Landlord and tenant — Rent review clause in lease — Whether certain items were landlord’s fixtures which should be taken into account in the determination of the open market rent under the review clause or whether they were tenant’s fixtures which should not be taken into account — Appeal from decision of Mervyn Davies J, who held that the items in question were tenant’s fixtures — The items were light fittings, in the form of fluorescent tubes contained in glass boxes fixed securely to the plaster of the ceiling, and floor coverings, in the form of carpeting fixed to the floor with gripper rods, the rods being fixed to the floor with pins which were themselves attached to the carpet: the rods were laid on a screeded floor — Both the floor coverings and the light fittings had been installed in pursuance of obligations binding the tenants to do so in an agreement entered into prior to the execution of the lease — The effect of this was a main issue in the case — Decision in Mowats Ltd v Hudson Bros Ltd cited in support of the tenants’ contention that the fact that the items had been installed in pursuance of the tenants’ contractual obligations did not prevent them from being removable tenant’s fixtures — Landlords argued that this was in effect allowing the tenants to take advantage of a breach of their obligations and that the items should be treated as landlord’s fixtures — Held by the Court of Appeal that the judge had
The following
cases are referred to in this report.
Mowats
Ltd v Hudson Bros Ltd (1911) 105 LT 400
Spyer v Phillipson [1931] 2 Ch 183
Webb v Frank Bevis Ltd [1940] 1 All ER 247, CA
This was an
appeal by the lessors, Stuart Young, Alasdair David, Gordon Milne and Harold
Paul Hughes, acting as trustees of the BBC New Pension Scheme, from a decision
of Mervyn Davies J holding, for the purpose of a rent review clause in a lease
of premises at 19 Hanover Square, London W1, that certain items of floor
covering and light fittings were to be treated as tenants’ fixtures. The
respondent lessees were Dalgety plc. Stuart Young died prior to the hearing and
the action was continued by the remaining appellants.
John Colyer
QC, Paul de la Piquerie and Wayne Clark (instructed by Bennetts & Partners)
appeared on behalf of the appellants; Miss Hazel Williamson (instructed by
Speechly Bircham) represented the respondents.
Giving
judgment, FOX LJ said: This is an appeal from a judgment of Mervyn Davies J, in
which he dealt with various points arising upon the construction of a rent
review clause in a lease. The lease in question is dated July 9 1973 and
concerns business premises at 19 Hanover Square, made between Land Securities
Investment Trust as lessors of the first part, Schlesinger Insurance and
Institutional Holdings Ltd as lessees of the second part, and Eagle Star
Insurance Co Ltd as surety of the third part.
The lease was
for a term of 30 years at a rent of £240,000 per annum, subject to a review.
Prior to the
lease, there was an agreement entered into in April 1973 between the same
parties and it was agreed that as soon as the premises (which were then in
course of construction) had been completed in a manner therein specified the
lessors would grant the lease. It was also agreed that the lessors would
complete the premises by June 15 1973 in accordance with certain plans and a
schedule of finishes prepared by the lessors’ architects.
Clause 4 of
the agreement provides as follows:
(a) THE Lessees when so requested by the Lessors’
Architects shall forthwith at their own cost prepare and submit to the Lessors’
Architects all suitable drawings and specifications (in triplicate) of the
works mentioned in subclause (b) of this Clause and any other works which the
Lessees desire to carry out and within seven days of the receipt by them of
such Architects’ approval thereof on the Lessors’ behalf the Lessees shall
thereupon with all due diligence apply for all requisite permissions consents
licences and approvals of the Town Planning Local or other interested
authorities as may be necessary for such works
(b) So soon as the Lessors’ Architects shall
certify in writing (such certificate being hereinafter referred to as ‘the
Architects Certificate’) that the said premises have been practically completed
in accordance with the said plans and schedule of finishes (except that the
said Certificate shall not be withheld or delayed on account of the Lessors
having been unable to complete the Fire Escape arrangements for the said
premises as hereinafter mentioned) or such earlier date as shall be agreed
between the parties hereto the Lessees in a good and workmanlike manner shall
proceed forthwith to carry out and complete without delay the following works,
namely:
(i) lay adequate and suitable floor finishes to
the offices on the first second third fourth and fifth floors of the said
premises and the showroom premises on the ground and part of the basement
floors of the said premises
(ii) decorate the interior of the said premises
and install light fittings therein and
(iii) fit up and complete or cause to be fitted up
and completed the said premises with all necessary services and installations
including (where necessary) suitable shop fronts and relative shop front
fittings in keeping with a first class shopping centre
PROVIDED (i)
that all such Lessees works shall be carried out in accordance with the said
specifications and drawings previously approved or amended by the Lessors and
with the best materials available of their kind and in all respects to the
reasonable satisfaction of the Lessors.
