a minimum of 75-ft width. This dry dock was, as Mr Birts for the
plaintiffs submitted to me, obviously a desirable facility to have operating in
any port, because ships are the more likely to be directed to a particular
port, and thereby to provide docking fees and work for the dockers, if they can
also, if there be any repair needed, proceed on discharge of their cargo to
have the repairs done at once in a dry dock at the same port. Thus, plainly, it
was a desirable thing for the landlord to have a dock repair operation on the
land. The trouble is that the lease of the dock was granted for 99 years and,
as was normal in those days, at a rent which I think was a concession rent for
the first 10 years, having regard probably to works done by C H Bailey Ltd on
the land, but then was fixed from 1965, I think, until the middle of the next
century at the now magnificent sum of £4,000. That of course, thanks to the inflationary
efforts of all governments over the last 25 to 30 years, has become a wholly
derisory sum of money for a substantial commercial asset.
The covenants
in the lease are extensive and include a covenant by the tenant that they will:
maintain and
use the dry dock as and for the purpose of a dry dock only.
That covenant,
it is submitted to me by Mr Birts, has two parts: a covenant to maintain, that
is to keep in good order I believe would be a proper paraphrase, and, second,
to use as a dry dock only. That is not a positive user covenant but a negative
covenant restraining it from being used for any other purpose. There are also
extensive repairing covenants which Mr Lewison for the tenant took me through:
2(13), to repair and maintain in a state of full efficiency; 2(14), a painting
covenant; and 2(16), an obligation to do works of repair with liberty to the
landlord to do the works and charge the cost to the tenant if the works are not
done within a month of notice; and there is a proviso for re-entry in clause
3(1) in a usual form.
In fact the
evidence put in by the plaintiff shows graphically by a volume of some 48
photographs the state of the premises at the time when these proceedings were
begun. The whole place is in a state which one can only describe as of total
dilapidation. The perimeter fence has large holes in it; the buildings have
windows which are shattered or which have had the glass taken out and are
boarded up; the water downpipes have had the bottom sections removed, whether
by vandals tearing them off or otherwise I do not know, so that water from the
roofs, as far as it can get into the gutters at all, will run down the flank of
the building, thereby, I think any judge is entitled to say, causing serious
risk of rot, whether wet rot or dry rot, following; the roofs of the buildings
are in substantial degree invaded by plants; the walls of the buildings are
bulging and cracked at places; and the whole picture is one of abandoned docks.
It is a picture which is not unfamiliar to anybody who has been down to the
London docks in the last seven or eight years or who has visited the Liverpool
docks over the last seven to ten years, places effectively left to rot, unused,
it may well be unusable, and in a deplorable state.
The additional
feature in this particular case is that this lease contains, most surprisingly
and curiously, a second schedule of things which are demised which are
described as ‘the lessor’s fixtures, works, appliances and machinery’ and which
include items such as travelling steam cranes and hand travelling cranes and a
great many other matters — portable floodlight projectors, gangways, timber
shores, blocks, skips, marlinspikes and even, it was brought to my attention,
podger bars. None of these things are things which are normally demised, let
alone by a 99-year lease. When one notices, just incidentally, that the demised
chattels include a 10-gallon barrel of wire-dressing oil, one does begin to
wonder what the draftsman of this lease and this schedule thought he was doing.
How one would get back one’s 10-gallon barrel of wire-dressing oil in 99 years’
time I cannot conceive.
None the less,
that is the contract the parties chose to make and the evidence is, and is I
think really unchallenged, that a very substantial amount of those items
described as lessor’s fixtures and plant have been removed. It is said on
behalf of the tenant, and I suspect said truly, that the items were largely
obsolete. It is also said by Mr Lewison, and said correctly in law, that the
result of demising an iron block, which was designed to be capped with wood for
the support of a ship, for 99 years is to give the landlord merely the right to
have back the rusty old piece of iron 99 years later and that that is not a
very valuable right. The whole story is one of premises which effectively have
become industrially out of date and have not been used at all for a good many
years, at least 10, I think.
