Rating–Tenants ‘cut their losses’ on fag-end of lease by letting to subtenants at reduced rent and on different terms–Weight to be given on the one hand to subtenants’ lease and on the other to comparables is a factual question for the expert tribunal, not a matter of law at all–Lands Tribunal’s decision restored
This was an
appeal by a valuation officer from a decision of the Court of Appeal ((1975)
235 EG 43, [1975] 2 EGLR 337) reducing the gross value of warehouse premises in
Fawe Street, Poplar, London E14, owned by the respondents, Baker, Britt &
Co Ltd, of Aldgate High Street, London EC3, from £11,000, as determined by the
Lands Tribunal, to £9,450. The decision of the Lands Tribunal (Mr E C Strathon
FRICS) is reported at (1974) 231 EG 749.
Mr G N Eyre QC
and Mr A Fletcher (instructed by the Solicitor of Inland Revenue) appeared for
the appellant, and Mr N Hague (instructed by Stephenson, Harwood & Tatham)
represented the respondents.
In his speech,
LORD DIPLOCK said: I have had the advantage of reading the speech of my noble
and learned friend, Lord Dilhorne. I agree with it and for the reasons which he
gives would also allow the appeal. I shall accordingly limit what I have to say
to commenting upon the form of the first ‘question of law’ as set out in the
case stated by the Lands Tribunal:
(1) Whether
on the facts which were proved or admitted, and in particular the facts
concerning the letting of the appeal hereditament by the underlease dated
October 18 1972 and the admissions of the respondent valuation officer with
regard thereto . . . the tribunal misdirected itself in holding that greater
weight ought to be given to the evidence of the rents of the comparables.
On the face of
it, this invites the Court of Appeal to express its view as to the comparative
weight to be attached to two kinds of evidence adduced at the hearing, viz (1)
the terms of the actual letting to the ratepayers of the premises to be valued,
and (2) the rents at which comparable premises were let. It is not disputed
that both kinds of evidence are relevant to the ascertainment by the Lands
Tribunal of the rateable value of the premises. A question of the weight to be
attached to one piece of relevant evidence as compared with the weight to be
attached to another piece of relevant evidence is not a question of law. It is
a question of fact and expert opinion on a matter of valuation which lies
within the jurisdiction of the Lands Tribunal and not that of the Court of
Appeal to decide. The ‘admissions’ of the valuation officer referred to in the
question were no more than part of his evidence given in answer to a question
put in cross-examination. The meaning sought to be placed on his answers by the
ratepayers was that it was an admission that the rent payable by the ratepayers
under the actual letting represented the rent which would be payable under the
hypothetical tenancy from year to year for the purposes of the General Rate Act
1967, section 19. Even if this were a fair reading of a particular answer by
the valuation officer (which I do not think it is), it would be in plain
conflict with the rest of his evidence, and the Lands Tribunal was entitled to
give to it little or no weight if it thought fit.
At the hearing
in the Court of Appeal, the argument appears to have been largely diverted into
a discussion as to whether the security of tenure of the ratepayers under the
actual letting was as great as, or greater than, the security of tenure under
the hypothetical tenancy from year to year. There is no indication in the case
stated that questions of comparative security of tenure were a determinative
factor in the weight that the Lands Tribunal gave to the terms of the actual
letting, still less that the Lands Tribunal made some mistake of law in the
interpretation of Part II of the Landlord and Tenant Act 1954. As was pointed
out by Viscount Radcliffe in the oft-cited passage in Edwards v Bairstow
and Harrison [1956] AC 14 at 36, there may be cases where ‘the facts found
are such that no person acting judicially and properly instructed as to the
relevant law could have come to the determination under appeal. In these
circumstances, the court must intervene. It has no option but to assume that
there has been some misconception of the law and that this is responsible for
the determination.’ The existence in the
last resort of a power to find errors of law by inference is a salutary check
upon arbitrariness on the part of an administrative tribunal; but courts must
sternly resist the temptation to infer errors of law in an expert tribunal,
such as the Lands Tribunal, when all that has happened is that the tribunal’s
decision is different from that which the court itself, lacking comparable
expertise, would have reached on the same evidence.
LORD MORRIS OF
BORTH-Y-GEST: In 1966 the gross value of the hereditament as entered in the
valuation list was £11,000. The proposal made by the respondents (whom I will
call the subtenants) on November 30 1971 was that there should be a reduction
in the assessment on the ground that it was excessive and incorrect. The
appellant objected to the proposal. The local valuation court dismissed the
subtenants’ appeal and confirmed the assessment. There was an unsuccessful
appeal to the Lands Tribunal. The careful and full written decision of the
Lands Tribunal records the facts which were proved or admitted and the
contentions which had been put forward. I need not summarise the facts. They
are set out in the speech of my noble and learned friend, Viscount Dilhorne,
which I have had the advantage of reading and with which I agree.
The conclusion
of the tribunal as expressed at the end of the written decision may be
summarised as follows: (i) the 1971 rent payable by the subtenants was ‘out of
line’ with rents of comparable properties; (ii) the circumstance that such 1971
rent was ‘the actual rent payable’ did not ‘inevitably’ lead to the conclusion
that it was also the hypothetical rent as denoted and directed by the statutory
words contained in section 19 (6) of the General Rate Act 1967; (iii) having
regard to the whole of the evidence more weight was to be attached to the
evidence concerning rents of comparable properties than to the evidence as to the
figure of the 1971 sublease rent; (iv) on a consideration of the evidence
concerning rents of comparable properties the rent as denoted and directed by
section 19 (6) was some sum exceeding £11,000 which was the ‘ceiling’ figure
under the provisions of section 20. It is difficult to understand how
those conclusions can be attacked as having been ‘erroneous in point of
law.’ When the Lands Tribunal was asked
to state a case for the decision of the Court of Appeal, one suggested question
of law was that the tribunal had misdirected itself in holding that ‘greater
weight’ should be given to the evidence as to the rents of comparable
properties than to other parts of the evidence which was before the tribunal.
