Landlord and Tenant Act 1954, Part II, sections 24 and 24A — Judge’s discretion in determining amount of interim rent — Correct approach — Legislative purpose of section 24A — Tenant’s appeal against amount of interim rent fixed by county court judge — Judge fixed the annual rent for the new tenancy of a lock-up shop at £4,981.50 and the interim rent at £4,234, which was only 15% less than the rent for the new term — The interim rent so fixed would be payable in respect of a period of more than three years owing to the length of time taken by the application — There was a paucity of evidence before the county court judge as to what the interim rent should be — The landlords put forward no evidence on this point but the tenant’s surveyor had submitted that the amount should be of the order of £2,500 — In the Court of Appeal attention was drawn on behalf of the tenant to the judgment of Nourse LJ in Charles Follett Ltd v Cabtell Investments Ltd, including his statement that ‘the legislative purpose of the requirement that regard should be had to the old rent was, where appropriate, to cushion the tenant against that shock’ — It was submitted that the judge must have erred in the exercise of his discretion in fixing the interim rent — Held that in all the circumstances the decision could not be allowed to stand — Given a rental of £1,250 in 1979 and of about £5,000 in 1988, payment of an interim rent of £4,234 for the relevant three-year period might well mean that for the earlier part of the period the tenant would be paying in excess of the then current open market value — The judge had given no reason for the figure which he had determined — Unfortunately, in allowing the appeal it would be necessary to order a retrial as the Court of Appeal did not have material upon which it could itself fix an interim rent — Appeal allowed and case remitted for rehearing.
The following
case is referred to in this report.
Charles
Follett Ltd v Cabtell Investments Ltd (1987)
55 P&CR 36; [1987] 2 EGLR 88; 283 EG 195, CA
This was an
appeal by the tenant, Philip Conway, against the part of the decision of Judge
Krikler, at Willesden County Court, which concerned the amount of the interim
rent fixed for the lock-up shop at 5 The Broadway, Wembley, in which the tenant
carried on business as a Kosher butcher and poulterer. The first respondents
were Stanley Arthur and Gordon Rushforth Bromley, personal representatives of
the late Eric Montague Price Holmes, the previous reversioner. The second
respondents were Dawncar Investments Ltd, the present landlords.
Paul Infield
(instructed by Francis & Francis) appeared on behalf of the appellant; Neil
Mendoza (instructed by Wallace & Partners) represented the respondents.
Giving the
first judgment at the invitation of Parker LJ, NICHOLLS LJ said: This is an
appeal by the applicant, Mr Philip Conway, from a decision of His Honour Judge
Krikler sitting at the Willesden County Court given on January 25 1988. The
proceeding in which the judge made his order under appeal is an application by
Mr Conway for the grant of a new business tenancy under Part II of the Landlord
and Tenant Act 1954.
The property
in question comprises a lock-up shop at 5 The Broadway, Wembley, in north
London, in which Mr Conway carries on business as a Kosher butcher and
poulterer.
In 1978 Mr
Conway acquired by assignment the residue of a lease of the property which had
been granted in 1974 for a term of 10 years. Following a review of the rent in
1979 Mr Conway paid a rental of £1,250 per annum. A section 25 notice was
served on Mr Conway by the first respondents to the application, who were then
the landlords, on April 10 1984 terminating the tenancy on October 15 1984. In
that notice the landlords stated that they would not oppose an application for
the grant of a new tenancy. The appropriate counternotice was duly served on
behalf of Mr Conway and the proceedings for a new tenancy were started in due
time by Mr Conway as long ago as June 14 1984. The landlords then launched an
application for an interim rent on December 31 1984.
Some of the
delay which has ensued seems to have been caused by the fact that the first
respondents sold the property to the second respondent in the course of 1985.
But since then there has undoubtedly been very considerable delay on this
application. Neither party has gone into that question and I will not do so
either. Whatever, therefore, may have been the cause for the delay and whether
that was a matter in respect of which either party, and if so which, was to
blame or more to blame than the other, the fact was that it was not until
January 25 1988 that the judge was concerned to decide what interim rent should
be payable under this new tenancy application. On that day he fixed not only
the interim rent but also the amount of the rent to be paid under the new
tenancy being sought by Mr Conway. A valuer for each party was called and
cross-examined. A Mr G T Ward [ARICS] gave evidence for the second respondent,
which alone of the respondents participated in the proceedings, and Mr A Klemin
gave evidence on behalf of Mr Conway, the tenant. The judge was concerned to
determine a dispute as to the area of the irregularly shaped property. He did
so, and he also determined a dispute concerning the amount of square footage of
each of the zones.
