Landlord and Tenant Act 1954 — Tenant giving up occupation before expiration of contractual term — Whether tenancy continues — Whether section 27(2) notice required to determine term
By a
subunderlease dated September 18 1989 the second plaintiff subunderlet part of
an office block to the defendant tenants for a term of five years from February
15 1988 at a rent payable in advance. On the same date the first plaintiff
sublet the whole of the office block to the defendants, subject to and with the
benefit to the subunderlease, also for a term of five years from February 15
1988. The defendants occupied the whole of the office block for the purposes of
their business until December 5 1992; the contractual terms of the sublease and
subunderlease expired on February 14 1993. By February 5 1993 the last of the
defendants’ equipment had been removed from the premises. The plaintiffs sought
rent from the defendants up to June 24 1993 on the basis that no notices
satisfying section 27(2) of the Landlord and Tenant Act 1954 were served until
January 5 and 15 respectively expressed to expire on the June quarter day. The
defendants contended that as they had given up occupation before the term date,
their tenancies were not continued by the 1954 Act and no notices were necessary.
will continue unless determined in accordance with the provisions of that Act
notwithstanding that the tenant gives up occupation before the contractual term
date. The quality of the defendants’ occupation necessary to satisfy section 23
of the 1954 Act ceased on December 6 1992 and, accordingly, the tenancies were
determined on June 24 1993 by the section 27(2) notices served by the
defendants.
The following
cases are referred to in this report.
Caplan
(I&H) Ltd v Caplan (No2) [1963] 1 WLR
1247; [1963] 2 All ER 930
Cheryl
Investments Ltd v Saldanha [1978] 1 WLR
1329; [1979] 1 All ER 5; (1978) 37 P&CR 349; [1978] 2 EGLR 54; 248 EG 591,
CA
Cornish v Brook Green Laundry Ltd [1959] 1 QB 394; [1959] 2 WLR 215;
[1959] 1 All ER 373; [1959] EGD 116; (1959) 173 EG 307, CA
Green v Bowes-Lyon [1963] AC 420; [1961] 3 WLR 1044; [1961] 3 All
ER 843; [1961] EGD 301; (1961) 180 EG 429, HL
Long Acre
Securities Ltd v Electro Acoustic Industries Ltd
[1990] 1 EGLR 91; [1990] 06 EG 103
Royal
Life Saving Society v Page [1978] 1 WLR
1329; [1979] 1 All ER 5; (1978) 37 P&CR 349; [1978] 2 EGLR 54; 248 EG 591,
CA
This is a
hearing of a preliminary point of law in actions by the plaintiffs, Esselte AB
and British Sugar Corporation, against the defendants, Pearl Assurance plc, for
arrears of rent.
Jonathan Brock
(instructed by Theodore Goddard) appeared for the plaintiffs; Wayne Clark
(instructed by Geoffrey Delany, of Peterborough) represented the defendants.
Giving
judgment, JUDGE COLYER QC said: In this judgment I shall refer to the
sections of the Landlord and Tenant Act 1954 simply by their section numbers
and I shall refer to that statute simply as ‘the Act’.
By their
statement of claim, timeously issued on June 25 1993, the plaintiffs claimed
from the defendants sums said to be due for the period expiring on June 24 1993
as rent and insurance rent under a sublease and subunderlease respectively of
Guild House, Arundel Road, Peterborough, and of a part referred to throughout
the proceedings as ‘area A’ of Guild House. Guild House is a large office
block. I am not concerned at this hearing with the quantification of the claim.
The parties are in dispute as to whether by operation of the Act, the sublease
and the subunderlease determined and, accordingly, as to the date upon which
the defendants’ liability for rent ceased. The action also involves other
issues as to abatement of rent, which did not arise at this hearing.
The second
plaintiff (whom I will refer to simply as ‘British Sugar’) has a subleasehold
interest in area A, and by a subunderlease dated September 18 1989 British
Sugar subunderlet area A to the defendants, ‘Pearl’, for a term of five years
from February 15 1988 at a rent payable in advance. By a sublease made the same
day the first plaintiffs, ‘Esselte’, sublet the whole of Guild House to Pearl,
subject to and with the benefit of the British Sugar sublease, that is to say
that as to area A the 1989 sublease operated as a lease of the reversion. The
term of the sublease was also five years from February 15 1988 and the rent
again was payable in advance. Thus, the terms of the sublease and the
subunderlease both expired contractually on February 14 1993.
It is common
ground that the defendants occupied Guild House including area A for the
purposes of the business carried on by them at least until December 5 1992, so
that at least until that date section 23 was satisfied and the two tenancies
were tenancies to which Part II of the Act applied. It is also common ground
that no distinction falls to be made between area A and the whole of Guild
House and I shall therefore subsequently ignore that distinction and simply
refer to ‘the premises’ collectively being the premises comprised both in the
subunderlease and the sublease.
By consent by
an order dated June 24 1994 it was ordered that the following question be tried
as a preliminary issue in this action, that is to say:
determination
of the date on which the tenancy created by the Pearl underlease as defined by
paragraph 3 of the amended Statement of Claim and the Pearl subunderlease as
defined by paragraph 5 thereof was determined, and in particular whether (a)
the operative date was 15th February 1993
— the date for
which the defendants contended —
(b) 24th June
1993
— the date for
which the plaintiffs contended —
or (c) some
other, and if so what, date
— a choice
which appealed to neither party.
Pursuant to
this order an agreed statement of facts was prepared, although very recently it
became apparent that Pearl were not (or were no longer) in agreement with para
8 of that statement. The plaintiffs did not object to the defendants tendering
an amended para 8 to record their contentions as to the matters referred to in
para 8 of the supposedly agreed statement or to the defendants calling evidence
on the question as to when they ceased to occupy the premises in such manner as
to satisfy section 23.
