Landlord and tenant — Break clause — Landlords’ power to determine tenancy ‘for the purpose of the redevelopment or reconstruction of the demised premises’ — Appellant tenants held an underlease of a self-contained office suite on the second floor in a building of which the respondent landlords owned the head leasehold interest — Respondents served a notice on the appellants purporting to exercise their rights under the break clause — The validity of the notice having been disputed by the appellants, the respondents sought summary judgment and succeeded before Harman J, who reversed an order by the master giving the appellants leave to defend — The appellants appealed, the sole issue being whether the works proposed by the respondents constituted ‘redevelopment or reconstruction of the demised premises’ — In fact the decision in the Court of Appeal turned entirely on the question of ‘reconstruction’, so that it was unnecessary to consider the alternative of ‘redevelopment’
the second-floor office suite to the appellants included the plaster coverings
of party walls and structural walls and the coverings of floors and ceilings
but excluded the load-bearing structure of the building, in particular the
steel framework in walls and floor and the ceiling slabs — Essentially the
demise was ‘of an air space with a thin enclosing skin’ — It was described in
the discussion as an ‘eggshell’ — The respondents were proposing to carry out
works to the building of a substantial nature, costing over £20m — The steel
framework of the building and the floor and ceiling slabs were to be retained,
but the walls were to be replaced by a lighter covering which would permit an
additional floor to be constructed at the top of the building; the internal
partitions were to be removed and the central heating installations replaced;
holes were to be cut through the floor and ceiling slabs to provide access for
service pipes; and a wall in one part of the building was to be removed
appellants submitted that the judge below was in error in holding that the
proposed works affecting the property demised to them constituted
‘reconstruction’ — So far as the appellants were concerned, no structural
alteration was involved or at any rate no alteration of a substantial nature —
In fact the sublease to the appellants did not include any part of the
structure of the building — It was suggested that ‘reconstruction’ would
necessarily involve substantial structural work to the demised property — Two
authorities were cited, Percy E Cadle & Co Ltd v Jacmarch Properties Ltd and
Joel v Swaddle
Appeal rejected the appellants’ submissions — The word ‘reconstruction’ in the
clause had to be construed in its context and the context here was a tenancy
which did not include any part of the structural framework of the building —
The clause evidently contemplated the ‘reconstruction’ of that particular unit,
that ‘eggshell’, as it had been described — The works proposed would involve
the physical removal of most of that unit and its replacement with something
different, a different floor-level, new and lower suspended ceilings, new
curtain walls and the permanent removal of a wall surrounding part of the
demised property — In the court’s view, the judge was correct in deciding that
works having this far-reaching physical effect on the state of the demised
property satisfied the requirement of ‘reconstruction’ — It was not necessary
to express any view on the respondents’ alternative submission that the works
amounted to ‘redevelopment’ — Appeal dismissed
The following
cases are referred to in this report.
Cadle
(Percy E) & Co Ltd v Jacmarch Properties Ltd
[1957] 1 QB 323; [1957] 2 WLR 80; [1957] 1 All ER 148, CA
Joel v Swaddle [1957] 1 WLR 1094; [1957] 3 All ER 325, CA
This was an
appeal by the defendants below, Europa Acceptance Group plc, from a decision of
Harman J in favour of the plaintiffs, City Offices (Regent Street) Ltd, the
present respondents, on the interpretation of a break clause in a sublease to
appellants’ predecessors in title of a self-contained office suite on the
second floor of Regent Arcade House, Regent Street and Argyll Street, London
W1. The sublease was granted by the respondents, City Offices (Regent Street)
Ltd, the owners of the head leasehold interest in Regent Arcade House.
Michael Rich
QC and Eian Caws (instructed by Simmons & Simmons) appeared on behalf of
the appellants; Terence Cullen QC and R G Fawls (instructed by Hamlin Slowe)
represented the respondents.
Giving the
first judgment at the invitation of Balcombe LJ, NICHOLLS LJ said: This
is an appeal by the defendant from an order of Harman J made on November 18
1988 whereby, on the plaintiff’s application for summary judgment, he made a
declaration as asked by the plaintiff to the effect that a notice dated
February 10 1988 given by the plaintiff to the defendant determined a lease
dated March 25 1985 on September 29 1988.
