Landlord and tenant — Rent review provisions in lease of premises let to solicitors — Dispute as to construction — Solicitors who owned the freehold of their own premises took a lease of upper floors of adjoining premises for additional office accommodation — For various reasons the access to this additional accommodation was at first-floor level through the solicitors’ own freehold premises, no access being provided at the ground level of the adjoining premises — It was therefore submitted by the solicitor lessees that the rent to be determined under the rent review clauses must be on the basis that, without independent access, the demised upper floors could not be let to anyone else — The rent review clause, however, provided for the rent to be that at which the demised premises might reasonably be expected to be let on the open market by a willing lessor to a willing lessee — Held, applying the principle of The Law Land Co Ltd v Consumers’ Association Ltd (1980) 255 EG 617, [1980] 2 EGLR 109, that the review rent should be determined on the basis of an implied disregard of the fact that access to the demised upper-floor accommodation was only through the lessees’ own adjoining premises and not independently from ground-floor level — Implication justified as necessary to give practical effect to rent review clauses — Judgment for lessors
In this action
the plaintiffs, solicitors practising under the name of Merton Jones Lewsey
& Jefferies, sought a declaration as to the true construction of rent
review provisions in a lease of first-and second-floor accommodation at
757-757A High Road, North Finchley, London N12. The defendants were the lessors
of this accommodation, which adjoined freehold premises owned by the plaintiffs
at 753 High Road.
G Hodgson
(instructed by Merton Jones Lewsey & Jefferies) appeared on behalf of the
plaintiffs; W D Ainger (instructed by Malcolm Ellicott & Co) represented
the defendants.
Giving
judgment, NOURSE J said: This case is concerned with the effect of rent review
provisions in a lease dated March 4 1976 and made between the defendants as
landlords of the one part and the plaintiffs as tenants of the other part. The
plaintiffs are solicitors whose firm practises under the name of Merton Jones
Lewsey & Jefferies. They, or their predecessors, have for many years — I
think since 1929 — practised from offices at 753 High Road, North Finchley,
London N12, the freehold of which was purchased by the firm on June 30 1982.
Immediately before that, those premises had been held under a lease for 60
years granted in 1965. The plaintiffs’ firm is a very well-known firm in that
part of London.
The adjoining
premises are now numbered 757 and 757A High Road. The freehold of those
premises was purchased by the defendants at auction in 1971 and is still owned
by them. No 757 comprises a ground-floor shop with a basement beneath and two
upper floors which extend over no 757A. There is a two-storey rear addition to
no 757. No 757A consists of a ground-floor half shop which was created by
enclosing what was formerly a vehicular access to the rear yard. No 757 has a
basement which has at all material times been used as a store and which, since
about 1965, has been let to the plaintiffs’ firm as an adjunct to their
premises at no 753. Access between no 753 and the basement of no 757 is
obtained by means of an opening in the party wall at that level. Neither the
basement nor the terms under which the plaintiffs hold it play any part in the
matters with which I am concerned in this case.
Until November
1975 the ground floor of no 757 was used as a petshop but on December 8 of that
year, following the surrender of another lease which appears to have been
granted only on November 24, the defendants granted a lease of those premises
to a company called Preston Travel Ltd for a term of five years from December 1
1975. That company carries on the business of a travel and theatre ticket
agency at that shop. The ground-floor lock-up half shop at no 757A has at all
material times been let to another company for use as a staff travel and
duplicating agency and those premises do not come into the matters with which I
am concerned either.
Prior to 1973,
the first and second floors above nos 757 and 757A were let and occupied as
self-contained residential flats. Access to both flats and the shop at no 757
was obtained by a door and entrance lobby at street level between nos 753 and
757. A passageway and staircase then gave access to the first-and second-floor
flats.
In 1971 and
1972, the plaintiffs’ firm had been actively pursuing a search for additional
office accommodation. In due course, the parties became aware of the
possibility of using the residential accommodation at nos 757 and 757A for that
purpose and negotiations between the plaintiffs’ firm and the defendants commenced
in March 1973. In or about March 1974, the second-floor flat became vacant. The
tenancy of the first-floor flat had expired in October 1973 and an order for
possession of that flat was subsequently obtained. On April 17 1974, after an
appeal, the plaintiffs’ firm was granted planning permission to use the first
and second floors of nos 757 and 757A as offices for a period of seven years
from that date but subject to a provision that the permission should enure for
the benefit of the firm only and not for the benefit of the land or of any
other person or persons for the time being having an interest therein.