That evidence
was the oral evidence of Mr David John Randall, who was the defendants’ head of
facilities and who at all relevant times was responsible for the provision of
office accommodation for Pearl’s staff in the relevant area and in particular
those who were accommodated in Guild House. Mr Randall’s evidence, which I
accept so far as he could speak to the relevant events, was that Pearl had
decided to relocate their head office operations from London to Peterborough in
1987 and that while the new purpose built head office was being constructed at
Peterborough the head office staff were accommodated in a number of different
locations in and around Peterborough under what he termed ‘short-term leasing
arrangements’. Guild House was one such location and the five-year sublease and
subunderlease to which I have referred were some of those ‘short-term leasing
arrangements’.
In 1992 the
gathering in of the head office staff into the new head office began and the
staff who were working in Guild House were transferred to the new premises as
to most of them in November 1992. The last remaining staff vacated Guild House
by midday on December 3 1992, a Thursday, and were instructed to report to
their new location the following Monday, that would be December 7. Mr Randall
in his witness statement, which he verified on oath, says:
Between 3rd
September and 6th December 1992 my own staff then known as office services
co-ordinated the movement of all office files, furniture and equipment from
Guild House to Western House.
I interject
Western House was that portion of the new headquarters to which the staff were
moving. He continues:
I cannot
recall the exact time we completed matters, but by the evening of Sunday, 6th
December 1992 the building was empty apart from kitchen equipment which was to
remain and a PABX system which was to be removed. During Pearl’s occupation of
Guild House Pearl had employed a caretaker or handyman, Brian Harrington. He
was not resident at the premises, but was employed on a five day week Monday to
Friday between the hours of 9 and 4.45. His attendance at the premises was
arranged by Pearl’s property management company, A & P Asset Management.
— a company who
figure again in a moment.
That evidence
was not challenged. He also stated, amending the original dates referred to in
the witness statement, that:
The PABX
system, the telephone exchange system, was removed prior to 14th February 1993,
but I am unable to give the exact date. It was removed and placed into storage
in another of Pearl’s sites at …
Peterborough. I am aware that a full clean and rubbish removal was
carried out at Guild House during the week ending 5th February 1993 and the
PABX system would have been removed prior to that date.
Orally he
added that he had seen it in store before that date and so knew, since he had
seen it in another location, that it had been thus removed. Both orally and in
the witness statement he indicated that although he was aware of Mr Harrington
and that Mr Harrington’s services had been taken over by the plaintiffs, nevertheless
his knowledge of all matters other than those matters to which I have referred
or have quoted him upon was secondhand. In relation to Mr Harrington and events
after December 5 other than those recounted Mr Randall had relied upon what
someone else had extracted from the personnel records and had then told him. He
had not even read the records. I need not dwell upon the point, but such
evidence is hearsay several times removed from the relevant events and totally
inadmissible. That is no criticism of Mr Randall at all.
But that of
his evidence which is admissible satisfies me and I find that:
(1) all work
by staff save removals had ceased before close of business on December 3;
(2) on
December 3 the staff were transferred to another location and the defendants
did not intend again to use the premises, but intended to carry on their
business permanently from the new head office site;
(3) after
December 5 Pearl made no use of the premises. Although the PABX remained there,
it was unused and merely awaiting its imminent removal;
(4) Pearl
specifically intended not to use the premises for business purposes or to bring
personnel or equipment back;
(5) all of
Pearl’s chattels including files and the like as well as furniture and business
equipment had been removed by December 6 1992, save for the PABX system and
some kitchen equipment which was being abandoned;
(6) by
February 5 1993, at the latest, the PABX system had been removed;
(7) at most
the contact of Pearl with the premises after February 5 was that some debris, a
small quantity of abandoned kitchen fittings and broken furniture, remained in
the premises.
I do not
consider that merely to leave that PABX system behind pending its removal,
unused and in circumstances when the defendants had a positive intention of not
returning and not using it (if you can have a positive or specific intention not
to do something), amounted to business occupation for the purposes of section
23, and I find the quality of Pearl’s occupation of Guild House ceased on
December 6 to satisfy section 23, although it had satisfied section 23 until
then. If I am wrong, then anyway such occupation ceased on a date shortly
before February 5 1993. I do not consider that it matters which date is the
correct date, given that both are before February 14 1993, the contractual
expiry of the subunderlease and sublease.
On November 16
1992, when on any view section 23 was still being satisfied, Pearl by its
senior management surveyor wrote as follows to Esselte:
As you are
aware, my client’s underlease of the above premises dated 18th September 1989,
expires on 14th February 1993, and I hereby give you formal notice on their
behalf that they do not wish to renew the lease as at that date. I shall be
pleased if you will confirm receipt of this letter as soon as possible.
It is common
ground between the parties that that letter is not sufficient as a notice for
the purposes of section 27(1) because November 16 is just short of the three
months required for a notice given under that subsection.
Theodore
Goddard, on behalf of Esselte, wrote on December 23 to Pearl, after introducing
themselves:
Following
advice which we have given to our clients we are instructed to write to inform
you that our clients do not accept your letter as a sufficient valid notice on
behalf of your clients to terminate your client’s lease on 14th February 1993.
Although sent
by registered post and despatched over the Christmas period, by some miracle
this letter arrived the very next day, December 24, and Pearl immediately by
recorded delivery responded, giving what was termed ‘notice terminating their
underlease dated 18th September 1989 as at 31st March 1993’, rather than
hand-delivering on December 24 a notice to expire on the March quarter day. It
is common ground that the second attempt to satisfy section 27 also fails since
March 31 is after the contractual term date, that is to say after February 14,
but is not itself a quarter day, and section 27(2) requires that a notice
served thereunder shall be given for a quarter day.
