Landlord and tenant — Contract for assignment of protected tenancy — Whether a sum of £40,000 represented an unlawful premium or (a) expenditure reasonably incurred by the assignor in carrying out structural alterations to the dwelling-house or in providing or improving landlord’s fixtures, plus (b) a reasonable price for articles of furniture — Whether section 120(3)(b) of the Rent Act 1977 applied — Whether an excessive price was required for furniture, contrary to section 123 of the 1977 Act — ‘Reasonable price’ for furniture as interpreted by Denning LJ in Eales v Dale — Case ‘very far from being a typical assignment of a protected tenancy’ — Flat an expensively furnished ‘place of beauty and luxury’, even if not to everyone’s taste — Judge held that the reasonable price for the furniture was £16,460 and that the costs recoverable under section 120(3)(b) made the total up to £40,000 — Hence the contract price passed the test of lawfulness — Action by plaintiff, the proposed assignee, who had challenged the lawfulness of the payment of £40,000 required by the contract, accordingly failed
In this action
Gerard Nock challenged the lawfulness of provisions in a contract for the
assignment to him by the defendant, Peter Munk, of the lease of a flat, No 8,
at 20 Lowndes Square, Westminster, London SW1. The dispute concerned the
payment of a sum of £40,000 stated in the contract to be in respect of
fixtures, fittings and other items and in respect of improvements to the flat
carried out by the defendant. The plaintiff claimed specific performance of the
contract at such price as should be determined to be lawful.
Nicholas
Patten (instructed by Halliwell Landau) appeared on behalf of the plaintiff; J
D Guthrie (instructed by Stallard & Co) represented the defendant.
Giving
judgment, DONALD NICHOLLS QC said: This action concerns a contract for the
assignment of a lease of a residential flat (which I shall call ‘the flat’)
known as Flat No 8, 20 Lowndes Square, Westminster. On July 30 1979 the Sun Life
Assurance Society Ltd granted to the defendant, Mr Peter Munk, a lease of the
flat for a term of seven years from Michaelmas 1979 at an annual rent of £5,000
for the first three years and £6,000 for the remainder of the term. In
addition, a service charge was payable. It is common ground that this lease is
a protected tenancy for Rent Act purposes. The defendant had, as I understand
it, gone into occupation of the flat some time in 1978, as the assignee of the
residue of the term of a previous seven-year lease, executed in October 1972
for a term of seven years from September 29 1972.
On September
19 1980, contracts were exchanged for the assignment of the flat by the
defendant to the plaintiff, Mr Gerard Nock. The contract provided for
completion to be four weeks later, on October 17 1980. Clause 2 was in these
terms:
Contemporaneously
with the said assignment and conditional thereon the assignor will sell and the
assignee shall purchase at a price of £40,000 the fixtures and fittings and
other items (hereafter called ‘fixtures’) set out in the inventory annexed
hereto. The payment of the said sum of £40,000 shall be also in consideration
of all improvements carried out by the assignor at the assignor’s expense on
the flat.
Clause 3
provided for payment of a deposit of £4,000 (which was duly made). Clause 7
incorporated the 19th edition of the National Conditions of Sale, with some
variations. The time fixed for completion on service of a notice to complete
was to be 14 days instead of the usual 28 days. National Condition no 7
provided that:
If the
purchase shall not be completed on the completion date
subject to
exceptions —
the purchaser
shall pay interest on the remainder of his purchase money at the prescribed
rate from that date until the purchase shall actually be completed.
The contract
provided that the prescribed rate of interest was to be 4% per annum above the
National Westminster Bank base rate from time to time.
Annexed to the
contract was an inventory in the form of two schedules. The first of these
listed a number of fixtures or fittings, such as carpets, curtains and mirrors.
The second listed furniture, such as tables, chairs and lamps. In this second
schedule each item had a figure in pounds set against it: the total of the sums
so listed was £9,210.
On October 14
1980 the plaintiff’s solicitors submitted requisitions. These were answered two
days later. A dispute arose between the two firms of solicitors on whether it
had been agreed on the telephone that completion would be postponed until October
27 because of the vendor’s inability to remove furniture not being sold by the
contractual date of completion.
