Landlord and tenant — User covenant in lease — Question of construction — Forfeiture proceedings for alleged breach — Summary judgment for possession reversed on appeal and a trial ordered on the issue as to whether there had been a breach of covenant — Limited use of factual matrix — Whether on the true construction of the covenant the wording created a positive obligation to use or whether it was an emphatically expressed obligation not to use except for certain purposes — The latter construction preferred and the same result achieved by the application of the contra proferentem rule
plaintiffs in these proceedings, the owners of the reversionary interest in two
properties let for a term of 21 years
the defendant lessees on the ground of a breach of the user covenant in the
lease — The premises consisted of two properties in Park Lane, London W1, nos
35 and 37 — The premises were near the Hilton Hotel, where the defendants, a
husband and wife, carried on a high-class retail jewellery business in the
foyer — The defendants had never used no 37 but had made use of no 35, not as a
retail shop but for purposes connected with the jewellery business at the
hotel, such as the storage of some stock, the processing of paper work
generated by the shop and meetings and negotiations with vendors supplying
items for the shop
in issue, which was in clause 2(17) of the lease, provided that the lessees
were not to carry on a number of unacceptable trades and activities, which were
specified, together with a general exclusion of anything adjudged by the
lessors to be noisy, noisome, noxious or offensive, or a nuisance, and the
covenant ended as follows:
but will
use the demised premises either for the business of high class retailers of
jewellery and/or antiques and/or luxury goods and/or a travel agency or a
recognised bank the authorised name of which includes the word ‘Bank’.
claimed that the defendants were in breach of this covenant for two reasons —
The first was that the use of part of the premises, namely no 35, for purposes
connected with the hotel shop was not use for the business of high-class
retailers of jewellery — The second was that the covenant imposed a positive
obligation to use all the premises, both 35 and 37, in accordance with the
covenant — Before determining the answers to these questions the judge
considered the factual matrix to which it was legitimate to have regard — He
decided that it was only the facts that the defendants had a retail jewellery
business not far from the demised premises and that these premises were empty
when the lease was granted — He considered that the right course was to construe
the words of the covenant as they stood and then only, as a last resort, check
the interpretation given to them against the factual matrix so as to avoid a
conclusion inconsistent with commercial realities — His construction of the
lease would, however, have been the same whatever the factual matrix
question, the words ‘for the business of’ were not a synonym for ‘as’ — The
true construction was that the demised premises could be used either as shop
premises for the specified trades or for the purposes of these trades carried
on elsewhere — The defendants were therefore entitled to use the demised
premises either for actual retail trade in jewellery or for assisting their
business in the hotel shop — The judge added that if this interpretation were
wrong he would still have decided against the plaintiffs on the burden of
proof, contra proferentem — On the second question, the judge held that the use
by the defendants of no 35 for the benefit of the business carried on at the
hotel shop was a sufficient compliance with the covenant to use the demised
premises for the business of high-class retailers of jewellery — The words ‘but
will use’ did not create a positive obligation to use the whole of the demised
premises, nos 35 and 37, for the high-class retailing of jewellery (or the
other activities mentioned) — Despite the positive wording, the words ‘but will
use’ should be construed not as an express obligation to use but as an emphatic
negative directed against the forbidden uses — Thus the use of part only of the
demised premises (ie no 35) for purposes connected with the hotel shop trade
was not a breach of covenant — The judge added that even if the words were
interpreted in the positive sense he was not persuaded that the lessees were obliged
to use the whole of the demised premises
was that the plaintiffs had failed to show that there had been a breach of
clause 2(17) of the lease
The following
case is referred to in this report.
Tea Trade
Properties Ltd v CIN Properties Ltd [1990] 1 EGLR 155; [1990] 22 EG 67
This was a
trial ordered by the Vice-Chancellor after he had allowed an appeal by the
defendants, Shlomo Moussaieff and his wife, Alisa Moussaieff, against a summary
judgment for possession under Ord 14 in favour of the plaintiffs, Montross
Associated Investments SA, in respect of premises at 35 and 37 Park Lane,
London W1. The trial was concerned with the specific question of the alleged
breach by the defendants of a covenant in their lease of the premises.