Parallel
notices of November 16 and December 24 were addressed in letter form, (for
there is no prescribed form under section 27), to British Sugar who were told
that ‘this notice’, that is the December 24 notice, ‘is in substitution for the
original’, that is the November 16 notice, ‘which is invalid due to
insufficient notice being given’. On January 6 1993 British Sugar served a
section 25 notice on Pearl expressed to determine Pearl’s subundertenancy on
January 3 1994, that is to say British Sugar gave more than 11-months notice.
Esselte has not served a section 25 notice.
Pearl by its
agents then adopted a different line and first raised the issue which I now
have to decide, Mr Ellie, the portfolio manager for A & P Asset Management,
Pearl’s agents, writing on January 5 thus:
Please note I
do not agree that our letter of 16th November was in any way defective. It did
not purport to be a notice under section 27 of the Landlord and Tenant Act 1954
because no such notice is required. The letter was for information and
sent out of courtesy and to confirm the position of which parts of your
client’s organisation were clearly aware given their appointment of letting
agents and the marketing campaign undertaken. My clients are no longer in
occupation and therefore do not have a tenancy to which Part II of the Landlord
and Tenant Act 1954 applies. There is no question of a continuation of tenancy
requiring determination coming into existence.
(Emphasis
supplied.)
And without
prejudice to this contention Mr Ellie sent a formally drafted section 27 notice
expressed to determine the tenancy on the next quarter day after three months
from the giving of the notice, ie June 24 1993. Parallel notice of the same
date was sent to British Sugar on January 15 1993, Mr Ellie writing:
Please note
that on behalf of my clients Pearl Assurance, a public limited company, I do
not agree that our letter dated 16th November was in any way defective.
I interject
that the letter had of course already been expressly withdrawn. He continues:
It did not
purport to be a notice under section 27 of the Landlord and Tenant Act 1954
because no such notice is required. The letter was for information and sent out
of courtesy to confirm the position of which parts of your client’s organisation
were clearly aware. Your clients are aware that my clients are not in
occupation and were not so at the date of your purported section 25 notice. As
my clients are no longer in occupation they therefore do not have a tenancy to
which Part II of the Landlord and Tenant Act 1954 applies. There is no question
of a continuation tenancy requiring termination coming into existence.
Thereafter the
inter-party and inter-solicitor correspondence consisted of exchanges of views
which I omit.
It is common
ground between the parties, first, that the two tenancies had been tenancies
which had satisfied section 23, that is business tenancies, and I have already
determined that that situation ceased on December 6 1992, alternatively
February 5 1993. Second, it is common ground that no notice which satisfied
section 27(1) had been served before the contractual term date of February 14,
and, third, that a valid notice under section 27(2) (if such notice be needed)
had been served to determine each tenancy on the June quarter day.
What separates
the parties is that Esselte and British Sugar contend that such section 27(2)
notice was necessary, since without it the tenancy continued, notwithstanding
that the business user did not continue, whereas Pearl, the tenants, contend that
provided their business user had ceased before February 14 section 24 could not
prolong the tenancy, which therefore expired as an unprotected tenancy by
effluxion of time on their contractual expiry on February 14.
For the
landlords, Mr Jonathan Brock points to the decision of the Court of Appeal in Long
Acre Securities Ltd v Electro Acoustic Industries Ltd [1990] 1 EGLR
91 and, very surprisingly, not elsewhere reported. That decision, says Mr
Brock, is decisive on the issue whether once a tenancy has been within the
protection of the Act and it then expires contractually without any agreement
for a new tenancy being made and the tenant vacates the premises it is still
necessary for the tenancy to be determined by either landlord or tenant giving
some form of notice. In the Long Acre case Dillon LJ summarises the
facts and the issue before the court thus at p91L:
The question
that arises is a question as to the application of certain provisions in Part
II of the Landlord and Tenant Act 1954. The premises were formerly business
premises which were occupied by the tenant, the respondent to this appeal,
under a 14-year lease. There were then proceedings under the Landlord and
Tenant Act and a compromise agreement was reached on December 8 1987 whereby a
further tenancy of the premises was granted to the tenant for a term from July
25 1987 to March 25 1988. The premises were at that stage being used by the
tenant for business purposes.
On March 3
1988 the landlord served a notice under section 25 of the 1954 Act to determine
the tenancy on March 1 1989. The tenant responded to that by serving a notice
on March 4 1988 under section 27(2) of the 1954 Act to determine the tenancy on
June 24 1988. However, on March 24 1988 the tenant told the landlord that the tenant
would be vacating the premises on March 25, that is, the original contractual
date for the expiration of the tenancy, and the tenant asked where the keys
should be sent. As the judge found, business occupation ceased on March 25
1988. The question is: up to what date is the tenant liable to pay rent? Is it
March 1 1989, under the landlord’s section 25 notice or June 24 1988, under the
tenant’s section 27(2) notice, or March 25 1988, the original contractual date?
The [trial] judge decided that it was March 25 1988 and the landlord appeals to
this court.
One of the
main planks of the argument of Mr Wayne Clark, for Pearl, is that the issue
then before the Court of Appeal could be expressed as whether a business tenant
who has already been served with a section 25 notice can shorten his tenancy
and liability for rent by giving a subsequent section 27 notice expressed to
expire earlier than the termination date specified by the landlord’s section 25
notice.
