Landlord and tenant — Rent review provisions — Construction — Covenants affecting user — Effect on reviewed rents — Determination by independent surveyor acting as expert challenged by landlords — Estoppel point in regard to recovery of increases of rent
concerned a 28-year lease of premises at Waterloo Wharf, Poole, Dorset, let in
1970 at a rent of £4,000 a year subject to 7-year rent reviews — The reviewed
rent in 1977 was agreed at £9,000, but the 1984 review gave rise to this
litigation following the independent surveyor’s determination of a rent of
£11,250 — The controversy centred on the effect of two of the tenants’
covenants on the open market rental value — As the judge’s conclusion depended
on a close analysis of these covenants it is desirable to set them out here:
business or occupation of an obnoxious or offensive character but to use the
premises only for the ordinary purposes of the lessee’s business that is for
the manufacture and export of synthetic rubber and/or latices and under no
circumstances for the business of a timber merchant or timber importer builders
merchants or ancillary trades.’
premises or any part thereof which may be or become a nuisance annoyance damage
or inconvenience to the lessor or to any of the owners or occupiers of
adjoining premises provided that the uses hereby authorised shall not be deemed
a breach of this covenant.’
independent surveyor decided that covenant (xiv) imposed a permanent
restriction on the use of the site to the purposes forming part of the business
of the manufacture and export of synthetic rubber and/or latices, with an
important effect on the market rental value — The landlords criticised this
view and argued that the words referring to the business were merely
descriptive of the original lessee’s business and would not bind an assignee or
restrict the current market rent for review purposes — The judge’s
construction, arrived at after a painstaking linguistic analysis, was based on
reading covenants (xiv) and (xvii) together; he held that the latter was the
key to the true construction of the former
judge’s view, the words in covenant (xiv) ‘but to use . . . rubber and/or
latices’ did not impose any actual obligation to use the premises throughout
the term for the specified business only, but were of a permissive or
protective nature — Read in conjunction with (xvii) they merely made it plain
that the carrying on of that specified business would not in itself constitute
either a breach of the covenant against obnoxious trades within the meaning of
(xiv) or create a nuisance, annoyance or inconvenience to lessors or neighbours
within the meaning of (xvii) — The final words in (xvii), referring to the
specified business in (xiv), make this clear: ‘the uses hereby authorised shall
not be deemed a breach of this covenant’ — The words in the middle of (xiv)
were not obligatory but exculpatory — The judge made a declaration giving
effect to this analysis — The consequence was that the independent surveyor’s
determination was set aside, but it was not the function of the court to
substitute its own determination
point arose as a result of rent having been paid for the period of a year on
the basis of the independent surveyor’s determination, which had now been found
to be invalid — The judge made a declaration that the landlords were estopped
from recovering from the tenants any increased rent for that period beyond that
already paid and accepted
The following
case is referred to in this report.
Law
Land Co Ltd v Consumers’ Association Ltd
(1980) 255 EG 617, [1980] 2 EGLR 109, CA
This was an
originating summons whereby the plaintiffs, J T Sydenham & Co Ltd, the
landlords, sought the decision of the court on the true construction of a lease
of premises known as Waterloo Wharf, West Quay Road, Poole, Dorset, of which
the defendants, Enichem Elastomers Ltd, were the tenants. The plaintiffs
challenged the rent determination made by the independent surveyor appointed as
expert under the rent review provisions of the lease.
Miss J Jackson
(instructed by Turner Kenneth Brown) appeared on behalf of the plaintiffs; John
Furber (instructed by Nabarro Nathanson) represented the defendants.
Giving
judgment, JUDGE LEONARD BROMLEY QC said: In the context of a rent review
determination of a surveyor admittedly acting as an expert, this summons raises
a question as to the true construction of a lease. The plaintiff to the summons
is the original grantor under the lease and the defendant is the original
lessee under the lease. The landlords challenge the validity of the surveyor’s
valuation, which is a speaking valuation, and a question of estoppel also
arises.
