Landlord and tenant — Landlord and Tenant Act 1954 Part
The plaintiff tenant held a tenancy of business
premises for a term expiring on 28 September 1997. Pursuant to section 25 of
the Landlord and Tenant Act 1954, the defendant landlord gave notice
determining the tenancy on 25 February 1998; the notice stated that the
landlord would oppose the grant of a new tenancy on grounds (f) and (g)
of section 30(1) of the Act. The tenant gave up possession of the premises
shortly before the contractual term date. Following a claim by the tenant under
section 37 of the Act for disturbance compensation of twice the rateable value,
based on 14
period of occupation must be 14 years expiring on the date of termination
specified in the landlord’s section 25 notice, and that because the tenant gave
up possession by 28 September 1997, it could not satisfy the requirement of 14
years’ occupation ending on 25
rateable value. As the tenant gave up possession by the contractual term date,
the tenant ceased to enjoy the protection of Part II of the 1954 Act
thereafter. Section 37 was clear and workable. The effect of subsections (3)
and (7) was that the 14-year period of occupation had to be satisfied up to the
date of termination of the tenancy specified in the landlord’s section 25
notice. The tenant was not in occupation after 28 September 1997, and did not
occupy up to 25 February 1998.
The following cases are referred to in this report.
Bacchiocchi v Academic
Agency Ltd [1998] 2 All ER 241; [1998] 3 EGLR 157
Department of the Environment v Royal Insurance plc (1987) 54 P&CR 26; [1987] 1 EGLR
83; 282 EG 208-214
Esselte AB v Pearl
Assurance plc [1997] 1 EGLR 73; [1997] 02 EG 124
University College, Oxford (Master &
Fellows) v Durdy [1982] Ch 413; [1982] 3 WLR
94; [1982] 1 All ER 1108; [1982] 1 EGLR 8; (1981) 262 EG 338, CA
This was the hearing of a
summons under RSC Ords 14 and 14A in proceedings by the tenant, Sight &
Sound Education Ltd, to recover compensation from the landlord, Books etc Ltd.
Jonathan Brock QC (instructed by Dibb Lupton
Alsop) appeared for the tenant; Edward Denehan (instructed by Freeman Box)
represented the landlord.
Giving
judgment, JUDGE PRYOR
said: The question I have to determine in this case is a point of construction
of a few words in the Landlord and Tenant Act 1954. The plaintiff was until 28
September 1997 the tenant of premises at 118/120 Charing Cross Road and
occupied those premises for the purpose of its business. In fact, it occupied
under three separate leases but nothing turns on that. They all had the same
expiry date, which was 28
exceeded 14 years.
Since the plaintiff
occupied for the purpose of its business, the 1954 Act applied to the tenancy
with the result that, by virtue of section 24, the tenancy would not come to an
end on its term date because the tenant had the protection of that Act, but
there were substituted by the Act new statutory methods of termination with
which this case is concerned.
What happened in fact was that on 27 February 1997
the landlord served appropriate notices pursuant to section 25 of the Act,
giving as the date for termination of the tenancy 25 February 1998. That meant
that, according to the terms of the Act, 25
termination date for the tenancy instead of 28 September 1997, provided — and
it is an important proviso — the tenant continued to occupy for the purpose of
its business up until 25
Upon the service of
a notice under section 25, the tenant has rights to protect its interest by
serving a counternotice within two months expressing its unwillingness to give
up possession. Thereafter, within another two months, it can apply to the court
for a new tenancy, and that application will go through the process of court
proceedings. In this case, the issue would be determined — if the matter
proceeded to a conclusion — by whether the landlord could establish the grounds
for opposition to the grant of a new tenancy that it had asserted in its
original notices.
Those grounds were the grounds set out in subparas
(f) and (g) of section 30(1) of the Act. Para (f) provides
that if the landlord proves an intention to demolish or reconstruct the holding,
or a substantial part of the holding, then a new tenancy will not be granted.
Para (g) has a similar consequence if the landlord proves an intention
to occupy for the purposes of its own business.
What happened in this case was that the tenant
duly served a counternotice of unwillingness to give up possession and issued
its application to the court. Both steps were taken within the proper time. The
defendant landlord filed an answer in July 1997 so, in effect, the issue was
joined on the question of whether a new tenancy should be granted or not.