On October 20
the draft assignment was sent to the vendor’s solicitors. This was returned
approved on October 24 and the vendor’s solicitors pressed for completion to
take place on October 27. Also on October 24 the purchaser’s solicitors wrote
asking for confirmation that the purchase price for the fixtures and
improvements should be apportioned as to £25,000 in consideration of improvements
carried out by the vendor and, as to the balance of £15,000, for fixtures and
fittings and other items. That apportionment put forward by the plaintiff’s
solicitors was later agreed by the defendant’s solicitors.
Completion did
not take place on October 27, and on October 29 the defendant’s solicitors
served on the plaintiff’s solicitors, by hand, a notice to complete in 14 days’
time, expiring, that is, on November 12. On November 12 the plaintiff’s
solicitors wrote drawing attention to the absence of an up-to-date completion
statement, the absence of agreement regarding the amount of retention for the
current period of service charge, and complaining of damage to the decorations
and fixtures in the flat. The letter continued, in a passage which foreshadowed
the present dispute:
Quite
irrespective of the above, it appears to us that the present value of the
furniture and the cost of improvements are less than the consideration under
the contract. For example, in one of the schedules attached to the contract,
consisting mainly, but not exclusively, of furniture, the value is given as
£9,210, whereas we understand it to be worth substantially less than this
figure. Accordingly, the consideration under the contract falls within Part X.
and I
interpolate that must be a slip for Part IX —
of the Rent
Act 1977, dealing with premium, and we would draw your attention to the fact
that where there is an illegal premium the service of a completion notice is in
itself an offence under section 120(1) of the Rent Act 1977.
Our client
would be prepared to complete at a figure which shall be found to be the proper
value of the improvements and chattels and we understand you are taking
instructions.
That was the
first mention of that particular matter.
The Rent Act
provisions which are relevant are these. Section 120(2) of the Rent Act 1977
provides that, subject to an immaterial exception:
. . . any
person who, in connection with the assignment of a protected tenancy, receives
any premium shall be guilty of an offence.
Subsection (3)
provides that:
Notwithstanding
anything in subsections (1) and (2) above, an assignor of a protected tenancy
of a dwelling-house may, if apart from this section he would be entitled to do
so, require the payment by the assignee, or receive from the assignee, a
payment
and then the
relevant paragraph is (b):
of a sum not
exceeding the amount of any expenditure reasonably incurred by the assignor in
carrying out any structural alteration of the dwelling-house or in providing or
improving fixtures therein, being fixtures which, as against the landlord, he
is not entitled to remove.
I should add
that subsection (1) of section 120 provides that, subject to the same
immaterial exception:
. . . any
person who, as a condition of the assignment of a protected tenancy, requires
the payment of any premium, or the making of any loan (whether secured or
unsecured) shall be guilty of an offence.
Section 123
provides that:
Where the
purchase of any furniture has been required as a condition of the grant,
renewal, continuance or assignment —
(a) of a protected tenancy
and I omit the
immaterial words —
then, if the
price exceeds the reasonable price of the furniture, the excess shall be
treated, for the purposes of this Part of this Act, as if it were premium
required to be paid as a condition of the grant, renewal, continuance or
assignment of the protected tenancy . . .
In section 128
furniture is defined as including fittings and other articles.
A writ
followed speedily upon the events that I have mentioned. It was issued on
November 20 1980 and in the statement of claim the plaintiff alleges that the
value of the fixtures specified in the inventory annexed to the contract is
said to be £9,210 but the reasonable price of the fixtures is only £2,744.50.
The statement of claim continues by not admitting that the amount of
expenditure reasonably incurred for any structural alterations of the flat, or
in providing or improving the fixtures and fittings specified in the schedule
to the contract, amounted to £40,000. The plaintiff then claims specific
performance of the contract at such a price as shall be determined to be
lawful.
In his defence
the defendant denies unlawfulness, alleges that the value of the fixtures
specified in the contract is £9,210 and sets out, as a contention the defendant
will make, that the expenditure was reasonably incurred by him at the flat in
carrying out structural alterations and in the provision of or improvement of
fixtures and fittings and that the amount of such expenditure exceeds £40,000.