The rent
review provisions, which gave rise to these proceedings, initially hinge upon
the determination of the open market rent, which is defined in para 8 (c) of
the Third Schedule to the lease in the following terms:
‘open market
rent’ means the yearly rent for which the demised premises might reasonably be
expected to be let on the open market with vacant possession by a willing
lessor to a willing lessee for a term equal to the unexpired residue on the
relevant rent review date of the term hereby granted and otherwise upon the
terms and conditions (save as to the amount of rent payable but including this
Schedule) contained in this Deed there being excluded:
(i) Any effect on rent of the fact that the
Lessees have been in occupation of the demised premises
(ii) Any goodwill attached to the premises by
reason of the carrying on thereat of the business of the Lessees (whether by
him or by a predecessor of his in that business)
(iii) Any effect of an improvement carried out by the
Lessees otherwise in pursuance of an obligation to the Lessors.
The lessees
complied with the agreement to carry out the obligation contained in clause 4
(b) of the agreement, but doubts arose as to precisely what those obligations
were since the relevant documents have been lost.
The
identification of the works was necessary for the operation of the rent review
clause — and in particular to subparagraph (b) to which I have referred. That
gave rise to various questions before Mervyn Davies J which he determined at
the specific request of the parties, that request being as to what can and must
be assumed was done by the lessees in pursuance of the provisions of Clause
4(b) of the agreement. The judge in fact had doubts as to whether he should
embark upon that course, but as he was requested by the parties to do so,
understandably he did so.
The matter was
dealt with by reference to a number of items contained in a Scott Schedule, and
the issue related to two things: floor coverings and light fittings. The learned
judge found that floor coverings and light fittings were provided by the
lessees, pursuant to the provisions of clause 4 (b), and by the originating
summons (as amended) he was requested to determine whether the various items of
floor coverings and light fittings were (a) tenant’s fittings or (b) landlord’s
fixtures or (c) tenant’s fixtures.
It was common
ground that tenant’s fittings or tenant’s fixtures would not fall to be taken
into account in determination of the open market rent; in my view that was a
correct basis on which to proceed.
With regard to
the light fittings, which the learned judge found to have been assumed to be
provided, these consisted of fluorescent tubes contained in glass boxes fixed
securely to the plaster of the ceiling. However, during the course of time, the
lessees had in part substituted for those light fittings standard lamps which
provided diffused lighting in an upwards direction.
However, what
originally ought to have been was the fluorescent tubes contained in glass
boxes which were securely affixed to the plaster of the ceiling.
The other item
concerned the floor covering. That was carpeting fixed to the floor by gripper
rods, such rods being fixed to the floor with pins which were themselves
attached to the carpet. The rods were laid on a screeded floor.
The learned
judge held that the carpeting was a fixture as were the light fittings. He held
that both the carpets and the light fittings were tenant’s fixtures and were
therefore, under the ordinary principles of the law of landlord and tenant,
removable by the tenants during the term or within a reasonable time
thereafter. Accordingly (and this was not in dispute), since they were tenant’s
fixtures, they did not fall to be taken into account for the purposes of the rent
review.
I now refer to
various findings of the judge concerning the state of the premises. He said:
Question (1)
is whether the 4(b) obligations are to be related to a fitting out of the
ground floor and basement as showrooms or as a banking hall. It is common
ground that the ground floor and basement have never been used for showroom
purposes. From the outset they were used as a banking hall by Western Bank
Limited. There is an application by the bank for planning permission to change
the ‘use of part of ground floor and basement to bank’. The application is
dated April 11 1973, that is two days before the date of the Agreement. On
August 16 1973 planning permission was given for ‘use of the basement and
ground floor (shown outlined in red on the submitted plan) of 19 Hanover
Square, W1 as a bank’. In the meantime on July 20 1973 there is a letter
wherein the landlords state:
‘The
alterations to the ground and basement floors are the subject of our consent in
principle dated the 21st June and we appreciate that you will be in touch with
us as soon as you can with the further information so that these also can be
formally approved’.