But unless some piece of evidence compelled, as a matter of law, the reaching
of a particular conclusion, it seems to me that the measuring of the weight to
be attached to evidence is a matter for the decision of the expert tribunal.
The decision
of the Lands Tribunal records that one valuer was called on behalf of the
subtenants and that the Revenue called the appellant (the valuation officer).
The latter gave evidence that for comparable properties there had been an
increase in rental values during the period 1965 to 1970 and that there was
still a demand for the occupation of existing older warehouses. It was common
ground that the principal features (including construction) of the comparable
properties were similar to those of the hereditament in question. The
contentions advanced on behalf of the subtenants were largely concentrated upon
a statement which was made by the valuation officer in giving evidence. As
recorded in the decision of the Lands Tribunal, his statement was that the
sublease was an ‘arm’s length transaction’ and that the rent in the sublease
was a market rent and that it was the best rent ‘in the particular
circumstances in which it was negotiated,’ but that those circumstances
differed from ‘those in which the rating hypothetical tenancy was deemed to be
negotiated.’ The question arises whether
the circumstances in which the rent was negotiated were ‘particular’ or whether
they could be equated with those denoted by section 19 (6). In respect of the
hereditament in question the lessees had by the terms of their lease contracted
to pay a rent of £17,500 for a period of seven years from 1966. That rent was
in 1971 being paid by the lessees. They continued to be liable to pay it.
Though they had gone out of occupation and no longer had use for the premises,
they still had (in 1971) nearly two years of their lease to run, with all its
continuing elaborate and burdensome covenants and conditions and liabilities.
It was very much in their interests to obtain subtenants. So after some lapse
of time a subtenancy was negotiated. Could the ‘particular circumstances in
which it was negotiated’ properly be regarded as differing from those in which
a ‘rating hypothetical tenancy was deemed to be negotiated’? Was the view of the valuation officer to that
effect a reasonable and acceptable view?
It seems to me that those were not questions of law but questions to be
resolved after consideration of the facts by an expert tribunal.
The
circumstances in which the subtenancy was negotiated were special. The tenants
were certainly willing and indeed anxious to get a subtenant. They (the
tenants) made every effort to sublet, and over a period of time they advertised
extensively. What they had to offer was the remaining period of their tenancy:
in argument, this was described as the fag-end of a lease. There could however
only be a subletting if the landlords gave their consent, and if also they
consented to any desired variation in the user of the hereditament. As the
price of giving consent to the subletting and to a variation of user the
landlords did in fact impose certain special requirements. They made the
subtenants covenant direct with them (the landlords) that they (the subtenants)
would observe and perform the tenants’ covenants and conditions, and in
particular (but without prejudice to the generality of the foregoing) would
carry out complete internal redecoration of the premises during the last year
of the term of the subtenancy. Any tribunal might well think that there was no
similarity between the position of subtenants obliged to enter into so exacting
a covenant with the head landlords and the position of the hypothetical tenant
under section 19 (6). It is not to be assumed, however, that the landlords were
being difficult. There was a term in the head lease that any assignment or
underlease would have to contain a covenant by the assignee or underlessee
directly with the landlord to observe and perform the covenants and conditions
contained in the lease and in the case of an assignment to pay the rent
reserved. One further important fact has to be had in mind. Though the rent
negotiated between the tenants and subtenants was at the rate of £9,000 per
annum, the landlords required the subtenants to covenant with them as well as
with the tenants that the rent payable under the sublease for the period from
March 25 1973 to the end of the term of the sublease (which was June 9 1973,
being three days before the end of the term of the lease) should be at the rate
of £17,500 per annum.
There were
agreements between the tenants and the subtenants which would be calculated to
mitigate for the latter the severity of the obligations into which they had
been obliged to enter. Thus, the tenants covenanted with the subtenants that
they (the tenants) would in fact perform and observe the covenants and conditions
contained in their head lease. In addition there was a somewhat novel agreement
in regard to the rent. It was agreed that upon payment by the subtenants in the
period from March 25 1973 to June 9 1973 of their rent at the increased agreed
rate of £17,500, the tenants would repay to the subtenants the difference
between payment at the rate of £17,500 and payment at the rate of £9,000. In
addition there was an agreement that the tenants would repay to the subtenants
the cost incurred by them in carrying out the complete internal redecoration of
the premises during the last year of the term of the subtenancy. It was
observed in the Court of Appeal that that agreement did not cover the cost of
the external decorations, and that it was not clear what was the position
between the tenants and the subtenants with regard to the obligation to repair
the property and to do the external decorations. If the decision in this case
depended upon ascertaining precisely what was the extent of the liabilities
assumed by the subtenants and then assessing what would be the cost involved in
discharging such liabilities, it would be necessary to seek to resolve the
above-mentioned uncertainties: a close analysis of the terms of the lease, of
the sublease, of the tripartite licence agreement dated March 21 1972 and of
the deed of covenant dated October 18 1972 would be necessary. But for the
reasons which I will set out, decision in this case requires no such lines of
approach.
On the
assumption that the tenants would observe all the covenants as to repairs and
decorations into which they had entered by the terms of their lease, and
consequently would to that extent relieve the subtenants in respect of the
first part of their (the subtenants’) covenant with the landlord, there still remained
some liability in the subtenants. Apart from a liability to reimburse the
tenants for the premium on the insurance (which seems, however, to have been
ignored), there was at least their obligation to carry out complete internal
redecoration to the premises during the last year of the term of the sublease:
that was an obligation owed by them to the landlords. As stated above, the
tenants had agreed to reimburse the subtenants in regard to the cost that they
(the subtenants) would incur. The decision of the Lands Tribunal records that
the valuation officer had concluded that the subtenants were ‘liable for some
repairs.’ Without inquiring what the
Lands Tribunal intended to be embraced in the words ‘some repairs,’ it is clear
that the obligations of the subtenants vis-a-vis the tenants extended beyond
their obligation to pay a rent of £9,000. The Lands Tribunal accepted the view
of the valuation officer that the further obligations undertaken by the
subtenants would be the equivalent of adding 5 per cent to the rent. Stated
otherwise, that meant that it was estimated that the equivalent of paying a
rent of £9,000 and assuming some responsibility for ‘some repairs’ would be a
payment of a rent of £9,450 with no liability for
the landlords would be willing to consider a later extension of the term taken
by the subtenants. There was also evidence that in 1971 the subtenants did not
anticipate that they would want any such extension. Had they changed their
minds, the subtenants would, however, have been entitled to pursue such
procedures as were available to them under the provisions of the Landlord and
Tenant Act 1954 as amended: no forecast could however be made as to what would
be the rent under or the length of the term of any new tenancy that might be
obtainable.