As to rentals,
in his report Mr Ward suggested that the overall rental figure for the new term
should be £6,000 per annum, attributing the figure of £16 per sq ft to zone A.
That was in a report which was dated June 5 1987.
In his report
of January 22 1988 Mr Klemin, on the other hand, put forward on behalf of the
tenant the figure of £4,000 per annum and he suggested a rental of £2,500 per
annum as the interim rent.
The judge
fixed the annual rental for the new tenancy at £4,981.50 on the basis of the figure
of £13.50 per sq ft for zone A. He fixed the interim rent, which took effect
from the date of the interim rent application on December 31 1984, at £4,234.
It is from that latter figure which Mr Conway has appealed. There is no appeal
against the amount determined by the judge as the rental for the new term. On
this appeal we are concerned only with the amount of the interim rent payable
from the end of 1984 to the date of the new tenancy.
I turn next to
section 24A of the Landlord and Tenant Act 1954, which is the section under
which the court determines the amount of an interim rent. Section 24A(1)
provides:
The landlord
of a tenancy to which this Part of this Act applies may, —
(a) if he has given notice under section 25 of
ths Act to terminate the tenancy; or
(b) if the tenant has made a request for a new
tenancy in accordance with section 26 of this Act;
apply to the
court to determine a rent which it would be reasonable for the tenant to pay
while the tenancy continues by virtue of section 24 of this Act, and the court
may determine a rent accordingly.
Subsection (2)
is concerned with the date from which the rent so determined is to be deemed to
be payable. Subsection (3) reads:
In
determining a rent under this section the court shall have regard to the rent
payable under the terms of the tenancy, but otherwise subsections (1) and (2)
of section 34 of this Act shall apply to the determination as they would apply
to the determination of a rent under that section if a new tenancy from year to
year of the whole of the property comprised in the tenancy were granted to the
tenant by order of the court.
In the notes
of judgment, which have been approved by the judge in the usual way, the amount
of the interim rent is stated, but there is no elaboration on that figure.
There is no statement of the reasons which weighed with the judge in arriving
at that figure. However, that figure is in fact the amount of the rent of the
new term, less 15%, so it seems clear that the judge arrived at that figure by
making that calculation.
The evidence
before the judge on the amount of the interim rent seems to have consisted only
of the following items. First, in his first report Mr Klemin in the last
paragraph said:
Place this
figure [ie £6.98p per sq ft] on our floor area equals £2,877 per annum
exclusive but one must discount this, if our rent review is to be backdated
some three years, say 10% reduction, then the rental payable would be £2,301.60
and I ask you to issue your determination accordingly.
It was pointed
out that the percentage deduction needed to arrive at that figure is 20% and
not 10%.
Second, in his
supplemental report of January 22 1988 Mr Klemin suggested the two figures for
interim rent and final rent which I have already mentioned.
Third, in the
course of giving evidence Mr Klemin told the judge: ‘I have never come across
an interim rent more than 10% to 15% less than the rent’.
It seems clear
that the paucity of evidence on this question before the judge was because,
understandably, the parties were principally directing their attention to the
question of the amount of the rent for the new term.
On this appeal
Mr Infield, for the appellant, has submitted in essence that the judge failed
adequately to take into account the existing rent and thereby failed adequately
to cushion the tenant against the impact of the new rent. He drew our attention
to the decision of this court in Charles Follett Ltd v Cabtell
Investments Ltd [1987] 2 EGLR 88. At p 90 G Nourse LJ said this with regard
to the purpose of section 24A:
By 1969 it
had been demonstrated that a tenant, in times of inflation, could readily spin
out the steps prescribed by the 1954 Act and the rules of court, so as unfairly
to prolong the continuation of the old rent under section 24. The defeat of
such practices was the primary legislative purpose of section 24A. At the same
time it was recognised that, while inflation benefits the tenant during the
currency of a lease at an uninflated rent, it exposes him to an inordinate
shock if its consequences are visited on him in full directly the lease has
determined. The legislative purpose of the requirement that regard should be
had to the old rent was, where appropriate, to cushion the tenant against that
shock.
