Landlord and Tenant Act 1954, Part II, section 43(1)(d) as amended — Whether two cellars let separately but forming part of larger licensed premises were protected as business premises under the 1954 Act or excluded from protection under section 43(1)(d) — Whether the exception for restaurant use in section 43(1)(d)(i) applied to the cellars — Cellars were under Ye Olde Cheshire Cheese in Fleet Street — The Cheshire Cheese, which consisted of a ground floor and four upper floors with basement and cellars, was subject as a whole to a licence for the sale of intoxicating liquor for consumption on the premises — The cellars were held by the plaintiff Cheshire Cheese company from the defendant landlords under a separate tenancy, the main part of the property being held under another title — The cellars could not by themselves be considered to be a restaurant — Their present use was in the one case as a bottled beer store and in the other case as a dining-room for private hire
litigation comprised both a preliminary issue on the plaintiff tenants’
originating summons for a new tenancy under the 1954 Act and possession
proceedings by the landlords, following a notice to quit and a section 25
notice — The question before the court was whether the cellars were protected
as business premises or lost protection as licensed premises without qualifying
under the restaurant exception — The judge considered the competing arguments
of the parties in the light of section 43(1)(d) and its statutory history in
the Customs and Excise Act 1952, Schedule 4, and the Finance Act 1959, section
2(6) and Schedule 2 — He came to the conclusion that section 43(1)(d) of the
1954 Act was ambiguous but that the issue could be resolved by construction in
the light of the provision’s statutory history — The submissions of both sides
proceeded on the footing that ‘premises’ in section 43(1)(d) referred to the
premises which were the subject-matter of the demise of the cellars; and on
that basis it was impossible to choose between the rival constructions — If,
however, as the statutory history (including the 1959 Act) suggested, the word
‘premises’ was taken to mean ‘premises licensed for the sale of intoxicating
liquor’, the difficulties disappeared — The cellars were licensed for the sale
of intoxicating liquor, being covered by the Cheshire Cheese’s licence — The
premises, meaning the Cheshire Cheese including the cellars, were structurally
adapted for the business of carrying on a restaurant; and the non-alcohol sales
constituted a substantial proportion of the business — Thus the exception in
subpara (i) of section 43(1)(d) applied and the cellars were entitled to the
protection of Part II of the 1954 Act — Declaration accordingly and landlords’
action for possession dismissed
No cases are
referred to in this report.
The judge had
before him both the preliminary issue on the summons of the plaintiff tenants,
Ye Olde Cheshire Cheese Ltd, for a new tenancy under the 1954 Act and the
action of the landlords, The Daily Telegraph plc, defendants to the summons,
for possession of the cellars. (As mentioned by the judge, the reversioners had
become LDT Partners, of New York.)
Robert Reid QC
and Oliver Albery (instructed by Slaughter & May) appeared on behalf of the
plaintiffs; Gabriel Sebestyen (instructed by Simmons & Simmons) represented
the defendants.
Giving
judgment, SIR NICOLAS BROWNE-WILKINSON V-C said: These proceedings are
concerned with two cellars underneath the former Daily Telegraph building in
Fleet Street. The cellars form part of the licensed premises in Fleet Street
known as Ye Olde Cheshire Cheese. The cellars were let to Ye Olde Cheshire
Cheese Ltd, the proprietor of the licensed premises, by a lease dated November
27 1958. The term granted was 21 years from September 1958. The tenants held
over after the expiry of the lease until in March 1986 the reversioners, then
Daily Telegraph plc, served an ordinary notice to quit terminating the
contractual tenancy and also a notice under section 25 of the Landlord and Tenant
Act 1954. The latter notice under section 25 was served without prejudice to
the contention of the reversioners that the cellars were not protected by Part
II of the 1954 Act. Broadly stated, the issue I have to decide is whether or
not the cellars, the subject-matter of the 1958 lease, are protected as
business premises or whether the provisions of section 43(1)(d) of the
1954 Act take them out of protection since they are licensed premises.
The case comes
before me in this way. Ye Olde Cheshire Cheese Ltd has started proceedings by
way of originating summons under the 1954 Act claiming a new tenancy. A
preliminary issue has been directed on those proceedings to determine whether
or not the cellars enjoy the protection of the Act. At much the same time, the
Daily Telegraph as reversioners brought an action for possession of the
cellars. The sole issue in that action is whether or not the cellars are
protected by the 1954 Act. Both the preliminary issue on the originating
summons and the action are before me. The interest of the Daily Telegraph as
reversioners has become vested in a New York partnership called LDT Partners.