In reaching
their conclusion the Lands Tribunal first found as a fact that the 1971 rent
(ie the rent payable by the subtenants, who went into occupation in that year)
was ‘out of line’ with the rents of comparable properties. Such a finding of
fact cannot be assailed. Assuming that the liabilities of the subtenants were
estimated to be the equivalent of a liability to pay a rent of £9,450 a year on
the basis that ‘the landlord undertook to bear the cost of the repairs and
insurance and the other expenses, if any, necessary to maintain the
hereditament in a state to command that rent’ (see section 19 (6)), the Lands
Tribunal found that such a figure of £9,450 was below the rental figures of
comparable properties. The next conclusion reached by the Lands Tribunal (ie
that a rent actually being paid is not ‘inevitably’ the rent denoted by section
19 (6)) is, in my view, a conclusion that cannot possibly be assailed as being
‘erroneous in law.’ There may be many
varieties of different circumstances surrounding the agreement of some
particular figure of rent. It follows from this that in certain circumstances
an expert tribunal will be justified in attaching greater weight to the
evidence regarding rentals of comparable properties than to the evidence as to
what was the rent agreed to be paid. In deciding which evidence commanded ‘the
greater weight’ the Lands Tribunal had regard to the whole of the evidence. The
figure of an actual rent as agreed by parties cannot ‘inevitably’ be the
notional hypothetical figure to be arrived at pursuant to the application of
the statutory words of section 19 (6). The hypothetical or imaginary rent
arrived at and measured as directed by the statutory words is not to be
confused with an actual rent which an actual tenant in possession may actually
be paying (see Poplar Assessment Committee v Roberts [1922] 2 AC
93). The evidence as to the latter may, however, be highly persuasive in
considering the former. The Lands Tribunal was fully entitled, if it saw fit,
to accept the evidence and the conclusion of the valuation officer that during
the period from 1965 to 1970 there had been an increase in rental values and
that there had been a demand for comparable properties. The tribunal was fully
entitled in agreement with the valuation officer to conclude that ‘there was
something exceptional in this letting at such a low rent’ The Lands Tribunal was fully entitled, if it
saw fit, to accept the evidence and the conclusion of the valuation officer
that an unexpired period (of 23 months) of a lease was ‘an unattractive term to
endeavour to sublet,’ and that the tenants ‘had been prepared to cut their
losses.’ Though, as the valuation
officer conceded, the tenants had got the best rent that they could get in ‘the
particular circumstances,’ those particular circumstances were
‘exceptional.’ The proposal which was
before the valuation officer and the valuation court and the Lands Tribunal was
one for the variation of an existing assessment. It was necessary to proceed on
the basis of certain hypotheses as directed by the terms of section 19 (6) and
then, bearing all the evidence in mind, to decide the figure of the
hypothetical rent which would be payable by a hypothetical tenant. If arrived at
on a faithful application of the statutory provision, the figure would not call
for adjustment merely because other figures (which may have been determined in
reference to other properties at earlier dates) were different. A figure
correctly arrived at is not to be altered in pursuit of a quest for uniformity.
In the present case I do not consider that it was shown, nor does the decision
of the Lands Tribunal suggest, that there was any wrong application of
principle. In my view, all the facts show that the circumstances surrounding
the making of the sublease were exceptional. They were unusual. In some
respects they were strange. The Lands Tribunal was entitled to consider that a
figure of rent negotiated by reference to it would be inadequate and misleading
as a guide in deciding the figure of the hypothetical rent to be arrived at on
an application of the terms of section 19 (6). I see no error of law in either
the approach or the conclusions of the Lands Tribunal. I would allow the appeal
and restore its decision.
LORD DILHORNE:
On November 30 1971 the respondents made a proposal for the alteration of the
valuation list for the rating area of Tower Hamlets by the reduction of the
assessment of the gross value of a multi-storey warehouse in Fawe Street, Poplar.
In that list the gross value of the hereditament was assessed at £11,000. The
local valuation court confirmed that assessment, and the respondents then
appealed to the Lands Tribunal, which on June 4 1974 dismissed the appeal. The
Lands Tribunal Act 1949 provides that a decision of that tribunal is to be
final but that any person aggrieved by the decision as being erroneous in point
of law may require the tribunal to state a case for the Court of Appeal. The
respondents asked the Lands Tribunal to state a case and the Lands Tribunal did
so, saying in the case that:
The questions
of law which, in the contention of [the respondents] arise and upon which the
decision of the Honourable Court is desired are set out below:
(1) Whether on the facts which were proved or
admitted, and in particular the facts concerning the letting of the appeal
hereditament by the underlease dated October 18 1972 and the admissions of the
[appellant] valuation officer . . . the tribunal misdirected itself in holding
that greater weight ought to be given to the evidence of the rents of the
comparables.
(2) Whether the tribunal misdirected itself in
holding that by reason of clause 2 (4) of the said underlease an addition of 5
per cent ought to be made to the rent of £9,000 thereby reserved for the
purpose of equating its terms to those of the statutory hypothetical tenancy.
(3) Whether on the facts which were proved or
admitted the tribunal came to a correct decision in law.