In his
counterclaim the defendant seeks specific performance of the contract, with
interest in respect of the outstanding period since the date when completion
should have taken place, and damages.
Shortly
stated, therefore, the principal issue which arises for decision is whether,
first, the amount of any expenditure reasonably incurred by the defendant in
carrying out structural alterations to the flat or in providing or improving
landlord’s fixtures, plus, secondly, a sum equal to the reasonable price of the
furniture, equals or exceeds £40,000, as claimed by the defendant, or falls
short of that sum, as claimed by the plaintiff.
I turn to
consider the defendant’s acquisition of the flat and his expenditure on it and
its fixtures and furniture. In 1978 Mr Munk was the executive chairman of a
company, Southern Pacific Hotels Corporation, which owned and operated a number
of hotels in Australia and I think elsewhere. He spent much of his time
travelling overseas. Until her marriage his wife was a professional interior
decorator. Prior to the acquisition of the flat the Munks lived in London at an
address in Cheyne Walk. Mrs Munk had been responsible for the design and
decoration work there. So successful had this been that it had featured in the
journal Architectural Digest which, I was told, is the world’s
best-known architectural magazine.
As their
children grew up Mr and Mrs Munk decided to move their home out of London, to
Sussex. This they did. The Cheyne Walk house was sold and the flat was acquired
as a pied-a-terre for Mr and Mrs Munk in London. When they acquired the
flat they had no intention or expectation of ever selling it. They understood
that there would be no difficulty in obtaining renewals of their tenancy
periodically, albeit at increased rentals.
It is clear
that, influenced perhaps by the success of her work in Cheyne Walk, Mrs Munk
set herself the task of turning the flat into a place of beauty and luxury. The
flat, she says, was very shabby and had not been touched for years. In July
1978 Mr Gibson, an architect who acted for the Munks in the work carried out at
the flat between about February and August 1978, described the state of the
flat when the Munks acquired it:
Prior to the
commencement of the contract in February 1978 the lay-out of the flat consisted
of living-room, dining-room, three bedrooms with fitted cupboards, two
bathrooms, kitchen with built-in fittings and equipment, cloakroom and
circulation area with fitted cupboards and airing cupboard. The lay-out and
decorations of the flat were exactly as built, and the general condition was
shabby through age.
So the Munks
were able to start from scratch, Mrs Munk having as her aim the conversion of
the flat into, in her own words, ‘a beautiful, glorious hotel suite with an
extra bedroom’ (for the children, should they come to London, or, no doubt, a
guest or guests).
Under the
supervision of Mr Gibson substantial reconstruction work took place. The
principal structural alterations were: increasing the size of the living-room
by incorporating into it the dining-room and partially incorporating therewith
the entrance hall; increasing the size of the main bedroom, and making the
approach to it through the living-room; and combining the bathroom with one of
the existing bedrooms to make a large bathroom-cum-dressing-room.
Thereafter, as
the builders left, Mrs Munk, so to speak, moved in to design and supervise the
furnishings and fittings. When the flat was put on the market in 1980 it was
described in the estate agent’s particulars as undoubtedly one of the most
beautifully decorated apartments in London, and from the oral evidence and the
photographic evidence I have seen I am satisfied that this was one occasion
when estate agents’ hyperbole did not constitute a misrepresentation. Mrs Munk
said that, to her, this was the best job she had done. Her whole heart had gone
into it, and because the flat was small she could be very fussy. Mr Munk said
it was a labour of love. Both Mr and Mrs Munk gave evidence that they never
imagined that they would sell the flat Mrs Munk added that had she so imagined,
she would not have taken the trouble she did — for example, on bringing fabrics
for it back to the United Kingdom from abroad.
