Landlord and tenant — Rent review clause — Construction — Lease, which was for 99 years from 1979, provided for upward reviews of rent every five years, the rent to be fixed by agreement or, in default of agreement, by a valuer acting as an expert and not as an arbitrator — Parties were unable to agree the rent for the second five-year period and could not agree on the basis on which the independent valuer was to make his assessment — The review clause provided for the rent to be ‘the reasonable then current ground rental value’ for the unexpired portion of the term granted, or for a term of 20 years, whichever was the greater — The demised premises were to be taken to be a bare site clear of all buildings (but with a provision to negative any claim for a reduced rent or rentfree period during possible development) and there were to be disregarded the effect on rent of the lessees’ occupation, goodwill, and any addition to value attributable to an on-licence — One of the covenants in the lease was not to use the premises for any purpose other than as a licensed public house — The question for the court was as to the terms and conditions to be assumed to be contained in the hypothetical lease other than those expressly mentioned — The main issue was as to whether such terms and conditions should be the same as in the actual lease (as the tenants contended) or such as the independent valuer would regard as reasonable for the lease of a bare site for development current at the relevant date — If the latter was the correct construction, a second question was whether the bare site should be regarded as available for development only as a public house site or for any lawful use — Tenants submitted that there was a general presumption to be derived from the authorities that a valuer must have regard to the terms of the existing lease unless the lease otherwise required expressly or by implication — Held, rejecting this submission, that the terms of the existing lease taken as a whole were in fact inappropriate to a bare site — It was not surprising that in the context of this lease the parties should have regarded it as sensible to leave it to the valuer to decide on each review, subject only to the specific directions given to him, what terms and conditions he would in the circumstances then obtaining regard as reasonable — This was the correct construction — On the second question, the bare site should be regarded as available for development for any lawful use
The following cases
are referred to in this report.
Chester v Buckingham Travel Ltd [1981] 1 WLR 96; [1981] 1 All ER
386; (1981) 42 P&CR 221
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
Scottish
& Newcastle Breweries plc v Sir Richard
Sutton’s Settled Estates [1985] 2 EGLR 130; (1985) 276 EG 77
Sterling
Land Office Developments Ltd v Lloyds Bank plc
(1984) 271 EG 894, [1984] 2 EGLR 135
This was an
originating summons whereby the plaintiff landlords, Basingstoke and Deane
Borough Council, sought answers to questions relating to the true construction
of the rent review provisions in a lease for 99 years from November 12 1979,
now held by the defendants, the Host Group Ltd, of premises used as a public
house named the Pig and Whistle at Brighton Hill, Basingstoke, Hants.
Miss Hazel
Williamson (instructed by Mr D R Hudson, director of legal and estate services,
Basingstoke and Deane Borough Council) appeared on behalf of the plaintiffs;
Christopher G Russell (instructed by Dixon Ward & Co) represented the
defendants.
Giving
judgment, JUDGE MICKLEM said: I have before me an originating summons which
raises questions as to the true construction of a lease of land with buildings
thereon dated November 22 1982 and made between the plaintiff, the Borough
Council of Basingstoke and Deane, whom I shall call the landlord, and Chef
& Brewer Ltd, whereby the landlord demised premises now used as a public
house to Chef & Brewer Ltd for 99 years from November 12 1979. It is not in
dispute that the defendant, the Host Group Ltd, to whom I shall refer as the
tenant, is the successor in title of Chef & Brewer Ltd and now the tenant
of the demised premises. The lease is a full repairing and insuring lease with
restricted rights of assignment.
The questions
raised by the summons concern the rent review clause in the lease. The initial
rent was £12,251 per annum, payable quarterly in advance.
The lease
provides for upward-only reviews of rent every five years and, put shortly,
provides that, in default of agreement between the parties before a specified
date, rent is to be fixed by an independent valuer appointed by the parties or,
in default of agreement, by the president of the Royal Institution of Chartered
Surveyors, who is to act as an expert and not as an arbitrator. He is to fix or
assess the reasonable then current ground rental value of the demised premises.
The first rent
review was in 1984 and the date before which the parties were to agree the rent
for the second five-year period was November 11 1984.