True it is
that this question summarises the procedural position which had arisen in the Long
Acre case. The landlord had indeed served a section 25 notice and
thereafter the tenant did serve its section 27 notice. But Dillon LJ approached
the problem not upon that narrow front but with a wider consideration of the
effect of the Act and as a result his ratio decidendi cannot, in my
view, properly be seen as confined to the narrow issue. He could have
approached the whole problem by concentrating solely upon the position under
the acts of landlord and tenant after the landlord had served a section 25
notice, but he did not do so, and it was because of the wider and more general
conclusions which he reached that he came to his decision on the narrower
issue, which decision was an application of those general propositions to the
particular. Although greatly attracted by Mr Clark’s excellent argument, I
therefore find myself unable to distinguish this case from Long Acre. If
a court travels down a particular route of reasoning to reach a conclusion,
even though other routes may be available, then the necessary steps in that
route, that is that chosen route, form part of its ratio decidendi.
I return to
Dillon LJ’s judgment. He first refers to and considers a number of the
statutory provisions, which I now read and have not hitherto quoted to avoid
repetition. Dillon LJ observes at p92A:
It is
necessary to look at certain of the sections in Part II of the 1954 Act.
Section 23(1) states:
‘Subject to the provisions of this Act,
this Part of this Act applies to any tenancy where the property comprised in
the tenancy is or includes premises which are occupied by the tenant and are so
occupied for the purposes of a business carried on by him or for those and
other purposes.’
Section 24
provides by subsection (1) that:
‘A tenancy to which this Part of this
Act applies shall not come to an end unless terminated in accordance with the
provisions of this Part of this Act; …’
There is
provision for the tenant under such a tenancy applying to the court for a new
tenancy.
Subsection
(3)(a) of section 24 provides that:
(3) Notwithstanding anything in
subsection (1) … [of this section]
‘(a) where a tenancy to which
this Part of this Act applies ceases to be such a tenancy, it shall not come to
an end by reason only of the cesser, but if it was granted for a term of years
certain and has been continued by subsection (1) of this section then (without
prejudice to the termination thereof in accordance with any terms of the
tenancy) it may be terminated by not less than three nor more than six months’
notice in writing given by the landlord to the tenant.’
Section 25
gives power to the landlord to terminate the tenancy. It provides by subsection
(1):
‘(1) The landlord may terminate a
tenancy to which this Part of this Act applies by a notice given to the tenant
in the prescribed form specifying the date at which the tenancy is to come to
an end (hereinafter referred to as ‘the date of termination’).’
There is then
a proviso that that subsection has effect subject to certain provisions as to
the interim continuation of tenancies pending the disposal of applications to
the court. Subsection (2) of section 25 provides that:
‘…
a notice under this section shall not have effect unless it is given not
more than twelve nor less than six months before the date of termination
specified therein.’
The
landlord’s notice of March 3 1988 was a valid notice under section 25. It
specified almost the maximum period of notice permitted by subsection (2) of
section 25
— I interject,
as did the section 25 notice in this case —
but it was,
subject to what happened subsequently, an effective notice to terminate the
tenancy.
The tenant is
given power by section 26 of the Act to make a request for a new tenancy, but
it is expressly provided by subsection (4) of section 26 that ‘A tenant’s
request for a new tenancy shall not be made if the landlord has already given
notice under the last foregoing section [section 25] to terminate the current
tenancy’. The point of that is that where the landlord has given a notice under
section 25 the tenant is given the right to apply to the court for a new
tenancy and there is therefore no occasion for duplicating that right by the
tenant’s making a request for a new tenancy under section 26. In the present
case, therefore, section 26 did not apply, first, because the landlord a gave
notice under section 25, and second, because the tenant did not want a new
tenancy.
I come to
section 27, which provides:
‘(1) Where the tenant under a
tenancy to which this Part of this Act applies, being a tenancy granted for a
term of years certain, gives to the immediate landlord, not later than three
months before the date on which apart from this Act the tenancy would come to
an end by effluxion of time, a notice in writing that the tenant does not
desire the tenancy to be continued, section twenty-four of this Act shall not
have effect in relation to the tenancy.’
— then added
by amendment —
‘unless the notice is given before the
tenant has been in occupation in right of the tenancy for one month.’
‘(2) A tenancy granted for a
term of years certain which is continuing by virtue of section twenty-four of
this Act may be brought to an end on any quarter day by not less than three
months’ notice in writing given by the tenant to the immediate landlord,
whether the notice is given after the date on which apart from this Act the
tenancy would have come to an end or before that date, but not before the
tenant has been in occupation in right of the tenancy for one month.’
Dillon LJ then
referred to the purposes of the amendment of the Act by the Law of Property Act
1969 and continued with a passage which Mr Brock contends is both the most
critically pertinent passage in relation to this case and the very essence of
his judgment. Mr Clark says that the passage is unnecessary to the decision in Long
Acre and should be seen as mere obiter dicta which goes beyond what
was decided and ignores the observations made in earlier cases and is therefore
incorrect. What Dillon LJ said was:
It is quite plain
therefore, under subsection (1) [section 27(1)], that the tenant for a fixed
term who does not want to continue his tenancy under the Act and will be
ceasing to carry on business in the premises on the expiration of the fixed
term is expected to give notice to his landlord not later than three months
before the date on which, apart from the Act, the tenancy would come to an end
by effluxion of time. That is in line with the need for a landlord to have
reasonable notice of his tenant’s departure, which one can find recognised in
other provisions in the Act, such as section 24(3)(a), to which I have
already referred. It is inconsistent, in my judgment, with the view adopted by
the judge that if the tenant ceased carrying on business on the contractual date
and left the premises he could do so without any notice at all because the
provisions of the Act would automatically fall away.
The view of
the learned county court judge in the Long Acre case which was thus
disapproved of is the contention put forward by Mr Clark in favour of the
tenants, albeit put forward by him in the slightly different procedural context
which arises in this case.
Having stated
that conclusion, his lordship then returns to the reason for it:
To my mind
the key provision is that in section 24(1) which provides that ‘a tenancy to
which this Part of this Act applies shall not come to an end unless terminated
in accordance with the provisions of this Part of this Act’. It follows that
the tenancy, which was a business tenancy that the tenant took under the
compromise agreement December 1987, was a tenancy which could be terminated
only in accordance with the provisions of the Act, even during its fixed term.