These three
questions were, I understand, drafted by the respondents. To justify the
statement of a case, it is not enough to assert that a question or questions of
law arose. The decision must be challenged as erroneous in point of law. In tax
cases also the court can only allow an appeal from the commissioners’
determination if it is shown to be erroneous in point of law, and in Edwards
v Bairstow and Harrison [1956] AC 14 Lord Radcliffe at p 36 said that if
the case:
. . .
contains anything ex facie which is bad law and which bears upon the
determination, it is, obviously, erroneous in point of law. But without any
such misconception appearing ex facie, it may be that the facts found
are such that no person acting judicially and properly instructed as to the
relevant law could have come to the determination under appeal. In those
circumstances, too, the court must intervene. It has no option but to assume
that there has been some misconception of the law and that this has been
responsible for the determination. So there, too, there has been error in point
of law. I do not think that it much matters whether this state of affairs is
described as one in which there is no evidence to support the determination or
as one in which the evidence is inconsistent with and contradictory of the
determination, or as one in which the true and only reasonable conclusion
contradicts the determination. . . . For my part, I prefer the last of the
three.
Whichever of
these three ways of describing the matter is to be preferred, before a
determination which on its face does not appear bad in law or to have been
based on an error of
erroneous in point of law, it must be shown that the decision is one to which
no person acting judicially and properly instructed as to the law could have
come. No error in law appears on the face of the case stated, not does it
appear from the case stated that the decision was based on an error of law. So
the decision of the Lands Tribunal must stand unless it is shown that its
decision was of that character.
In this appeal
we are only concerned with the first of the three questions stated: The Court
of Appeal (Buckley and Stevenson LJJ and Sir John Pennycuick) allowed the
appeal and reduced the assessment of the gross value of the hereditament to
£9,450. The relevant facts can be stated as follows. By a lease dated July 12
1966 the hereditament was let for seven years as from June 12 1966 at a rent of
£17,500, the lease containing covenants by the lessee to repair and redecorate.
In 1970 the lessee vacated the premises. Efforts were made to sublet them for
the remainder of the term, and they were extensively advertised in October 1970
and February 1971. The particulars prepared by the estate agents offered the
warehouse to let at ‘only 2s Od per sq ft per annum exclusive,’ at a rent of
£6,000 per annum exclusive, and contained the statement: ‘It is understood that
the superior landlords may consider granting an extended lease or selling the
freehold.’ The respondents were
interested, and terms were agreed subject to contract. The sublease was to run
for the full period of the head lease less a nominal reversion. The sublessees
were not to undertake any liability to repair or to redecorate at the end of or
during the term. The rent was to be £6,000 per annum, but in consideration of
being relieved of any repairing liability the respondents agreed to pay ‘by way
of excess rent’ £3,000 per annum ‘in lieu of dilapidations,’ making £9,000 per
annum in all. On March 21 1972, after these terms had been agreed, the head
lessors granted a licence to Ekco Lighting Ltd, their tenants, to sublet in
consideration of two covenants being entered into by the respondents. The first
of these covenants was to observe and perform ‘during the residue of the term
granted by the sublease . . . the tenant’s covenants and conditions therein
contained or implied and in particular but without prejudice to the generality
of the foregoing’ to ‘carry out complete internal redecoration to the premises
during the last year of the term of the sublease.’
Although the
word ‘therein’ appears to relate back to the sublease, the tenant referred to
was Ekco Lighting Ltd, who had under the sublease covenanted to give the
respondents quiet possession, to pay the rent and perform the covenants in the
head lease and to indemnify the respondents from all claims for breach thereof
and to insure the premises. I cannot see that it is possible to construe this
covenant, given by the respondents to the head lessors in consideration for the
licence, as being a covenant by them to discharge the obligations Ekco Lighting
Ltd had undertaken in the sublease to them. The head lessors would not be
concerned with them. The head lease contained a covenant by the tenant, that is
to say, Ekco Lighting Ltd, not to assign or underlet without consent and
provided that every assignment and underlease should contain a covenant by the
assignee or underlessee directly with the landlord, the head lessor, to observe
and perform the covenants in the head lease. In the circumstances I cannot but
conclude that despite the terms agreed between Ekco Lighting Ltd and the
respondents, the respondents had covenanted with the head lessor to discharge
the repairing obligations contained in the head lease.
The second
covenant entered into by the respondents with the head landlords was that the
rent payable for the period March 25 1973 to June 9 1973 by the respondents
should not be at the rate of £9,000 per annum but at the rate of £17,500 per
annum. The sublease was dated October 18 1972. It granted a subtenancy from
July 1 1971 for the remainder of the term of seven years less three days, that
is to say, to June 9 1973, 23 months in all, at a rent of £9,000 a year, except
for the period March 25 to June 9 1973, when it was to be at the rate of
£17,500 a year. It contained a covenant by the respondents to keep the premises
in ‘no worse state of repair and condition than at the date hereof’ and to
deliver up the premises in such repair and condition. On the same day Ekco
Lighting Ltd entered into a covenant with the respondents to repay to them
£1,793.50, being the difference between the rent payable at £9,000 a year and
that payable at £17,500 a year for the period March 25 to June 9 1973, and to
repay to them the total cost incurred by them in carrying out the complete
internal redecoration of the premises. So if Ekco Lighting Ltd carried out
their obligations under the head lease and complied with these covenants, the
net liability of the respondents, apart from any liability they might incur
under the repair covenant in the sublease, was to pay £9,000 a year.
To arrive at
the proper figure to be included in the valuation list for a hereditament a
decision has to be reached as to its ‘gross value,’ that is to say:
The rent at
which the hereditament might reasonably be expected to let from year to year if
the tenant undertook to pay all usual tenant’s rates and taxes and the landlord
undertook to bear the cost of the repairs and insurance and the other expenses,
of any, necessary to maintain the hereditament in a state to command that rent
(General Rate Act 1967, section 19 (2) and (6)).