The parties
failed to agree and cannot agree on the basis on which the independent valuer
is to proceed to make his assessment.
The
originating summons puts the first question at issue in this way:
Whether upon
the true construction of the Lease and in the events which have happened the
valuer in determining the ‘reasonable then current ground rental value’ of the
demised premises for the purposes of the review of the rent as specified in the
Proviso to Clause 1 of the said Lease, should do so on the basis that the
demised premises are available at the date of assessment for letting on the
terms and conditions of a hypothetical lease containing:
(i) such terms and conditions as the valuer regards
as reasonable for a lease of a bare site for development current at the
relevant date; or
(ii) the same terms and conditions as the original
lease;
(iii) some other, and if so what, terms and
conditions.
The landlord is
batting for (i), the tenant is batting for (ii).
A second
question, which may arise, is expressed in this way:
If the answer
to question 1 is in sense 1(i), whether the bare site is available for
development:
(i) only as a public house site, or
(ii) for any lawful use.
On that
question, if it arises, the tenant is batting for (i) and the landlord for
(ii).
It is common
ground that the question before me is simply one of construction: no
surrounding circumstances are mentioned in evidence and all I know about such
circumstances is what is stated in, or can reasonably be inferred from, the
terms of the lease itself. Clause 1 of the lease provides:
In
consideration of the expense incurred by the Lessee in the erection of the
premises hereinafter mentioned on the plot of land hereby demised and of the
rent and covenants on the part of the Lessee hereinafter reserved and contained
the Council hereby demises unto the Lessee ALL THAT the property described in
the First Schedule hereto (hereinafter referred to as ‘the demised premises’).
Then, turning
to the first schedule, the description is:
ALL THAT
piece or parcel of land containing an area of 0.3 acres (approximately 0.1
hectares) or thereabouts situate at Brighton Hill Basingstoke in the County of
Hants more particularly delineated on the plan annexed hereto and thereon edged
in red TOGETHER WITH the buildings and premises situate thereon or on some part
or parts thereof.
Then there is
a plan annexed, on it there is an area delineated in red of the appropriate
size and in that area the words ‘PUBLIC HOUSE SITE’ appear and the words
‘Approx. 0.13 ha (0.32ac)’.
Then among the
tenant’s covenants contained in clause 2 at (xviii), it is provided that the
tenant is:
Not to use
the demised premises for any purpose other than as a licensed public house with
service yard and gardens and to comply in all respects with the terms and
conditions of the planning consents granted in respect of the demised premises
including the requirements of the planning consent reference BDB 6036 dated the
Seventeenth day of August One thousand nine hundred and seventy eight issued by
the Council.
At the very
beginning of the lease the date has originally been typed as ‘one thousand nine
hundred and seventy-nine’ of which the words ‘seventy-nine’ have been struck
out and replaced in writing by the words ‘eighty-two’.
It is clear
that the original tenant built the public-house premises on the landlord’s site
before the lease was granted at the original tenant’s expense. The arrangements
under which this was done, the reasons why the lease was not granted in 1979
and the date when the provisions of the lease were first drafted are alike not
known to the court.
The habendum
of the lease is in this form:
TO HOLD the
same unto the Lessee from the twelfth day of November 1979 for a term of ninety
nine years PAYING THEREFOR during the said term the yearly rent of TWELVE
THOUSAND TWO HUNDRED AND FIFTY ONE POUNDS(£12,251) (or such other sum as is
hereinafter provided for) such rent to be paid without any deduction whatsoever
by equal quarterly payments in advance on every first day of January April July
and October during the said term the first payment to be made on the twelfth
day of November 1979 PROVIDED ALWAYS . . .
and this is
the proviso for rent review:
. . . and it
is hereby agreed that the yearly rent payable by the Lessee during the five
years following the first five years of the term hereby granted (hereinafter
called ‘the Second Period’) and during each and every five year rent review
period thereafter including the final period of four years remaining out of the
term hereby granted (hereinafter referred to as ‘subsequent review periods’)
shall be such rent as is determined in the manner following that is to say:
Either (A)
Such rent as shall be agreed between the parties hereto in writing at any time
before the eleventh day of November 1984 in respect of the Second Period and
thereafter at any time before the eleventh day of November during the final
year of the Second Period and of each and every subsequent review period in
respect of the rent review period next following for the duration of the term
hereby granted (B) (i) In the event of the parties hereto failing to reach
agreement as aforesaid on or before the dates appointed then the rent for the
second and subsequent review periods as the case may be shall be the reasonable
then current ground rental value of the demised premises which shall be fixed
or assessed in accordance with the provisions of sub-paragraph (vii) of this
sub-clause by an independent valuer appointed for that purpose by the parties
hereto or failing agreement as to such appointment in respect of the Second
Period by the day of 11th November 1984 . . .