By a lease
dated January 4 1972, the plaintiff leased to the defendant the premises known
as Waterloo Wharf, West Quay Road, Poole, Dorset, for a term of 28 years from
September 29 1970 at a yearly rent of £4,000 with 7-year rent reviews. At the
time of the demise, the tenant’s corporate name was ‘The International
Synthetic Rubber Company Limited.’ The
agreed review rent as at and from September 29 1977 was £9,000. There was no
agreement as to the rent from the next review date, September 29 1984, and pursuant
to the review provisions to which I shall come, a Mr C I E Legrand [FRICS] (a
surveyor admittedly acting as an expert) by a determination signed on February
7 1985 determined the rent for the period which began on September 29 1984 to
be £11,250. Mr Legrand’s determination recited clause 2(xiv) of the lease and
of that said:
This clause
has an element of ambiguity about it, but I have taken the view that the
wording of it, if not the spirit of it, restricts the use of the site to those
purposes which would ordinarily form part of the business operation in the
manufacture and export of synthetic rubber and/or latices. Having carefully
considered all the evidence placed before me and further having considered the
evidence of which I have general knowledge, I determine that the rent for the period
commencing September 29 1984 will be in the sum of £11,250.
By a letter
dated February 19 1985, he said:
I thank you
for your letter of 15th February . . .
— that was to
Messrs James & Sons, solicitors —
In connection
with your enquiry I would advise you that the percentage reduction in
connection with the interpretation of the user clause set out in the Lease was
twenty per cent.
The tenant
paid and the landlord accepted on or about the March 1985 quarter day the new
quarter’s rent in advance and the difference between the former rent and the
new rent for the half year from September 29 1984. The tenant later paid and
there was accepted also the quarter’s rent at the new rate due on the June 1985
quarter day. It was only by a letter dated September 19 1985 that the landlords
took the point that the determination was invalid which has led to these
proceedings.
Mr Furber for
the tenant has reserved for a higher court the argument that the determination
bound the landlord in any event and did not argue that point before me.
The demised
property was a wharf on the Backwater of Poole Harbour, with upon it some
buildings and open area, as the plan shows. A director of the plaintiff company
has given unchallenged evidence, which I accept, in the following terms:
I am familiar
with the activities of the defendant company on the site, and to the best of my
knowledge and belief, the manufacture and export of synthetic rubber and/or
latices in no way involves the business of a timber merchant or timber importer
or builders merchant. There is no overlap of activity and the businesses are
quite distinct.
I turn to the
lease between the plaintiff and the defendant by its then name. The demise is
in the following terms:
IN
consideration of the rents hereinafter reserved and the covenants on the part
of the Lessee hereinafter contained the Lessor demises unto the Lessee ALL THAT
part of the wharf known as Waterloo Wharf situate in the West Quay Road in the
Town and County of Poole having a sea frontage to the east side of the
Backwater on Poole Harbour and extending eastwards to West Quay Road (together
with the buildings thereon) as the same is shown on the plan annexed hereto and
thereon coloured pink and is hereinafter referred to as ‘the premises’ TO HOLD
the same unto the Lessee for the term of TWENTY-EIGHT YEARS from the
TWENTY-NINTH DAY OF SEPTEMBER ONE THOUSAND NINE HUNDRED AND SEVENTY PAYING
therefor (a) during the first seven years of the said term the yearly rent of
FOUR THOUSAND POUNDS and for the next seven years of the said term and for each
successive period of seven years thereafter such rent as shall have been agreed
between the Lessor and the Lessee or determined as hereinafter provided to be
the current market rental value of the premises at that time and the provisions
of the Schedule hereto shall apply for the purpose of ascertaining the rent for
each such period. Such rents shall be paid by equal quarterly instalments in
advance on the usual quarter days the first of such payments or a proportionate
part thereof to be made on the execution hereof.