By agreement
between the parties, certain correspondence has been put in as evidence of the
factual background known to the parties at or before the date of the lease
subsequently granted and of the genesis and objective aim of the transaction.
On April 2
1973 the defendants’ agent wrote to the then senior partner of the plaintiffs’
firm proposing a five-year lease at an exclusive rent of £2,750 per annum. It
was proposed that the defendants were to be responsible for the removal of the
staircase between the ground and first floors of no 757 and the making good of
the door and ceiling to the staircase area. On the other hand, the plaintiffs
were to make their own access at first-floor level and to reinstate that part
of the premises at the end of the lease. Two days later, the defendants’ agents
sent a revised proposal, this time for a 10-year lease with a five-year rent
review at an initial rent of £2,500. Different rental figures were thereafter
mentioned at different times during the negotiations, but I have seen no
evidence which suggests to me that the plaintiffs or the defendants ever
contemplated between 1973 and 1976 that the plaintiffs would have access to the
premises except through a hole in the wall at first-floor level.
The
defendants’ evidence is to the effect that that proposal came from the
plaintiffs, doubtless, say the defendants, because the plaintiffs did not want
another entrance to their premises and because the shop at no 757 was then
occupied as a petshop. It is also clear to me that the proposal made on April 4
that the term should be a 10-year term with a rent review at the end of five
years was not varied either.
In any event,
on October 9 1975 the plaintiffs’ agents wrote to the defendants’ agents making
a subject-to-contract offer which later became the basis of the lease between
them. The letter contained the following terms: first, that the term was to be
for 10 years with a rent review after five years; secondly, that the term was
to be
be obtained; thirdly, that the plaintiffs’ firm was to be responsible for the
cost of the alteration required to give access from their existing premises at
no 753 into the first and second floors of no 757 and 757A. The letter observed
that the work could presumably be carried out by the defendants if they so
wished; fourthly, the defendants were to be responsible for certain building
operations noted in a separate schedule. That schedule clearly contemplated
that the removal of the staircase between the ground and first floors of no 757
was to be at the option of the defendants but that, if they removed it, the work
was to be done at their expense; fifthly, the lease was to commence immediately
the works had been satisfactorily completed. I need not mention the sixth term.
Seventhly, the amount of the rent was to be subject to an agreement and an
initial offer of £2,500 was made. In fact, it was later agreed among other
things that the 10-year term should run from January 1 1976 and that the
initial rent should be £2,800 per annum.
In November
1975, a quotation in the sum of £532 plus VAT for the removal of the staircase
and the formation of a doorway and a small staircase between the first floors
of nos 753 and 757 which were at different levels was submitted. In due course
that was accepted by the plaintiffs and the defendants. The works started in
about December 1975 and it appears that they had been practically completed by
February 24 1976 because on that date a snagging list was produced which
referred to the door communicating with no 753 as requiring easing as it did
not shut.
Meanwhile, as
I have already stated, the defendants had granted a lease of the ground-floor
shop at no 757 to Preston Travel. That lease had not included the entrance
lobby, passageway and staircase to the first floor but merely rights of access
over the entrance lobby and passageway. The position was that one entered the
lobby and then had to turn right to get into Preston Travel’s premises.
However, since it was clear that the staircase was not going to be required by
the plaintiffs, Preston Travel had asked for the whole of this area to be
incorporated into its main premises so as to form one shop unit. That was
agreed to by the defendants in principle but they were no doubt advised, and in
any event they took the view, that they ought not to demise the additional
premises to Preston Travel until their lease with the plaintiffs of the two
upper floors of the premises had first been completed.
