Landlord and tenant — Rent review clause in lease to football club — Construction — Question as to whether under the terms of the rent review clause in the current lease to the club the rent to be determined should take into account the buildings on the ground despite the fact that the capital cost had been met by the club or whether the rent should be fixed on the hypothesis that the ground was free of buildings — There had been several leases and during the long history of the club many works of construction and improvement had been carried out by the club at its own expense — The current lease of 99 years from 1969 was entered into in order to give the club sufficient security to make further substantial improvements — As a matter of construction, subject to one exception which the judge treated as a drafting slip, a clear distinction was drawn between the ‘sports ground’ and the buildings and other erections thereon — In the rent review clause itself the rent to be fixed was described as ‘the current market rental value of the sports ground’ — Having regard to the evidently careful drafting which maintained the distinction between the ground and the buildings, to the historical background, and to the strange result if the club had not only to pay the capital cost of the buildings but to pay rent for them as well, the hypothesis that the land should be regarded for rent review purposes as free of buildings was compelling — Two decisions which at first sight seemed to point the other way were the decision of the House of Lords in Ponsford`HMS Aerosols Ltd and the decision of the Privy Council in Goh v Yap — The first of these was clearly distinguishable from the present case — The second was more difficult to reconcile with the view expressed above, but it contained no such clear and consistent indications as in the present case of an intended distinction between the land and the buildings — Declaration accordingly that the rent should be fixed by determining the current market rental value of the land on the hypothesis that it was free of buildings
The following
cases are referred to in this report.
Goh Eng
Wah v Yap Phooi Yin [1988] 2 EGLR 148;
[1988] 32 EG 55; [1985] Malayan Law Journal 329, PC
Ponsford v HMS Aerosols Ltd [1979] AC 63; [1978] 3 WLR 241; [1978] 2
All ER 837; (1978) 38 P&CR 270; [1978] EGD 137; 247 EG 1171, [1978] 2 EGLR
81, HL
In this case
the determination of the court was sought on the construction of the rent
review clause in the lease dated March 27 1969 for 99 years between the Ipswich
Town Football Club and Ipswich Borough Council of the club’s ground at Ipswich.
Derek Wood QC
and Edward Cole (instructed by Gotelee & Goldsmith, of Ipswich) appeared on
behalf of the plaintiffs, Ipswich Town Football Club; J Samuels QC and P Hamlin
(instructed by M A Evans, director of administration, Ipswich Borough Council)
represented the defendants, Ipswich Borough Council.
Giving
judgment, SIR NICOLAS BROWNE-WILKINSON V-C said: This case raises a question on
the rent review clause contained in a lease dated March 27 1969 of the Ipswich
Town Football Club’s ground in Ipswich. The lease was made between the Mayor,
Aldermen and Burgesses of the Borough of Ipswich, as freeholders on the one
hand, and the football club, which is a limited company, on the other.
The freehold
of the ground in question has always been held by the local authority. The club
was founded in 1878 and started to use this ground as its football ground in
1888. Over its long history on the ground a number of buildings have been
erected; I will seek to summarise the present position later on. Every building
or other erection, with one minor exception, has been put up and paid for by
the club at its own expense.
The club
started in the professional game in 1936, on which date the club was
incorporated. On September 26 1936 the corporation granted the club a lease for
21 years from August 1936 at a small but steadily rising rent: £120 for the
first seven years; £150 for the second seven years; £200 for the third seven
years. At or about that time the club had put up two wooden stands at the
ground. During the currency of that 1936 lease it erected a further grandstand
on the south side and a terrace on the west side. In 1951, which was some six years
before the 1936 lease was due to expire, the lease was surrendered, and on May
17 1951 a new lease was granted by the corporation to the club for a term of 21
years from June 1 1951. The rent payable throughout was a fixed rent of £200.
During the term granted by the 1951 lease, extensive further works were carried
out by the club on the premises. They erected new terraces on the west and
north sides; they constructed a stand on the west side and an extension to it;
a further stand was constructed on the north side; there were new general
offices and dressing-rooms built, and new entrances and turnstiles installed.