Then in clause
2 are the following tenants’ covenants (so far as material):
THE Lessee
hereby COVENANTS with the Lessor as follows:
(iv) Not to assign underlet or part with
possession of the premises or any part thereof without the written consent of
the Lessor previously obtained but such concession shall not be unreasonably
withheld. The Lessor may if it so desires make it a condition of any consent
that the proposed assignee or underlessee shall enter into a covenant to
observe the covenants and conditions of these presents and to pay the rents
reserved thereunder or in the case of part of the premises to perform such of
the covenants herein contained as are now applicable to that part of the
premises and to pay such apportioned part of the rents hereby reserved as may
be agreed Provided that if the proposed assignee shall be a Limited Company the
Lessor may require one or more Directors thereof as the Lessor may think fit to
guarantee the payment of the said rents and the observance and performance of
the Lessee’s covenants and the conditions herein contained.
(xiv) Not to carry on upon the premises any trade
business or occupation of an obnoxious or offensive character but to use the premises
only for the ordinary purposes of the Lessee’s business that is for the
manufacture and export of synthetic rubber and/or latices and under no
circumstances for the business of a Timber Merchant or Timber Importer Builders
Merchants or ancillary trades.
(xvii) Not to permit of suffer anything on the
premises or any part thereof which may be or become a nuisance annoyance damage
or inconvenience to the Lessor or to any of the owners or occupiers of
adjoining premises provided that the uses hereby authorised shall not be deemed
a breach of this covenant.
The
interpretation provision in clause 4(iii) is as follows:
(iii) The expression ‘the Lessor’ herein contained
shall where the context so admits include the estate owner for the time being
of the reversion of the premises hereby demised immediately expectant on the
term hereby granted and the expression ‘the Lessee’ shall where the context so
admits include the Lessee’s successors in title.
The schedule
contains the rent review machinery and so far as material is in the following
terms:
1 An agreement between the Lessor and the
Lessee as to the rent to operate for each relevant period of seven years
(hereinafter called ‘the new rent’) shall be in writing signed by both parties.
2 If such agreement has not been made six
months before the commencement of the relevant period of seven years the Lessor
may require an independent surveyor (hereinafter called ‘the surveyor’) to be
appointed to determine the new rent. The surveyor may be nominated by agreement
between the Lessor and the Lessee or appointed by the President for the time
being of the Royal Institution of Chartered Surveyors on the application of the
Lessor.
. . .
5 The surveyor shall act as an expert and not
as an arbitrator. He shall consider any valuation and reasons submitted to him
within the said period but shall not be in any way limited or fettered thereby
and shall determine the new rent in accordance with his own judgment.
6 The surveyor shall give notice in writing of
his decision to the Lessor and the Lessee within two months of his appointment
or within such extended period as the Lessor may agree.
7 If the surveyor comes to the conclusion that
the current market value of the premises is less than the rent operative for
the period preceding the relevant period of seven years (hereinafter called
‘the current rent’) the new rent shall nevertheless be the same as the current
rent and the decision of the surveyor shall so state.
. . .
9 The decision of the surveyor shall be final
on all matters hereby referred to him.
10 Rent shall not be due at the rate of the new
rent until after the Lessee has been given such notice thereof as is hereby
provided and in the event of the relevant period of seven years starting before
such notice has been given to the Lessee rent shall continue to be due at the
rate of the current rent on each day appointed by this agreement for payment of
rent until the said notice is given to the Lessee. On the first day after the
notice is given to the Lessee which is a day appointed by this agreement for
payment of rent there shall fall due for payment the appropriate instalment at
the new rate together with by way of additional rent a sum equal to the
difference between the new rent and the rent actually paid for any part of the
relevant period of seven years in respect of which a rent less than the new
rent has been paid.
. . .
12 As respects all periods of time referred to
in this Schedule time shall be deemed to be of the essence of the contract.
There are two
other tenants’ covenants in the lease to which reference is made to the
business of the tenant, as in clause 2(xiv) and (xvii). These are clause 2(x)
and clause 2(xi), which are as follows:
(x) Subject to Clause 2(vii) hereof the Lessee
shall have the right to erect and maintain such storage tanks whether above or
below the surface and such buildings as may be requisite and necessary for the
conduct of its business thereon but if it shall do so then at the end or sooner
determination of the term hereby granted it shall be at liberty if it so
desires and will if called upon by the Lessor at its own expense remove such of
the buildings which may be above the surface and remove such of its buildings
or storage tanks as may be below the surface and in the case of the removal of
things below the surface of the ground it shall make good the excavations with
some suitable form of hard rubble properly rammed with a pneumatic ram so that
the same may form a safe foundation for any buildings thereafter erected by the
Lessor or its sequels in title and in all other respects shall leave the
surface of the premises in a reasonably level condition and otherwise in good
order.