When one comes to section 27(2) one has the opening phrase ‘A tenancy granted
for a term of years certain which is continuing by virtue of section
twenty-four of this Act.’ It is submitted that that, in the present case, could
apply only after March 25 1988 if the tenant was still in occupation,
— then words
which I emphasise —
but the tenancy
by virtue of section 24 is continued by the Act and is from the outset a
continuing tenancy.
I have
emphasised the final phrase because it loomed large in argument. It was said
that a tenancy could not be a ‘continuation tenancy’ before its contractual
term date had passed, for continuation by operation of section 24 only
commences at that date. Put another way, prior to the expiry of the contractual
term there is nothing which is being continued, the continuation only by
ordinary usage of language occurring after the term date.
As to that I
would observe in the first place that the term ‘continuation tenancy’ is not a
term of art used in the Act. It is a convenient usage by practitioners to
describe a tenancy existing by virtue of the effect of section 24 after the
contractual date has already passed, that continuation following from the
stipulation in section 24 that the tenancy ‘shall not come to an end unless …’.
Second, I would observe that Dillon LJ’s precise phrase was ‘is from the outset
a continuing tenancy’; that is to say that he rejects the inelegant and
non-statutory lawyers’ usage of ‘continuation tenancy’ and refers instead to a
‘continuing tenancy’. I think that this use of language is consistent with the
view which one gets from close reading of the judgment, which clearly indicates
that he was saying that by virtue of section 24(1) when seen in the context of
the other related statutory provisions to which he referred once the tenancy is
caught by the Act by being a business tenancy satisfying section 23 thereafter
for some purposes the Act will operate upon the tenancy and, in particular,
will continue such a tenancy when the contractual expiry date arrives, that is
to say will so continue the tenancy if neither the tenant nor the competent
landlord under the Act take steps to prevent such continuation occurring. It
may well be that some such word as ‘potentially’ has been omitted from the
report for ‘a potentially continuing tenancy’ would make the sense more
obvious. But I cannot accept that this one sentence in the judgment in some way
vitiates the conclusion, for the phrase, however unhappy the choice of words
may be to a landlord and tenant lawyer, is clear in its intended meaning. Mr
Clark does not go so far as to contend that the decision in Long Acre
Securities was given per incuriam but walks a tightrope, contending
that the decision should stand, but should be distinguished since it stands
only on the narrow point that a tenant who has received a section 25 notice can
still serve a section 27 notice to accelerate the termination of his tenancy.
But the decision in Long Acre Securities has worse to come for the
tenants’ arguments, for after the passage last quoted Dillon LJ continued:
Moreover,
section 27(2) envisages a notice under the subsection being given before, as
well as after, the date on which apart from the Act the tenancy would have come
to an end; that is to say, in the present case, before March 25 1988. That
necessarily shows that you cannot look at the tenancy as merely continuing by
virtue of the Act after the date on which apart from the Act the tenancy would
have come to an end. Subsection (2) envisages the notice being given before
that date, yet the tenancy is still a tenancy which is said to be continuing by
virtue of section 24. That to my mind picks up the opening words of section 24,
to which I have already referred in the manner which I have mentioned.
In the
present case, therefore, my conclusion is that it was open to the tenant to
serve the notice under section 27(2). The tenant was not bound to await the
expiration of the landlord’s much longer notice. There is no reason why the
tenant should be regarded as locked in by the duration of the landlord’s
notice.
— then the
critical observation which further demonstrates that his decision rested on the
broad general analysis and was not confined to the precise situation on the
section 25 notice —
But the tenant
was not entitled to bring its liability to pay rent to an immediate end just by
quitting the premises on the original contractual term date. That term date is
subject to the provisions of section 24(1).
Mr Clark says
that that last statement is obiter. I cannot accept that is so — for
quitting the premises on the term date is exactly what the tenant did in the Long
Acre case, and the Court of Appeal was reversing the trial judge in his
determination as to the legal consequences of the tenant doing so. Mr Clark
further submits that it is wrong. He points to a number of earlier observations
made in previous decisions under the Act which he says the offending
pronouncement ignores and is inconsistent with.
The report of
the case does not indicate what, if any, decisions were cited to the Court of
Appeal. The judgment of Dillon LJ refers to no authorities, but solely to
sections of the Act. It would, however, surprise me if none were cited, and I
bear in mind that Mr Clark is contending that it is the dictum that is per
incuriam and not the decision. I do not for my part accept that the several
dicta referred to are not part of his lordship’s reasoning, so I must
loyally follow the Long Acre case.
But if I am
wrong in my analysis of what Dillon LJ said, and if the case can be
distinguished so that it does not bind me, can it be said that his reasoning is
demonstrated to be incorrect by the earlier cases or by reference to the
sections of the Act? In my view, no, and I respectfully say that, in my view,
the scheme or design of the Act drives one to the same conclusion, that is to
say the same wide conclusion to which Dillon LJ came. It is, in my view,
dangerous to take dicta out of other cases where the issue now before
the court did not arise and to erect upon them an edifice of reasoning. It is
dangerous because all of those observations in other cases have very carefully
to be related to the facts and the issues in those other cases.