The flat, as
it finally emerged, comprised an entrance hall with suede panelled walls,
smoked-glass mirrors and recessed lighting; and a reception room 24ft 6in x
21ft, with panelled walls, raw silk draped curtains, a stainless-steel working
fireplace and two illuminated display alcoves. From this, double-mirrored doors
led to the principal bedroom, 17ft x 13ft 6in, which had fabric-lined walls
with matching draped curtains, canopied bed, double-mirrored alcoves and an
air-conditioning unit. Leading out of this was a bathroom-cum-dressing-room
(16ft 3 in x 13ft 6 in) with fully-fitted illuminated fabric-lined cupboards,
with hand-painted oriental panels on the doors, fabric-panelled walls, a
lowered ceiling, a sunken bath with marble surround, mirrored walls and
ceiling, and a marble-topped vanitory unit, with mirrored cupboards. Leading
out of the hall was the fitted kitchen-breakfast room, on the far side of which
was the second bedroom — the pink bedroom — with its own adjoining small
hallway and bathroom — the pink bathroom — which had a sunken bath with marble
surround. Finally, also leading from the hall, was a guest cloakroom — the
black powder-room — with taffeta-lined walls and canopied ceiling with two
crystal chandeliers.
When the Munks
carried out their work at the flat they never imagined that they would ever
have to prove, or even less, justify, their expenditure. So understandably —
and I am satisfied on this — they do not now have all their records covering
their expenditure. On this, an additional complication was that the group of
companies of which Mr Munk was a senior officer operated a system by which a
United Kingdom service company, Southern Pacific Properties (United Kingdom)
Ltd, a member of the group, with an office in Sloane Street, met the outgoings
and expenses of the group’s directors in this country when they were abroad.
The group was reconstructed and it closed down its United Kingdom operation
entirely in August 1979. (It was — looking ahead in the history — this event
which unexpectedly led to the Munks leaving this country and moving to Canada,
and accordingly selling their house in Sussex and the flat in London in the
summer of 1980.) In the group reconstruction
and emigration from the United Kingdom invoices and other documents held by the
United Kingdom company and not thought to be of any consequence were destroyed.
Before turning
to the items in dispute I should mention briefly the marketing of the flat in
1980. The evidence of the estate agent, Mr Langton, of Aylesford & Co, was
that when the flat was put on the market at an asking price of £80,000, ‘people
poured’ over it. The amount of interest shown, he said, was ‘quite
extraordinary’, and people kept returning and returning. No doubt some of those
who visited it did so out of curiosity only, but I am in no doubt that there
was very considerable genuine interest in acquiring this property. Mr
Langton’s firm received a ‘multitude’ of offers. They came in weekly, usually
at prices between £50,000 and £60,000.
On September 8
1980, before contracts were exchanged with Mr Nock, Mr Langton wrote to Mr
Munk’s solicitors and referred to three existing offers. The first was for
£40,000 from Mr Nock, the second for £55,000 and the third for £60,000. Mr
Langton could not remember why the second and third offers were not proceeded
with. Mr Langton knew Mr Nock as a solicitor who had instructed his firm in the
past, and he told Mr Munk that he recommended Mr Nock because he was a
solicitor. Mr Nock had said that £40,000 was his final offer, and that if it
was accepted he could move to completion very quickly.
I turn now to
the defendant’s expenditure on improvements to the flat. The evidence, partly
oral but mostly documentary, shows the following payments on items which
(subject to what I shall say) the parties are agreed fall within section
120(3)(b) of the Rent Act 1977: the builder, including electrical and plumbing
work, £10,380; the painter, £500 approximately; Ansafone, £150; Homeworks
(Furnishing) Ltd, for mirrors, £1,925; Bolton Glass Co, £881 less £120 for
replaced items, £761; the bathroom and cloakroom fittings, £734 plus £284, less
£77 for items not sold with the flat, making a total of £941; marble, £449;
air-conditioning unit, £1,070; repositioning of radiators and the gas meter,
£297; gas log-fire — estimated — £290; and the architect, for design and
supervision work, £1,570; making a total of £18,333. In addition, Peter Jones
of Sloane Square were paid approximately £2,043 for kitchen fittings and
appliances. Of this sum, the electric oven, £185; hob, £136; and
fridge/freezer, £154, are not landlord’s fixtures; and the washing machine,
£189, was not left in the flat. These items to be deducted total £664, leaving
a balance of £1,389.