(xi) The Lessee may make such apertures in the
boundary wall between the premises and its adjoining property to the southward
that may be necessary for the efficient conduct of its business but at the end
or sooner determination of the term hereby granted it shall close up and make
good such apertures and restore the boundary wall to the reasonable
satisfaction of the Lessor’s Surveyor.
Counsel have
read to me the relevant authorities, but in my view the decision in this case
turns both first and last on the construction of this lease. It is of course
clear law that the lease must be construed as a whole and against its context,
its matrix of facts, so far as known.
The issue of
construction before me was argued on the following basis: whether the reference
in clause 2(xiv) to the lessee’s business by the words ‘that is for the
manufacture and export of synthetic rubber and/or latices’ are, as Miss Jackson
for the landlord submitted, merely descriptive of the original tenant’s
business so that they would not bind an assignee and would fall to be
disregarded as a limiting feature on the current market rental value for the
purposes of the rent review or whether, as Mr Furber submitted and as Mr
Legrand held, these words would bind an assignee and thus limit the open market
rental value. Miss Jackson submitted in the alternative that in reliance on Law
Land Company Ltd v Consumers’ Association Ltd (1980) 255 EG 617,
[1980] 2 EGLR 109 the concept of a market rent was inconsistent with there
being only one hypothetical tenant in the market and that accordingly the
limitation was to be disregarded. Mr Furber for the tenants submitted that
there was no error of law in the expert’s valuation in that the restriction was
correctly taken into account.
Miss Jackson
rightly points out that this is a lease of commercial premises with the power
to assign and for a comparatively lengthy period of 28 years.
It appears
from correspondence between the landlord’s surveyors and the expert that on one
occasion (as Miss Jackson pointed out) they pointed out in substance that the
lease on the restricted basis was virtually unassignable, to which Mr Furber
spiritedly countered by pointing out that on another occasion they said that
there were in the United Kingdom six companies in the synthetic rubber business
as hypothetical assignees. There is, however, no direct evidence before me as
to the scope of the market in prospective tenants in the synthetic rubber
business, but I think I am entitled to draw the conclusion that it is at least likely
to be a narrow one. However, per contra, whether this site might have a
particular value for some reason to a tenant in such a group — for example,
through its location or being a wharf or having planning permission for such a
business (if it has) — I do not have evidence. I do not, however, think that I
am on the evidence entitled to conclude that in fact the market is so
restricted that it renders valueless the power to assign or that no sensible
landlord could have agreed to restrict user throughout the long
(28-year) term of the lease to a single specialised trade. This may be so, but
the evidential base is not, in my judgment, there for me so to find. Also, as
Mr Furber pointed out, the landlord might have had its own reasons for
restricting the use of the site; for example, to exact a price on any change of
use application. None of this do I know.
As I have
said, the lease must be construed against its matrix of material facts, but
they are exiguous and I ought not to speculate. Given, however, that this is a
lengthy lease of commercial premises with a tenant’s power to assign with
consent of the landlord not to be unreasonably withheld, I would not expect a
restrictive user condition of this nature binding successive tenants throughout
the term with its depreciatory effect on the rent and I add on the tenant’s
capacity freely to choose his hypothetical market on an assignment.
This noted,
however, there is the further point that the restriction is not one wholly
beneficial to the tenant, since while it might reduce the rent, if the tenant
wants to assign the lease, it might only obtain a reduced price from any
assignee or be in difficulty selling the term because of the restriction.
Correspondingly the landlord might be disadvantaged now by a reduced rent but
have an enhanced bargaining position if change of use permission is sought in
the future. The contrary is true if there is no user restriction binding
assignees. Thus either party has or may have pluses or minuses from either
result contended for. It would be speculative in the absence of evidence as to
the matrix of facts in which the lease is set to form any view of the
significance of these points. I accordingly remain of the view that such a
restrictive provision in a lease of this nature and this duration would be
unexpected.