David
Neuberger QC and Miss Judith Jackson (instructed by Lewis Silkin) appeared on
behalf of the plaintiffs; Nicholas Dowding (instructed by Rabin Leacock Lipman)
represented the defendants.
Giving
judgment, MR THOMAS MORISON QC said: In this case the plaintiffs are the
freeholders of premises at 35 and 37 Park Lane, London W1. By a lease dated
September 12 1979 Romulus Films Ltd (‘Romulus’) let the premises to the
defendants for a term of 21 years from December 1978. On or about January 28
1987 the plaintiffs acquired from Romulus the reversionary interest in the
premises. On about August 17 1987 the plaintiffs served on the defendants a
section 146 notice alleging breaches of the user covenant in the lease. In
September 1988, the plaintiffs issued proceedings for possession and,
thereafter, a summons under Ord 14 and for judgment on admissions pursuant to
Ord 27, r 3. On January 31 1989 the plaintiffs’ interlocutory applications for
summary judgment came before Master Gowers, who made an order for possession
and certain consequential orders. The defendants appealed and the
Vice-Chancellor allowed the appeal and ordered the trial of the following
question:
Whether there
has been a breach of clause 2(17) of the lease dated September 12 1979.
Certain
directions for the trial of that issue were made and the matter came before me
on June 13 and 14 1990. I reserved judgment. Before turning to the question in
issue, there are two preliminary matters which relate to the proper approach of
the court.
In the first
place, a question arose as to the impact, if any, of the Vice-Chancellor’s
judgment. It is clear from the official transcript of his judgment that he was
initially of the view that, in reality, the application for summary judgment
involved a pure question of construction and that as he had resolved it in
favour of the defendants either there was no need for a trial or, possibly, his
judgment constituted an adjudication on the issues. It seems to me clear,
having read the whole of what he said both at the time of giving judgment and
on a later occasion when he was asked to approve a minute of order and consider
the question of leave to appeal, that:
(1) no question of issue estoppel arises;
(2) the Vice-Chancellor did not intend that, at
trial, the decision of the trial judge should be constrained by what he had
said when giving judgment;
(3) it is not possible to say, with any
confidence, what his decision would have been if he had had before him the oral
evidence which has been put before me.
Accordingly,
while the Vice-Chancellor’s views on a matter of construction of a lease must
be accorded respect, I have approached the task before me quite uninfluenced by
what he has said, and reached my own conclusions.
Second, there
has been a certain amount of debate as to what evidence is admissible or
helpful in resolving the question at issue. Because this case may go further,
the parties have asked that I should set out my findings of fact in relation to
the evidence which I have heard. I shall do so, but it seems to me that the
question before the court is resolved by looking at the words which have been
used. I shall return to the factual matrix and its limited use in due course.
Background
The defendants
are husband and wife and have for many years been carrying on business as
high-class retailers of jewellery in shop premises in the foyer of the Hilton
Hotel, a short distance from the demised premises. Their business has been
carried on through a private company, of which they are the sole directors and
shareholders, called The London Hilton Jewellers Ltd (‘Hilton Jewellers’). The
business is highly successful and had a turnover of over £23m in the year to
the end of February 1987.
Romulus is a
company of which Sir John Woolf is, and was at all material times, chairman. It
owned the building which includes, at
mezzanine floor which for about 20 years was the offices of Romulus; before
that, it had been let out and used as a private drinking club. Above this level
are various flats in private occupation. The one immediately above the offices
was occupied by Sir John as his private residence until about 1988. Access to
the upper floors is gained from Curzon Street. Nos 35 and 37 each has a
separate entrance on the east side of Park lane, with an entrance to what were
Romulus’ offices between the two.
In 1970 and
1971 Romulus let nos 35 and 37 to Banquets of Oxford Ltd and The Park Lane
Coffee Inn Ltd, respectively, for 14 years from December 1969. In the case of
no 35, the description of the demised property was ‘the lock-up shop situate at
and known as 35 Park Lane’ and the user covenant (clause 2(17)) contained the
following words:
but will use
the demised premises for the business of a high class restaurant and light
refreshment providers only or for such other purpose as the Lessors may
previously approve in writing.