The matter never came to a hearing because the
tenant decided to discontinue its application and vacate the premises. There is
some dispute as to the precise date on which the tenant vacated, but nothing
turns on that because it is accepted that the few days between the date when
the tenant vacated — whichever it was, somewhere between 19
September — and the contractual date for termination, 28
were not sufficient to break the continuity of occupation for business purposes
if 28 September 1997 is the crucial date for testing that question.
As I have said, the tenant vacated shortly before
28
of that was that,
enjoy the protection of the 1954 Act. The Act ceased to apply and so the
contractual arrangements reasserted themselves, if one can put it in that way,
with the result that the tenancy, or tenancies, expired by effluxion of time on
28 September 1997. That is the consequence of a decision of the Court of Appeal
in Esselte AB v Pearl Assurance plc [1997] 1 EGLR 73.
The result, summarising it, therefore was that the
tenant vacated, the tenancy came to an end, the tenant’s obligation to pay rent
came to an end and the tenant’s right of occupation came to an end. The tenant
could not have remained in occupation or resumed occupation after 28 September
1997, having discontinued its proceedings and vacated, without being a
trespasser.
The relationship of landlord and tenant came to an
end in that way, but the impact of the Act did not because the circumstances
are such that, provided certain conditions are satisfied, the tenant is
entitled to compensation on vacating the holding. The right to compensation
arises where the ground for opposition asserted by the landlord is one that is
a ground inserted into the Act purely for the benefit of the landlord, in the
sense that the landlord only has to prove its own intentions as to its own
activities without proving any default of any kind on the part of the tenant.
If that is the reason why the landlord is entitled to refuse the grant of a new
tenancy, then the Act provides that the tenant shall be compensated. The
provisions for compensation are found in section 37 of the Act, the main
provisions for compensation.
I think it is convenient at this stage to recite
the terms of section 37(1) and I will read it in full in its present form after
amendment. It reads as follows:
Where on the making of an application under
section 24 of this Act the court is precluded (whether by subsection (1) or
subsection (2) of section 31 of this Act) from making an order for the grant of
a new tenancy by reason of any of the grounds specified in paragraphs (e),
(f) and (g) of subsection (1) of section 30 of this Act and not
on any ground specified in any other paragraph of that subsection, or where no
other ground is specified in the landlord’s notice under section 25 of this Act
or, as the case may be under section 26(6) thereof, than those specified in the
said paragraphs (e), (f) and (g) and either no application
under the said section 24 is made or such an application is withdrawn, then,
subject to the provisions of this Act, the tenant shall be entitled on quitting
the holding to recover from the landlord by way of compensation in an amount
determined in accordance with the following provisions of this section.
The words in the middle of that subsection from
‘or where no other ground’ to ‘such an application is withdrawn’ were inserted
by amendment in 1969. There were two or three amendments in the Law of Property
Act 1969 to cover difficulties that had arisen in the operation of the Act in
its first 15 years of existence. The amending passage in this subsection was,
it seems to me, clearly inserted in order to avoid what been had the previous
rather cumbersome procedure that had to be gone through if a tenant was to get
compensation.
What happened before the amendment was that the
tenant’s application had to be carried through to a conclusion in court,
however strong the landlord’s grounds of opposition might be, as disclosed in
pleadings and evidence. If the tenant were to get compensation the matter would
proceed to a hearing and the court would make its ruling under section 31 to
the effect that no new tenancy should be granted because the landlord
succeeded. It would certify the grounds on which the landlord had succeeded and
if those grounds included those provided in paras (e), (f) and (g)
and no others, or any one of those paragraphs and no other, then, subject to
the conditions of the Act, the tenant could get compensation. That was plainly
an expensive, unnecessary and cumbersome procedure that added costs for both
parties and cluttered up court lists. The amendment was inserted, in my view,
clearly in order to enable the tenant who realistically accepted that it had no
prospect of success against its landlord, or indeed decided not to proceed for
any other reason that might be entirely within the tenant’s own considerations,
to get compensation if the landlord’s ground of opposition was that asserted in
the paragraphs I have mentioned, and either the tenant decided not to go before
the court or withdrew any application it actually made. I accept entirely Mr
Jonathan Brock’s argument that that was the obvious purpose of this amendment.