In the circumstances the actions by and against the Daily Telegraph have been
stayed, and LDT Partners as reversioners are the effective parties.
It is common
ground that Part II of the 1954 Act applies to the cellars the subject-matter
of the 1958 lease, since they are business premises unless they are excluded by
section 43(1)(d) as amended. Section 43(1)(d) of the 1954 Act provides
as follows:
This Part of
this Act does not apply —
. . . .
(d) to a tenancy of premises licensed for the
sale of intoxicating liquor for consumption on the premises, other than —
(i) premises which are structurally adapted to be
used, and are bona fide used, for a business which comprises one or both of the
following, namely, the reception of guests and travellers desiring to sleep on
the premises and the carrying on of a restaurant, being a business a
substantial proportion of which consists of transactions other than the sale of
intoxicating liquor.
I need not read
(ii) and (iii), which deal with premises to which the holding of a licence is
merely ancillary and refreshment rooms at railway stations.
The facts of
the case are not in dispute and are as follows. The company, Ye Olde Cheshire
Cheese Ltd, holds the main part of the licensed premises — namely, the Cheshire
Cheese — under some title of which I am ignorant but which has nothing to do
with the Daily Telegraph or LDT Partners. Only the two cellars are the
subject-matter of the tenancy between the two parties. The cellars have been
leased under successive leases to be used in conjunction with the Cheshire
Cheese since 1883. The main building of the Cheshire Cheese itself has a cellar
(which is not the subject-matter of the lease). The two cellars in question in
this case adjoin the cellar underneath the Cheshire Cheese itself. The 1958
lease contains covenants by the tenants
not without
the previous consent in writing of the Lessors to use the cellars otherwise
than for the purpose of the Lessees business conducted on the adjoining
premises known as Ye Olde Cheshire Cheese.
There is also
a covenant by the tenants
at the end or
sooner of the termination of the said term to brick up to the satisfaction of
the lessors or their surveyors all openings between the cellars and the
premises of the Lessees.
There is a
substantial body of evidence as to the exact physical characteristics of the
cellars and their relationship with the other premises forming the Cheshire
Cheese. In the event nothing has turned on the details of those physical
features.
It is common
ground that I have to look primarily at the present user of the premises. It is
not contended by either side that the relevant time for the purposes of section
43(1)(d) is anything other than the present day. The premises of the
Cheshire Cheese, including the two cellars, consist of a ground floor and four
upper floors together with the basement and cellars. The whole of the premises,
including the cellars, are subject to a licence for the sale of alcoholic
liquor. The fourth or top floor of the Cheshire Cheese consists of staff rooms
and showers. The third floor has a dining-room for private hire, which will
seat 16 people and has an area of 270 sq ft. There are also lavatories and a
store of some 190 sq ft. The second floor contains another dining-room seating
23 people used for serving lunches daily. The dining-room extends to some 255
sq ft. On the second floor there is the kitchen which serves all the catering
facilities on the premises. It is 345 sq ft. On the first floor there is a bar
of 235 sq ft, a servery of 60 sq ft and a further dining-room with covers for 32
people of some 305 sq ft. That dining-room also is used daily for the serving
of lunch and dinner. On the ground floor there is a bar of 215 sq ft, a
glassed-in area which is ancillary to the bar of 185 sq ft and a further
dining-room with 31 covers of 540 sq ft, which is also used daily for the
serving of restaurant meals.