The landlord
in those circumstances served on the tenant an extensive schedule of dilapidations,
and the value of the work thereby alleged to be necessary is quantified in the
affidavit of Mr R E Takel, a chartered surveyor with a great many other
qualifications as well, but whose principal occupation until last year was
acting as estates surveyor for the South Wales area for the plaintiff and its
predecessors. He quantifies the value in para 13 as at October 1986, when he
was still the estates surveyor for the South Wales area, saying:
In October
1986 the broad estimate prepared by my department of costs for
restoring the missing items
those are
plant and equipment
was £342,000.
Thus it can be
seen that very serious amounts are alleged to be unexpended by the tenant in
breach of covenant.
The master, in
those circumstances, decided that the plaintiff had satisfied what Megarry V-C
described in Land Securities plc v Receiver for the Metropolitan
Police District [1983] 1 WLR 439, in the headnote at p 439 (G), as ‘the low
standard of proof required’. That enabled him to conclude that leave should be
granted because, to that low standard, he was satisfied that the landlord had
proved, pursuant to section 1(5) of the Act of 1938, that the immediate
remedying of the breach was requisite for preventing substantial diminution and
also that the value of the reversion had been substantially diminished.
That decision
Mr Lewison has challenged chiefly upon the argument that the circumstances
today are such that no substantial diminution of the landlord’s reversion can
be proved. Mr Lewison put in evidence a report by Mr P R Needham, a partner in
Gerald Eve & Co, a firm whose work in this field is of course extremely
well known in the courts. Mr Needham quantified the loss as of the order of
£3,600 and he quantified the value of the reversion as of the order of £40,000.
He thus provided Mr Lewison with the material to say that a proportion of 8% of
the value of the reversion or thereabouts (something well under 10%) was not
reasonably described, in the words of the statute, as establishing that the
value of the reversion ‘has been substantially diminished’. Mr Lewison
submitted that under 10% of a value could not be called a substantial part of
that value. He added that £4,000 was not today a substantial sum of money in
the context of this case. He referred without citing, as was correct, to such
cases as Palser v Grinling [1948] AC 291 and the long line of
authority about what furniture was sufficiently substantial to make premises
furnished premises when that question affected Rent Act protection and observed
to me, in my view as a correct summary, that on the whole the court had taken a
fraction of the order of 30% of a relevant value as being required to amount to
a substantial proportion of any relevant value. The rule is of course a rule of
thumb and Mr Lewison never tied himself precisely to any figures, quite
rightly; nor do I think he should, nor do I think the law requires it. But he
derived from that the proposition that a figure of something like 8% could not
amount to ‘substantial diminution’ in the value.
On the other
hand, Mr Lewison did not address much argument to the question whether the
immediate remedying of the breach was requisite for preventing substantial
diminution. The evidence before me, which was criticised by Mr Lewison on the
basis that the surveyor who swore it appeared to be more of a planning than a
valuation surveyor (a criticism which, with respect, I think is unjustified in
view of Mr Takel’s experience sworn to on oath), does have in addition the
positive evidence of the schedule of dilapidations, which is in no way
challenged at any point as to the requirement that the works are properly to be
done and needed within the covenants, and a volume of photographs which I have
already mentioned.
The schedule
of dilapidations contains a great many places where walls are said to be in
such poor repair that they need to be taken down to a very substantial extent,
and wholly rebuilt in one case, over considerable lengths. That evidence is not
challenged as to fact. As it seems to me, even if the present damage to the
landlord’s reversion is not very much in terms of money, if the buildings
themselves fall down, it must be a matter which would be likely to cause a substantial
diminution in the value of the reversion. Mr Lewison’s argument, following Mr
Needham’s report, was that since the landlord’s reversion does not happen until
2049 and since at that time, asserted Mr Needham, the buildings cannot possibly
be needed for any business then to be carried on on the premises, because the
buildings are not now suitable for a dry-dock business, therefore the buildings
were of no value to the landlord and would not be valuable to the reversion.