On March 4
1976 the two leases were completed in the order, first the lease to the
plaintiffs, and secondly the staircase lease to Preston Travel. The material
provisions of the plaintiffs’ lease are the following. It took what, to my
mind, is a rather odd form but is no doubt none the worse for that. The first
schedule contained a lot of definitions. The defendants and the plaintiffs were
defined as the lessors and the lessees respectively. The premises were defined
as:
ALL THOSE
first and second floor premises the roof the roof void and the chimneys above
the same all forming part of the Lessor’s building known as 757/757A High Road,
North Finchley, N12 in the London Borough of Barnet TOGETHER with the landing
and staircase between the first and second floors and the floor joists
supporting the first floor but excluding the ceiling of the ground floor
premises immediately below the first floor joists. All which said premises are
by way of identification only edged red on the plan annexed hereto and are
hereinafter referred to as ‘the demised premises.’
The demised
premises included certain rights but did not include any rights of access to
the premises. The term of the lease was 10 years from January 1 1976. The rent
was fixed at £2,800 per annum:
or such
greater yearly rent as shall become payable under the second part of this
Schedule.
There was then
a definition of the expression ‘the user of the premises’ which amounted to use
as offices defined by the appropriate class from time to time for planning
purposes with what may be an important proviso in these terms:
PROVIDED
ALWAYS that if the said user becomes impossible by reason of any act whatsoever
of any person persons or body corporate resulting in withdrawal of the planning
permission current at the date hereto then after all available appeal
procedures have been exhausted the Lessee shall at his option be able to
determine the term of years hereby created by giving at least three months
written notice of his intention so to do.
I now come to
the second part of the first schedule, which contains the rent review
provisions. Paragraphs (A), (B), (C) and (D) of that part are in these terms:
(A) The expression ‘rental value’ for the
purposes of this Lease shall mean the yearly rent at which the demised premises
might reasonably be expected to be let in the open market by a willing Lessor
to a willing Lessee with vacant possession and as a whole for the residue of
the term outstanding at the relevant date (that is to say the commencement of
the Second Period as hereinafter defined being the date in respect of which
rental value falls to be agreed or determined in accordance with the following
provisions of this clause) without taking a fine or premium and upon the terms
of this lease (except as regards rent) but on the supposition (if not a fact)
that the Lessees have complied with all the obligations as to repair and
decoration herein imposed on the Lessees (without prejudice to any rights or
remedies of the Lessors in regard thereto) there being disregarded (so far as
may be permitted by law):
(1) any effect on rent of any tenants fixtures or
fittings installed in the demised premises by any occupying tenant or of any
improvement carried out to the demised premises by the Lessees otherwise in
pursuance of any obligation under this Lease
(2) any effect on rent of the fact that the
Lessees or any tenant has been in occupation of the demised premises
(3) any goodwill attached to the demised premises
by reason of the business carried on thereat at the relevant date
(B) For the purposes of this Lease the term
hereby granted shall be divided into the following periods namely:
(1) First Period — from the commencement of the
term to the expiration of the fifth year during which the rent payable
hereunder shall be the rent reserved by the first part of the Schedule to this
Lease namely Two thousand eight hundred pounds
(2) Second Period — from the commencement of the
sixth year to the expiration of the term hereby granted
(C) Within one month after the commencement of
the Second Period the rental value at such commencement shall be agreed between
the Lessors and the Lessees or (failing such agreement within one month)
determined as hereinafter provided and the yearly rent payable under this Lease
during the Second Period shall be an amount equal to such rental value so
agreed or determined as aforesaid or the sum of Two thousand eight hundred pounds
whichever is the greater
(D) For the purposes of calculating the amount of
rent provided for under this clause the rental value at the relevant date shall
be the amount agreed between the Lessors and the Lessees within one month of
such date and in case no such agreement shall be made within one month as
aforesaid the matter shall be referred to a valuer to be agreed upon between
the Lessors and the Lessees or failing agreement to be chosen by the President
for the time being of the Royal Institution of Chartered Surveyors (or in
default of such choice then by the Court) and such valuer shall act as an
expert and not as an arbitrator and accordingly the Arbitration Act 1950 shall
not apply and the fees and expenses of such valuer shall be borne equally between
the Lessors and the Lessees but the parties shall be responsible for their own
costs.