In the case of
no 37, the lease described the demised property in the same way, and the user
covenant (clause 2(17)) contained the following words:
but will use
the demised premises for the business of a high class coffee shop and
restaurant and for such other purpose as the Lessors may previously approve in
writing such consent not to be unreasonably withheld.
Sir John did
not find the tenants satisfactory, largely because cooking smells wafted up and
permeated into his offices and flat. He tried to put a stop to what he regarded
as a nuisance, but failed in an action brought in the High Court. He was in the
process of starting a fresh action when the tenants themselves decided they had
had enough and indicated that they would like to assign their leases.
In June 1977 a
company called Graff Diamonds Ltd (‘Graff’) applied for planning permission for
a change of use for 35 Park Lane to ‘Retail Shop (Jeweller)’. Around this time
Sir John became aware of an interest being shown by a jewellery business
(probably Graff) in the premises and contacted the defendants with whom he was
on friendly terms. He was a reasonably frequent visitor to their shop in the
Hilton Hotel and a less frequent purchaser, but a good customer. He thought
that they should know of the interest being shown, because a competing
jewellery business so close to the Hilton Hotel might well adversely affect the
defendants’ business. On one of his visits to their shop, he told the
defendants what was going on. The defendants responded by expressing an
interest in themselves acquiring the premises and, in August 1977, through a
dormant company of which the defendants were the sole shareholders and
directors called S Mason Jewels Ltd (‘Mason’), applied for planning permission
for a change of use to retail shop for the sale of jewellery and antiques. The
local planning authority granted permission to both applicants on September 28
1977. By a deed of licence and variation dated October 31 1977, and made
between Romulus, the tenant/assignor and Mason, Romulus consented to an
assignment of the tenant’s estate and interest in no 35 and to a variation in
the user covenant, substituting for the words ‘a high-class restaurant and
light refreshment providers only’, ‘high-class retailers of jewellery and
antiques only’. On the same date, the tenants entered into a deed of assignment
with Mason.
In relation to
37 Park Lane, in October 1977 Graff applied for change of use permission and
their application was granted at the end of December 1977, so that the premises
could be used for ‘shopping purposes’ as defined in the 1972 Use Classes Order.
By a deed of licence and variation dated November 6 1978, and made between
Romulus, the tenant/assignor and Mason, Romulus consented to an assignment by
the tenant to Mason and gave their licence to Mason to use the premises ‘as a
retail shop for the business of high-class retailers of jewellery and antiques
only’. The lease was duly assigned by a deed dated December 5 1978.
Thereafter,
Romulus and the defendants negotiated a new, single lease of the two premises
together, which was executed on September 12 1979, for a period of 21 years
from December 1978. On the same date, Romulus consented in writing to Mason’s
occupying the premises and trading therefrom, despite the provisions of clause
2(13) of the lease which contains an absolute prohibition against assignment,
underletting or parting with possession of the whole or part of the premises.
The defendants
have never occupied any part of no 37. No 35 has never been used as a retail
shop as such, but it has been used for the benefit of the jewellery business
carried on by the defendants through Hilton Jewellers at the hotel shop, in a
number of different ways. In the first place some of Hilton Jewellers’ stock is
kept at no 35, thus easing a space problem at the hotel shop; second, the defendants
have put a desk and filing cabinets in no 35 so that the paperwork generated by
Hilton Jewellers can be processed there, either by one of the two defendants
themselves or by one of their staff from the hotel shop; third, where the
occasion demands, suppliers of items for the hotel shop are sometimes directed
to no 35, it being thought prudent not to carry on negotiations with sellers
while engaged in selling items to customers at the hotel shop.
There was an
issue of fact as to whether any user of the premises had taken place before the
lease was executed, that is between the time of the assignment of the two
leases and the grant of the new one. On the totality of the evidence, I find as
a fact, on a balance of probabilities, that as at September 12 1979, the date
of the lease, neither no 35 nor no 37 was occupied. I further find that Sir
John was aware that they were empty at that time; he used to pass the two shop
fronts when he emerged from his offices on the mezzanine floor. At some stage
after that date, the defendants commenced to use no 35 in the way described
above and, although Sir John did not go into those premises at any time after
the lease was executed, he was aware, because he could see, that no 35 was
being used for office purposes by the two defendants and must have realised
that they were being so used as an adjunct to their business at the hotel shop,
which Sir John continued to visit fairly regularly until he moved away in
1987-88. He also knew that no 37 was and remained empty.