The plaintiff,
a wholly-owned subsidiary of the Greycoat Group plc, is the owner of the head
leasehold interest in a building known as Regent Arcade House. The building is
close to Oxford Circus. The building has a frontage on to Regent Street, being
nos 252-260, and at the rear on to Argyll Street, being nos 19-21. By the lease
dated March 25 1985 the plaintiff granted to the defendant’s predecessor in
title a lease for 15 years from Christmas Day 1984 of a self-contained office
suite on the second floor. I shall refer to the demised premises as the ‘leased
property’.
The lease
contained in clause 8 a break provision in the following terms:
Provided
always that if the Landlord shall desire to determine the said term on or at
any time after the Twenty ninth day of September One thousand nine hundred and
eighty eight for the purpose of the redevelopment or reconstruction of the
demised premises whether or not in conjunction with the redevelopment or
reconstruction of any other property and shall give to the Tenant not less than
six months previous notice in writing of such its desire then immediately upon
the expiration of such notice the present demise and
the rights and remedies of either party against the other in respect of any
antecedent claim or breach of covenant.
The key phrase
for the purposes of this appeal consists of the words ‘the redevelopment or
reconstruction of the demised premises’.
Part II of the
Landlord and Tenant Act 1954 was excluded in the case of this lease by an order
made by the county court. In February 1988 the plaintiff gave a notice in
exercise, or purported exercise, of its rights under clause 8. The defendant
disputed the validity of the notice and on July 5 1988 the plaintiff started
these proceedings, seeking the declaration I have mentioned. The master gave
unconditional leave to defend and the judge reversed that decision.
On this appeal
the sole issue is whether the works proposed to be carried out by the plaintiff
constitute ‘redevelopment or reconstruction of the demised premises’.
In plan form
the leased property comprises what most conveniently can be described as a
‘T-shaped’ property, though the stem of the ‘T’ is not in the middle of the
cross-arm. The arm at the top of the letter ‘T’ fronts on to Regent Street and
the leased property abuts at this front end on to other properties on either
side. On each side of the stem of the letter ‘T’ the leased property opens on
to a light well. At the rear, at the foot of the letter ‘T’, the leased
property does not itself reach right through to Argyll Street but it abuts on
to another part of the building which, as I have said, itself faces on to that
street.
The red edging
on the lease plan marking the limit of the leased property, coupled with the
express provisions in the definition clause in the lease, shows that the leased
property includes the plaster coverings of the party walls and of the
structural walls, the whole of any non-structural walls, the coverings of the
ceilings, the coverings of the floors, including the carpets and any screed on
floors. The fixtures and fittings in general are also included, including
electrical installations, plant and machinery, but excluding the
central-heating units. All doors and door frames, windows and window frames,
together with the glass, are also included.
It is apparent
from the plan and the terms of the definition clause that the leased property
excludes the load-bearing structure of the building, in particular the steel
framework structure in the walls and the floor and ceiling slabs. Essentially
the demise is of an airspace with a thin enclosing skin.
The plaintiff
is proposing to carry out to the building works, to use a neutral expression,
of a substantial nature costing over £20m. Shortly stated, what is involved is
that the listed facades of the building to Regent Street and Argyll Street will
be retained, as also will be the steel framework of the building and the floor
and ceiling slabs. The white glazed bricks which form the walls of the second
to fifth floors of the building abutting on to the light wells are to be
removed and replaced with a lighter form of covering which will enable an
additional floor to be constructed at the top of the building. The internal
partitions are to be removed, the suspended ceilings and central heating installations
are to be removed and replaced, and holes are to be cut through the floor and
ceiling slabs to provide access for service pipes and the like. The wall at the
foot of the stem of the letter ‘T’, where the leased property adjoins another
part of the building, is to be removed. That is a very brief outline of the
nature of the works.
The
defendant’s case is that the judge erred in the conclusion he reached that the
proposed works constituted reconstruction. It is said that he gave to the word
‘reconstruction’ an extended meaning because the lease did not include any part
of the structure of the building and that extended meaning was erroneous and
inconsistent with the meaning which that word bears as established by authority
in this court. In that way, it is submitted, the judge misdirected himself. Mr
Rich QC, for the appellants, submitted that an essential element in the
reconstruction of a building is the initial removal of the building in
question, or the majority of it. The simple dictionary definition of
‘reconstruct’ is to build again, which presupposes removal of the initial
building. Thus, it was submitted, reconstruction means the taking away of the
original building, or the majority of it, and its replacement with another
building. It was further submitted that, in consequence, for there to be
reconstruction within the meaning of clause 8, the proposals for the leased
property would have to involve substantial structural work to the leased
property, which they do not. An example given of such structural work would be
the putting in of an additional floor which might require structural support
from outside the leased property.