Paragraphs (E)
and (F) of the second part of the first schedule then contain other provisions
relating to rent review which I need not read.
The lessees’
covenants are contained in the first part of the second schedule to the lease.
Of those I was referred to I will mention the following:
No 4 was a
covenant to permit the lessors or their agents and so forth to enter on notice
to view the condition of the premises. No 9 was a covenant not to interfere
with the main walls or structure of the premises. No 14 was a covenant against
assignment in a modified form which permitted assignment to respectable and
responsible persons and provided that the lessors should not unreasonably
refuse their consent to such an assignment, underletting and so forth. Nos 17
and 18 were further covenants to permit the lessors or their agents and so
forth to enter on the premises for certain purposes. No 20 may be of somewhat
greater importance. That was a covenant at the expiration or sooner
determination of the lease to reinstate and make good to the reasonable
satisfaction of the lessors’ surveyor:
the opening
recently formed with the consent of the lessors (hereby deemed granted) to give
access to the demised premises from the adjoining premises of the Lessees at
753 High Road aforesaid.
That clearly
shows, as was the case, that the formation of the opening had been completed
before the lease was granted.
Finally among
the lessees’ covenants I should perhaps mention no 21, which went to the
possibility of the determination of the lease under the proviso to the user
clause which I have already read. That entitled the lessees in that event to
certain compensation from the landlords in respect of the costs of making the
opening.
Before leaving
the plaintiffs’ lease, I should also mention the fact that it contained a
proviso for re-entry without notice in common form.
The staircase
lease to Preston Travel recited what had happened in regard to the entrance
lobby, passageway and staircase on the ground floor at no 757, the formation of
the opening at first-floor level, the execution of the plaintiffs’ lease, which
was called the Merton Jones lease, and the tenants’ desire to incorporate the
premises intended to be thereby demised into the premises demised
The Landlords
apprehend that upon the determination of the Merton Jones lease for any reason
during the currency of the term intended hereby to be granted they may require
to determine these presents in order to reconstruct the said entrance lobby
passageway and staircase so as to reinstate access to the upper floors.
The term of
the staircase lease was the same as that of the main lease, namely five years
from December 1 1975, but expressed to be determinable as thereinafter
mentioned. In fact I do not find any provision linking that part of the lease
with the power of determination contained in the schedule to it, but it is, I think,
clear and it has been assumed in argument that such a link is, if necessary, to
be implied. The provision for determination was contained in paragraph (a) of
the schedule which is in these terms:
If at any time
during the continuance of this demise:
(i) The Merton Jones lease shall for any reason
come to an end (other than upon terms for renewal in favour of the owners or
occupiers of 753 High Road incorporating terms for access to the upper floors
through the said opening); and
(ii) The Landlords shall desire to determine the
term hereby granted; and
(iii) The Landlords shall give the tenant not less
than six months’ previous notice in writing to expire at any time of such their
desire
then
immediately on the expiration of such notice this present demise and everything
herein contained shall cease and be void but without prejudice to the rights
and remedies of either party against the other in respect of any antecedent
claim or breach of covenant.
Thus it is to
be noted that the defendants’ power to determine the staircase lease as there
expressed is dependent upon the Merton Jones lease for any reason coming to an
end in circumstances when there was not a renewal in favour of the owners or
occupiers for the time being of no 753. That, it is rightly said, is a somewhat
limited power of determination.
I do not think
I need read or refer to the other provisions of the schedule to the staircase
lease, which really dealt with the terms upon which as between the defendants
and Preston Travel the staircase and so forth had been removed and the way in
which the costs of its removal or reinstatement should be borne.
I should add
at this stage that both the main and the staircase leases to Preston Travel
have now been renewed for a further five years and will therefore expire on
November 30 1985, one month before the expiry of the plaintiffs’ lease of the
two upper floors of nos 757 and 757A.