I turn to
subclause (xiv). Counsel submitted that it contained three provisions: the
covenant not to carry on any obnoxious trade etc; an obligation to use the
premises only for the ordinary purposes of the lessee’s business with the
further specific reference; and then the absolute bar against carrying on the
business of a timber merchant etc. I do not, however, agree with this splitting
up of the clause, since it needs, in my judgment, to be read as a whole
grammatically. I draw attention to the following points:
1 The clause opens with a covenant against
carrying on an obnoxious trade in general terms.
2 The word ‘but’ linguistically imports a
qualification on the opening words which prohibit the carrying on of any obnoxious
trade.
3 The word ‘only’ in the phrase ‘to use
only’ is of particular significance.
4 The words ‘to use the premises’
grammatically relate to and link to both the phrase beginning ‘for the ordinary
purposes of the Lessee’s business’ and also to the phrase beginning ‘under no
circumstances for the business of a timber merchant . . .’ etc.
5 The bar against carrying on a timber
merchant’s business is a qualification to the precedent ‘but to use’ provision
and linguistically relies on the same verb ‘to use’.
6 The covenant not to carry on any obnoxious
trade clearly binds an assignee of the term; so also, in my view, does the
emphatic ‘under no circumstances’ bar against a timber merchant’s business. It
would be curious if the first and third limbs of a single sentence bound an
assignee but the second limb, grammatically governed by the same verb as the
third limb and connected by the qualifying ‘but’ to the first limb, did not.
7 Following the words ‘but to use the
premises only’, there are two phrases introduced by the word ‘for’, which is
repeated. Thus ‘for the ordinary purposes of the Lessee’s business’ and ‘that
is for the manufacture and export of synthetic rubber and/or latices’. Thus the
user provision could run without disturbing the sense: ‘but to use the premises
only . . . for the manufacture and export of synthetic rubber’. If the second
phrase was a mere descriptive phrase, the more natural wording would have been
‘to use the premises only for the ordinary purposes of the Lessee’s business, that
is the manufacture of synthetic rubber and/or latices’.
8 What was demised was a commercial wharf
with buildings etc, and this accounts for the reference to manufacture and export
(my emphasis) and ‘timber importers‘ in the final prohibition. Why, I ask,
should a landlord wish to impose an obligation throughout the term not only as
to use of the land but to the purpose for which what is manufactured is taken
off the land? Could nothing be taken in
a coaster bound for Newcastle for use there or in a lorry to Birmingham for use
there?
With these
points made, I draw attention to clause 2(xvii). This overlaps the prohibition
which begins clause 2(xiv). (Clause 2(xiv) is not to carry on any trade of an
obnoxious or offensive character, and clause 2(xvii) is not to permit or suffer
anything which may be not only a nuisance but annoyance, damage or
inconvenience to the lessor or adjoining owners or occupiers.) Clause 2(xvii) contains an express limitation
on its scope which is protective of the tenant, namely that
The uses
hereby authorised shall not be deemed a breach of this covenant.
This must
clearly be a reference back to the words beginning ‘but to use’ in clause
2(xiv) and certainly to the specific reference to the synthetic rubber etc.
Contrary to my original view, I do not think that these protective words imply
that the use ‘for the manufacture and export of synthetic rubber and/or
latices’ must be one which continues throughout the term and they have effect
whenever and only if that particular business is carried on.
In my
judgment, clause 2(xvii) provides the key to the proper construction of clause
2(xiv), by the use of the word ‘authorised’ in the phrase ‘the uses hereby
authorised’. Just as in clause 2(xvii), the specific business is spelled out not
to be capable of constituting a breach of that covenant, so I consider in
clause 2(xiv) the same specific business of the tenant is spelled out as an
authorised business introduced by ‘but’ so as not to constitute any breach of
the covenant against obnoxious trades. So construed, the words introduced by
the words ‘but to use’ down to ‘and/or latices’ are permissive or protective,
not imposing a positive obligation to conduct that particular business.