As to the
defendants, they say, although evidence of their intention is not admissible,
that they took the leases on nos 35 and 37 so that they could occupy them for
their jewellery business if either their existing business expanded enough to
justify opening up both nos 35 and 37 as shops or they lost their right to
remain at the Hilton Hotel, in which case they could transfer their business to
the new premises.
The plaintiffs
are a Panamanian company who became the defendants’ immediate landlords as a
result of a transfer dated January 28 1987, and, as I have said, served a
notice under section 146 of the Law of Property Act 1925 in August 1987. The
notice specified three breaches of the user covenant:
(a) The shop known as no 37 Park Lane has been
and is locked and unused.
(b) You have failed to use any part of the
demised premises for the business of high class retailers of jewellery and/or
antiques and/or luxury goods and/or travel agency or a recognised bank, the
authorised name of which included the word ‘Bank’.
(c) You have [sic] and are using the
demised premises as offices.
At the trial
it was accepted that the allegation of breach in ‘(c)’ above was not being
relied upon as a separate breach and no point was being relied upon, for the
purposes of these proceedings, on the distinction between the defendants and
their companies.
Clause 2(17)
of the lease reads:
The lessees
hereby JOINTLY AND SEVERALLY COVENANT with the Lessors as follows:
NOT during
the continuance of the term hereby granted to carry on or to permit or suffer
to be carried on upon the demised premises or any part thereof the trade
business or occupation of a retailer of beer wines or spirits or retailer of
fried fish or onions or use or permit to be used the same premises or any part
thereof as offices or rooms for betting or wagering or carrying on or permit to
be carried on in the premises any other trade business or calling whatsoever
that shall be adjudged by the Lessors to be noisy noisome noxious or offensive
or that shall be hurtful or prejudicial or constitute a nuisance or annoyance
to any other tenant or tenants of the Lessors or a public nuisance and will
without prejudice to the generality of the foregoing not suffer or permit the
escape of cooking smells from the premises or use or allow the premises or any
part thereof to be used for frying onions but will use the demised premises
either for the business of high class retailers of jewellery and/or antiques
and/or luxury goods and/or a travel agency or a recognised Bank the authorised
name of which includes the word ‘Bank’.
The
description of the premises in the lease is ‘ALL THOSE the lock up shops
situate and known as 35 and 37 Park Lane . . .’
The
questions
The issue
between the parties depends essentially on the answers to two questions:
(1) Is use by the defendants of no 35 for the
benefit of the retail business being carried on in the hotel shop ‘use (of) the
demised premises for the business of high-class retailers of jewellery’?;
(2) If the answer to the first question is ‘yes’,
is such user of part of the demised premises sufficient or must the user be of
the whole of the premises. It was accepted by both parties that this question
should
whether the covenant required the premises to be used or whether it prohibited
their use otherwise than for specified purposes (described in the argument as
the difference between a positive and negative covenant, and I adopt that
distinction).
I have been
presented with admirably clear arguments on either side. Each party has adopted
the approach of first looking at the words themselves, then looking at them in
the context of the document as a whole and finally having regard to the factual
matrix.
Conclusions
I prefer to
deal, first, with the ‘factual matrix’. It is clear from well-known authority
that while the construction of any written document must not be attempted as
though the document was in a vacuum, and that the court must have regard to the
commercial reality of any transaction being effected by the document in
question, it is equally clear that the court is not concerned with the
subjectively expressed intention of the parties and is not entitled to lift the
lid on, and peer into, the negotiations. The court is engaged on the task of
ascertaining the intention of the parties from the words that have been used
and not from what the parties may have thought those words meant nor what they
say they intended them to mean. One of the difficulties in this case is that
for the purpose of the summary judgment procedure some background evidence was
put in which is not admissible. Indeed, I take the view that much of the
background which I have recited falls into that category. It seems to me,
although this was not argued, that a court when construing a lease should be
wary of relying on any evidence external to the document in question, because
the interests and rights created by a lease are, often, assignable, and it is
important that an assignee should be able to rely upon the words of the
document rather than on matters not likely to be within his own knowledge. Save
that the defendants had a retail jewellery business not far from the demised premises
and that the demised premises were empty at the date when the lease was granted
and had been empty for some months after the previous leases had been assigned,
I have put aside from consideration any of the factual matters referred to
above. I prefer to construe the words as they stand and, then only as a last
resort, check my interpretation of them against what might be described as the
factual matrix so as to avoid reaching a conclusion which was inconsistent with
the commercial realities. I should make it quite clear that my construction of
the lease would have been the same whatever the factual matrix.