Then, after
providing for similar limits as to agreements for periods, the valuer should
be:
. . .
appointed for that purpose by the President for the time being of the Royal
Institution of Chartered Surveyors or the principal officer of any body which
is the successor thereto.
Then (ii) deals
with the giving of notice in writing by the president of the appointment.
(iii) provides that the independent valuer shall
act as an expert and not as an arbitrator.
(iv) provides
for the valuer giving notice in writing of his decision.
(v) deals with what is to happen if the
independent valuer shall fail to determine the new rent.
(vi) deals with costs and I can turn to (vii)
which is in these terms:
The reasonable
then current ground rental value shall be the rental value of the demised
premises computed on the following basis:
(a) that the demised premises are available at
the date of assessment for letting for a term equal to the unexpired portion of
the term hereby granted or a term of twenty years (whichever shall be the
greater) with rent reviews at five yearly intervals as herein contained.
(b) that the demised premises are a bare site
only clear of all buildings but not so as to permit consideration of a claim
for a reduced rent or rent free period during the development of the demised
premises as might otherwise be reasonably claimed if the premises were in fact
clear of all buildings.
(c) that there shall be disregarded:
(i) any effect on rent of the fact that the
Lessee has been in occupation of the demised premises.
(ii) any goodwill attached to the demised premises
by reason of the carrying on thereat of the business of the Lessee.
(iii) any addition to the value of the demised
premises attributable to any Justices’ On-licence.
PROVIDED
HOWEVER that the rent assessed in accordance with sub-clause (B) of this clause
shall not in any event be less than TWELVE THOUSAND TWO HUNDRED AND FIFTY ONE
POUNDS (£12,251) a year hereinbefore reserved or the rent payable for the
immediately preceding period whichever is the greater . . .
The lease does
not expressly provide that the hypothesis on which the valuer is to proceed is
that the hypothetical lease contains the same terms and conditions as the
original lease, save as to rent. Counsel for the landlord says that it cannot
be inferred or implied from the terms of the rent review clause, or the lease
generally, that the hypothetical lease is to contain such terms and conditions.
Counsel for
the tenant submits that there is a general presumption to be derived from the
authorities that a valuer must have regard to the terms of the existing lease
unless the lease otherwise requires either expressly or by implication. Counsel
for the tenant did not himself cite any authorities beyond the two cases
mentioned by counsel for the landlord, who herself only cited them for the
purposes of distinguishing them. I must turn now to those authorities, but I
should state at once, both that I should have been surprised to find any such
general presumption of a requirement to have regard to the terms of the
existing lease in the cases and that I do not find on reading them that the
cases support the proposition contended for.
The first case
cited by counsel for the landlord was Sterling Land Office Developments Ltd
v Lloyds Bank plc (1984) 271 EG 894, [1984] 2 EGLR 135, a decision of
Harman J on a rent review clause contained in an underlease of office
accommodation for 42 years from Christmas Day 1960, dated March 11 1962. It was
in these terms:
The yearly
rent to be paid by the Lessees during the last 21 years of the said term shall
be the greater of (a) One thousand seven hundred and sixty nine pounds or (b)
an amount equal to the market rental for the demised premises with vacant
possession.