One then
looks at one of the plans produced. I refer to plan 271 dated June 8 1973 which
refers to ‘The Western Bank Limited project’. It shows a ground floor with a
‘banking hall’ and a basement plan with ‘bank vaults’ and ‘safe deposit’. All
these considerations suggest that the parties had in
would be fitted out for banking rather than as a showroom. One then turns to
the Agreement and the Lease to see what was agreed as to the ground floor and
basement. The Agreement does not refer to banking; but in Clause 4(b) (i) it
refers to ‘the showroom premises on the ground and part of the basement floors
of the said premises’; as well Clause 2 refers to the ‘Schedule of Finishes’
and when one inspects that schedule one sees that it is headed ‘Schedule of
Finishes relating to the new showroom and office block’. The Lease has the User
Clause 2 (18) that I have already quoted. Clause 2 (18) confines the user of
the ground floor to showroom use with the proviso that ‘if the Lessee shall
obtain the necessary permission it may use that part of the premises hereby authorised
to be used as a showroom or parts thereof as a banking hall with ancillary
offices’.
In their
argument before this court, the landlords place great weight on the fact that
the tenants installed the carpets and the lights in pursuance of the contractual
obligations contained in clause 4 of the agreement. It is submitted that to
construe the tenant’s covenant in clause 4 as requiring the tenants to install
lights and carpets which could (if the tenants’ case is correct) constitute
tenant’s fixtures which could be removed immediately by the tenants as soon as
the lease had been entered into would (in commercial terms) make nonsense of
the bargain made between the landlords and the tenants.
It is further
submitted that it would, in effect, permit the tenants to benefit from a breach
of their own covenant undertaken in clause 4 of the agreement and deprive the
landlords of the benefit of the tenants’ covenant which the landlords bought as
part of the bargain for the lease.
It is said
that the tenants’ works consisted of applying ‘finishes’, including carpets,
and adding ‘fittings’ without either of which the building would be incomplete
and which were necessary to the convenient occupation of any tenant.
In terms the
covenant merely was to provide and install the lights and the carpets. The
argument that the conclusion of the learned judge would, in effect, allow the
tenants to take advantage of a breach of the covenant seems to me to be begging
the question and does not advance this case.
I turn then to
consider further what the effect of the covenant was. The judge referred to the
decision of the Court of Appeal in Mowats Ltd v Hudson Bros Ltd
(1911) 105 LT 400, which the judge said showed that any item regarded as having
been installed by the tenant pursuant to his obligation in clause 4 (b) is
nevertheless removable if held to be tenants’ fixtures.
The headnote
to Mowats reads as follows:
By the lease
of an unfinished shop the lessees covenanted at their own expense to ‘complete
and finish . . . all necessary fittings for the carrying on of the trade of a
provision merchant’ and also to deliver up the demised premises in good repair
at the end of the term. In pursuance of their covenant the lessees affixed
certain fittings to the premises which became ‘trade fixtures’ and they removed
them shortly before the end of the term.
Held
(allowing the appeal, Vaughan Williams LJ dissenting), that the covenants in
the lease did not take away the right of the lessees during the term to remove
the fittings as trade fixtures.
The covenant
in question is set out in the judgment of Vaughan Williams LJ at p 402, with
the preliminary observation:
The building
thus described as a messuage or shop was, before the shop front and shop
fittings were added, a mere shell and not a shop at all. Then follow the
covenants . . .
which were to
pay the rent and
(3) And also will within three calendar months
from the date of these presents at their own expense erect and complete and
finish in good, substantial, and workmanlike manner under the inspection and to
the satisfaction of the lessors or their surveyor a suitable shop front to the
said premises and all necessary fittings for the carrying on of the trade or
business of a provision merchant. And also will at all times during the said
term keep the said premises in good and sufficient repair and the same in good
and sufficient repair deliver up to the lessors at the expiration or sooner
determination of the said term
of the tenancy.
The work which
the tenants performed was to put in a new shop front. They erected a cashiers’
office inside the building and installed other fixtures which were necessary
for the covenient carrying on of the business. What they did in fact complied
with the covenant.
At the end of
the lease the tenants left the shop front as it was, but they removed other
fixtures. The issue before the court was whether they were entitled to do so —
there was disagreement as to that.