For more than
four years everything seems to have gone smoothly between the parties. However,
on July 11 1980, some nine months before the 1974 planning permission expired,
the plaintiffs’ firm applied with the knowledge and approval of the defendants
for an unconditional extension of the existing permission. Possibly to the
surprise of the plaintiffs’ firm and the defendants, that application was
granted on September 24 1980. The result is that the permission to use the
premises as offices is no longer personal to the plaintiffs’ firm. The next
material event was that on November 4 1980 the defendants’ agent wrote to the
plaintiffs’ side formally calling for a rent review as from January 1 1981 in
accordance with what the defendants then contended and now contend is the
effect of the rent review provisions in the plaintiffs’ lease. However, there
soon emerged in correspondence between the two sides a fundamental dispute as
to the construction and effect of those provisions. That dispute has now become
the subject-matter of these proceedings.
By para 1 of
the originating summons, as slightly amended during the course of argument, the
plaintiffs seek a declaration that:
Upon the true
construction of the said lease the valuer appointed under the terms thereof to
determine the rental value for the second rental period should proceed on the
basis that there is no open market for the said premises and that the only
willing lessees are the plaintiffs or other the occupier or occupiers for the
time being of no 753 High Road, North Finchley.
It is to be
noted that that declaration, if granted, would require the valuer to treat the
plaintiffs or other the occupier or occupiers for the time being of no 753 as
the only willing lessees or, in other words, to assess the rent on the footing
that the defendants could not let the premises to anyone else. Stated broadly,
the two contentions put forward by Mr Hodgson for the plaintiffs are, first,
that the plaintiffs have no implied right of access to the demised premises
through or over any part of nos 757 and 757A and, secondly, that this means
that the rent review provisions must be construed accordingly so as to value
the premises on the footing that it is only possible to have access to them
from the plaintiffs’ premises at no 753. Any other view, says Mr Hodgson, would
involve the plaintiffs in being required to pay rent for a right of access
which they have not got.
Although he
would wish to keep the point open for reconsideration at a higher level, Mr
Ainger for the defendants was forced in this court to accept Mr Hodgson’s first
contention in the light of the Court of Appeal decision in Chappell v Mason
(1894) 10 TLR 404. However, the second contention is hotly in dispute and it is
to that question that the argument in this case has been largely directed.
The lease
provides that the rent for the second five years of the term shall be £2,800
per annum or such greater yearly rent as shall become payable under the rent
review provisions to which I have referred. Those are detailed provisions in a
familiar form requiring the rent to be that at which the demised premises might
reasonably be expected to be let in the open market by a willing lessor to a
willing lessee with vacant possession and as a whole for the residue of the
term outstanding at the commencement of the second five years, there being
disregarded three matters which are also frequently disregarded on other
exercises of that kind. Those provisions must be construed against the factual
background known to the parties at or before the execution of the lease
including first, the existing access through no 753 alone; secondly, the
removal of the staircase in no 757 and the provisions of the staircase lease as
to its reinstatement only if the plaintiffs’ lease should for any reason come
to an end other than upon terms for renewal in favour of the owners or
occupiers of no 753 incorporating terms for access to the upper floors through
that opening; and, thirdly, the fact that the planning permission then in
existence was personal to the plaintiffs’ firm and might well have continued to
be so.
Those three
factors would seem to me to have invested the plaintiffs with the guise of very
special purchasers, but none the less they and the defendants became parties to
a lease containing elaborate provisions for the fixing of an open market rent
as between a willing lessor and a willing lessee. It seems to me that, if the
plaintiffs’ contentions are correct, they will have the result of depriving
those provisions of any practical effect. Indeed it is to be noted that the
declaration they seek in terms requires the valuer to proceed on the basis that
there is no open market at all. But, even if those words were to be struck out,
the practical result would be the same. The lease might just as well have
provided that the rent should be £2,800 per annum or such higher rent, if any,
at which the demised premises might reasonably be expected to be let by a
willing lessor to a willing lessee who was already the occupant of no 753. Even
that might have been stating the area of choice too widely in view of the
personal nature of the then planning permission. In any event, it would not to
my mind have needed much imagination for the parties to conclude in 1976 that,
if the defendants’ only practical course in 1981 was to be taken to be to let
the premises to the occupants of no 753, whoever they might be, the rent then
obtainable would be very much less than £2,800. On that footing the lease could
just as well have made provision for that rent to be payable throughout and it
could just as well have omitted the rent review provisions altogether.