Harman J
described that as ‘an early example of a rent review clause based upon market
rental’. Having described some of the difficulties which arose on such terms,
he went on (second column, p 894) to state the argument of Mr Gaunt for the
tenant, Lloyds Bank:
Mr Gaunt, for
Lloyds Bank, submitted that no valuation could ever be made without knowing the
terms on which the property to be valued was to be disposed, that is to say,
freehold or leasehold, the length of term, user, and others. There were here,
he submitted, as Mr Poulton’s motion raised the question, three possible sets
of terms: first, on the terms of this lease; second, on ‘the usual covenants’;
third, the terms likely to be available at the time of the valuation in the
open market. He urged that the first was the correct implication, and that that
meant all the terms of this underlease, including the user covenant as
presently standing. The terms of this underlease would, he said, in fact be the
terms on which Lloyds Bank would occupy them for the next 21 years; thus it was
fair to both parties that those terms should govern the rent payable. He
submitted that both ‘the usual covenants’ and ‘the terms available in the
market’ were inherently uncertain, likely to lead to lengthy argument and could
not have been contemplated by the parties when they made this lease in 1962
He referred to
Ponsford v HMS Aerosols Ltd [1979] AC 63, where Lord Dilhorne and
Lord Fraser both referred to valuations of premises ‘if let on the terms of
this lease’ although the rent review covenant in that case contained no such
express words. It is plain that the point now before me was not argued in Ponsford’s
case but was assumed. It is none the less some guidance as to what is the
natural meaning of words such as these.
As to the
‘usual covenants’ test, he referred to Foster J’s decision in Chester v Buckingham
Travel Ltd [1981] 1 WLR 96 to show that some of the actual covenants in
this lease are directly at variance with the covenants there held to
be ‘usual’. Mr Gaunt also pointed out the undoubted fact that the terms of the
‘usual covenants’ vary according to the times, and to the length and difficulty
of ascertaining them. On this point, I am wholly convinced by Mr Gaunt that any
valuation should, if possible, not be on the terms of the ‘usual covenants’. I
am also content to accept that the valuer should not be asked to determine what
covenants might be expected in the open market at the date of valuation.
I understand
Harman J to have been so content, because he accepted the argument that the
question of what were the terms available in the market was inherently
uncertain and likely to lead to lengthy argument and could not have been
contemplated by the parties.
The second
case referred to by counsel for the landlord — to distinguish it — was Scottish
& Newcastle Breweries plc v Sir Richard Sutton’s Settled Estates
[1985] 2 EGLR 130. This was a decision of His Honour Judge Baker QC as a judge
of the High Court on a rent review clause in an underlease of land and
buildings demised for 42 years from July 9 1962 by a lease dated September 12
1962. The clause in that case was an elaborate one and I need say no more for
present purposes than it did not expressly state that the hypothetical lease to
be assumed was to contain the same terms and conditions as the existing lease,
other than as to rent. Having read the relevant parts of the lease, Judge Baker
said this, at p 134E under the heading ‘Assumption as to terms of notional
letting’:
That is the
clause, and now I can deal with the first question: what are the terms of the
hypothetical lease which the arbitrator is to assume when he is making his
award or determining what increase in rent there should be?
The
landlords’ position is this, that he should assess the rent payable for the
residue of the term, that is 21 years, on the same terms and conditions as are
in the existing lease other than as to the rent. There should be, among other
things, no further review; there is no provision for further review, this is
the one and only, and that will no doubt result in a higher rent being awarded
than would be if the arbitrator was to assume a notionally shorter lease, or
perhaps a lease for the rest of the term, the 21 years, with shortish reviews —
which is the common feature of leases of this type of property being granted
today. So that is the landlords’ view, that except for the amount of the rent
it is on exactly the same terms as in the current lease but without any review
at all. To some extent there is support in the authorities for that view. In
the case of Ponsford v HMS Aerosols Ltd [1979] AC 63, there are
some dicta of the House of Lords which bear on this question. They were
concerned with fixing the reasonable rent for demised premises — that was the
phrase in question, ‘What was the reasonable rent for the demised premises?’,
and that led to a difference of judicial opinion which happily I am not
concerned with in this case. It is simply some dicta which show the approach of
at least some of their lordships, certainly two of those in the majority, on
the matter. I was referred specifically to the speech of Viscount Dilhorne on p
76 at G, where his lordship said:
‘In the present case and in many others
provision is made for the assessment to be made by an independent surveyor.
What is he to do? Surely it is to assess
what rent the demised premises would command if let on the terms of the lease
and for the period the assessed rent is to cover at the time the assessment
falls to be made.’