In my view
that is unsound. Nobody can tell what buildings will be necessary or desirable
or valuable for the purposes of some activity at a date so far remote as 65
years on. The assertion that one can today say that the buildings are not of
value for the purpose of the business may well be sound: the manner in which
the business is carried on may well have changed since this lease was granted
in 1955, so that the buildings today are not needed or useful. But it does not
follow that the buildings will not be valuable and useful to the landlord when
it recovers its reversion in normal course, and it is entitled to have the
premises maintained under the covenant 2(11) and to prevent the buildings
falling down, leaving it with the risk that C H Bailey plc, who no doubt today
are perfectly solvent, might by, let us say, 1999 have come into financial
difficulties, go into liquidation and be not good for any money to rebuild the
buildings, which may by then, very likely on this evidence, have all fallen
down. If that were so, then the landlord’s reversion, which might on the
hypothetical liquidation come to it in the year 2000, may very well become
substantially less valuable.
On that basis,
as it seems to me, the low standard of proof which is required is properly
satisfied in this case and I do not need to try to decide whether the evidence
of Mr Takel in chief, taken and considered as raising, as in my view it plainly
does, an arguable or a good arguable case, ought to be regarded as weakened by
the evidence on the other side, which is put in by Mr Needham, remembering that
the Vice-Chancellor in the Land Securities case asserted that the court
should not, on these interlocutory applications, attempt to ‘evaluate’ the
defendant’s evidence. I take that word to mean that the court should of course
look at it and read it, because it might be that it demonstrably proved that
the evidence given by the landlord in chief was wholly untrue or unfounded, and
thereby totally destroyed it. But if it becomes merely a matter of the
respective weights of the evidence, then, as it seems to me on the
Vice-Chancellor’s observation, that is not a matter which should be gone into
in deciding whether there is an arguable case. It is not a matter of how good
the evidence is one way or the other so that you have a balance; you have to
look at it and see whether the evidence in answer destroys the evidence in
chief. If it does not do that and you are not to evaluate it in detail, you
have to consider whether the evidence in chief leaves you still with a feeling
that there is a good arguable case. In my view, Mr Takel’s evidence does
establish a good arguable case, sufficient on the very low standard of proof
required to satisfy the test under section 1(5)(a) of the Act of 1938.
Once the
statutory test is satisfied, the court has to decide whether it should as an
exercise of discretion grant leave to issue a writ. In my view, when the result
of the exercise of discretion is merely to allow steps to be taken which may
lead to the grant of a remedy a ter proper proof of facts, there must be an
inclination in favour of the exercise. I agree with Mr Lewison when he observed
that discretionary powers must be exercised on a proper consideration of each
case. It is wrong to limit the exercise of any judicial discretion beyond saying
it must be exercised judicially.
None the less,
where there are two substantial companies well able to conduct litigation and a
clear contractual obligation by one which appears prima facie to have been
extensively broken, it is difficult to think of reasons why the other should
not be allowed to seek a remedy for the breach. Mr Lewison suggested that leave
to sue for damages would be enough to protect the plaintiff’s proper interest.
He also suggested that since the plaintiff had the right under clause 2(16) to
enter the dry dock, do the works of repair and then sue for the cost, it was
proper to leave it to its contractual remedy. I am of opinion that it would be
unjust to the plaintiff to refuse it the chance to recover by forfeiture. In my
view, the discretion should plainly in this case be exercised in favour of the
plaintiff.
For those
reasons I shall dismiss this appeal from the master and hear counsel on the
resulting order.
The appeal
was dismissed with costs. Leave given to plaintiff to bring proceedings as in
master’s order.