The cost of these works was in the region of £40,000.
By 1969 the
club had prospered exceedingly and wanted to make further improvements to the
ground. It was agreed between the club and the local authority that the 1951
lease should be surrendered with a view to the grant of a new lease for 99
years, giving the club sufficient security in the premises to make it
worthwhile carrying out further major improvements to the ground. It was in
those circumstances that on March 27 1969 the lease presently in force was
entered into. I will come back to its terms in a moment.
Between 1969
and 1982 no less than £3.7m was spent by the club out of its own money on
improvements to the ground, in particular on the erection of a major large
stand called The Pioneer stand.
Shortly, the
question in this case is whether, under the terms of the 1969 lease, which
provides for rent review after the first 14 years of the term, the rent to be
fixed on the review should or should not attribute a rent to the buildings on
the sports ground, bearing in mind the fact that the total capital cost of
those buildings has been defrayed by the club. In one sense it would be a strange
result if the club not only had the privilege of paying for the buildings but
thereafter had to pay rent for those buildings for the rest of the term.
Whether or not that position is reached depends upon the terms of the lease, to
which I now turn.
Clause 1
provides:
In
consideration of the rent hereinafter reserved and the covenants and conditions
hereinafter contained on the part of the Club to be determined and observed,
the Corporation hereby demise unto the Club first all that piece or parcel of
land
which is then
described
which said
piece or parcel of land is hereinafter separately called the main pitch, and is
more particularly delineated and described on the plan annexed coloured pink;
second, all that piece or parcel of land
which is then
described
which said
piece or parcel of land aforesaid is hereinafter separately called the practice
pitch, and is more particularly delineated and described on the plan thereon
coloured yellow, all which said pieces or parcels of land firstly and secondly
hereinbefore described contain in total area 8.483 acres or thereabouts and are
hereinafter collectively called the sports ground, together with the existing
buildings and erections upon the sports ground.
Pausing there,
it will be seen that there are two pieces of land defined as the main pitch and
the practice pitch. Those two pieces of land together are defined as ‘the
sports ground’. The land demised consists of ‘the sports ground’ together with
the existing buildings and erections on the sports ground.
There are
various reservations to the corporation, which I should notice. One reserves a
right of light and air, subject to the following proviso:
This
reservation shall not be deemed to prohibit the erection by the Club upon the
sports ground of any building the height whereof shall not extend above a line
drawn at an angle therein mentioned.
So that plainly
envisages erection by the club on the sports ground of further buildings. There
is a further reservation to the corporation of ‘The right to use such part of
the sports ground and the buildings and erections now or hereafter to be
erected hereon for such periods, purposes and subject to such terms as are set
out in the second schedule hereto.’ The
second schedule reserves the right to the use of the main pitch by the local
authority for certain other sporting bodies and school sports, at specific
times, and it provides as follows: ‘The use of the main pitch at the various
times and for the various purposes above mentioned, to include the use of the
Club stands and full dressing rooms and sanitary accommodation.’
Clause 1 of
the lease then grants a term of 99 years from June 1 1969 and deals with the
rent in the following terms:
Yielding and
paying therefor during the said term the following yearly rents without any
deduction (except such deductions therefrom as the Club shall be entitled or
authorised to make under the appropriate Income Tax Acts), payable by equal
half yearly payments on the 25th March, 29th September in each year, the proportion
from 1st June 1969 to 29th September 1969 being paid on 29th September 1969 (a)
for the first fourteen years of the term the yearly rent of £3,000, such rent
being apportioned as to £2,500 for the main pitch and £500 for the practice
area; (b) for the next seven years of the said term and for each successive
period of seven years thereafter, the yearly rent of £3,000, or such yearly
rent, whichever shall be the higher, as shall have been agreed between the
Corporation and the Club, or determined as hereinafter provided to be the
current market rental value of the sports ground at that time, and the
provisions of the first schedule hereto shall apply for the purpose of
ascertaining the yearly rent for each such period.