That does not conclude the matter because the
following subsections of section 37 provide for the manner in which
compensation is to be calculated and they lay down certain conditions that have
to be satisfied. Subsection (2) provides that the tenant, on quitting the
holding, should either receive one times the rateable value of the holding —
that is simply the rateable value — or, if other conditions are satisfied, it
should receive twice the rateable value, and it is that provision that is at
the centre of this argument. Section 37(3) provides that one of the conditions
for the tenant to be paid twice the rateable value is this:
(a) that, during the whole of the 14 years
immediately preceding the termination of the current tenancy, the premises
being or comprised in the holding have been occupied for the purposes of
business carried on by the occupier or for those and other purposes.
Both parties before me accept that the crucial
words that I have to consider are ‘immediately preceding the termination of the
current tenancy’.
To anticipate the argument slightly, the tenant
says that the only sensible construction that can properly be put on those
words, in the circumstances I have outlined, involves finding that the
termination of the current tenancy for this purpose was 28 September 1997. If
that is accepted as the date for termination, it is conceded on behalf of the
landlord that the tenant was in occupation for the whole of the 14 years
immediately preceding that date.
The landlord does not accept that argument and
relies on a very powerful argument derived from section 37(7), which defines
the termination of the current tenancy, and it reads as follows:
In this section…
— that is, section 37 —
the reference to the termination of the current
tenancy is a reference to the date of termination specified in the landlord’s
notice under section 25 of this Act or, as the case may be, the date specified
in the tenant’s request for a new tenancy as the date from which the new
tenancy is to begin.
In parenthesis I should perhaps have mentioned
section 26, which gives the tenant a right, as the contractual period draws to
a close, or indeed after it has drawn to a close provided the tenant is still
in occupation and the Act still applies, to give notice to the landlord
requesting the grant of a new tenancy, then the landlord can put in a ground of
opposition similar to that which he can put into his original notice, if he
serves one, and the matter can then proceed to court on the same basis.
I
here the Act substituting for the common law or contractual grounds for terminating
a tenancy an entirely new statutory framework, which provides for both parties
means by which they can adjust their affairs, by either seeking to terminate
the tenancy or asking for a new tenancy. It is an entirely separate statutory
framework created by the Act, which applies wherever the Act continues to apply
to a tenancy where the premises are occupied for business purposes.
So that is the condition that has to be satisfied
in section 37(3) and there is the definition in section 37(7). Mr Edward
Denehan, on behalf of the landlord, says that is as clear as anything could be,
and when one reads it back into the phrase ‘immediately preceding the
termination of the current tenancy’ then, for the purposes of this case and the
facts I have outlined, the only date that the court can arrive at as being the
termination of the current tenancy is 25 February 1998, which was the date
inserted in the landlord’s original notice.
There are the battle lines drawn, as it were, and
I have to decide which of those constructions of the section is the right one
and whether, as Mr
the definition in section 37(7) by adding words that would make it possible to
construe that definition as referring not simply to the date in the landlord’s
notice, but to the actual date when, by the combined operation of the
contractual provisions and the statutory provisions, the tenancy actually does
come to an end.
There is some authority that is helpful. Two cases
are reported where the wording that I have quoted from section 37(3) has been
considered. The first was Department of the Environment v Royal
Insurance plc [1987] 1 EGLR 83. That case also concerned compensation and
indeed was concerned with precisely this wording in the same section. The issue
was in the very narrowest compass because what had happened was that the tenant
had been in occupation under a term for 14 years and had vacated at the end of
the 14 years, and one would have thought that the tenant would automatically
have satisfied the requirements because it had had the full 14 years. I have
recited the facts in a rather careless way because the whole issue was: had the
tenant been in occupation for the whole of the 14 years? The argument for the
landlord was, no, it had not because it had not gone into occupation until
after the first, or perhaps the second, day of the term granted. There was one
day at least when the tenant had left the premises empty. It had then gone in
and started making some alterations preparatory to going into occupation.
The whole case turned on the question of whether
the tenant had been in occupation for the whole of 14 years immediately
preceding the termination of the current tenancy. It was accepted on both
sides, I think — no argument was addressed to the point in any event — that the
14-year period must be a period that runs up to the termination of the current
tenancy. That has been accepted in this case and, in my view, it follows from
the language I have quoted, namely ‘immediately preceding’. That is a phrase
that refers to the timing of the occupation and ‘immediately preceding’ means
‘right up to the relevant date’.