There are six
elements in the basement of the premises. There is a bar of 345 sq ft not
comprised in the lease I am considering, a wine store of 160 sq ft not subject
to the 1958 lease, a general store of 120 sq ft not subject to the 1958 lease,
and a store for draught beer of some 645 sq ft also not subject to the 1958
lease. The two cellars which are the subject-matter of the 1958 lease presently
consist of a bottled beer store of some 465 sq ft and a dining-room of 700 sq
ft with 35 covers. Although it is sometimes referred to as a dining-room, the
evidence is that it is used not for the service of meals on a daily basis but
for private hire. It is not always used for serving meals when privately hired:
there are occasions on which it is used without the service of meals. The two
rooms, therefore, which are the subject-matter of the lease, by themselves
cannot possibly be considered to be a restaurant. In particular there is no
kitchen and there are no built-in features of the room which is used as a
dining-room for private hire which identify it as being a restaurant if looked
at by itself. The two cellar rooms the subject of the 1958 lease are also used
for the provision of fire escapes for the whole of the premises.
The business
done on the premises appears to be this. Looking at the Cheshire Cheese as a
whole, of the turnover of between £500,000 and £600,000 per year some 44% (give
or take a little) is made up of the sale of provisions other than alcoholic
beverage. As regards profits, the ratio is rather different. For example, in
the year 1986 the bar profits were £147,000 as against the provisions profits
of only £75,000. Efforts have been made to extract the figures for the trading
in the cellar area alone. They indicate that the food sales were £12,662-odd in
the period April 1 to September 30 1986. During the same period the drinks
sales were £4,724. Those are the sales in the dining-room for private hire and
the drink sales associated with it. They do not include the sales in the cellar
bar, which is not comprised in the lease.
The evidence
discloses that the Cheshire Cheese, looked at as a whole, is not an entirely
conventional set of licensed premises. It certainly has many features of a
public house with public bars for use by those who only come for a drink with
no intention of dining, but it is also a major part of its business to conduct bona
fide restaurants and not merely the provision of bar food. It puts itself
forward in its publicity as a successor or continuation of an old English chop
house, and for that reason it is not easily classifiable either as a drinking
place or as an eating place. As the expert witness who was called before me
said, it consists of licensed premises with a major restaurant facility.
Against those
facts I have to decide whether or not those two cellars, being the only
subject-matter of the tenancy in question, are excluded from the protection of
Part II of the 1954 Act by reason of being licensed premises or whether they
qualify on the grounds that they are structurally adapted to be used for a
business which comprises the carrying on of a restaurant, being a business a
substantial proportion of which consists of transactions other than the sale of
intoxicating liquor. It is common ground that unless the case can be brought
within section 43(1)(d) the premises being licensed are excluded from the
protection of Part II.
For the
tenants, Mr Reid’s primary contention is that the requirements of section
43(1)(d) are satisfied if the use of the demised premises includes use by a
business for a restaurant, although restaurant use is not the exclusive use of
the premises. He submits that the word ‘comprises’ means effectively
‘includes’. I accept that submission, which seems to me established, if it need
authority, by the decision of the Court of Appeal in Grant v Gresham
(1979) 252 EG 55, [1979] 2 EGLR 60. Next Mr Reid submits that, in considering
whether the use by a business for restaurant purposes is or is not substantial,
the relevant restaurant purposes do not have to be wholly conducted on the
demised premises. It is enough, he submits, that part of the restaurant
business is carried on on demised premises, even though the rest of the
business is conducted elsewhere. Therefore, says Mr Reid, it is legitimate to
look at the Cheshire Cheese as a whole and not merely at the cellar rooms
subject to the lease. Once that is done, it is clear that part of the business
of the Cheshire Cheese is a restaurant business and that part of that
restaurant is carried on in the basement dining-room the subject-matter of the
lease. Moreover, he submits, the requirement of section 43(1)(d)(i) that
the premises must be structurally adapted to use as a restaurant is sufficiently
justified, since there is a separate room, and that is all that is required in
structural terms for the conduct of that part of the restaurant business.