Fletcher
Moulton LJ, delivering one of the majority judgments, said:
It would seem
that at the time that the lease was granted the premises were in a somewhat
unfinished state. For example, they possessed no shop front, although they were
so constructed as to be suitable for and evidently intended to be used as a
shop. This accounts for the presence of a covenant in the lease, which is
substantially the only portion of the lease which we are asked to construe. In
fact, its presence constitutes the only peculiarity in the document. In all
other respects the lease is an ordinary lease for twenty-one years, terminable
upon notice at the end of seven or fourteen years at the option of the lessees,
containing the usual provisions and no others. The covenant reads as follows
(speaking of the lessees)
and the
learned lord justice read the covenant and continued:
I can see no
reason for ascribing to the words of this covenant any other or further meaning
than that which they naturally bear. The covenant provides that the lessees
will at their own expense put in a shop front and fittings to the satisfaction
of the lessors, and it says no more. It makes no reference to their being or
becoming the property of any person, and, in the absence of any such
provisions, the only legitimate conclusion is, in my opinion, that it leaves
the question of property to be settled by the ordinary rules of law. There can
be no doubt as to the result of so doing.
Then Buckley
LJ said:
The learned
judge has found as a fact that all the articles in question are things which
the defendants would have a right to take away if it were not for the wording
of the lease. They were all trade fixtures; they were articles, such as
counters and shelves and a pay desk or office placed in the shop, which were
brought upon the demised premises and fixed (so far as they were fixed) under
such circumstances as that, but for anything to the contrary contained in the
lease, the lessees would before the expiration of the term have been entitled
to detach them and take them away.
Two
propositions were urged before us. First, that by operation of law these
chattels having been affixed to the freehold became part of the land, not sub
modo and subject to the tenant’s right of removal during the term, but
absolutely because it was part of the consideration for the lease that they
should be supplied and fixed; and, secondly, that upon the construction of the
lease they had, as between lessor and lessee, been made the property of the
lessor. If chattels are brought upon demised premises, whether in pursuance of
a covenant to bring them there or not, the mere fact that they are brought upon
the demised premises confers no title to them upon the owner of the freehold.
In the result
the tenant was held entitled to remove them. The judge’s view of the Mowats
decision is challenged by the landlords, who submit that in Mowats it
was conceded that the items were tenant’s fixtures. It is correct that that
concession was made. But in my view the concession cannot have been regarded by
anybody as determining the matter which was then before the Court of Appeal. In
effect, the case turned upon the meaning to be given to the covenant and, in my
view, the concession which was made was merely that under the general law the
items would, other things being equal, be regarded as tenant’s fixtures.
The question
under consideration was: What was the effect of the covenant on what would
otherwise have been the position of the general law of landlord and tenant?
For myself, I
cannot regard the concession which was made in relation to the classification
of the items as trade fixtures or tenant’s fixtures as being of materiality of
the decision itself — in relation to the fundamental point concerning the
effect of the covenant.
The decision
of the majority in Mowats was that the covenant was merely a covenant to
install items and was nothing more. In particular it said nothing about
ownership or permanent attachment to the premises of the items in question. The
matter was left — as appears from the judgments of Vaughan Williams and Buckley
LJJ — to the operation of the ordinary rules of law. It was in effect a
question of the construction of the covenant.
I can see
nothing in terms of the commercial content of the agreement between the parties
to compel me to the view that the landlords’ contention that these were
landlord’s fixtures or fittings was correct. One must have regard to the
covenant and its commercial implications, but the commercial reality of the
matter is simply this: the tenants having taken a lease of this property at a
high rental and having installed the carpets and the light fittings at their
own cost for their own business purposes are not going to remove them the next
day. They were chattels which, subject to the agreement of the landlords, were
left to their choice and they were obviously chosen as being suitable for the
tenants’ purposes.
In those
circumstances, the tenants having installed them in compliance with the
covenant are going to leave them and obtain the maximum use from them. The
landlords, for their part, have the benefit of the installation of carpets and
light fittings of a quality which satisfy them as being suitable to the
maintenance of the repute of the building. The landlords know that, in business
terms, the
from them.
In the same
way there will be other chattels which will be brought into the premises by the
tenants, though without obligation, being kept there by the tenants for use to maximum
capacity. Of course with the passage of time, if the tenants feel that what has
been installed is no longer satisfactory to them, then as a matter of
convenience for the running of their organisation they will be replaced with
something as good if not better.
In the present
case the tenants substituted the standard up lighters for the lights which were
required to be installed under the provisions of the agreement. That is the
kind of situation which is satisfactory both to landlords and tenants.
Landlords
require the building to be properly fitted out and so do tenants.