The problem was not precisely the same in that
case because what was being looked at was not the end of the 14-year period, but
the beginning. Falconer J was persuaded that the loss of one day was fatal to
the tenant’s application and so the tenant only got one times the rateable
value instead of two times the rateable value.
That case came up for consideration in a
subsequent decision of the Court of Appeal, namely Bacchiocchi v Academic
Agency Ltd [1998] 2 All ER 241*. That case was not concerned with section
37(3) precisely. It was concerned with similar wording that appears in
section
section 38 is a section designed to prohibit contracting out from the
obligation to pay compensation. The condition that brings the prohibition into
play includes the words:
where, during the whole of the five years
immediately preceding the date on which the tenant under a tenancy to which
this part of this Act applies is to quit the holding, the premises had been
occupied for the purposes of the business.
*Editor’s note: Also reported at [1998] 3 EGLR 157
The issue in that case was whether the tenant had
been in occupation during the whole of the five years immediately preceding the
date on which the tenant was to quit the holding. So the ‘immediately
preceding’ phrase was identical and, while the date on which the tenant was to
quit was a different one, the considerations were, as the court said,
identical: could the tenant prove the necessary occupation up to the date on
which it was to quit?
Without going into the details of that case, what
happened was that the tenant actually moved out something like 12 days before
the date on which it was to quit with, at that stage, no intention of
reoccupying. The question was whether the court should apply the sort of strict
analysis that Falconer J had applied in the previous case — we are looking at
the other end of the period in question — and say, ‘Well, the tenant has gone
out 12 days before the end of the term and cannot therefore assert that the condition
is satisfied, therefore the contracting out from the obligation to pay
compensation applies’. The court rejected that argument but they rejected it —
and I do not propose to go through the judgments in any detail at all — not on
the ground of any construction of the phrase ‘immediately preceding the date on
which the tenant was to quit’, but by approaching the question of occupation
for business purposes in a relatively liberal way. I hope I do not do injustice
to what their lordships said if I say that what they really said was that where
you have a relatively short period — in that case something like 12 days — the
end of the period in question — and the tenant is in a position where he has
got to make up his mind whether to stay or go, and he makes his arrangements
and leaves a few days before the end of the term that he could have enjoyed, it
really flies in the face of common sense to say that by so doing he has ceased
to occupy for business purposes. The process of moving out and timing your move
out is part of the general process of occupation and a few days either at the
beginning or the end — at the beginning when you take up occupation or at the
end when you go out of occupation — cannot destroy the general continuity of
occupation for business purposes.
That is what they held, generally speaking,
putting it far more elegantly than I have. They therefore concluded that the
tenant did satisfy the condition in that case of being in occupation during the
five years immediately preceding the date when it was to quit. They also held
that the previous case I have mentioned had been wrongly decided.
I emphasise that the decision of the Court of
Appeal in Bacchiocchi was entirely based on the proper understanding of
the phrase in section 23 of the Act, ‘occupied for the purposes of a business
carried on by the tenant’. They held, as I have said and I repeat, that a few
days at either end, in the circumstances of the two cases they had under
consideration, were not sufficient to break the continuity of occupation.
That argument does not run in this case, as I see
it, and Mr Brock does not try to run it because he accepts that not only is the
period too long that he has to bridge if his interpretation of termination of
the tenancy is wrong, but also, in the circumstances that have arisen, the
tenant had actually moved out and therefore would have been a trespasser if it
had tried to move back in again or hang on to the premises in some way until
February 1998.
That being so, it seems to me that Mr Brock can
only succeed if he is able to persuade the court, by his concluding argument,
that this is a case in which the court can say that the intention of parliament
is so overwhelmingly clear that the Act must be regarded as being deficient of
some necessary or appropriate provision to make it work in accordance with the
obvious intention of parliament. What Mr Brock says, and he derives support
from observations, which I have not quoted, that are to be seen in some of the
judgments in the Bacchiocchi case, is that parliament was plainly, in
the amendment inserted in 1969, making provision to make it possible for
tenants in particular to organise their affairs sensibly to avoid the necessity
of going to court, with all the costs and irritation that that can give rise
to, in order to get their compensation. Mr Brock says that where the tenant has
been in occupation for 14 years before it vacates, the whole underlying object
of the compensation provision is satisfied and the tenant ought therefore to
get its compensation. Parliament cannot have intended, Mr Brock says, that in a
situation of the kind that has arisen in this case, the tenant who has done no
more than accept the inevitable and rearranged its affairs in a sensible and
prudent way should lose its compensation simply because it has not hung on
until the last moment.