For the
plaintiff, Mr Patton submitted that the painter’s bill should be disallowed. He
said that although painting a landlord’s fixture, such as a door, comes within
section 120(3)(b) as improving a landlord’s fixture, the walls and ceilings are
not fixtures, and he referred me to the decision of the Court of Appeal in Boswell
v Crucible Steel Co [1925] 1 KB 119. On this I accept Mr Guthrie’s
submission that when, as here, structural alterations are undertaken, the cost
of these alterations must embrace the cost of making good, including painting.
The only other
disputed item concerns mirrors. For the plaintiff it was claimed that £400 of
the builder’s costs was for ‘mirrors’, and that this must duplicate in part the
other mirrorwork bill. I am not persuaded, on looking at the bills and the
detailed breakdown of the builder’s final account, that there was any such
duplication.
I turn next,
still under section 120(3)(b), to the fabric supplied and fitted to the walls
and one ceiling of the flat. The parties are agreed that these fall under
section 120 and not section 123. The work was done by Mr Leonard Carter and
from his detailed bill the following items can be extracted as his charge for
the work done to the walls and ceiling, together with the supply of minor items
of materials, such as braid: the pink bedroom, £231; the small hallway, £146;
the pink bathroom, £38; the main bedroom, £427; the main bathroom, £281; the
entrance hall, £238; and the black powder-room, £303; total £1,664. The suede
fabric used in the entrance hall, supplied by Bosanquet Ives Ltd, cost £738.
The material used in the black powder-room was bought by Mrs Munk from John
Lewis at a cost of £10 to £12 per yard, so on this item the sum of £456 for
material, as calculated by the defendant’s expert, Mr W J Davies, a chartered
surveyor, is roughly right. The cost of the silk and other materials used in
the other rooms cannot be identified with precision because the same materials
were used in part for curtains, which are not landlord’s fixtures. Mr Davies’
estimate of the value of these materials was £1,093, made up as follows: main
bedroom, £480; the main bathroom, £240; the pink bedroom, £813; small hallway,
£100; and the pink bathroom, £90; a total of £1,093.
This estimate
exceeds the actual cost incurred in buying the material, for this reason. Mrs
Munk’s father is Mr Bosanquet, of Bosanquet Ives Ltd, of Sloane Square, which
supplied the trade but not the public with top-quality, custom-made carpets. In
this instance that company supplied curtain and other fabrics to the Munks and
the price charged was the factory price; that is, Bosanquet Ives Ltd charged
the Munks the same price as Bosanquet Ives Ltd was charged by the
manufacturers. Thus the Munks obtained the substantial advantage of eliminating
entirely both the wholesaler’s as well as the retailer’s mark-up on fabrics
(the bulk of those used in the flat were bought in this way) and all the
carpeting. Thus Mr Davies’ figure of £1,093 has to be scaled down accordingly.
I think that £700 is a rough approximation — and it can be no more than that —
of the cost actually incurred by the Munks in acquiring the fabric in question.
Thus the costs
within section 120(3)(b) add up to £23,280, as follows: the builder’s and other
work already detailed, £18,333; kitchen fittings, £1,389; work to the walls and
ceilings, £1,664; suede, £738; black powder-room material, £456; other
materials, say £700; making a sub-total of £3,558 and an overall total of
£23,280.
In his written
report the plaintiff’s expert, Mr P H Flax, a chartered surveyor, the sole
principal of Dominic Hart & Co, was critical of some of the expenditure.
After referring to counsel’s advice that under section 120 the amount
recoverable was limited to what was reasonably expended — ie not an
extortionate price for the work — he said that the cost of some of the items
was ‘exorbitant’. He added:
Our overall
impression is that the work was undertaken and carried out with little or no
consideration to expense or value for money.
In the end,
this attack on the amount of the expenses actually incurred under section 120
was not seriously pressed, and I am satisfied that the costs incurred were
reasonable for the work done and materials supplied.