Mr Clark in
his skeleton and in his argument asks rhetorically, is a tenancy a continuation
tenancy during the contractual term, and points to the observations I have
quoted from Dillon LJ, although there Dillon LJ (as I have pointed out) used
the term ‘continuing tenancy’. Mr Clark says that that dictum of Dillon
LJ ignores in the first place the wording of other statutory provisions of the
Act, which are clearly premised on the continuing tenancy arising only after
the termination of the contractual term, and he invokes sections 24A, 26 and
27(1). I do not accept that those provisions are so premised. But the answer to
that is that Dillon LJ did not mean by his use of the phrase ‘continuing
tenancy’ what Mr Clark and most lawyers mean by a ‘continuation tenancy’ in the
sense of a continuation tenancy having already commenced. He further contends
that Dillon LJ ignored dicta to the effect that a continuation tenancy
under section 24(1) arises only on the termination of the contractual term made
in I&H Caplan Ltd v Caplan (No 2) [1963] 1 WLR 1247 at p1253;
in Cornish v Brook Green Laundry Ltd [1959] 1 QB 394 at p409 and
in Green v Bowes-Lyon [1963] AC 420 at p433 continuing on to
pp434 and 446.
I have
observed on the dangers of lifting the dicta on one issue under statute
and applying them to another without very carefully relating them to the
context in which they were given. But I should specifically refer, in deference
to the sustained argument which was submitted to the court, to those
observations which were cited.
First, the Caplan
case. There Cross J had to consider the effect of cessation of business by the
tenant while the tenant’s application to the court was still pending. The
termination date in the landlord’s section 25 notice had already passed and the
tenancy was therefore only being kept going by the very fact that proceedings
were afoot, but had not yet been disposed of so that section 64 applied. It is
in that context that Cross J observed at p1253:
Some points
appear to me at least to be reasonably clear. First, having regard to section
64(1), the notice served by the landlords on December 23 1958, operated as from
April 14 1959, as a notice to terminate the tenancy at the expiry of three
months from the date when the company’s application for a new tenancy is
finally disposed of. Secondly, it appears clear to me that the company’s
application has not yet been finally disposed of and that, therefore, this
interim tenancy is still on foot. Thirdly, I think it clear that the Act makes
no provision for the service of any fresh notice in the event of a tenancy ceasing
to be one to which the Act applies after the issue of the application for a new
tenancy. The possibility of a tenancy to which the Act applies ceasing to be
such a tenancy is indeed contemplated by section 24(3), which I have read, but
that subsection appears to me to refer only to the time before an application
for a new tenancy is made. Under section 24(1) a tenancy of business premises
for a fixed period continues after the expiry of that period unless the
landlord serves a statutory notice under section 25(1) and (4). If after the
expiry of the fixed period the premises cease to be used for business purposes,
the landlord can no longer serve a notice under section 25 because, ex
hypothesi, the tenancy has ceased to be a tenancy to which this Part — Part
II — of the Act applied, and unless something was specifically said about it,
it would be, I think, quite uncertain whether the tenancy extended by section
24(1) after the end of the fixed period went on for ever or came to a sudden
conclusion. I think it was to meet that difficulty that it is provided in
section 24(3)(a) that a continued tenancy is not to end summarily but that the
landlord is to have, as it were, a fresh contractual right to determine it. But
no corresponding right is given to a landlord either in the case of a tenancy
for a fixed term or in the case of a periodic tenancy when the tenancy has been
determined by a proper statutory notice but extended by section 64 until the
disposal of the tenant’s application for a new lease, and the extended tenancy
later ceases, during the pendency of the proceedings, to be a tenancy protected
by the Act. These points seem to me to be clear, but they do not solve this
case.
I would
observe that the lacunae of the Act are not so remarkable once one accepts the
remarkable and unique effect of section 64 that the very existence of
litigation of proceedings can continue the tenancy and prolong the tenant’s
estate. Accordingly, whether by discontinuance, dismissal or striking out, the
disposal of those proceedings itself determines the estate by operation of
section 64 three months after the matter is finally disposed of.
I think that
his lordship’s observation that the points that he referred to seemed to him to
be clear, but did not solve the case confirms the status of his observations as
obiter dicta. If his lordship were wholly correct then a landlord cannot
serve a section 25 notice when business user has ceased and cannot when the
tenancy is not a periodic tenancy serve a notice to quit in contrast to a
section 25 notice. Thus, the landlord is indeed at peril for the tenant who has
served no notice at all can decide to vacate on the very contractual expiry
date. It is odd that there is no express provision in the Act either giving the
landlord the right to serve a notice, that is a notice akin to a section 25
notice, in any event for the contractual expiry date or a subsequent date or,
alternatively, expressly requiring the tenant to do so in any event if the
tenant desires that the tenancy not continue, that is to say, a provision
analogous to or corresponding to section 3(3) of the Rent Act 1977. It would be
clearer if there were such a provision in the Act. But although it would be
clearer it is not, in my view, strictly necessary, for once one sees that the
critical provision of the whole of Part II of the Act is that in section 24(1)
that ‘a tenancy to which this Part of the Act applies shall not come to an
end unless terminated in accordance with [the provisions of the Act]’, once
one sees that and once the tenancy has been a business tenancy, that is to say
once it has in the past satisfied section 23, then section 24(1) has caught it.
Then it becomes clear that the mere cessation of business user will not prevent
the tenancy continuing any more than it will bring to an end a continuation
tenancy — I use that term deliberately in this sentence — once such
continuation has occurred. Yes, the tenancy may cease to satisfy section 23,
but section 23 does not say that in such a case either the Act shall no longer
apply or still less that no provision whatsoever of the Act shall continue to
apply.
Section 23 is
cast in positive terms and it omits any such phrase as ‘if and so long as’;
compare Rent Act 1977, section 2(1)(a); Housing
1985, section 79. In Caplan v Caplan (No 2) an entirely
different procedural problem was being considered to that now before the court.
Mr Clark then
referred to Cornish v Brook Green Laundry Ltd (supra).
