Landlord and Tenant Act 1954, Part II — Interlocutory appeal by tenants, bakers and confectioners, from order for discovery made by county court judge, requiring tenants to disclose ‘all documents relating to trading’ — Order made in course of tenants’ application for a new tenancy — Order involved searching for and disclosing such information as delivery notes, cash rolls, manufacturing costings, wage slips and so on — Whether information required by order was relevant — Order related both to the subject premises and to another set of retail premises occupied by the tenants rented
This was an
appeal by W J Barton Ltd, multiple bakers, tenants of business premises at 302
Green Lanes, Palmers Green, London N13, from an order for specific discovery
made by Judge Tibber at Edmonton County Court in proceedings brought by the
tenants under Part II of the Landlord and Tenant Act 1954. The landlords,
respondents to the present appeal, were Long Acre Securities Ltd.
John Foy
(instructed by Barker, Gooch & Swailes, of Enfield, Middlesex) appeared on
behalf of the appellants; Robin Belben (instructed by Stafford Clark & Co)
represented the respondents.
Delivering the
judgment of the court at the invitation of Lawton LJ OLIVER LJ said: This is an
interlocutory appeal with leave of the judge from an order for specific
discovery made in the Edmonton County Court by His Honour Judge Tibber in
proceedings under the Landlord and Tenant Act 1954 on October 5 1981. The point
raised is, on the face of it, a fairly short and simple one, but since it has
potentially far-reaching implications as regards other applications under the
Act we thought it advisable to take a little time for consideration. The
applicants (the appellants in this court) are the tenants of business premises
at 302 Green Lanes, Palmers Green, N13, holding over under a lease for five
years granted in 1976 by the Prudential Assurance Co Ltd. On May 29 1980 the
landlords gave notice to terminate the tenancy on March 25 of this year and a counternotice
under the Act was duly served by the appellants on June 19 1980. That was
followed on September 4 1980 by an application in the Edmonton County Court by
the appellants for a new lease, in response to which the landlords stated that
they would not oppose the grant of a new tenancy but objected to the rent and
certain of the other terms proposed by the appellants. Thereafter, no agreement
having been arrived at, the matter proceeded in the usual way save that, in
some way which is not entirely clear to us but which does not matter for
present purposes, the present respondents, Long Acre Securities Ltd, became
substituted for the original respondents. Valuers were appointed by both sides
and their reports have been exchanged. To all intents and purposes the matter
might have appeared to be ready for trial. The premises consist of a shop with
a flat above and the lease contains a covenant restricting the user to the
business of a baker and confectioner. At all material times the appellants, who
are multiple bakers, have carried on there the business of retail bakers,
confectioners and pastrycooks. The reports of the experts which have been
exchanged indicate that there is no shortage of comparable premises in the
vicinity although they differ about what premises are comparable and, no doubt,
about the degree of comparability. It is not, however, suggested by the
landlords that there is any lack of comparable premises and indeed this was
conceded by Mr Belben, at the outset of his submissions.
There is one
further circumstance which requires to be mentioned, since it has assumed an
importance in the argument on behalf of the respondents. The appellants are, as
has been said already, multiple bakers and among the several premises at which
they carry on business they have a shop about 7 miles away from the premises in
suit. The shop in question is 163 Fortess Road, Tufnell Park, London N7. Those
premises are held by them under a lease from a company which is a member of the
same group as that to which the respondents belong. That lease has, as we
understand it, been renewed pursuant to the Act at a rent arrived at by
agreement. There is not, on the face of it, any reason why those premises
should be considered to have any relevance at all to the issue between the
appellants and the respondents. It is true that the appellants carry on there a
similar business to that carried on at the premises in suit, but they are in a
totally different area both geographically and socially and Mr Belben was
unable to suggest any reason why the coincidence that the landlords happen to
belong to the same group as the respondents should be of any significance.
On August 27
1981 the respondents issued an application before the registrar for an order
that the appellants disclose by way of further discovery all accounts for the
past three years in connection with the premises in suit and the Tufnell Park
premises. The registrar evidently took the view that the accounts sought were
irrelevant to any issue in the proceedings, because he dismissed the
application. The respondents appealed to the judge and on October 5 1981 His
Honour Judge Tibber allowed the appeal and made the order now appealed against.