A more general
attack on the section 120(3)(b) claim was based on the method of payment of Mr
Munk’s bills. Many of the bills were paid by the United Kingdom service company
in the Southern Pacific Hotels group. I have already mentioned that the
practice was that when directors of companies in the group were abroad, this
company paid their local outgoings and expenses. Mr Munk said that monthly or
quarterly payments so made were debited to his own account or against his
salary, and that the payment for the works and expenses in the present case was
entirely his responsibility. Evidence from a partner in Coopers & Lybrand,
the auditors of the United Kingdom service company, was to the effect that the
sums paid by the United Kingdom company were refunded by the holding company and,
so he understood, at the year-end the executive in question was voted a salary
by the holding company which included the amount of the sums paid out on his
behalf by the United Kingdom service company.
Due, it seems,
to a misunderstanding, no discovery was made of Mr Munk’s personal account. Mr
Patton submitted that on this evidence Mr Munk never had to put his hand into
his pocket to meet these expenses, and the award retrospectively of salary to
cover it did not have the effect of the expenditure becoming expenditure
incurred by Mr Munk.
I cannot
accept this argument. The payment to Mr Munk by his employer retrospectively of
remuneration in a sum covering the amount of costs, being costs incurred on
work put in hand by Mr Munk on his own account, and for the payment of which he
was responsible to the tradesmen and professional men in question, does not
seem to me to deprive those costs of their character of expenditure incurred by
Mr Munk in carrying out the work. Accordingly, in my judgment the amount of the
expenditure reasonably incurred by Mr Munk on work within section 120(3)(b) was
£23,280, or thereabouts.
I come now to
the items sold which fall within section 123. I start with the items listed in
the second of the schedules annexed to the contract. I shall call these the
‘second schedule items’. There were some 30 of these listed with values
attributed to them individually. The source of these figures was Mrs Munk. The
items range in attributed value from £1,000 for a set of six Chinese screens on
cupboard doors and the like sum for a pair of matching grey 5ft sofas, down to
some small bathroom items of £15 and £25. Apart from one item (which he valued
as an antique, which it is not) Mr Davies’ valuation broadly confirmed the
prices stated in the contract schedule, but on this I think there is force in
Mr Patton’s submission that in making his valuation of some of the items Mr
Davies relied heavily, though not, I think, exclusively, on the figures
appearing in
was £2,774.
I do not
propose to go through this schedule item by item, comparing the conflicting
figures. The differences can be highlighted by a few instances.
First, the bed
and matching silk cushions in the main bedroom. The contract schedule figure
for these was £1,600. Mr Flax’s figure was £400. The bed is a four-poster bed
with bedhead, heavily draped. The cost of the mattress and base in 1978 was not
in evidence. The equivalent cost today would be £1,340. The silk used in the
curtains, the valance and base cover was brought from Egypt. I was given no
figure regarding its cost. The charge for dyeing this material was about £250.
Mr Carter’s making-up work cost £614. And for her applique work on the silk
bedspread, described by Mr Davies as extremely intricate and a work of art in
itself, Teresa Noble charged £150, and for her work on the cushions she charged
£32.
Next, the Bang
& Olufsen stereo unit in the sitting-room. This was bought for about £600
to £700 and it had fitted concealed speakers on either side of the fireplace.
The contract schedule price was £400. Mr Flax’s valuation of this item, in
situ, having belonged to one owner, was £70, although under questioning he
was prepared to add a further £50 for the speakers.
I turn to some
of the tables, also in the sitting-room. Two of these were described in the
contract schedule as square, grey, lacquered side-tables with smoke-mirrored
inlaid tops. The contract schedule figure was £400; Mr Flax’s, £150. These tables
were specially made by Nigel Carew-Jones and Suzy Motley to match the carpet,
at a price of about £540. A glass coffee table on a grey concrete base was
bought from Homeworks (Furnishings) Ltd at a price of £451 (and in respect of
this, as well as other items supplied by Homeworks, because of her trade
connection and in the hope that favourable publicity would be generated by Mrs
Munk’s work in the flat, Mrs Munk was charged by Homeworks very favourable
trade prices). The contract schedule priced this table at £400; Mr Flax at £35.