On the other
hand, Mr Sebestyen, for the reversioners, submits that Mr Reid’s construction
leads to absurdity. The crux of the tenant’s argument is that in deciding
whether a restaurant is being conducted on the premises or not and whether a
substantial part of the business is or is not the sale of intoxicating liquor
it is permissible to look at a business partly conducted elsewhere. Mr
Sebestyen stresses that that leads to a number of absurd conclusions. He
points, and this is perhaps his strongest example, to a business carried on in
separate places — say, a restaurant and a separate public house business
conducted by one company. He says that if Mr Reid’s submission is right, you
could identify the business as being one business. If, then, there were a
tenancy of something which was exclusively a public house but the public house
is conducted by a company the majority of whose business consisted of
conducting restaurants, the requirements of section 43(1)(d)(i) would be
satisfied, even in relation to the public house which is demised although no
part of the public house demised is used as a restaurant at all. He also
stresses that it is necessary in dealing with a hotel as opposed to a
restaurant that the hotel business has to be for the reception of guests and
travellers ‘desiring to sleep on the premises’. He suggests that if the conduct
of a hotel requires the sleeping of guests on the premises that points to a
similar requirement that the restaurant business itself should be conducted on
the demised premises. He submits, therefore, that the only proper conclusion to
be drawn as a matter of construction is that the business in question, which is
a business comprising a restaurant, must be carried on wholly on the demised
premises. He submits that unless it can be said that the restaurant business is
comprised wholly on the demised premises the case does not come within section
43(1)(d)(i).
Mr Reid in
turn ripostes that the conclusion flowing from Mr Sebestyen’s construction
leads to equal absurdities the other way. He takes the example of a lease of a
restaurant which flourishes and the tenant acquires next-door premises and goes
through the wall in order to extend the dining-room of the restaurant. If Mr
Sebestyen’s construction is right, there would be no protection for the
original restaurant premises because part of the business of the restaurant is
being conducted off the demised premises.
These series
of illustrations of the bizarre results that could be reached led the parties
to investigate the statutory history of these provisions. For myself, unaided
by that history, I find it impossible to select between the two views put
forward. The truth is, as Mr Sebestyen stated, that as drafted at present there
appears to be a complete omission to deal with the position where there is a
tenancy of premises on which part of a restaurant or hotel business is
conducted. I find the construction of the words in this section ambiguous and
in the circumstances I think it is legitimate to look at the statutory history
of the section to see if it provides any guidance.
Once that is
done, a most unusual, in my experience unprecedented, parliamentary history
emerges. The 1954 Act, section 43(1)(d) as originally drafted read as
follows:
This Part of
this Act does not apply
. . . .
(d) to a tenancy of premises licensed for the
sale of intoxicating liquor for consumption on the premises, other than
premises where
(i) the excise licence for the time being in
force is a licence the duty in respect of which is the reduced duty payable
under paragraph 3, 5, 6, 10, 11 or 12 of the Fourth Schedule to the Customs and
Excise Act 1952, or a licence granted on the provisional payment of reduced
duty with a view to subsequent adjustment to the duty payable under the said
para 3 or the said para 6 or (ii) the Commissioners of Customs and Excise
certify that no application under any of the said paragraphs has been made in
respect of the period for which the excise licence for the time being in force
was granted, but that if such an application had been made such a licence as is
mentioned in subparagraph (i) of this paragraph could properly have been
granted.
Accordingly, as
originally drafted the question whether or not a tenancy was excluded as being
a tenancy of licensed premises fell to be determined entirely by the nature of
the excise licence which either was in force or could have been applied for and
obtained if there were no licence in force.
The
eligibility for such a licence depended on the Customs and Excise Act 1952,
Schedule 4, and for present purposes I need only read para 3. The cross-heading
of para 3 is ‘Hotels and restaurants’:
(1) Where, in the case of any licensed premises
which are structurally adapted to be used; and are bona fide used, either for
the purpose of the reception of guests and travellers desiring to sleep on the
premises or as a restaurant, it is shown to the satisfaction of the
Commissioners that the receipts from the sale of intoxicating liquor in the
preceding year were less, in the case of a restaurant, than three-fifths or, in
any other case, than one-half of the total receipts in that year from the
business of all descriptions carried on by the licence holder at those
premises, the duty payable on the licence shall be reduced . . .
Then the amount
of the reduction is given.
I pause at
that stage to point out this. As originally drafted, eligibility for a licence
of a kind which maintained protection under the 1954 Act depended not on the
use of the premises demised looked at in isolation but on the nature of the
premises to which the Customs and Excise licence extended. It is quite clear
that under the original provisions the question whether the premises were
structurally adapted for the purposes of a restaurant and whether the receipts
amounted to the necessary proportion related to the business carried on by the
licence holder on the whole of the premises to which the licence extended. It
is also to be noted that the original words of para 3 of the Fourth Schedule to
the 1952 Act are reproduced verbatim in the amended section 43(1)(d)(i)
but in terms which have the effect that the words ‘premises’ no longer
apparently refer to the premises the subject-matter of the licence but to the
premises the subject-matter of the tenancy.