Contrary to
one’s expectations, the first schedule does not in terms set out a formula
whereby the current market rental value is to be assessed. It provides only
that, failing agreement, an independent person, an assessor, is to assess and
make the valuation. It does not provide a formula as to how the rent on a
hypothetical basis is to be fixed. However, para 7 of the first schedule
contains a very important clause. It says:
If the
surveyor comes to the conclusion that the current market value of the demised
premises is less than the rent operative for the period preceding the relevant
period of seven years (hereinafter called the current rent) the new rent shall
nevertheless be the same as the current rent and the decision of the surveyor
shall so state.
Pausing there,
therefore, the only guidance one has as to the basis on which the revised rent
is to be fixed is contained in the direction that it is to be the current
market rental value of ‘the sports ground’: there is no reference to the
buildings erected on the sports ground. On the other hand para 7 requires the
surveyor in some circumstances to consider whether or not the current market
value of ‘the demised premises’, those being the words used, is less than the
current rent.
The short
dispute between the parties is this. Is the provision in clause 1 which refers
to the current market rental value of ‘the sports ground’ alone (without
expressly referring to the buildings or erections now or hereafter to be
erected thereon) a direction which requires a valuation to be made of the land
alone excluding any annual value to be attributed to the buildings? Or is it, as the corporation contend, right
to value the demised premises as a whole (ie both the land itself and all
buildings for the time being standing on that land) and thereby assess a rent
which includes the rental value of the buildings on the land? The corporation relies on para 7 of the first
schedule, which refers to the current market value of ‘the demised premises’.
The demised premises, it is said, must include — and on this I think there is
really no dispute — the buildings for the time being on the land.
It is common
ground that in construing the lease one can have regard to the background
against which the lease was entered into. The relevant factors, as they seem to
me, are these. There has been an occupation of this land by the club for some
81 years before the lease was granted and over the years major works of
construction and improvement have been carried out by the club upon the land at
its own expense, the only exception being a small building which was put up by
the local authority on the practice pitch under the 1951 lease. The 1969 lease
was entered into for the purpose of enabling a major work of reconstruction to
take place. That was known to both parties, and the length of the term was
geared to that requirement. Those seem to me to be the relevant background
facts. It is relevant to notice that the wording of the tenant’s covenants in
the lease is to a considerable extent derived from the earlier 1936 and 1951
leases. Mr Samuels relied upon the derivation, but I have not obtained much
guidance from that derivation. It is enough, I think, to say that the use of
the words ‘the sports ground’ and the distinction between ‘the sports ground’
on the one hand and the buildings on it on the other have been a feature which
has persisted through the leases. Beyond that I obtain little assistance.
I turn to
consider whether or not the fact that clause 1(b) refers to fixing the current
market rental value of the sports ground, omitting any reference to the
building, is or is not sufficient to require the current market rental value to
be limited to the land alone hypothetically free of any constructions upon it.
If that clause stood alone I would have had considerable doubt whether that was
the intention. But this is a carefully drafted document. With one, or possibly
two, exceptions, the terminology used in the lease consistently distinguishes
between the land on the one part and the buildings and erections on it on the other.
I have already referred to the two places in which that distinction is made in
clause 1 itself. The consistency of treatment persists right through the
tenant’s covenants in the lease. Clause 2(ii), which is the tenant’s covenant
to pay rates and taxes, refers to the taxes being imposed or charged on ‘the
sports ground and any buildings or erections now or hereafter to be erected
thereon’. Clause 2(iii), which refers to the anticipated reconstruction which
was the purpose of the grant of the lease, is in these terms: ‘Within the first
fourteen-year period of the said term to carry out substantial works of
reconstruction to the sports ground and the buildings or erections now or
hereafter erected thereon in accordance with plans and specifications to be approved
in writing by the Corporation . . .’
Again, the distinction is drawn between the sports ground on the one
hand and the buildings or erections now or hereafter erected thereon.