There, Romer LJ giving the judgment of the court, said at p408:
By reason of
section 24(1) of the Act of 1954, both Brook Green’s tenancy from the trustees
and Mrs Cornish’s subtenancy from Brook Green continued in operation
notwithstanding that, as a matter of contract, they both expired in September
1956; and as neither tenancy was terminated subsequently in any manner
authorised by the Act, the continuation of both tenancies was still effective
when in September 1957, Brook Green gave notice of their intention to oppose
Mrs Cornish’s application for a new lease. In HL Bolton (Engineering) Co Ltd
v TJ Graham & Sons Ltd Denning LJ considered the position which
arises from the continuation of a tenancy under the Act of 1954, and said that
in his opinion the right view was that the common law tenancy subsisted with a
statutory variation as to the mode of determination. In Weinbergs
Weatherproofs Ltd v Radcliffe Paper Mill Co Ltd Harman J adopted the
view of Denning LJ and said that ‘having regard to the language used in the Act
of 1954 the term must be thought of as continuing by way of a statutory
extension.’ Accordingly, in the present case, the rights and obligations
created by the lease of 1949 from the trustees to Brook Green were still in
force (subject to the variations effected by the Act) when Mrs Cornish’s
request to the trustees was rejected by them, as also were her own rights and
obligations under her sublease of 1950. In these circumstances it would seem prima
facie that Brook Green continued to be Mrs Cornish’s [her] landlord and
entitled as such to oppose her application for a new tenancy. Nor can we find
anything in the Act to displace the prima facie view.
His lordship
then read section 44(1) of the Act as it then stood.
Once again, we
have a very different situation where both tenant and its subtenant were
protected by the Act as business tenants so that tenancy and subtenancy both
continued beyond their respectively contractual expiry dates and the problem
was whether the head tenant in those circumstances was the competent landlord
for the purposes of section 44, in the wording in which section 44 then
appeared in the Act.
Then Mr Clark
referred to Green v Bowes-Lyon [1963] AC 420 at pp433–4 and 446.
Again the court had to consider a complex situation with tenant and subtenant,
a lease of the reversion being granted and in that context Lord Reid observed
at p434:
In this case
the respondent’s contractual term came to an end on April 1 1959, that is,
within 14 months of the relevant date, March 19 1958, so it is said that her
interest could not fulfil the condition. But that is confusing term and
tenancy: no tenancy came to an end on April 1 1959. At the relevant date the
respondent’s tenancy was protected by the Act, and if it remained a protected
tenancy it could not come to an end on the expiry of the contractual term. I
could understand the argument if the Act allowed the contractual tenancy to
expire and created a new one to follow it. But that is not what it does. I
agree with the course taken by the Court of Appeal in Cornish v Brook
Green Laundry Ltd in following earlier opinions of Denning LJ and Harman J
to the effect that the common law tenancy subsists with a statutory variation
of the mode of determination or continuance by way of statutory extension. When
the words have to be applied to an unprotected tenancy — in the present case to
the tenancy of Wells — then the tenancy does come to an end at the end of the
contractual term. But when they have to be applied to a protected tenancy — in
the present case to the tenancy of the respondent — then the tenancy does not
come to an end at the end of the contractual term but remains in existence as
the same tenancy for an indefinite time until terminated in one of the ways
provided by the Act. I see no ground for reading into the Act words to make it
read ‘a tenancy of which the contractual term will not come to an end within 14
months’.
I fully accept
that a tenancy which is continued by the Act is the same tenancy, albeit
extended and varied as to its mode for termination by the Act. I cannot accept
that those observations and also those of Lord Hodson in the same case at p446,
again affirming that ‘the continuing tenancy is still the same tenancy as
before’, cast doubt upon Dillon LJ’s approach in Long Acre Securities v Electro
Acoustic Industries (supra). Indeed, I derive some support from the
proposition that before and after the contractual term date the tenancy is one
and the same tenancy. If it is one and the same tenancy then the change which
has been effected to it by section 24(1) has already occurred before the term
date. True it is that the section operates in one sense so as to extend the
life of the tenancy only after the contractual term date, but it has already
operated before that date in that it has substituted for the common law method
of determining the tenancy (that is effluxion of time) a different method (that
is the apparatus of notices or requests for new tenancies) provided by the Act.
Thus, if one
considers the position of the business tenant immediately before the
contractual term date and immediately after it, it is identical. At either
moment of time, before or after the contractual term date, the security of
tenure is the same and the method of determination is the same. Something
therefore has already happened to this tenancy before the contractual term date
has arrived. Thus, I do not find the discussion in what I will term the section
44 cases to be of compelling force and, indeed, to some extent I think they are
supportive of Dillon LJ.
The critical
question which is expressed by Mr Clark thus is: ‘Is the tenancy continued
after the contractual expiry date, notwithstanding cessor of its business
occupation?’ He submits that there can be no such continuation of the tenancy
where the tenancy has ceased to be one to which Part II of the Act applies
before the contractual term date unless the factual situation, he says, is one
falling precisely within the facts of Long Acre. To that I would say,
‘But why?’ and that I consider the provisions of section 23(3)(a),
although in one sense the continuation occurs only after that date, to be
inconsistent with that approach. Mr Clark contends that the conclusion that he
advances is consistent with the statutory requirement that there must be a
tenancy to which the Act applies in order for section 24(1) to bite. I would
interject there was one prior to December 6 1992, alternately February 5 1993.
Second, he says it is inconsistent with dicta to the effect that the
termination provisions of the Act apply only to a tenancy to which the Act
applies, by which he means applies at the relevant point in time. He refers to Cheryl
Investments Ltd v Saldanha [1978] 1 WLR 1329* and especially to
passages therein at p1338D. The Cheryl case was an appeal which was
heard together with another appeal, Royal Life Saving Society v Page,
and in the two cases the landlords had sought to establish that the Act
applied, since it would be easier to obtain possession in the very unusual
circumstances of the Cheryl case and since they would have been entitled
to immediate possession had they succeeded in the decision in the case Royal
Life Saving Society v Page. In the latter case the landlord had
sought possession on the basis that a section 25 notice had been served and had
expired without an application being made to the court for any order for a new
lease under section 24.