Then he goes
on:
‘That rent may depend to some extent on
local factors such as deterioration of the neighbourhood.’
But the point
is what it would command if let on the terms of the lease and for the period
the assessment is to cover. That is how Viscount Dilhorne saw it.
Lord Fraser
at p 83 has a sentence in his speech which says this, dealing with the question
of what is meant by a reasonable rent:
‘Regard must, of course, be had to the
terms of the lease, because its provisions with regard to duration,
responsibility for repairs and other matters may affect the rent, but their
effect would be the same whoever the landlord or the tenant might be.’
So his
lordship also directed his attention to the terms of the existing lease other
than as to rent.
Then Judge
Baker referred to the decision of Harman J in Sterling Land Office
Developments Ltd v Lloyds Bank plc (1984) 271 EG 894, [1984] 2 EGLR
135 and describes what Harman J has done in these terms:
By a process
of elimination his lordship obviously accepted that the right approach was on
the terms of the lease.
So that is
how the matter stands on the landlords’ submissions and the supporting
authority.
Judge Baker
then proceeds to consider the arguments on construction presented to him and
arrives at his conclusion as a matter of construction. At p 135B, he says:
I cannot
myself see how the expression of some terms in the review provision leaves the
rest of the provisions at large to be incorporated or not as the arbitrator
might decide. It seems to me the choices open are either no terms at all other
than those indicated in the review provision, or those in the existing lease in
so far as they are not inconsistent with the express terms in the review
provision. In fact they are not inconsistent with the terms in the lease, because
under the lease the tenant, as one might expect, does pay the tenant’s rates
and taxes and bears the cost of repairs and insurance.
So on that
ground it seems to me that the landlords’ submission should be accepted and
that the arbitrator should be directed to review this lease on the basis that
it is to be on the terms of the existing lease other than as to rent for the
period of 21 years.
The learned
judge then goes on to consider two further points, one of which turned on the
history of events leading up to the grant of the underlease which he was
considering and the other of which turned on the specific terms of the
underlease.
Nowhere in the
judgments of Harman J or Judge Baker is there any indication of a general rule
or presumption for which counsel for the tenant contended before me. Indeed,
when counsel relied on dicta of the members of the House of Lords in Ponsford
v HMS Aerosols Ltd, which were in general terms, Harman J was at pains
to point out that the point before him — and the point before me — had not been
argued and that the dicta had to be read in that light. In the present case the
general dicta do not appear to me to give any useful guidance, as their
lordships were not considering a case in which the parties had agreed a site
value basis for the rent review.
I accept the
submission of counsel for the landlord that both the cases cited were also
distinguishable on the ground that they were concerned with clauses in other
terms in which the hypothetical lease was to be a lease of land with buildings
on it, by contrast to this case in which the valuer is specifically directed to
value on the basis that the demised premises are a bare site only.
Counsel for
the landlord sought to develop an argument based on the supposed sophistication
of the clause in the lease before me which she invited me to assume was drafted
in 1979, as opposed to the naivety of the clause drafted in 1962 and referred
to by Harman J as an ‘early example’ of the genre.
Counsel for
the landlord invited my attention in this regard to three modern precedents of
rent review clauses and stated that there was no modern precedent, that is, in
the last 10 years, that she could find that has not taken a sophisticated form,
including a reference to the terms and conditions of the existing lease. She
invited me to conclude that the omission of such words must be deliberate. The
precedents are to be found in Bernstein and Reynolds: Handbook of Rent
Review (1981), at 1835/6, which is a part of a precedent dealing with
provisions which are said to be applicable in all cases; in the Encyclopaedia
of Forms and Precedents (1966) vol 12, p 749, a precedent dealing with a
lease of shop premises at open market rental value; and in Encyclopaedia of
Forms and Precedents, Current Service, no 62, pp 184-5, a precedent dealing
with the rent review for a business tenancy. I need not burden this judgment
with quoting them. I do not know the date on which the lease before me was
drafted and I do not find that argument persuasive. I must derive the intention
of the parties from the words they have used, not from some supposed state of
the art at the time of the drafting of the lease.