Whether it be
for the compilation of a valuation list or for an addition to or alteration to
that list, this assessment has to be made of the rent reasonably to be expected
to be obtained from the hereditament let from year to year. Mr Eyre, for the
appellant, submitted that the purpose of rating was to achieve equality between
occupiers of similar properties. In support of this proposition he cited Poplar
Assessment Committee v Roberts [1922] 2 AC 93, R v Paddington
Valuation Officer ex parte Peachey Property Corporation [1964] 1 WLR 1186
[1966] 1 QB 380 and Almond v Ash Brothers & Heaton Ltd [1969]
2 AC 366 per Lord Pearce at p 381. While I entirely accept that the object
sought to be achieved by the rating system of this country is to secure
uniformity in the valuation of properties of equal value, that is not to be
achieved by any disregard of or the putting of any gloss on the terms of
section 19 (6). Once a decision has been made as to the gross value of a
hereditament, it would be an error of law for the valuation officer, the Lands
Tribunal or a court to adjust the value assessed in accordance with the section
either upwards or downwards to secure uniformity (Ladies Hosiery &
Underwear Ltd v West Middlesex Assessment Committee [1932] 2 KB
679). On the other hand, unless the terms of the actual tenancy of the
hereditament are such that no distinction is to be drawn between the actual
tenancy and the hypothetical tenancy, so that the rent due under the actual
tenancy must be taken to be the rent reasonably to be expected from a letting
of the hereditament from year to year, it is right to have regard to the actual
rents of comparable hereditaments when assessing the rent in accordance with
section 19 (6). This may mean when a new valuation list is prepared that the
gross value placed on a particular hereditament is above or below the actual
rent, but in a new valuation list uniformity of assessment of similar
properties should be achieved. Alterations and additions may be made to the
current list from time to time, and they may produce discrepancies in
valuation. When a proposal is put forward for an alteration to or an addition
to the list, the gross value of the hereditament is to be assessed as at the
date of the proposal, in this case November 30 1971 (Barratt v Gravesend
Assessment Committee [1941] 2 KB 107). If discrepancies result, they are to
be corrected not by adjusting the gross value of the hereditament to which the
proposal relates but
General Rate Act 1967 (see Ladies Hosiery & Underwear Ltd v West
Middlesex Assessment Committee (supra) per Scrutton LJ at p 688).
At the hearing
before the Lands Tribunal Mr B P Botting FRICS gave expert evidence on behalf
of the respondents. In his view the terms agreed subject to contract were
incorporated in the sublease and the deed of covenant. Mr W A Hampsher ARICS
[the valuation officer], on the other hand, thought that the sublease and the
deed of covenant contained more onerous obligations on the tenant to repair. Mr
Botting assumed that the rent reserved in the sublease was the best evidence of
value. He made no valuation of his own. The rent of £9,000 per annum showed
that between the date of the grant of the head lease in 1966 and 1971 there had
been, he thought, a fall in the letting value of the hereditament from £17,500
per annum. Mr Hampsher in his evidence said that his approach had been (1) to
analyse the assessment at which the hereditament stood in the valuation list;
(2) to analyse the rent payable in respect of that hereditament; and (3) to
examine the rental evidence of comparable hereditaments. He added 10 per cent
to the head lease rent and 5 per cent to the sublease rent as representing the
value of the covenants to repair, as for the purpose of assessing gross values
it has to be assumed that the landlord is liable for repairs. As he only added
5 per cent to the rent of the sublease, he does not appear to have regarded the
sublessees as bound, despite their covenant, to comply with the repairing
covenants of the head lease. The addition of this 5 per cent leads to the
£9,000 rent being increased to £9,450, the figure to which the Court of Appeal
reduced the assessment and which the respondents do not now challenge. Mr
Hampsher said he had found comparable properties–and it was not disputed that
they were comparable–of which he had calculated the rents per sq ft in terms of
net annual or gross value as follows:
|
Year of Letting |
|
Term |
Rent |
|
|
1965 |
… |
21 years |
£0.0279 |
NAV |
|
1966 |
… |
7 years |
£0.322 |
(the appeal hereditament) GV |
|
1966 |
… |
21 years |
£0.383 |
NAV |
|
1967 |
… |
21 years |
£0.384 |
GV |
|
1968 |
… |
7 years |
£0.512 |
GV |
|
1970 |
… |
21 years |
£0.556 |
GV |
With these figures there must be contrasted the figure of £0.158 per
sq ft which the rent of £9,450 represents. This analysis, Mr Hampsher said,
showed an increase in rental values between 1965 and 1970. He concluded that
there was something exceptional in the letting at £9,000 a year. The head lease
had but two years unexpired at a rent of £17,500 per annum. In his opinion
‘this was an unattractive term to endeavour to sublet,’ and it seemed to him
that the lessees had been prepared to cut their losses for the short period. In
cross-examination he accepted that the letting to the respondents was an
‘arm’s-length transaction,’ that the rent was a market rent and the best rent
in the circumstances in which it was negotiated. But it was his view that the
circumstances were different from those in which the rating hypothetical
tenancy was deemed to be negotiated. Whether, when all that had happened was
that Ekco Lighting Ltd had offered to let the premises for 23 months at £6,000
a year (increased to £9,000 on the sublessees being relieved of liability for
dilapidations), it was necessary for Mr Hampsher to concede that the rent of
£9,000 was a market rent and the best rent in the particular circumstances may
be open to doubt, but he did so, and it was upon these answers in
cross-examination that the respondents founded their case in the Court of
Appeal and in this House. The member of the Lands Tribunal who heard the appeal
came to the conclusion that Mr Botting’s view that the rent of £9,000 was the
only evidence required should not be accepted and that Mr Hampsher was right to
examine the rental evidence relating to adjacent physically similar properties.
He held that the 1971 rent of £9,000 was out of line and the fact that it was
the actual rent did not lead inevitably to the conclusion that it was the rent
reasonably to be expected for a letting from year to year as defined by section
19 (6) of the General Rate Act 1967. In his opinion the ceiling value by virtue
of section 20 of that Act which could be placed on the hereditament was £11,000
and the gross value assessed in accordance with section 19 (6) was in excess of
that. He accordingly dismissed the appeal.