A matching concrete-based glass drinks table, made by Homeworks at a price of
about £440, was priced in the contract schedule at £450; it was valued by Mr
Flax at £110.
I mention a
pair of matching grey sofas and a matching chair with footstool. The contract
schedule price for the sofas was £1,000 and for the chair and stool £450. Mr
Flax’s corresponding figures were £225 and £100. Mr Davies’ estimates were £818
and £305 respectively. The herringbone check fabric with which these items were
covered was supplied by Mr Bosanquet’s company (at factory prices) for £586;
and Mr Carter’s charge for making the sofas, chair and stool was £715, making a
total of £1,301.
Next, the
carpeting. The price paid for this in the autumn of 1978, bought at factory
cost price from Bosanquet Ives Ltd, was £2,775, including laying charges of
about £475. Mr Bosanquet’s evidence, which I accept, was that in 1978, for this
material and work, his company’s charge to the trade would have been £3,329,
and his company’s recommended retail price would have been £4,737. He said that
between 1978 and 1980 carpet costs rose dramatically, and in June 1980 his
company’s recommended retail price for the same material and work would have
been £7,730. Mr Davies described the carpet as 100% wool with a deep pile, of a
quality not generally seen. His estimate of the cost of replacing the carpet at
the date of the contract was £4,637.
Finally, the
curtains and blinds. Mr Carter’s charges for making these amounted to £2,277,
as follows: pink bedroom, £270; small hallway, £98; pink bathroom, £58; main
bedroom, £367; main bathroom, £93; living-room, £958; supply of linings, less
£70, £331; fixing track and hanging curtains, £102. The materials supplied by
Bosanquet Ives cost altogether £1,680. Deducting the estimated £700 worth used
for lining the walls leaves a balance of £980. From this there has also to be
deducted a small sum for the material used for the bed covers and bedheads and
table frills in the pink bedroom. There should be added the cost of the curtain
materials for the living-room curtains, brought from Hong Kong by Mrs Munk at a
cost of about £500. Thus, subject to the deduction for the material just
mentioned, the original cost of the curtains and blinds was £3,757, or
thereabouts. For the plaintiff, Mr Flax’s valuation of the curtains, blinds and
carpet together was £3,250.
Under section
123 it is the price in excess of the reasonable price of furniture which is to
be treated as a premium. What is meant by ‘the reasonable price’? The classic exposition of this expression in
the earlier legislation, which was in identical terms, is to be found in the
judgment of Denning LJ, as he then was, in Eales v Dale [1954] 1
QB 539. At p 548 he said this:
The
reasonable price ‘within section 3 of the Act of 1949 means, I think, the price
which is reasonable between the parties for the articles as they are, fitted
and situate in the premises, without regard to extraneous circumstances, such
as the desire of the tenant to obtain a tenancy. It is not the price which
would be realised if the articles were removed from the premises and sold in an
auction room. It is the price which would reasonably be expected to be agreed
between an incoming tenant who was ready to take the articles over and an
outgoing tenant who was ready to leave them there. In applying that test, so
far as the incoming tenant is concerned, he would no doubt have regard to the
cost to which he would be put if he had to buy the articles and fix them in the
premises himself, making, of course, an allowance for depreciation. So far as
the outgoing tenant is concerned, he would have regard to the fact that if he
had to take them out, they would fetch very little. It is obvious that, as
between a willing outgoing tenant and a willing incoming tenant, there is room
for a great deal of latitude in the ascertainment of the figure: but if the
price put on the articles was more than the replacement cost, that could not be
a ‘reasonable’ price.
In applying
that test to the facts of this case there are some factors to be borne in mind.
First, although it seems to be the current policy of the present landlord, the
Sun Life Assurance Society, to renew the tenancies of satisfactory tenants, the
contractual tenancy being assigned will expire in September 1986, and thus it
had six years to run when contracts were exchanged. There was, and is, no
certainty that the assignee would or will be able to continue to enjoy the
purchased furniture and fittings for more than a few years.