It would be
natural to expect the original tenant to protect itself from the risk of its
own type of business activity being held to constitute a breach of common form
obligations not to carry on a trade of an obnoxious character (clause 2(xiv))
and not to permit anything to be done on the premises to be not only a nuisance
but even an annoyance or inconvenience to the lessor or any neighbour (clause
2(xvii)). The concurrence of purpose between the two protective provisions
explains why the user provision is in a clause which starts with the
no-obnoxious-trade provision and is expressed as a qualification upon it by the
use in the same sentence of the word ‘but’. Further, the protection of that
type of business throughout the term is clear in clause 2(xvii) and similarly
continues in clause 2(xiv), so that the permitted user in the linguistic middle
in this respect corresponds to the first and third limbs. Of course the words
‘but to use the premises only’ are a powerful pointer that a positive
obligation and not a mere permission was intended, but this does not, in my
view, gainsay the other features I have mentioned construing clause 2(xiv) as a
whole in the lease as a whole.
The
construction I have been led to adopt meets a clear understandable purpose as
between landlord and tenant, and in particular is consistent with the rent
review being at current market rental value, giving ‘market’ its full weight
and bearing in mind there is the right of assignment and that rent review may
take place between successor landlord and successor tenant.
The
construction I have adopted is one which relates to the type of business
carried on and permitted, not to by whom it is carried on. I do not think that
clause 2(xi) which refers both to the lessee’s adjoining property and to ‘the
efficient conduct of its business’ points otherwise, not least because
reinstatement of the boundary
clause 2(x).
I propose
accordingly, subject to counsel’s views, to make the following declaration.
That on the
true construction of clause 2(xiv) of the lease, the words
but to use
the premises only for the ordinary purposes of the Lessee’s business, that is
for the manufacture and export of synthetic rubber and/or latices
authorise user
of the demised premises during the term for the manufacture and export of
synthetic rubbers and/or latices whether by the defendant or any person or
company pursuant to any operation of clause 2(iv) (relating to assignment,
subletting or parting with possession), to the effect that user for the
manufacture and export of synthetic rubber and/or latices is not in law capable
of constituting a breach of the covenant in that clause not to carry on upon
the premises any trade business or occupation of an obnoxious or offensive
character.
As to Mr
Legrand’s certificate, I set that aside, but I accept Mr Furber’s submission
based on the observations of Harman J at first instance in Dean v Prince
[1953] Ch 590 at p 600, where he said that he did not see what jurisdiction the
court had to put itself in the place of the expert whom the parties had chosen.
I certainly respectfully agree, at least where, as in the present case, the
review provisions are still capable of being operated. In this connection I
draw attention to, but need not read, para 8 of the schedule. Even if I had
jurisdiction, however, I would not have exercised it as I am far from satisfied
that a mere mathematical exercise is involved or that Mr Legrand started from
the curious figure of £14,062.50 (of which £11,250 is 80 per cent). The relief
under para 3 of the summons will therefore end at ‘be set aside’.
As I have
said, rent at the increased rate determined by Mr Legrand was paid and accepted
for the year September 29 1984 to I think strictly September 28 1985, the rent
being payable quarterly in advance. Under para 10 of the review provision, any
reviewed increased rent is not payable until the lessee has been given notice
and that payment includes the material addition for back periods, the old rent
having been paid for the interim. The tenant has in fact paid and the landlord
has accepted without challenge the increased rent and back rent in reliance on
what I have determined to be an invalid determination and thus before any valid
determination. I accept Mr Furber’s submission that this is a detriment to the
tenant and that on the principle in the High Trees House case* the
landlord is estopped from seeking retrospectively any further increased rent
for the period prior to its challenge to the validity of the determination of
Mr Legrand. Miss Jackson did not with any enthusiasm contend otherwise. I
propose accordingly to make the following further declaration:
That the
plaintiff is estopped from recovering from the defendant any increased rent for
the period September 29 1984 to September 28 1985 beyond that already paid and
accepted for that period.
*Editor’s
note: Central London Property Trust Ltd v High Trees House Ltd
[1947] KB 130