I turn,
therefore, to the words that have been used. As a matter of first impression I
do not read the words ‘for the business of’, which counsel for the plaintiffs
accepts governs ‘travel agency’ and ‘recognised Bank’, as meaning ‘as’, which
is the meaning he contended for. I do not think that there are any indications
within the document itself which cast light on the matter. The description of the
premises as ‘lock-up shops’ is neutral, because a bank would not normally be
described as a shop. Further, to the extent that it is permissible to look at
the earlier leases, I observe that a high-class restaurant would not normally
be described as a shop. Counsel for the plaintiffs said that, in effect, what
was being specified was a use which would involve the public in having access
to the premises. By so saying, he begs the answer to the question. In any case,
I think that a wholesale travel agent, with no direct access to the public, may
not be unrealistic; so also may there be a non-retail bank. There is nothing in
the language of the covenant which persuades me to accept that submission.
Finally, he says that if the premises can be used in connection with a
jewellery business being carried on elsewhere, why should the draftsman have
taken the trouble to specify a variety of trades. If the defendants are right,
what would have been the objection, for example, to the storage, but not sale,
of beer or onions?
In my
judgment, on a true construction of the words used, the premises can be used
either as shop premises for the specified trades or for the purposes of the
specified trades carried on elsewhere. If they were to be used as retail trade
premises then there was every purpose in defining with care the trades that
could be carried on. The fact that they could also be used as an adjunct to a
specified business carried on elsewhere does not, I think, lead to the
conclusion that there was no need to specify the trades.
Given the
factual matrix to which I have referred, there is nothing commercially foolish
about the conclusion on construction which I have reached. On this basis, the
defendants are entitled to use the premises either for retail trade or for
assisting their existing retail business at the hotel shop.
Finally, it is
for the lessors who wish to forfeit the lease for breach of such a clause to
prove the breach. Where the interpretation of a user clause is an open
question, then the landlords will not succeed, because the user clause will be
construed contra proferentem. Therefore, if I were wrong in my
interpretation of the clause, I would have decided that the correct
interpretation was an open one and have gone on and decided this point against
the plaintiffs, effectively, on the burden of proof.
For these
reasons, I decide that the answer to the first question (as formulated above)
is ‘yes’. In other words, in my view, user by the defendants for the purpose of
their retail jewellery business in the hotel shop is user of the demised
premises ‘for the business of high-class retailers of jewellery’.
I turn next to
consider whether the words ‘but will use’ to the end of the clause create an
express obligation to use, so that leaving the premises empty would be a
breach, or whether they constitute a negative obligation not to use otherwise
than for the business of one of the specified activities. There is much to be
said for construing this part of the clause as positive rather than negative.
The language is positive, in contrast to what has been, happily, described as
the torrential negative drafting in the earlier part of the covenant. I do not
think I am assisted by referring to other cases where other words in other
leases have been construed (let alone where statutes are being considered).