Is this a
conclusion to which the Lands Tribunal if properly instructed as to the law
could not have come? Is it to be
inferred that this decision resulted from some misconception of the law? Mr Hague, for the respondents, did not seek
to contend that the actual rent payable under the sublease led inevitably to
the conclusion that it was to be taken as the rent of the hypothetical tenancy,
and he was clearly right not to do so. In Poplar Assessment Committee v Roberts
(supra) Lord Buckmaster said at p 103 in relation to a section of an
Act which preceded section 19 (6) of the General Rate Act 1967 and was not
materially different therefrom:
The tenant
referred to is, by common consent, an imaginary person; the actual rent paid is
no criterion unless, indeed, it happens to be the rent that the imaginary
tenant might reasonably be expected to pay in the circumstances mentioned in
the section. But although the tenant is imaginary, the conditions in which his
rent is to be determined cannot be imaginary. They are the actual conditions
affecting the hereditament at the time when the valuation is made.
In R v Paddington
Valuation Officer ex parte Peachey Property Corporation [1964] 1 WLR 1186
Widgery J, as he then was, said at p 1209:
It is clear
on authority that the actual rent payable at the date of assessment is not
conclusive of the amount of gross value even if the terms of the current
letting are the hypothetical statutory terms.
If the actual
tenancy is one from year to year, and the landlord’s and tenant’s obligations
are the same as those of the hypothetical tenancy, it still may be the case
that the rent of the actual tenancy may be above or below that reasonably to be
expected. In Almond v Ash Brothers & Heaton Ltd (supra)
Lord Pearce pointed out that in making the assessment of the hypothetical rent:
. . . one
only excludes the human realities to a limited and necessary extent. . . . They
are excluded in so far as they are accidental to the letting of a hereditament.
. . . It is, however, accidental to the house that its owner was shrewd or that
the rich man happened to want it and that therefore the rent being paid is
extremely high.
A landlord’s
circumstances may be such that he is willing to let at less than the amount
that might reasonably be expected. In R v Paddington Valuation
Officer ex parte Peachey Property Corporation (supra) Widgery J went
on to say:
It has always
been the practice of valuers to draw inspiration from properties comparable
with that to be assessed. It is within the valuer’s discretion, when valuing
houses in the same terrace which are practically identical, to assess them all
at the same figure even though their actual rentals vary. In such a case the
common assessment will often be between the maximum and minimum of the actual
rents, and the extremes are properly dismissed as too high or too low to be
acceptable.
In the same
case on appeal ([1966] 1 QB 380) Lord Denning said at p 412:
Take
hereditament after hereditament; go through the rental returns; you will find
in case after case that the actual rent is no useful guide.
In Garton
v Hunter [1969] 2 QB 37 the Court of Appeal remitted the case to the
Lands Tribunal, Lord Denning saying at p 45:
In my opinion
the tribunal was wrong in limiting the inquiry to the actual rent and making
adjustments to it.
In resisting
the case being remitted, it appears to have been argued without success that
the actual rent as adjusted was entitled to such great weight that the other figures
to which the tribunal had not had regard would have had no influence on the
result, Lord Denning saying that he could ‘not go with that argument.’
Mr Hague
contended that the terms of the actual lease gave the respondents more security
of tenure than a tenant would have under the hypothetical tenancy from year to
year. It followed, he said, that the hypothetical rent could not be assessed at
a figure higher than the actual rent. He argued that in failing to recognise
that the actual tenancy gave as good or greater security of tenure, the Lands
Tribunal had erred in law. The tribunal had, he said, misapprehended the legal
nature of the hypothetical tenancy and the legal consequences of the actual
tenancy, taking into account Part II of the Landlord and Tenant Act 1954. I see
no ground for concluding that the tribunal misapprehended the legal
consequences of the hypothetical tenancy, and I must confess to some difficulty
in reconciling counsel’s submissions with his recognition that the actual rent
was not conclusive as to the amount of the hypothetical rent, and difficulty in
regarding the failure of the Lands Tribunal to attach the weight he submitted
should be attached to the actual rent as amounting to an error of law. The
Court of Appeal, differing from the valuation officer and the Lands Tribunal,
held that there were no circumstances differentiating the terms of the sublease
from those of the hypothetical tenancy, and that as Mr Hampsher had admitted
that £9,000 pa was the best rent obtainable in the circumstances, the
circumstances not differing, the hypothetical rent must be taken to be £9,450
pa. They thus came to the conclusion that the hypothetical rent was the actual
rent. Buckley and Stephenson LJJ attached importance to Part II of the Landlord
and Tenant Act 1954. Buckley LJ said that the respondents had negotiated the
sublease for 23 months ‘in the knowledge that, if their tenancy were terminated
at any time after the contractual term ran out, they would have been entitled
to a new tenancy at the market rate.’ A
lease of premises to which Part II of that Act applies continues until notice
is given in accordance with the Act to terminate it. Notice can be given to
terminate it on the date when the contractual term expires. A tenant can apply
for a new lease, but if the landlord establishes that he intends to demolish or
to reconstruct the premises or to occupy them himself, a new tenancy will not
be ordered. Stephenson LJ said that the unattractive term of the sublease
‘could properly be considered a circumstance differentiating the underlease
from the hypothetical year-to-year tenancy only if it is considered in
unnatural isolation from the ratepayers’ opportunity to operate Part II of the
Landlord and Tenant Act 1954.’ He
continued, ‘Any reasonable tribunal would, as I see the matter, have to take
that opportunity into account, and taking it, would inevitably have concluded
that the actual rent payable was the rent reasonably expected to be paid in
accordance with section 19 (6) of the General Rate Act 1967.’ Buckley LJ thought that the effect of the
Landlord and Tenant Act was to give the respondents as good, if not better,
security of tenure as that to be assumed to be given by the hypothetical
tenancy.