Our attention
was drawn to two authorities, both concerned with the meaning of the word
‘reconstruct’ in section 30(1)(f) of the Landlord and Tenant Act 1954.
In Percy E Cadle & Co Ltd v Jacmarch Properties Ltd [1957] 1
QB 323, this court was concerned with a holding which consisted of the ground
floor and basement of a building. The front of the ground floor was used as a
tobacconist’s shop and the back portion was used as a men’s hairdresser. To get
down to the basement the tenants had to go outside the front door of the shop
and down some external staircases to the basement storeroom. The landlords
planned to modernise the building and to make three floors of the building into
one self-contained unit and to put internal staircases from the ground-floor
shop down to the basement and from the ground-floor shop up to the first floor.
The county court judge held that the proposed work did not amount to
reconstruction of a substantial part of the premises. That conclusion was
upheld on appeal in this court. At p 328 Denning LJ said:
In my
judgment the word ‘reconstruct’ in this section is not satisfied by a change of
identity: there must be substantial work of construction. The word
‘reconstruct’ here is best expressed, I think, by the synonym ‘rebuild’. There
must be in effect a rebuilding of the premises or, of course, of a ‘substantial
part’ of those premises. Whether there is work of that character and to such a
degree is primarily a matter for the county court judge. In this case the
county court judge looked on the work to the basement floor as a work of
repair, and the putting in of the new internal staircases as work of
improvement. He thought that there was not a ‘reconstruction’. I think he was
right.
Hodson LJ
agreed that the word ‘reconstruct’ seemed to be equivalent to ‘rebuild’.
Ormerod LJ, also agreeing, said that the word ‘reconstruct’ must mean:
a physical
reconstruction of the premises. It must mean, I think, in the first place, a
substantial interference with the structure of the premises and then a
rebuilding, probably in a different form, of such part of the premises as has
been demolished by reason of the interference with the structure.
Accordingly,
so it was submitted by Mr Rich, the requirement of reconstruction is not
satisfied merely by a change in identity of the demised premises; there must be
physical work of construction — interference with the structure.
The second
authority is Joel v Swaddle [1957] 1 WLR 1094. In that case the
demised premises consisted of a portion of the ground floor of a building used
as an open shop and, in addition, there were two separate rooms behind used for
storage, which were separated one from the other and from the rest of the
premises by brick walls. The work which the landlord proposed to do to the
whole building involved that the separate entity of which the tenant was the
holder would disappear and become wholly merged in a single room or space which
would cover the entire ground floor of the premises. This involved the removal
of all the intervening partitions and walls and the substitution for the walls
of whatever support was needed to bear the superincumbent first floor of the
building. As far as the holding itself was concerned, the walls separating the
shop from the first storage room, the first storage room from the second
storage room and from adjoining passages were all to be removed and there were
to be substituted rolled-steel joists across the roof of the ground floor,
supported upon substantial pillars built into the ground capable of bearing the
girders and enabling the necessary structural support to be given to the rooms
above. The county court judge in that case held that the work did not
constitute reconstruction and an appeal by the landlord was allowed. Lord
Evershed MR said at p 1099:
One must look
at the whole work which is proposed, and then say, in regard to it: Does it
amount to a substantial work of reconstruction?
I think that what is here proposed — and there is no question as to the
facts — does, when you view it in that way, amount, within the meaning of the
paragraph, to a work of reconstruction of a substantial part of the premises. I
lay considerable emphasis on that part of the work which consists of the
substitution of the transverse walls by the proposed girders resting on
pillars; I also think, with respect to the county court judge, that he also
gave somewhat too little emphasis to the floor; because what is proposed is not
merely the making of a new floor, but the sinking of the floor, not a great
deal, but by a distance of some eight inches, which produces an appreciable
increase in the total space of what was, and is at present, the tenant’s
holding.