Secondly, I
have already mentioned that in the second schedule to the contract each listed
item had a price ascribed to it, this being the figure supplied to the agents
by Mrs Munk as her view of their approximate value. For Mr Nock it was pointed
out that he was told by the estate agents at some stage — it may have been
after Mr Nock had raised the premium objection through his solicitors in
November 1980 — that about £70,000 had been spent on the flat in fitting it
out, and that we do not know whether Mr Nock ever agreed to the values
attributed to the items in the second schedule. This is so, but Mr Nock has
chosen to give no evidence. He is a practising solicitor, and a separate firm
of solicitors was acting for him in this transaction. I can see no reason for
not concluding that the figures in the second schedule were the figures agreed
by the parties as the reasonable price for this furniture.
Thirdly, this
sale was very far from being a typical assignment of a protected tenancy. This
was not a case of an assignee having to be persuaded or induced into buying the
furniture by being offered it at a price sufficiently low for him to prefer to
acquire these secondhand items in situ rather than go out and seek new
items for himself. The buyers in this case, I am satisfied, were, or were
predominantly, persons whose interest in the flat was founded and held by the
presence there of this furniture and the other fittings and fixtures purchased
by the Munks. They were the attraction. It was because of them, their quality,
the craftsmanship of the fitting out, the blending and contrasting of colours
and fabrics on the walls and floors, and the whole overall effect, that
would-be purchasers were drawn to the flat. Would-be purchasers must have
shared Mrs Munk’s taste and they wanted these items there in situ, in
the flat. As Mr Guthrie put it, if a purchaser had been asked why he was paying
£40,000 he would have replied, ‘Go and see the flat and then you will
understand.’ So in my view this was a
case where the items in the flat were particularly desirable to would-be
assignees, as the professionally selected furnishings and fittings which made
this flat ready for immediate occupation. Again, I can see no reason for
thinking that Mr Nock was not of this view.
Fourthly, on
the condition of the furniture and fixtures in the flat, I am satisfied that
they were as good as new, save to the extent that they had been in the flat for
two years. Mrs Munk’s calculation was that the flat had been slept in for not
more than 60 nights during the two years, and clearly she and her husband took
great pride in and, I have no doubt, care of their possessions. But having been
in the flat for two years, much, if not all, of the initial freshness of
carpets and curtains inevitably had gone.
Taking all
these matters into account, I have no hesitation in deciding that the sum of
£9,210 was the reasonable price for the furniture in the second schedule. In my
view, Mr Flax, in making his valuation, set far too little store by the second
and third of the factors which I have just mentioned.
I turn next to
the kitchen electrical appliances. The electric oven, hob and fridge/freezer
cost £475 and the drying machine, also included in the sale, cost £60. I think
the reasonable price for these, in all the circumstances, was £250.
This leaves
the carpeting and curtains. In my view, in the somewhat unusual circumstances
that I have already described, the reasonable price for the carpeting in this
luxury flat at the date of the contract was about £4,250, and for the curtains
and blinds about £2,750.
Thus the total
of the reasonable price for the furniture is £16,460, made up of £9,210 for the
second schedule items, £250 for the kitchen and electrical appliances, and
£7,000 for the carpets, curtains and blinds. When added to the costs
recoverable under section 120(3)(b) the aggregate is £39,740. This is still
short of the £40,000 payable under the contract. In my view, however, this
shortfall is covered by the reasonable price for the two chandeliers and the
blinds in the black powder-room, and the probable amount of the costs
reasonably incurred in the installation of the burglar alarm, items on which I
have heard no direct evidence.
In my
judgment, therefore, the contract price passes the test of lawfulness, albeit
by a very slender margin. It follows that there will be an order for specific
performance of the contract by the plaintiff. Interest will be payable at the
rate prescribed by the contract from October 27 1980, which I think is the
right date in the circumstances, until completion. In addition, the plaintiff
is liable to the defendant for damages suffered by reason of the plaintiff’s
delay in completion in breach of the contract, the damage suffered being the
amount of the rent and other outgoings payable by the defendant since October
27 1980.
The plaintiff was ordered to pay the defendant’s
costs of the claim and the counterclaim.