While in my
view one effect of the Landlord and Tenant Act is to convert leases for fixed
terms of the premises to which Part II applies into leases of indefinite
duration, and while a lease from year to year is also of indefinite duration
(see Humber Ltd v Jones (VO) (1960) 6 RRC 161 per Hodson
LJ at p 166), I doubt very much whether it is right to conclude that all leases
made of indefinite duration by the Act are to be treated as equivalent to a
lease from year to year, or as providing better security of tenure than one
from year to year, or as good security. Whether a particular lease does or does
not do so does not seem to me a question of law, but one of fact on which the
opinions of expert valuers may well differ. Security of tenure under the actual
lease is not, in my opinion, the only matter to which regard must be had. It
appears to have been assumed by the Court of Appeal that if, by virtue of the
Landlord and Tenant Act, the sublease had continued after June 1973, the rent
payable would have been £9,000 pa. I do not think that this is justified. The
respondents had agreed with the mesne landlords to pay rent at the rate of
£17,500 for the last part of the sublease, and the head landlords had granted a
licence to sublet on condition that the respondents agreed to do so. During the
period of the sublease during which rent at the rate of £17,500 was payable, it
is true that the mesne landlords had agreed to repay the excess over the rate
of £9,000 a year, but that agreement did not operate for any period after the
expiry of the contractual term. In these circumstances, if the tenancy had
continued by virtue of the Landlord and Tenant Act after June 1973, it does not
seem to me to follow that the rent payable after that date would have been
£9,000 a year. Nor, if the respondents had applied for a new lease, does it
seem to me probable that if a new tenancy had been granted, it would have been
granted at a rent of £9,000 a year when the premises had been yielding since
1966 £17,500 a year and when the respondents had agreed to pay that sum.
Buckley LJ saw
no ground for any suggestion that the mesne landlords were letting at less than
the rent they could have obtained by keener bargaining. I cannot see that much
bargaining entered into it. The premises were offered at £6,000 pa raised to
£9,000 on the tenants being relieved of liability for dilapidations, for the
fag end of a fixed term with the mesne landlords having to pay £17,500 pa for
premises for which they had no use. I think Mr Hampsher was fully warranted in
forming the opinion that the mesne landlords were prepared to cut their losses,
which I take to mean, willing to let at less than the rent which might
reasonably be expected, rather than run the risk of delaying the letting to
secure that rent and paying the full rent meanwhile. As I have indicated, all
members of the Court of Appeal attached great importance to Mr Hampsher’s
answer in cross-examination that the rent was the best rent in the particular
circumstances in which it was negotiated, the particular circumstances to which
he referred being that the sublease was for 23 months only and the mesne
landlords being prepared to cut their losses. Sir John Pennycuick thought that
no particular depreciating circumstances had been established and so that it
was not legitimate to introduce comparables so as to increase the hypothetical
rent above the actual rent. Buckley LJ held that the evidence as to the
comparables was admissible but that the valuation officer’s admission made it
impermissible for the Lands Tribunal to rely on them. I respectfully disagree.
The assessment of the rent reasonably to be expected from the hypothetical
tenancy is a matter of valuation. In coming to a conclusion thereon valuers are
entitled to look at comparables. That the rent of £9,000 was out of line with the
rent of comparables and with the rent of the hereditament agreed in 1966 was
not disputed. Mr Botting attributed this to a fall in value. Mr Hampsher,
having examined the comparables, found no support for that view. He was in the
circumstances fully entitled to attribute the fixing of the rent at £9,000
initially as due to other circumstances; and the Lands Tribunal were also
entitled to conclude that the rent of £9,000 was not the rent reasonably to be
expected from the hypothetical tenancy and to assess it at a figure in excess
of the ceiling figure of £11,000. In the circumstances, I am not able to come
to the conclusion that any reasonable tribunal would inevitably have held that
the actual rent was the rent reason-
Rate Act 1967. Indeed, if the Lands Tribunal had so held, disregarding the
comparables, it would have fallen into the error condemned by the Court of
Appeal in Garton v Hunter (supra). For these reasons, in
my opinion this appeal should be allowed and the decision of the Lands Tribunal
restored. Leave to appeal was granted on condition that the order as to costs
made by the Court of Appeal should not be disturbed and that the appellant
should pay the respondents’ costs in this House, and the appellant should be
ordered to pay these costs.
LORD HAILSHAM
OF ST MARYLEBONE: I agree with my noble and learned friends that this appeal
should be allowed, and in the circumstances I can give my reasons comparatively
shortly. The proceedings originated with a proposal by a ratepayer, the present
respondents, for a reduction of the gross value entered in the current (1963)
valuation list as amended by agreement at £11,000 in respect of a warehouse in
East London. The proposal was objected to by the valuation officer, the present
appellant, who sustained his objection successfully in front of the local
valuation court and subsequently, on appeal, before the Lands Tribunal. The
respondent then requested the Lands Tribunal to state and sign a case for the
decision of the Court of Appeal pursuant to the proviso in the Lands Tribunal
Act 1949, section 3 (4), and the Lands Tribunal, in purported compliance with
this request, stated and signed the case which forms the foundation of these
proceedings before the Court of Appeal and now before your Lordships’ House.
The Court of Appeal allowed the appeal in part and directed that the gross
value of the hereditament should be altered to stand at £9,450. It is clear,
and was conceded in argument, that this course was open to the Court of Appeal
if, and only if, it was also open to them to hold that the decision of the
Lands Tribunal was ‘erroneous in point of law,’ as required by section 3 (4) of
the Lands Tribunal Act 1949. In the event I have become satisfied that the
contentious points decided by the Lands Tribunal were questions of fact, and
not law, and if this be so, it follows that the appeal succeeds and the
decision of the Lands Tribunal must be restored.