*Editor’s
note: Also reported at [1978] 2 EGLR 54.
Both the
defendant tenants contended that the Act did not apply at all and that they
were residential tenants protected under the Rent Act. Dr Page succeeded; Mr
Saldanha did not. It was in that context that Geoffrey Lane LJ (as he then was)
observed at p1337G:
First, what is
the point of time at which for the purpose of the present two cases the
requirements of section 23(1) of the Landlord and Tenant Act 1954 must be shown
to be fulfilled? Secondly, what do those requirements mean?
To answer the
first question, it is necessary to look at the difference in effect between the
Act of 1954 on the one hand and the Rent Acts on the other. A tenancy to which
Part II of the Act of 1954 applies does not generally speaking come to an end
when the contractual term expires. By section 24, unless the parties take the
proper steps in accordance with the terms of Part II of the Act, the
contractual tenancy is continued. Thus, where there is a tenancy for a term of
years certain and no steps are taken under the Act to terminate at the end of
the term the statute willy-nilly causes the tenancy agreement to stay alive.
Where, however, the premises are subject to the Rent Acts and not to the Act of
1954, at the end of the term the contractual relationship between the parties
comes to an end and thereafter the tenant assumes a different status, one
regulated by statue. Once that has happened it seems clear that the contractual
tenancy cannot be revived (other than by a fresh agreement between the parties)
whether or not the tenant starts to occupy for purposes of
be shown to exist is the date on which the contractual tenancy came to an end.
I interject
the first date on which the provisions of section 23(1) must be shown to exist
in order to demonstrate that the tenant continues to be protected fully by the
Act in order that the tenant could apply for a new lease. His lordship then
continues:
If the tenant
continues the ‘business occupation’ (if it may be called that) thereafter, no
further difficulty arises. What is the situation, however, if between the end
of the contractual tenancy and the service of notice of determination by the
landlord the business occupation ceases? Section 25(1) provides that the
landlord
‘may terminate
a tenancy to which this Part of this Act applies by a notice given to the
tenant in the prescribed form specifying the date at which the tenancy is to
come to an end …’
If at the
time the notice is served the business occupation has ceased, there is no ‘tenancy
to which this Part of this Act applies,’ and nothing on which a section 25
notice by the landlord can bite. It seems therefore that the business
occupation must exist both at the time the contractual tenancy comes to an end
and at the date of service of the notice of determination. It is necessary to
point out, however, that in neither of the two cases with which we are
concerned was there any change of purpose between the term date and the service
of notice of determination. In each case the question is, was there or was
there not a section 23(1) business occupation at the time the contractual
tenancy ended?
I think those
observations are in point but they are diluted by the way that that case was
argued and by the procedural position, particularly the fact that in Cheryl
Investments v Saldanha the tenancy was on any view still subsisting
at the time of the hearing. I note also the brief and more cautious judgment of
Eveleigh LJ, who observed at p1341F:
I agree that
the appeal in the case of Cheryl Investments Ltd v Saldanha
should be allowed. I think, for the reasons given in the judgments just
delivered, that the tenant was at all times occupying for business purposes.
Again, for the reasons just given, I think that Dr Page was at no time
occupying for business purposes.
In these
circumstances it becomes unnecessary to say at what particular time it has to
be shown that section 23 applies.
I venture, if
only in tribute to Mr Clark’s sustained argument, to express my own view on the
slightly wider problem in the light of the authorities to which he has referred
and others and of the Act.
If a tenant
seeks to apply to the court for an order that the tenant be granted a new
lease, then the tenant must show that ‘the Act applies’ at the time the tenant
makes the application to the court and continuously throughout the proceedings
and that it did apply and continued so to apply at and after the contractual
expiration date if that date be before the date of the application. The magic
thread, as it were, must not be broken. So for entitlement to a new lease there
must at all times be a tenancy to which the Act applies, that is to say one
which satisfies section 23. The vast majority of disputes hitherto have been of
that type and I suspect in future will be. But where the question is whether
the Act has affected the respective positions of the parties, albeit that
section 23 is no longer satisfied but where it has been satisfied in the past,
it will normally be enough to inquire whether the tenancy has been caught by
the Act at some point of its life. Those cases will be the small minority of
cases, but this case is one of them. The distinction is therefore between: (a)
a present entitlement to a new lease; and (b) rights being affected otherwise
than by such an entitlement.
In the
circumstances therefore of this case this tenancy continued until determined
pursuant to the provisions of the Act, that is pursuant to section 27(2) upon
June 24 1993. So to hold imposes the very minimal obligation upon tenants of
serving notice on their landlords if they intend to vacate. Ex hypothesi,
they are business tenants and since the giving of such a notice by a business
tenant does not involve the use of prescribed forms or involve undue
complications or ceremony. It is not surprising in a business relationship that
this minimal burden of having to take the initiative should rest upon the party
in whose knowledge are all the relevant facts and whose decision it is or will
be whether the tenant purposes to carry on its business use or to resume it
before the contractual expiry date. To hold the contrary would leave the
landlord a sitting duck, powerless to do everything save in respect of periodic
tenancies, since it is common ground and emphasised by Mr Clark that a section
25 notice can only be served when the tenancy remains one to which the Act
applies, that is which still at the date of the giving of that notice satisfies
section 23.
I therefore
answer the question directed to be tried by declaring that the date upon which
the tenancy created by the Pearl underlease as defined by para 3 of the amended
statement of claim and the Pearl subunderlease as defined by para 5 thereof was
determined was June 24 1993.