I can see considerable force in that argument as a
general statement of the problem. What I do not find it possible to accept are
two things: first, that the Act is not clear and does not work properly. In my
view, it can be made to work, although inconveniently and perhaps very
inconveniently for a tenant, but it can clearly be made to work if construed in
accordance with its literal meaning. That is the first point.
Second, I do not
feel able to reach any conclusion as to, first, whether the sort of problem
that has arisen in this case was ever considered at all. I strongly suspect, as
I said in the course of argument, that it was not considered when this
amendment was being drafted, but I cannot know that. Second, and perhaps more
important in this aspect of the case, I do not find it at all possible to
speculate with certainty as to what parliament might have done by way of
substituting some additional provision.
It is argued in this
case that the merits are all in favour of the tenant. The tenant has been
perfectly sensible in its assessment of its situation. A tenant — not just this
tenant but any tenant — under threat from a landlord’s notice of this kind must
consider its position, first of all, no doubt, as to whether or not it has a
good run to fight the landlord’s ground of opposition; second, whether it
indeed wants to or whether the moment has come when it can sensibly reorganise
its affairs; third, when it comes
you can do at the drop of a hat, it has to be planned in advance and a tenant
ought not to be put in the position, it may be said, where it has to hang on to
two sets of premises simply in order to be able to maintain the continuity of
its business. One can see all of those difficulties.
However, I do not think it follows that the merits
are all necessarily one way. The difficulty, as I see it, about this kind of
legislation is that as soon as it interferes with common law or contractual
rights it creates a different framework from that which the parties to the
contract originally organised for themselves. It establishes various steps that
need to be taken or conditions that need to be satisfied if the new statutory
provisions are to supplant the former common law or contractual provisions.
There are many cases
where it has, in the past certainly, been said that Acts of Parliament that
interfere with the common law or contractual rights of the parties should be
construed strictly, so that a party who is, in effect, seeking the benefit of a
statutory provision that in some way abrogates the previous legal relationship
that might have existed, has got to bring himself precisely within the
requirements of the statute in order to achieve the advantage. That was
certainly an old strict approach the courts adopted in regard to legislation of
this kind. I think it is right to say that the approach has probably changed,
and, in many respects, what is described as a more purposive approach has been
adopted. The court has, certainly in cases of any ambiguity in the Act, looked
to see what is the legislative purpose behind the provision in order to resolve
any difficulty of meaning that the words actually used may throw up.
The merits, I repeat, are not necessarily all one
way. It is both parties who find themselves faced with different arrangements
for dealing with their contractual relationship from those for which they
originally bargained. They were in no sense taken by surprise in this case
because the Act has been in existence since 1954 and everybody knew about it.
But, knowing the terms of the Act, the parties no doubt look at it closely to
see what may be the consequences of any particular action they propose to take.
What is sauce for the goose is sauce for the
gander, it seems to me, and although there is no evidence in this case as to
what calculations the landlord made before serving its notice, if it made any,
the fact is that the landlord served a notice for as long as it possibly could.
I did not mention this, but the notice given under section
for a period of not less than six nor more than 12 months. The landlord here
chose 12 months, which in effect extended the contractual life of the tenancy
by some five months from September 1997 to February 1998. Why the landlord did
that is not revealed in the evidence, and it does not need to be for this
purpose. The fact of the matter is that here the landlord has given a date
beyond the contractual date that the landlord could have relied on because —
and again I say it in parenthesis — the Act does not allow the landlord to
terminate the tenancy at a date earlier than it could have been terminated or
would have expired by effluxion of time under the normal rules.