In view of the
analysis of the facts contained in the opinion of my noble and learned friend
Viscount Dilhorne, I can move to the train of reasoning which leads me to this
conclusion without further preliminaries. The form in which the case was stated
by the Lands Tribunal makes it difficult to identify any point of law with
precision, but I find the reasoning of the Court of Appeal stated with great
conciseness in the judgment of Sir John Pennycuick [(1975) 235 EG 43, [1975] 2
EGLR 337 at 441], to which I shall refer shortly. The respondents’ case was
based ultimately on the contention that the actual rent payable by the
respondent under an underlease dated October 18 1972 was not only ‘an arm’s
length transaction’ and ‘a market rent,’ but a rent which was the best rent
obtainable, and thus that the rent which might reasonably be expected under the
hypothetical tenancy postulated by section 19 (6) of the General Rate Act 1967
could not be expected to exceed it. This argument was founded on an admission
by the present appellant during the course of his evidence before the Lands
Tribunal that the letting to the respondent was ‘an arm’s length transaction,’
‘a market rent’ and ‘the best rent in the particular circumstances in which
it was negotiated‘ (emphasis mine). The expert member of the Lands
Tribunal, though accepting this evidence, nevertheless decided that:
. . . having
regard to the whole of the evidence I attach the greater weight to the evidence
of the rents of the comparables; on this evidence I find that the reasonably
expected rent of the appeal hereditament at the relevant date in accordance
with section 19 of the 1967 Act exceeds £11,000 gross value, the ceiling
assessment under the provisions of section 20 and the assessment appearing in
the valuation list prior to 1973.
At first sight
this raises no question of law. But the Court of Appeal considered that the
appellant’s admission in evidence that the negotiated rent was the ‘best rent
in the particular circumstances’ was incompatible with a rent to be reasonably
expected at any higher figure having regard to the provisions of Part II of the
Landlord and Tenant Act 1954, which conferred, so the court held, security of
tenure on the tenant as good as or better than that secured by the hypothetical
year-to-year tenancy postulated by the General Rate Act 1967, section 19 (6).
Sir John Pennycuick put it as follows in the passage referred to above:
In the
result, it seems to me that the concession [ie the appellant’s admission in
evidence] stands unqualified, and that is really the end of the matter. It is
clearly not legitimate, having conceded that the actual rent was the best rent
in the particular circumstances, and no particular depreciating circumstances
having been established, to introduce comparables at this stage so as to
increase the hypothetical lease rent above the actual rent.
In my opinion,
if this question were genuinely raised by the tribunal’s decision it would be a
question of law, and on the assumption that the only depreciating circumstance
was the degree of security of tenure in the sublease as compared with that
afforded by the hypothetical year-to-year letting, the conclusion of the Court
of Appeal would follow. However, I am of the opinion that the Court of Appeal,
perhaps misled by the course which the argument had taken, had misread what had
been decided by the Lands Tribunal and indeed what the appellant had been
endeavouring to say in evidence.
As indicated
by the tribunal’s decision, the negotiated rent under the sublease was widely
out of line with the rents yielded by apparently comparable properties,
including the headlease of the appeal hereditament, negotiated in 1966, which
yielded the head landlord £17,500 per annum, and Mr Hampsher, having come to
the conclusion that the sublease was a genuine arm’s-length transaction, looked
about to find an explanation of this discrepancy. One explanation was that the
sublease was negotiated for a term of years described by the appellant in his
evidence as an ‘unattractive term.’ It
was in fact the expiring 23 months of a seven-year lease. Another reason, also
given by the appellant in evidence, was that the mesne landlord, under an
obligation, as has been pointed out, to pay £17,500 rent under the headlease,
had advertised extensively, but vainly until the respondents appeared, the
premises at the much lower rent of £6,000 (which was the basis, with an upward
adjustment of £3,000 for a release of the repairing obligation, of the actual
negotiated rent under the sublease), presumably in order to cut his losses.
Against this, the respondents argued (i) that there had been a general fall in
values, (ii) that the appeal hereditament was suffering from special defects of
age and obsolescence. Both of these contentions were challenged by the
appellant by relevant evidence, and rejected by the tribunal. The expert member
of the tribunal inspected the comparable premises externally and came to the
conclusion that the comparison was a valid one and that the low rent payable in
respect of the appeal hereditament was genuinely out of line with the others.
As regards the security of tenure, there was evidence available that this had
formed no factor taken into account by the respondents when negotiating the
sublease. In any event, had it done so, the terms of the Landlord and Tenant
Act 1954, seen in the light of the rather complicated tripartite arrangements
analysed by my noble and learned friend between the respondents, their mesne
landlords and their head landlords, rendered the terms, duration, and rent of
any renewed lease largely problematical. In the end we have a decision of the
Lands Tribunal on a question of fact which the expertise of the qualified
member of the tribunal peculiarly fitted him to decide, and there was really no
question of law fit to be stated for the decision of the Court of Appeal. To
apply this to Sir John Pennycuick’s formulation of the point, in conceding,
as the appellant did, that the negotiated rent was the best obtainable in the
circumstances, he was still entitled to argue that the circumstances were such
as to preclude a useful comparison between the actual negotiated rent and the
hypothetical rent, and that there were circumstances other than the relative
security of tenure available which the appellant did treat, and the Lands
Tribunal were entitled to treat and did treat, as depreciating the rent
actually negotiated in comparison with the hypothetical rent ascertained in
accordance with section 19 (6) of the General Rate Act 1967. In the result we
have a question of fact disguised as a question of law, and it follows that the
tribunal should not have stated the case and the Court of Appeal should not
have entertained it except to dismiss it. In the result the appeal to your
Lordships’ House succeeds and the decision of the Lands Tribunal should be
restored. The disposal of the costs having been decided between the parties by
agreement, they must be dealt with as indicated by my noble and learned friend
Viscount Dilhorne at the end of his speech.
LORD SIMON OF
GLAISDALE: I have had the advantage of reading in draft the speeches prepared
by my noble and learned friends. I agree with them; and I would therefore allow
the appeal.
The appeal
was allowed, costs being awarded against the appellant on the basis of the
order below.