It is in astonishingly wide terms and directs the appellants within seven days to
disclose ‘all documents relating to trading’ at the two premises without any
limitation at all of the period covered by the documents. Mr Belben, however,
has told us that the absence of any limitation to the past three years (which
was, of course, mentioned in the application) was due to a slip in drawing up
the order. The mutation from ‘all accounts’ to ‘all documents relating to
trading’ was, we have been told, attributable to the fact that counsel then
appearing for the respondents stated, on instructions, that no separate
accounts of the appellants’ individual businesses were kept and it seems that
the learned judge’s intention in making the order in the wide terms mentioned
was to compel disclosure of such trading records as would enable the respondents
to ascertain the amount of the turnover of the appellants at each of the two
premises and the amount of the expenses and outgoings attributable to each.
Whether the
terms of the order are apt for that particular purpose need not, however, be
further considered at this juncture because what is in issue is not so much the
ambit of the order but whether an order of this type ought to have been made at
all.
From that
order the appellants appeal to this court and the ground of appeal is that the
order is onerous when the evidential value of the documents relating to trading
is non-existent or very small having regard to the provisions of section 34 of
the Landlord and Tenant Act 1954. The onerous nature of the discovery sought
is, as Mr Foy very fairly conceded, difficult to sustain in the absence of any
affidavit on behalf of the appellants indicating what is involved, but it is,
to some extent, self-evident since, on the face of it, it involves searching
for and disclosing such minutiae as delivery notes, cash rolls, manufacturing
costings, wage slips and so on. But Mr Foy’s principal attack is on the
relevance of the discovery which the learned judge has ordered.
The inquiry
upon which the court is directed to embark in applications for new tenancies
under the Act is set out in section 34(1) of the Act, the relevant provisions
of which are as follows:
The rent
payable under a tenancy granted by order of the court under this Part of this
Act shall be such . . . as, in default of agreement, may be determined by the
court to be that at which, having regard to the terms of the tenancy (other
than those relating to rent), the holding might reasonably be expected to be
let in the open market by a willing lessor, there being disregarded — (a) any
effect on rent of the fact that the tenant has or his predecessors in title
have been in occupation of the holding, (b) any goodwill attached to the
holding by reason of the carrying on thereat of the business of the tenant
(whether by him or by a predecessor of his in that business), . . .
There are two
additional matters specified in the section which fall to be disregarded, but
they are irrelevant to any issue raised by this appeal and can be ignored for
present purposes.
So what the
court has to look for is the open market rent of the premises simply as
premises at which a business of the type carried on by the tenant can be
carried on, but that rent is not to be enhanced, reduced or otherwise affected
by the tenant’s own actual occupation of the holding or by any goodwill created
as a result of the business which the tenant has carried on. To put it broadly,
the rent is to be arrived at on the hypothesis that the premises are empty and
without regard to the tenant’s previous trading.
This
immediately raises the question in one’s mind — of what relevance to such an
inquiry are the tenant’s trading results?
The court is not concerned with the tenant’s ability to pay rent but
with the rent which a willing lessor could command for these premises in
the hypothetical open market and there is a perfectly well-recognised way of
arriving at that by reference to the rents payable for similar premises in the
vicinity.
Indeed, if one
is to take into consideration the results of the tenant’s trading as a relevant
factor in arriving at the open market rent, the elimination from that
consideration of any effect on rent from the tenant’s occupation and from the
goodwill involves an extraordinarily difficult practical exercise.
In his
judgment the learned judge observed: ‘It is highly material to know, in order
to ascertain the open market rent, what the trading position is’; and a little
later he said: ‘In a case of this sort where the open market rental value is in
dispute, evidence of trading is relevant and admissible to consider and show what
the open market value is’.