However, I note that Hoffmann J in Tea Trade Properties Ltd v CIN
Properties Ltd [1990] 22 EG 67, [1990] 1 EGLR 155* was prepared to leave
undecided the question whether a user covenant which started with the words ‘To
Use’ created a positive obligation or, as he put it, ‘They [the words] may be
simply an emphatic statement on the prohibition on uses other than that
specified’. Counsel for the plaintiffs said that the natural construction of
the user covenant was that the first part contained five negative obligations
followed by a positive one; I think there is force in that, just looking at the
language. However, as he accepted, on his construction there would have been no
need for the negative obligations at all if the positive part required the
premises to be used. Counsel for the defendants said that although positive in
language it could and should be construed as an emphatic negative statement. He
says that if the covenant was positive, having regard to the fact that the
premises were and had been empty for some time, the covenant would be imposing
a substantial financial obligation on the defendants, the evidence being that
the cost of making the two shops into retail outlets would amount to over
£200,000. Clear words would be needed to create such an obligation and he also
sought some help from one of the licences to assign, which I did not find of
assistance. He submitted that the covenant was emphatic and negative. He said
that his construction of the clause gave effect to the earlier part of the
clause. He said that if a part of the premises were used for the business of a
high-class retailer of jewellery the use to which the remaining part could be
put was restricted by the earlier negative words. Thus, if no 35 was used as
storage for the hotel shop business, no 37 could not be used for a betting
shop. Counsel for the plaintiffs pointed out that this meant that a small part
could be used for storage for the hotel shop and the rest for, say, the sale of
doughnuts. In other words, the restrictions on use could be evaded by a
partial, legitimate user of the premises. Counsel for the defendants sought to
avoid this conclusion by saying that if there was a partial user, the remainder
of the premises could be used only for the business of the retail sale of
jewellery etc. On this basis, it follows that whether the clause is positive or
negative it is difficult to give effect to the whole of the user covenant.
Counsel for the plaintiffs said that I should take account of the fact that
having regard to the draftsman’s traditional propensity for linguistic overkill
(see per Hoffmann J above) unnecessary words may well have been used.
*Editor’s
note: Also reported at [1990] 1 EGLR 155.
I do not think
that it was seriously contended on behalf of the plaintiffs that if the
covenant was negative, partial use would be a breach. Indeed, such a conclusion
would be surprising: if no user would not be a breach why should a partial user
be a breach? The plaintiffs, however,
argued that if the covenant was positive then the natural and ordinary meaning
of the phrase ‘will use the demised premises’ is that the whole of the premises
should be so used. By ‘whole’, counsel made it clear that he was not suggesting
that every inch had to be used. He submitted that the user in this case fell
short of user of the demised premises because at least half of the premises
were unoccupied. Counsel for the defendants submitted that if the covenant was
positive the draftsman could and would have used
objective bystander would, if asked, have said that the lessees were using the
demised premises. He said that the user had to be more than minimal, but a user
of a significant part was sufficient. The lease does, in places, draw a
distinction between the demised premises and parts of the demised premises.
I conclude
that the words quoted above are emphatic negative rather than positive in
effect. It follows that a user of part is not a breach.
Further, I am
not persuaded that if the clause is positive the lessees are obliged to use the
whole of the demised premises. The draftsman did from time to time refer to the
demised premises and any part thereof. He could have easily stated that the
whole of the premises needed to be used for the businesses specified. He just
refers to the demised premises. If I had accepted the plaintiffs’ arguments on
the first question, then I can see an argument for saying that the draftsman
intended that both shops were open for business: if one shop was being used and
the other not, then the purpose of having the premises used as retail outlets
would be somewhat lost. The symmetry of adjacent shops would be broken. If, as
I have concluded, it was not necessary for the premises to be used as shops in
their own right, then the need for ‘symmetry’ is reduced.
I may
summarise my conclusions on the second question:
(1) The clause, although positive in language, is
not sufficiently clear so as to create a positive obligation to use. Again, I
would, if necessary, have decided this point on the burden of proof against the
plaintiffs. This conclusion is not inconsistent with the fact that the premises
were empty when the lease was executed, and had been for some time before that.
(2) If, as I think, the clause is emphatic
negative in form, then a partial user would not be a breach.
(3) If the clause is positive, then I do not
consider that clear enough words have been used to require a user of the whole
of the premises. In my judgment, even on this basis, the user of no 35
constitutes a sufficiently substantial user of the whole, so that the bystander
would say that the demised premises were being used by the defendants for the
business of a high-class retailer of jewellery being carried on at the Hilton
Hotel. If the remaining part of the premises were used for the sale of
doughnuts, then one might readily conclude that the premises were not being
used for the business of retail jewellers. A relatively insignificant other
user would not alter the character of the prime use. The line would have to be
drawn on the facts of each case. Finally, on this issue too, I would have found
against the plaintiffs on the burden of proof. Clear words could have been used
if the lessors required the lessees to use the whole of the demised premises.
I therefore
hold that there has not been a breach of clause 2(17) of the lease dated
September 12 1979.