In my
judgment, the commercial reality does not require one to go beyond that. It
does not require the assumption that the tenants are bound to replace items
under the repairing covenants or upon yielding up the premises at the end of
their term.
The landlords
stipulated for the benefit of a covenant to install the items; they did not
stipulate for a covenant to give them title to the items themselves. In
particular, this covenant (as the covenant in Mowats) said nothing about
ownership and nothing about permanent attachment to the hereditament. The
matter was left to the ordinary rules of law.
In my view
this case is no different from Mowats. However, it is submitted that it
does differ (1) because the Mowats agreement contained a break clause,
but the existence of that break clause is irrelevant, having no practical
impact on the question which this court has to decide. (2) It is said that Mowats
lease envisaged fittings would be provided for the purposes of a trade to be
carried on in the premises, the fittings being brought into the premises for
the purpose. But in my view so does clause 4 (b)(3) in the present case.
In my
judgment, therefore, the position is this: as with Mowats, here is a
simple agreement to install certain items of equipment, without an indication
as to their eventual ownership. The items were paid for by the tenants — and
there is nothing in the documents which deals with their eventual ownership, so
that prima facie it could be said that they belonged to the tenants.
What then is
the impact of the general provisions of the law pertaining to landlord and
tenant upon that situation? First of
all, were they fixtures? The judge
decided that both the carpets and the light fittings were fixtures. The light
fittings were securely fitted to the plaster of the ceiling. On the other hand,
the fitting of the carpets could be said to be more tenuous because such
fitting depended upon a gripper rod and pin arrangement. However, in my view it
is not necessary for the court to decide whether the learned judge was right or
wrong in that connection.
The lessees
have contended that these items were not fixtures, but for the purposes of this
case I am prepared to assume that the learned judge was correct in his
conclusion that they were fixtures. Therefore, on the assumption they were
fixtures, the next question is: Were these items tenant’s fixtures or
landlord’s fixtures? If they were landlord’s
fixtures, then they must be left for the landlords and it would therefore be
proper to bring them into account in relation to a rent review. However, the
position is otherwise and it is not in dispute if they were tenant’s fixtures.
In general, fixtures attached by tenants for the purposes of their trade or
business will be tenant’s fixtures. In that connection we were referred to Megarry
and Wade’s Law of Real Property 5th ed, p 735, where the general rule is
stated.
It is said on
behalf of the landlords that the fixtures were installed for the completion and
fitting out of the building itself and that they were not there for the
convenience of the tenants. Fundamentally, they were there for the benefit of any
tenant who came into the building.
It is said,
further, that the carpets were ‘floor finishes’ within the terms of clause 4
(b), and that the term ‘floor finishes’ indicates a greater degree of
absorption in the hereditament than would an ordinary carpet.
The learned
judge found that the items were attached merely to render the premises
convenient for the tenants’ occupation of the building as business
premises. In my view that conclusion was perfectly open to the learned judge on
the facts before him. I see no reason to depart from it. The fact that
installation was in pursuance of a contractual obligation by the tenants to the
landlords under clause 4(b) does not prevent such a conclusion any more than
did the covenant in Mowats’ case.
I accept that
the attachment must be such that, on removal, it would not lose its essential
character. In that connection the learned judge referred to Webb v Frank
Bevis Ltd [1940] 1 All ER 247. In my view neither the light fittings nor
the carpets would, upon removal, lose their essential character, or such value
as they then had. The carpets in fact would only need to be freed from the
rods; and as to the light fittings, there is no reason to suppose that by
freeing them from the plaster on the ceiling, that would destroy either their
character or any value placed upon them. The judge took that view, and on the
evidence before him he was entitled so to do.
It is accepted
of course that an article must be capable of being removed without irreparable
damage to the demised premises. In that connection the judge referred to Spyer
v Phillipson [1931] 2 Ch 183 and to a passage from the judgment of Romer
LJ which he set out.
In my judgment
the removal of these items could not in any sense of the word cause irreparable
damage to the demised premises — as I have said, the carpets would simply have
to be removed from the grip rods. The removal of the light fittings from the
plaster of the ceiling would no doubt cause some damage to the plaster itself,
but that is a minor matter, being easily remedied.
The position
is, therefore, that in my view the judge was right in the conclusion to which
he came; these were matters of fact for him; I can see no reason to depart from
the conclusion which he reached, and I would therefore dismiss this appeal.
PARKER and
GLIDEWELL LJJ agreed and did not add anything.
The appeal was
dismissed with costs.