Is there any
way in which such an apparently radical disregard of those elaborate provisions
can be avoided and commercial efficacy given to the terms of the lease as they
stand? Mr Ainger submits that there is.
He says that the implication of terms into leases should be governed by
precisely the same principles as the implication of terms into commercial
documents of other kinds. It seems to me that on the authorities the law has
certainly arrived at a position where that is so. On the other hand, Mr Hodgson
submitted with some force that, in the case of leases, the approach should be
somewhat cautious since, so far at any rate as knowledge of background facts is
concerned, those are matters which can only be within the knowledge of the
original parties to the lease and cannot be assumed to be within the knowledge
of assignees of the term or the reversion respectively.
In the present
case, Mr Ainger submits that there is a simple and obvious implication to be
made, namely that to the three matters which the valuer is to disregard there
should be added a fourth. He says that there should be disregarded any effect
upon rental value caused by the existing access via no 753 at first-floor level
and the absence of a staircase or any other means of access from the ground
floor of nos 757 and 757A. In support of that contention, Mr Ainger relies
strongly on the fact that the correspondence shows that the original rent of
£2,800 was fully negotiated between agents on both sides and moreover without
regard to the access from no 753 and the lack of it from nos 757 and 757A. That
submission is one which I find to have been made out on the fact. Mr Ainger
then submits that,
intended that it should be one arrived at by a similar hypothetical process of
negotiation. I have not found this an entirely easy question to decide. Had it
not been for the decision of the Court of Appeal in The Law Land Co Ltd
v Consumers’ Association Ltd (1980) 255 EG 617, [1980] 2 EGLR 109 I
think I might have had some difficulty in acceeding to Mr Ainger’s submissions.
But in that case the court did, in order to give commercial efficacy to a very
comparable rent review provision in a lease, make an implication of what seems
to me to be the same character as that for which the defendants contend in the
present case. It is true that in the Law Land case the implication was
of a different kind. It required an extension of the user provision so as to
incorporate the name of the intending hypothetical lessee for the purposes of
the rent review provision as well as being a party to the hypothetical lease.
In the present case, on the other hand, the implication sought would require an
amendment and — let it be said — a substantial amendment to the rent review
provision itself by adding an additional matter to be disregarded by the
valuer.
Mr Hodgson
advanced an argument to the effect that for me to go in this case as far as the
defendants ask me to go would involve going very much further than the Court of
Appeal went in the Law Land case. I think it is possible that I am going
further, but it seems to me that I am not going further than is permitted by
the principle on which the Court of Appeal proceeded in that case. They thought
that the important question was whether, as Brightman LJ put it at p 623,
column 1:
Some
modification has to be made to the strict wording of the rent review clause if
it is to work.
All three
judgments, in particular perhaps that of Buckley LJ, make it clear that an
implication can be made only if the rent review provision will not work without
it. What Mr Ainger is really saying in this case is not that the rent review
provision will not work without his implication but that it will not have any
practical effect without it. It seems to me, however, that that comes to the
same thing as saying that the rent review provision will not work without it. I
have already indicated why I think that, if the plaintiffs are right in this
case, it will result in the rent review provision not having any practical
effect. It seems to me that their contention would result in the whole of the
rent review provisions, which occupy nearly two pages of the lease, being not
much more than waste paper. Further, it seems to me clear on the facts and on
the terms of the lease as a whole, and even with the caution which Mr Hodgson
properly advocated, that the only implication which can and ought to be made is
that for which the defendants contend. On that ground I will make whatever
counter-declaration is appropriate to reflect the view which I have expressed.
I should add
that the originating summons seeks an alternative declaration that
determination of the rental value as directed by the lease is impossible of
performance. In order to obtain that declaration, the plaintiffs would have to
show that the rent review provisions were void for uncertainty. That is an
argument which appears to have been raised at an initial stage of some of the
other cases to which I was referred, but in at least one of them the court
pointed out that it would have to be a very strong case for it to arrive at
such a conclusion. In the event, Mr Hodgson — very rightly, in my view — did
not press that point.
Judgment was
given in favour of defendant lessors with costs, the minutes of the order to be
settled by counsel.