We confess
that, for our part, we are entirely unable to follow this in the case of a
property such as this where there are, as it is conceded that there are, plenty
of comparable premises in the vicinity from which the open market value of
premises of this type can be deduced. No doubt evidence of the tenant’s trading
would indicate whether his business had been successful or unsuccessful and so
might be a pointer to the rent which this particular individual tenant might be
prepared to pay in order to spare himself the disruption of moving to other
similar premises in the area, but that has nothing to do with the open market
rent which the court is directed by the Act to ascertain. That it is for this
purpose that the discovery is sought is, we think, tolerably clear from the
statement of the landlord’s valuer submitted by Mr Belben, which contains a
frank avowal that if this tenant, in the light of its turnover in its Tufnell
Park shop, has been prepared to pay a particular rent there, the disclosure of
that turnover and of the turnover of the business in the premises in suit will
be an indication of the sort of rent which it might be prepared to agree to for
these premises.
Mr Belben
sought originally to justify the learned judge’s order, not on any general
principle that the tenant’s trading records are relevant in every application
for a new tenancy under the Act, but on the special ground that they were
relevant in the instant case because of the fact that the tenant carried on a
similar business in another area in premises rented from, in effect, the same
landlord.
It is,
however, difficult to see why the trading records of a similar business carried
on in a totally different area, miles away from the premises in suit, should be
thought to be any guide at all to the open market value of the latter. Why, it
may be asked, stop at Tufnell Park? Why
are the trading results of businesses carried on in Croydon or Piccadilly or Burnham-on-Crouch
not equally relevant?
Ultimately, Mr
Belben felt compelled to fall back on a general proposition that the accounts
of a tenant’s trading in business premises — and, we suppose, also in other
premises — are always relevant to any application under the Act as providing a
guide to the open market rent. Support for such a proposition is said to be
found in the 28th edition of Woodfall, Landlord and Tenant, vol 2 at
para 2-0740, where it is said that ‘Evidence of the trading accounts of the
existing business is admissible for the purpose of showing the earning capacity
of the premises but not for any other purpose’. The authority cited in support
of this proposition is the decision of this court in Harewood Hotels Ltd
v Harris [1958] 1 WLR 108. That case was concerned with some rather
unusual hotel premises in Tunbridge Wells catering largely for retired people
and consisting of three adjoining houses in a terrace of six. It is not
entirely clear from the report, but it rather looks as if the only comparable
premises in the area were the three adjoining houses belonging to the same
landlords which were, of course, not strictly comparable, since they remained
as private houses and had not been adapted for use as an hotel. It was in these
circumstances that the tenant tendered and the judge received evidence of the
tenant’s trading for the purpose of showing what sort of profit a tenant of
this hotel might expect to make and thus what level of rent a prospective
tenant would be likely to pay. The landlord appealed on the ground that the
evidence was irrelevant and that, in any event, the judge was precluded from
considering it by the provisions of section 34(1)(a) and (b) to which reference
has been made above. This court dismissed the appeal. We cannot, however, read
the decision as supporting any general proposition that evidence of this type
is relevant and admissible in every application under the Act. It was relevant
in that case because of the absence of any comparable premises and of the
nature of the business under consideration; and the effect of the decision
appears to us to be only this, that where such evidence is required in order to
establish the open market rent there is nothing in section 34 which prohibits
its reception for this limited purpose. But to extract from that some more
general proposition that evidence of trading is always to be admitted seems to
us to be a quite impermissible extension of the ambit of the decision.
Mr Belben
relies particularly on the following passage from the judgment of Lord Evershed
MR (at p111):
If the
evidence was led for the purpose of showing that these tenants ought to be
granted some concession because of some particular hardship that they had
suffered, that might be another matter; and I agree also that the terms of the
paragraph serve to exclude the consideration that a tenant might be expected to
be willing to pay rather more than an outsider because he would not wish to be
disturbed in his occupation. But, in my judgment, it is plainly legitimate for
a judge to hear evidence which bears upon the question which he has to decide,
namely: what would the particular holding reasonably be expected to be let at
in the open market? Plainly, I should
have thought, in arriving at a conclusion upon that question, it is legitimate
to hear evidence of what similar premises which are being let for a particular
purpose (as the one in suit is) can be expected to earn for a potential lessee
in the market in the place where the premises are; and, if so, then similar evidence
is, in my judgment, admissible for proving the same point about the premises in
suit. In other words, if the purpose of the evidence of the figures was for
that limited objective, then I think for my part that they were perfectly
admissible and that no objection can be made to them.