Here, and in many
other cases, a landlord can choose to serve a notice that gives the tenant the
opportunity to stay in occupation beyond the contractual term, and that is what
happened here. It does not require a great deal of imagination to suppose that
a landlord, in considering the possibility of demolishing or reconstructing or
reoccupying the premises, thinks about the date when that intention could be
put into effect, is aware that compensation will have to be paid, and is aware
of the amount of the rent that is payable under the tenancy. In calculating or
working out what is the landlord’s sensible course of action he will take into
account the obligation to pay compensation and the right to obtain rent and the
other benefits of having a tenant in occupation and will arrive at a date for
termination of the tenancy with such considerations in mind.
I do not know —
there is no evidence in this case — whether that happened, but it is a
possibility thrown up by the provisions of the Act. As I say, where an Act of
Parliament of this kind interferes with the arrangements that the parties can
agree as between themselves, they are both entitled to scan it closely and to
see how they can operate it to their best advantage. That is why I think it is
dangerous to conclude that the merits are all one way. I do not think it is
obvious what ought to happen.
That is enough for me to reject the argument that
Mr
suggested was that there should be added at an appropriate point a definition
of the date for termination as being either the date in the landlord’s notice
or the tenant’s request, as the case may be, ‘or if earlier the date on which
the tenancy actually determines’. I do not feel confident that there is any
basis on which the court can be satisfied that that would indeed give full
effect to the intention of parliament. I cannot accept that argument.
I have not been through the authorities that
Mr
advanced in the third edition of Bennion on Statutory Drafting or
Interpretation. He also referred me to the case of University College,
Oxford (Master & Fellows) v Durdy [1982] 1 All ER 1108*, which
was a case under the Agricultural Holdings Act. Without going into the facts in
any detail, it concerned the appointment of an arbitrator to determine a
question that had arisen out of a notice to quit under the Agricultural
Holdings Act and the question to be considered by the court was what was the
date at which the arbitrator was appointed? Was it when he was actually
appointed or was it when the parties were notified of his appointment? The
court held that it was the date of his appointment, but the point relied on
here arose out of a requirement that the parties — in that case the tenant —
should within 28 days deliver a statement of case. That was said to be within
28 days of the arbitrator’s appointment.
*Editor’s note: Also reported at [1982] 1 EGLR 8
If you look at those provisions carefully it
becomes immediately obvious that if something has got be done within 28 days of
some event, the party on whom the obligation to act is imposed has got to know
when the event happened. Otherwise how could he possibly comply with a
requirement to act within 28 days? The relevant provision had no reference to
notification of the appointment of the arbitrator and the court held that it
was possible to read into the requirement to deliver a statement of case within
28 days a condition that the tenant in that case should have been notified of
the appointment. So it was within 28 days, not of the appointment, but of
notification of the appointment. That involved the implication, one may say, of
a provision into the regulations.
If one considers it
in the purest theory one can say that here the court is adding words to the
statutory provision in order to give it sensible effect. Mr Brock says that
that is all he is asking the court to do in this case. I do not accept that as
a parallel, because in the case of University College v Durdy the
provision for statement of case within 28 days simply could not be made to
operate with any sort of fairness at all unless the tenant had been notified of
the appointment. The court said that the requirement had to be read with that
gloss in order to make it work at all.
That is not the case here. The provision in
section 37(3) no doubt creates potential difficulties and no doubt leaves the
tenant in a very awkward situation of having to remain in occupation up until
the end in order to get compensation, but it is perfectly workable. It is
perfectly clear what has got to happen and both sides can adjust their affairs
on that basis. I cannot see the phrase ‘during the whole of the 14 years
immediately preceding the termination of the current tenancy’, nor the
definition of the ‘current tenancy’ in section 37(7) as being in any way
unworkable if construed by giving the normal sense to the language used. It is
awkward and tiresome for the tenant, no doubt, but it is by no means
unworkable. So I do not think the parallel with University College v Durdy
stands up and I do not feel it is possible, I repeat, to put that gloss on the
language.
The result is that I
conclude that the plaintiff tenant does not satisfy the condition for recovery
of twice the rateable value. I will ask counsel to consider the precise form of
my order, but the way in which the matter arises is that the tenant originally
issued a writ claiming double the rateable value, which I have concluded cannot
succeed. The landlord counterclaimed for dilapidations. That counterclaim is,
the tenant argues, without foundation, but that is not before me so that
counterclaim stands.
I will hear argument as to whether I should give
judgment for one times the rateable value or what I should do now in
consequence of my ruling.