At p 1100 Lord
Evershed said:
When the
facts of Percy E Cadle v Jacmarch Properties Ltd are considered,
what the county court judge was intending to express will be apparent; the
putting in of a staircase did not amount in any ordinary use of the phrase to
any ‘rebuilding’ of the premises. On the other hand, I think, with respect to
the county court judge, that you do not fail to rebuild in the structural sense
because you do not substitute for a wall another and different wall, but leave a
space, if you substitute girders resting on pillars for the wall, performing
the
At p 1101
Romer LJ said:
When one
looks, as I think one should look, at the position as it will be when all the
proposed work has been done, I am quite satisfied that it will result in the
reconstruction of the tenant’s premises within the meaning of the language of
Ormerod LJ in Percy E Cadle & Co Ltd v Jacmarch Properties Ltd
which the Master of the Rolls has cited.
It was
submitted, therefore, that, in the light of that case, one must look at the
totality of the works proposed, but that that does not mean that, in order to
find reconstruction, it is not necessary that there should be some substantial
structural work included.
Turning to the
proposed works the defendant submitted that, as a question of fact, these do
not involve structural alterations to the leased property. It was pointed out
that on the evidence that is not a matter which is in dispute save that it is
proposed that four holes will be cut in the existing floor and ceiling slabs to
accommodate the service risers to support which trimming beams will be bolted
to the floor slabs. It is submitted that, even if that particular work amounted
to structural work, it was not of a substantial nature.
I am unable to
accept the defendant’s submissions on this matter. The word ‘reconstruction’ in
clause 8 falls to be construed in its context. The context here is a lease of
property which does not include any part of the structural framework of the
building. The demise essentially is of an air space with fixtures and fittings
and a skin comprising, as I have already indicated, the plaster coverings of
the party walls and of the structural walls and the coverings of the ceilings
and the coverings of the floors, including a screed thereon. Clause 8
contemplates the possibility of the reconstruction or, I should add, the
redevelopment of that particular unit — that ‘eggshell’ as it has been
described. The works proposed to be done will involve the physical removal of
most of that eggshell and its replacement, in so far as there will be a
replacement, with something different. The floor coverings are to be removed
and the replacement coverings will result in a slightly higher floor-level. New
and lower suspended ceilings will be installed. The wall surrounding the leased
property at the foot of the stem of the letter ‘T’ will be removed and not
replaced, thus creating a single, open floorspace embracing in part the leased
property and in part other property. The external walls which are not being
replaced — for example, the Regent Street facade — will be dry-lined, thus
reducing the usable lettable space of the leased property in those areas.
Further, and importantly, the external brickwork walls fronting on to the two
light wells will be demolished and taken away, leaving the leased property open
and exposed to the elements for many months while the works proceed. New
curtain walls will then be constructed and these will give the leased property
an enlarged usable lettable area of about 1 sq ft per ft of light well wall.
These walls extend to some 430 ft or so. In short, as the works proceed, the
demolition work will involve the physical demolition of most of the eggshell as
part of the larger scheme and the rebuilding of something significantly
different.
In my view,
the judge was correct in deciding that works having this far-reaching physical
effect on the state of the leased property satisfied the requirement of
‘reconstruction of the demised premises’ in clause 8.
I do not think
that this conclusion is inconsistent with either of the two authorities I have
mentioned. It is a sufficient ground of distinction to note that in both those
cases the demised property seems to have included structural parts of the
building in question. Whether, in the case of such leases, there can never be
reconstruction unless there is some alteration to a load-bearing part of the
structure included in the demised property is not a point which calls for
decision in the present case. I make no comment either way on that point. Even
assuming (but without deciding) in the defendant’s favour that in such cases an
alteration to a load-bearing part of the structure is required before the work
can constitute reconstruction, that is not this case. Here, as I have already
indicated, the demise is in terms which make plain that the load-bearing
structure is not included. Clause 8 envisaged that, despite this, the resultant
unit could be the subject of reconstruction. In that context, in agreement with
the judge, I am in no doubt that works as extensive as those I have described
qualify as ‘reconstruction of the demised premises’. Indeed, those works will
change the identity of the leased property and they will make the leased
property wholly unusable while being carried out. But the works involve much
more than that, as I have sought to indicate.
I would
dismiss this appeal on that short ground. In those circumstances, it is not
necessary for me to express any view on the plaintiff’s alternative contention
that the works, if not constituting reconstruction, amounted to redevelopment.
BALCOMBE LJ agreed and did not add anything.
The appeal
was dismissed with costs.