Counsel for
the landlord submitted that the court can, in considering the rent review
clause, take account of the fact that the purpose of a rent review clause is to
protect the landlord from inflation. I accept that submission; but I accept
also the submission of counsel for the tenant that the choice of a bare site,
clear of all buildings, as the basis on which the valuer is to proceed, clearly
indicates that another purpose of this clause was to protect the tenant who had
erected the buildings on site at its own expense. The purpose underlying the
choice of this clause appears to be that the landlord and the tenant shall
share further increases in the value of the developed site on a fair basis.
There are a number of different ways of providing for this situation. Sometimes
the landlord takes a proportion of the value of the land, together with the
buildings, at the review date. Sometimes he takes a proportion of rent
receivable, or capable of being received by the tenant, in the review period.
Sometimes, as I have indicated, a site value is adopted. Counsel have not found
any reported case in which a clause using a site value basis has been
considered.
Counsel for
the landlord submitted:
(a) that the terms and conditions of the existing
lease could not sensibly be read straight into a lease of a bare site;
(b) that, if that be accepted, it would not be
proper to infer that the parties intended that those clauses should be read
into the hypothetical lease to be considered by the valuer, because the parties
could not have intended that the valuer should assess the bare site offered
with those covenants attached;
(c) that it was not open to the court to pick and
choose as between the terms of the existing lease and infer that the parties
intended only the
(d) that far from being any general rule that
such terms are required to be read in, unless the rent review clause clearly
led to a contrary inference, the omission to any reference to such terms of the
existing lease must be regarded as deliberate. I have already referred to that
argument.
(e) that the formula for assessing the reasonable
current ground rental as set out in paragraph (vii) of the rent review
provision contained all that a valuer needed to know about the hypothetical
lease and that the true inference was that the parties intended to leave it to
the valuer to assess rental value on such terms as he thought reasonable for a
lease of a bare site for development current at the review date.
While
accepting that a valuer had to know what it was he was valuing, and that in the
case of a lease with buildings on it, Harman J had in the Sterling case
rejected a suggestion that the parties intended to leave the terms to the
valuer as being an improbable intention to attribute to parties to a commercial
lease, counsel for the landlord submitted that somewhat different
considerations applied to a lease of a bare site and that in such a case such
an intention was not improbable.
Counsel for
the landlord submitted that the express reference to certain of the terms of
the existing lease in para (vii) (a) and (b), namely, ‘a term equal to the
unexpired portion of the term hereby granted’, or 20 years, and ‘rent reviews
at five-yearly intervals as herein contained’, showed an intention not to
include any other terms of the existing lease.
For his part,
counsel for the tenant relied on the three express ‘disregards’ mentioned in
para (vii) as showing that the valuer was expected to consider a hypothetical
lease taking the terms of the lease with regard to use as a public house into
account for otherwise, he said, in relation to a bare site there would be no
sense in disregarding goodwill and the value attributable to a justices’
licence. He referred also to the description, on the plan attached to the
lease, of the area delineated red as a public-house site. His argument here was
that the rent review clause requires the valuer to assess the rental value of
the demised premises. The demised premises are defined in the first schedule.
The definition includes a reference to delineation on the plan. The plan
includes within the red delineating line the words ‘public-house site’. The
plan is incorporated in the definition, with the result that even if the valuer
is to value as a bare site only the plan shows that the parties had in mind a
particular type of bare site only, namely, a site for a public house. Once it
is clear in this way that the bare site is to be valued as a site for a public
house, counsel for the tenant argues that the provisions of the existing lease
are seen to be appropriate and the other provisions for repair, insurance and
so forth follow naturally. Thus the inclusion of the words ‘public house site’
in the plan are said to point unequivocally towards an intention to include the
terms and provisions of the existing lease, save the terms specifically
directed. That is an ingenious argument, but it is open to the comment that a
great deal is made to hang on the inclusion of three words on the plan attached
to the lease, which is incorporated in the lease only for the purpose of
delineating the situation of the plot.
While there is
some force in the submissions on behalf of the tenant, I am persuaded that the
true construction of this lease is that contended for by the landlord.