Similarly, in clause 4, which is the covenant to repair: it is a covenant ‘to
keep the sports ground and any buildings and erections now or hereafter to be
erected on the sports ground’ in good and substantial repair. The same
distinction in words between ‘the sports ground’ and the buildings is expressly
preserved in clause 2(v), which requires the internal painting of ‘all such
inside parts of the buildings or erections now or hereafter erected on the
sports ground’. Clause 2(vi) is a covenant to permit the corporation ‘to enter
into and upon the sports ground and any buildings or erections now or hereafter
erected thereon’. Likewise in clause 2(vii) the same distinction is preserved.
In clause 2(viii), which is an obligation not to make any pit, or dig for or
take clay, stone, gravel or turf, it is notable that it is a covenant not to do
it upon or from ‘the sports ground’ — all reference to the buildings, quite
understandably, being omitted. In clause 2(ix) there is imposed a covenant that
‘before making any alterations to the ground or to any building or erections
now or hereafter to be erected upon the sports ground, or before erecting any
other buildings or erections thereon’ plans have got to be approved. The
covenant for insurance is to insure ‘the buildings now or hereafter erected
upon the sports ground’. The covenant not to carry on any business again draws
a distinction between the sports ground and the buildings on it. Likewise the
covenants against assignments and underletting. The covenant not to sell
intoxicating liquor is a covenant not to do so ‘upon the sports ground, or on
any building or erections at any time erected thereon’. Likewise clause 2(xiv)
is a covenant against doing acts upon or from any part of the sports ground,
buildings or erections, gates, posts, palings, rails, bars, walls and fences
now or hereafter erected on the sports ground. The one substantial exception to
the consistency in the drafting I think comes in clause 2(xvii), which is a
covenant to take all reasonable and proper precautions to ensure the safety of
all persons and property at any time using or being upon the sports ground or
any part thereof. Mr Wood for the football club accepts that that must
carry with it an obligation to take precautions to ensure the safety of people
being in any building on the sports ground. It is an exception to the
consistency of the drafting. Apart from that the consistency runs right
through.
We have
therefore here a carefully drafted document which throughout, with one
exception, draws a distinction between ‘the sports ground’ being the land and
the buildings and other erections upon it. The draftsman having drafted it as
carefully as that, then in describing the rent to be paid expressly refers to
the current market rental value of ‘the sports ground’ at the time of review.
That seems to me not mere chance but careful drafting, wholly consistent with
the background of the case, namely that all buildings and erections on the land
effectively have been provided by the club at its expense and that major
further expenditure is to be made by the club in the future. The consistency of
drafting, coupled with that background fact, seems to me compelling.
Apart from a
decision which I must come to in a moment, the one factor which throws any
doubt upon it is the provision in the schedule which provides that if the
surveyor comes to the conclusion that the current market value of the demised
premises is less than the rent operative for the period, that is to say, the
current rent, the new rent shall be the same as the current rent. That
provision in the schedule refers to the current market value of ‘the demised
premises’. It either demonstrates that my view formed as to the rest of the
document is incorrect or is a drafting slip. I have felt some difficulty about
this, but I am satisfied that the framework of the rest of the lease, viewed
against the background that I have mentioned, suggests that this is a slip, the
first schedule containing otherwise no machinery and not purporting to deal
with the basis on which the revised rent is to be fixed. Therefore, apart from
authority, I would reach the conclusion that the rental to be paid under the
rent review clause in this lease is the rental appropriate to the land free
from any buildings on it for the time being.
There are two
authorities to which I have been referred. The first is a decision of the House
of Lords in Ponsford v HMS Aerosols Ltd [1979] AC 63. In that
case, which was again concerned with a rent review clause, the review clause
provided that the new rent should be assessed as the reasonable rent for the
demised premises. The tenant effected certain improvements at his own expense.