Now that, on
the face of it, appears to be a statement which at least is capable of general
application, but it has, in our judgment, to be read in the context of the
particular facts which rendered the evidence relevant in that case, namely,
that the premises were capable of being used only as an hotel and that the only
physically comparable premises appear to have been private houses. This, we
think, appears rather more clearly from the judgment of Romer LJ, who said at
p115:
But I cannot
find anything in the language of those provisions which renders it irrelevant
to look at such material as the accounts of this company as part of the
material on which the judge must make up his mind as to what rent might
reasonably be expected to be obtained for the premises in the open market. I
should have thought that one of the first things that anybody who was going to
set up an hotel business in this type of premises in this locality would want
to know would be what prospects he had of making a good thing out of it, and
therefore, what rent he would be prepared to pay for the premises — if, indeed,
he decided to take a tenancy of the premises at all. I cannot see any ground,
either on common sense or the language of the section, upon which that
consideration should be relegated to the realm of the irrelevant. I do not
think that the judge would be entitled to look at the accounts for the purpose
of seeing what the company could afford to pay. Mr King-Hamilton suggested that
that really was what the judge did in the present case — that he looked to see
what profit they made in one year and what loss they made in another year, and
so on, and said that this company, having regard to those figures, ought not to
be expected to pay more than a particular rent. I should be disposed to agree
that that was wrong, if the judge did it; but I do not think that he did it at
all. He came to the conclusion that this hotel was being run efficiently; he
came to the conclusion — and indeed it was agreed on all hands — that the
premises could only be used as an hotel, and then, for the purpose which I have
mentioned of seeing what a new person, an outsider, would pay as rent for these
premises, he looked into the question of what kind of prospects, having regard
to the law of supply and demand, this hotel would have.
Certainly the
decision shows that there may be cases where the production of trading figures
may be both relevant and admissible and that where that is so section 34 does
not inhibit the consideration of such evidence for the narrow limited purpose
described even though the exclusion of any consideration of the effect of the
tenant’s occupation and of goodwill may present the judge with a very difficult
task.
It is, we
think, clear that there are several types of premises, of which an hotel is
only one example, where the ascertainment of an open market rent may depend
upon an assessment of the likely profitability of the business for which the
premises are peculiarly
racecourse, in all of which the market rent may well depend upon the average
takings. It is both unnecessary and would be unwise to seek to define or limit
the categories of premises where such evidence would be relevant for the
limited purpose described in the Harewood Hotels case. But that is a far
cry from saying that such evidence is always relevant and, in our judgment,
considerations of this sort do not apply in the ordinary case of shop premises
with no peculiar features in a business area such as that with which the
instant case is concerned and where there are plenty of comparable premises
from which the open market rents can be deduced.
There is no
peculiarity in the premises themselves or the business carried on there which
would lead to the conclusion that trading records would be of any assistance
and it cannot, in our judgment, make any difference that the landlord, for his
own purposes, seeks to restrict the user of the premises by a covenant in the
lease. Such a restriction may, no doubt, decrease the obtainable rent by
restricting the market to those engaged in the particular specified trade, but
it cannot alter the nature of the relevant evidence from which the open market
rent is to be ascertained.
In the
ordinary way, the best evidence of the open market rent is what traders
carrying on business in the area are prepared to pay for premises of this type,
and evidence of the successful or unsuccessful nature of the particular
tenant’s business would, in our judgment, generally be not only irrelevant but
also positively confusing. Nothing in the circumstances of this case suggests
that the discovery sought by the respondents could be of any assistance in
determining the open market rent. It would, in our judgment, be very
unfortunate and would greatly increase the expense and length of proceedings
under the Act if the statement which we have referred to in Woodfall —
which is perfectly accurate so far as it goes in relation to the case cited in
the footnote — were thought to justify a general proposition that the tenant’s
business accounts are always relevant material or the notion that orders for
discovery of the type sought in this case ought as a matter of course to be
made in applications under the Act for new tenancies. In the circumstances of
this case we are in no doubt that the registrar came to the right conclusion in
dismissing the respondents’ application and the appeal should accordingly be
allowed.
The appeal
was allowed with costs in the Court of Appeal and below.