Counsel for
the landlord took me through all the terms of the lease. While a number of the
provisions in the lease, and in particular a number of the covenants on the
part of the tenant, are appropriate to, or capable with a little goodwill of
being regarded as appropriate for inclusion in, the lease of a bare site, there
are some which are clearly inappropriate. She relied in particular on clause
2(iii) — that is a covenant:
Throughout
the said term to keep the demised premises and all additions thereto and
Landlord’s fixtures thereon and the boundary walls and fences thereof and the
drains soil and other pipes and sanitary and water apparatus thereof in good
and substantial repair order and condition (including decorative repair and
condition) and to properly maintain all lawns and flowerbeds and all trees and
shrubs and to replace forthwith with similar trees or shrubs any which may
become diseased or may die.
Counsel points
out that on a bare site there is unlikely to be any sanitary or water apparatus
and that read strictly into such a lease a covenant to maintain trees and
shrubs would effectively prevent any development of the site. I think there is
force in her submission that that clause is, on the face of it, inappropriate
to a lease of a bare site.
Then as to clause
2 (iv), which is the usual covenant to paint with two coats of good-quality
paint externally, and to paint internally, and to distemper and stop, whiten
and repaper, she says, clearly rightly, that is an inappropriate clause to find
in a lease of a bare site.
Then clause
2(vi), which is a covenant to permit the agents of the landlord to enter and
examine the condition of the demised premises and to serve notices specifying
repairs necessary. That is inappropriate.
Then clause
2(viii), where there is a covenant:
Not to make
or erect or to permit or suffer to be made or erected on the demised premises
any other building external alterations in or external projection on the front
of or additions to be buildings on the demised premises . . .
That is clearly
inappropriate.
Clause 2 (ix):
To insure
forthwith . . . against loss or damage by fire explosion aircraft or objects
dropped from aircraft . . . to cover the cost of complete reinstatement . . .
The reference
to buildings there is inappropriate.
Clause 2 (x)
contains a provision dealing with what is to happen if ‘. . . the demised
premises or any buildings thereon shall be destroyed . . .’ On its natural construction, 2 (x) is I think
inappropriate to the lease of a bare site.
Then clause
2(xii) is a covenant on behalf of the tenant:
So long as
the requisite licences can be obtained to use the demised premises or cause or
permit the same to be used as a fully-licensed public house only . . .
That is
inappropriate.
Clause 2
(xiii):
To apply . .
. at all proper times to the licensing authorities for the time being . . . for
the grant or renewal of any licences . . .
That is
inappropriate.
Clause 2 (xiv)
is a covenant on the part of the tenant on the determination of the tenancy to
surrender up existing licences. Clause 2 (xviii) is the covenant, which I have
read, not to use the premises otherwise than as a public house. Both these
clauses are inappropriate.
Counsel for
the tenant sought to meet the point that a number of the covenants were
inappropriate to a bare site by reference to certain words in the proviso in
clause (vii)(b):
that the
demised premises are a bare site only clear of all buildings but not so as to
permit consideration of a claim for a reduced rent or rent free period during
the development of the demised premises . . .
This reference
to development shows, he suggests, that the parties clearly had development of
the site in mind and he submits that while the covenants mentioned might be
inappropriate in a lease of a bare site with nothing more, they are not really
inappropriate in a lease of a bare site which is expressly contemplated to be
let for development. I did not find this a satisfactory answer to the
landlord’s point. I note in particular that there is no express covenant to
build in the existing lease; the result is that if counsel for the tenant were
right the hypothetical lease would contain a number of covenants which would
only be appropriate if there were a covenant to erect buildings, but that vital
covenant itself would be absent. Moreover, the parties have expressly told the
valuer to value on the hypothesis of a bare site. While most bare sites are let
to be built on and some may be let in order to have public houses built on
them, and in such cases just those covenants would be appropriate, it is by no
means a necessary implication that the parties had this limited class of bare
site in mind.
I accept,
therefore, that the covenants taken in the existing lease and looked at as a
whole are not appropriate to a lease of a bare site.
I accept the
submission of counsel for the landlord that the covenants and terms, save as to
rent, must be imported if at all as a whole, that the court would not impute an
intention to the parties to pick and choose and that, unless driven to it by necessity,
the court should not impute an intention to the parties to import inappropriate
covenants into the hypothetical lease the valuer is required to assess.