The question was whether it was a reasonable rent for the demised premises that
he should be charged rent for improvements that he had himself effected. The
House of Lords held by a majority that the improvements effected by the tenant
formed part of the demised premises, and the relevant question was what was a
reasonable rent for anybody to pay for the demised premises, not what was a
reasonable rent for that tenant to pay for the demised premises. Hence, as a
third party would pay rent including the annual value of the improvements
effected by the tenant, that was a reasonable rent for the demised premises. In
my judgment, that is quite different from the case that I have to consider.
There there was no doubt that what had to be assessed was the rent of the
demised premises, and the demised premises meant land plus the buildings upon
it. The only question was the meaning and importance to be attached to the word
‘reasonable’. What it does show, and I accept this, is that however unfair it
may seem, it is possible that a lease may be so drafted that it does require a
tenant who has effected improvements at his own expense to pay annual rent for
it thereafter. Beyond that it gives little assistance.
Much more
difficult to reconcile with the view that I have formed on the construction of
this lease, unaided by authority, is a decision of the Privy Council, Goh v
Yap, delivered on February 25 1985 but unreported.* That was an appeal from the Federal Court of
Malaysia. The lease in that case recited that the landlord was the registered
proprietor of certain land which was defined as ‘the said land’. The lease then
demised ‘the said land together with the buildings erected thereon and known as
Star Theatre’ for a term. Star Theatre had been built on the demised land by
the tenant before the commencement of the term. Clause 1 of the lease provided
‘for the rent of the said land’: it provided a fixed rent of $400 a month for
the first 10 years; $500 a month for the next five years; $700 a month for the
next five years after that, and then from the beginning of the 21st year to the
end of the 25th year ‘such sum exceeding $700 as shall be agreed to by the
parties hereto or failing agreement as shall be fixed by an arbitrator’. The
question was whether in those circumstances the reviewed rent should or should
not take into account the value of the land plus the Star Theatre or just the
land alone. The Privy Council held that the review rent should be the rent for
the whole of the demised premises, that is to say, the land plus the theatre.
Normally a decision on construction of one document is of little if any
assistance on the construction of another. However, the approach of the Privy
Council might in that case be thought to lay down a principle. What Lord
Templeman said was that there was a well-established principle
that rent
would issue out of the land, including any buildings for time to time on the
land, and would prima facie be referable to the value of the land plus
buildings.
*Editor’s
note: A copy of the transcript is appended in the next column.
Having stated
that prima facie view and having considered detailed arguments on the terms of
the lease, he said:
While
appreciating the force of this argument, their lordships agree with Mr Brodie
that, if the parties intended that the rent fixed by an arbitrator should
ignore the buildings on the land, they should and would have given express
instructions to the arbitrator for that purpose. In the absence of any such
express instructions in the lease, then whatever the parties may in their heart
of hearts have intended, the lease on its true construction does not authorise
any deviation from the usual rule, and it follows that the rent must be fixed
by reference to the land and the buildings thereon.
In my judgment,
although that looks close to expressing a rule of construction, I think on
analysis it does not go that far. In that case the Privy Council were concerned
to find what was expressed in the terms of the lease as being ‘the rent of the
land’. There being no other indications, save some in the user clauses in
nowhere near such a consistent manner as in the present case, the rent of the
land would be the rent of the land plus the buildings. As a matter of
construction of that lease the Privy Council were saying that some expressed
indication to the contrary would have to be given if a rent for the buildings
was to be excluded. In the case before me I think the matter is much clearer.
One has this very clear-cut distinction throughout the lease between ‘the
sports ground’ as a defined piece of land on the one hand and the buildings on
it on the other. There is no prima facie rule that something called ‘the
sports ground’ has to be valued as including the buildings upon it. I do not
think the Privy Council case lays down a firm rule of construction applicable
to all cases. I therefore feel free to adopt the construction that I prefer, namely
that, against the background facts of this case and in the careful way in which
the lease is drafted, the effect of the rent review clause is to require the
rent to be fixed by determining the current market rental value of the land on
the hypothesis that it is free of buildings. I will so declare.
Note:
Appended for the information of readers is a report of the judgment of the
Judicial Committee of the Privy Council referred to by Sir Nicolas
Browne-Wilkinson V-C.