A little later
he said:
I cannot see
that there was intended to be any invariable rule that the interim market rent
should be given greater weight than the old rent or that regard to the latter
should only be capable of resulting in some marginal or not very significant
reduction.
If, as I
think, the purpose of the requirement is, where appropriate, to cushion the
tenant against the shock which I have described, it is not impossible to
conceive of circumstances in which it might well be thought that that object
could be achieved only by applying a reduction which was far from marginal, and
certainly significant.
And later:
Each case
must depend on its own facts. That, I think, is the inescapable result of
Parliament having given no guidance as to the consequences which are to flow
from the mandatory regard to the old rent.
Mr Infield
submitted that in the present case the judge must have erred in the exercise of
his discretion in having regard to the old rent. He has not exercised his
discretion properly in that this is a case where the interim rent was to be
payable from a date over three years earlier and, had the judge duly exercised
his discretion, he could not have come up with a sum by way of interim rental
which represented an increase of some 230% on the existing rent but only 15%
below the rent determined for the new term. He asks this court to set aside the
judge’s decision and order a new trial.
For the
landlord, Mr Mendoza pointed out that each case, as Nourse LJ observed, depends
on its own facts and it is not essential that in every case there has to be
some cushioning. He referred us to an earlier passage in the judgment of Nourse
LJ in the Follett case at p 90D where he said:
We were also
referred to the decision of this court in Halberstam v Tandalco
Corporation NV . . . where no reduction had been made at first instance. At
p 394 Robert Goff LJ (with whom Stephenson LJ agreed) said:
‘It is to be
observed that the Vice-Chancellor, in the Eldonwall case, did not state
that a ‘cushion’ had to be provided in every case; indeed, he made it plain (at
p 434 of the report) that the market rent was to be suitably tempered by
reference to the existing rent ‘where appropriate’.’
Mr Mendoza
therefore submitted that in the present case the judge was entitled to reach
the conclusion he did.
I have
considerable sympathy for the judge in the position in which he found himself
on this question, which was, and which was clearly treated before him as, very
much a subsidiary question to the main issue. He had very little material
before him on which to decide this subsidiary question. But the material before
him included,
of the interim rent should be of the order of £2,500. It will be recalled that
in fixing the amount of the rent of the new term the judge adopted a figure
which was not much greater than the figure put forward by Mr Klemin in his
supplemental report. It seems to me that the question which arises on this
appeal is whether there was evidence on which the judge could properly fix in
favour of the landlord an interim rent which was 15% lower than the rent of the
new term. The effect of so fixing the rent in the present case was that,
because of the length of time the application had taken, the interim rent was
to operate from a date somewhat over three years earlier. Given a rental of
£1,250 in 1979 and of about £5,000 in 1988, payment of an interim rent of
£4,234 for this three-year period might well mean that for the earlier part of
the period the tenant would be paying in excess of the then current open market
value. That cannot be right. In my view, on the limited evidence before the
judge, there was no material on which he could properly exercise his discretion
in the way that he purported to do. The landlord put forward no evidence as to
what the amount of the interim rent should be and in those circumstances, to
depart so significantly from the figure put forward by the tenant’s surveyor,
with the consequences I have stated, seems to me, in the absence of any
explanation from the judge, to be a course which cannot have been right.
Having regard
to the length of time which these proceedings have been on foot and the sums
involved, I view the prospect of a new trial with some abhorrence, but Mr
Mendoza did not suggest that we had material before us — indeed we do not — on
which, if we consider that the judge had erred, as in my view with respect to
him I think he did, we ourselves could fix the amount of the interim rent. In
those circumstances, although with considerable reluctance for the reason I
have given, in my view this appeal should be allowed and the question of the
amount of the interim rent should be remitted to the county court for a fresh
hearing.
PARKER LJ
said: I agree. The application was the landlord’s application for an interim
rent. It was for him to establish the rent which should be paid. There was, it
seems, no evidence on the landlord’s part at all. There was positive evidence
that the interim rent should be a figure of £2,500 tendered by the tenant. In
those circumstances, and in the absence of any reason given by the learned
judge, I am unable to see how this decision can be allowed to stand. With equal
reluctance to that expressed by Nicholls LJ I would also allow the appeal and
order that the matter be remitted for a retrial in the county court.
The appeal
was allowed with costs.