But it is said
that it would not be right to impute an intention to the parties to leave to
the valuer to decide what terms are reasonable in the lease of a bare site. I
see the force of this, but I am persuaded by counsel for the landlord that in
the circumstances of this case this is not an improbable intention to attribute
to the parties. The lease is a long one: 99 years. There will be many rent
reviews down the years, and on each occasion the rent review provisions will of
course have to be operated. Neighbourhoods change, social habits change,
buildings wear out and have to be replaced. This rent review clause is
required to operate in circumstances in the distant future which the parties
cannot now foresee. In such circumstances, it seems to me to be a sensible
commercial intention to attribute to the parties that the professional valuer
agreed or chosen at the time of each rent review should be trusted to assess
the market at the time. Moreover, the valuer is concerned with valuing a bare
site only. I think there is force in the submission of counsel for the landlord
that there is a significant nuance in the use of the phrase ‘current ground
rental value’, as opposed to rent, in the formula the valuer is to apply. A
valuer asked by a client with a bare site in a particular situation, to be let
for an identified term with five-yearly rent reviews, will be able to form an
opinion and advise his client what the current ground rental value is, and one
of the factors he will bear in mind is the sort of covenants which solicitors
are then currently insisting on inserting in leases of that sort at that time.
Just as he will bear in mind what the current demand for property for
development is, the current planning situation is and so on. It does not seem
to me to be an improbable intention to attribute to commercial men in the
circumstances, having set down the basic groundwork, namely the site value, the
term, the rent review clauses and having cleared away possible
misunderstandings by eliminating reduced rents and rent-free periods and the
other possible doubts by specific ‘disregards’ based on the Landlord and Tenant
Act 1954, to say for the rest, ‘We will leave this to the valuer at the
time.’ A valuer does not, in my
judgment, have to know precisely all the terms on which the bare site will
ultimately be let in order to arrive at its ‘reasonable current ground rental
value’, though he does have to know broadly what terms are being required to be
inserted by potential landlords and potential tenants at the time of the review
and will, once these are known, be able to form a view as to what are reasonable
terms at the time. His position is I think to be contrasted with the position
of the valuer who has to assess a rent of land with buildings on it, who must
know exactly what the terms of the lease are and what the state of repair is
and the state of performance of the covenants under the lease is, before he can
assess that rent.
As with all
questions of construction, this is largely a matter of impression. I find it
unlikely that parties having opted for a site value basis would have intended
to import into the hypothetical lease of a bare site a large number of
inappropriate covenants including a covenant to use only as a public house. I
consider that the specific disregards in para (vii) throw no light on the
intention of the parties beyond clarifying for the valuer that certain matters,
which he might otherwise have been doubtful about, are not to be taken into
account, and I find it in the context of this lease unsurprising that the
parties have left it to the valuer to decide on each review what terms and
conditions in the hypothetical lease he would in the circumstances then
obtaining regard as reasonable.
I answer
Question 1 in the originating summons in terms of para (i).
Question 2 —
the hypothesis is that the bare site is available (i) for development only as a
public-house site; or (ii) for any lawful use.
If, as I have
found, the valuer is not to introduce into his hypothetical lease for valuation
all the terms and conditions of the existing lease save as to rent, I ask
myself what there is in this rent review clause to show that the parties
intended that the bare site clear of all buildings was to be a clear site on
which only a public house could be built.
Once again,
counsel for the defendant relies on the words ‘public-house site’ on the plan,
which he says is incorporated by reference in the definition of the demised
premises in the rent review clause.
I am not
persuaded that these words mean anything more than, at the time the plan was
prepared, the site was proposed to be the site of a public house. I cannot read
into those words on the plan any indication that the parties intended on every
future rent review that the bare site was only to be developed in one way,
namely as a public house. If the parties had intended that, they surely would
have said so expressly. Of course on the present review, or any further review,
the valuer may take the view that in current circumstances the site is
reasonably to be regarded as available for development only as a public-house
site, but that would be a result of his professional assessment of the
circumstances at the time, not because the parties have initially agreed that
the property shall be valued as though it was only available for development as
a public house.
I answer
Question 2 in terms of paragraph (ii), available for development for any lawful
use.