The next stage
was the Finance Act 1959, which repealed Schedule 4 to the Customs and Excise
Act 1952. Section 2(6) provided as follows:
In
consequence of the repeal of the Fourth Schedule to the Customs and Excise Act
1952, the enactments in the Second Schedule to this Act (which contain
references to the said Fourth Schedule) shall have effect subject to the
modifications contained in the Second Schedule.
The Second
Schedule is headed ‘Modifications consequential on repeal of Fourth Schedule to
Customs and Excise Act’. Para 5 of the Second Schedule includes the amendments
to section 43(1)(d) of the 1954 Act in the form in which I have read
them. The result (and this is a result that I have never previously come
across) is that a consequential amendment contained in a Finance Act flowing
from a repeal of one financial provision — namely, the 1952 Act — has led to
what is described not as an amendment but as a modification of the substantive
law applicable as between landlord and tenant.
The question
to my mind is to what extent Parliament in those circumstances can have
intended to produce by such modification a change in the substantive law
applicable as between landlord and tenant. The amendment certainly changed the
operation of section 43 of the Landlord and Tenant Act. Instead of the
exemption depending simply on the existence or non-existence of a licence or
the right to a licence certified by the Commissioners of Customs and Excise the
exemption now depends on a matter which the court itself has to decide. To that
extent I accept that there is inherent in the amendment a change in the law as
between landlord and tenant. The question, it seems to me, is whether
Parliament can have intended that subject to that procedural change the rights
of the landlord and tenant should have been changed as the result of something
merely consequential on the repeal of the Fourth Schedule to the Customs and
Excise Act.
In my
judgment, it is most improbable that Parliament ever intended to change the
substantive rights enjoyed by tenants under the 1954 Act in the course of
making merely a procedural modification. I would expect the underlying rights
of the parties to have remained the same and be unaffected save to the extent
necessary to replace the machinery formerly contained in the Customs and Excise
Act 1952.
The whole
difference between the parties in the present case depends on the meaning to be
attached to the word ‘premises’ in section 43(1)(d). The primary
arguments of both Mr Reid and Mr Sebestyen proceed on the footing that in
section 43(1)(d) the ‘premises’ referred to are throughout the demised
premises — that is to say, those premises which are the subject-matter of the
tenancy in question. Indeed in the context of the 1954 Act that would be the
prima facie meaning, since right through from section 23 onwards that is the
meaning of the word ‘premises’. However, it is, I hope, clear from what I have
said that the word ‘premises’ in the Customs and Excise Act was not referring
to the demised premises but to the premises the subject-matter of the alcohol
licence.
In my
judgment, it is legitimate, given the obscurity and ambiguity of section 43 as
it now is, to have regard to its statutory history and to give to the word
‘premises’ the meaning which it had under the repealed Act so as to make a
sensible and comprehensible whole of the provisions now in force. It is, in my
judgment, legitimate to read the word ‘premises’ in the phrase ‘premises
licensed for the sale of intoxicating liquor’ and thereafter as meaning the
premises the subject-matter of the licence. Once that position is reached, then
the rest of the section falls into place.
Applying the
provision to this case, the cellars are comprised in a tenancy of premises
which are licensed for the sale of intoxicating liquor, since they are part of
the premises the subject-matter of the Cheshire Cheese’s licence. The premises,
meaning the Cheshire Cheese including the cellars, are structurally adapted to
be used for a business which comprises the carrying on of a restaurant, since
the structure of the Cheshire Cheese as a whole being the subject-matter of the
licence contains the kitchens and all the other structural necessities for the
conduct of a restaurant. Mr Sebestyen concedes that on the figures that I have
recited the non-alcohol sales do constitute a substantial proportion of the
business of the Cheshire Cheese. For those reasons, in my judgment the premises
the subject-matter of the 1958 lease — namely, the two cellars — are entitled
to protection under the 1954 Act. I will so declare and dismiss the action brought
by the reversioners for possession.
