Landlord and Tenant Act 1954, Part II — Appeal by tenants against county court judge’s decision on an application for a new tenancy of premises for the motor trade — Landlords did not oppose a grant of a new tenancy — Judge ordered a five years’ lease with an option to the landlord to break at three years, which meant a break about two years after the county court hearing — Break clause was intended to enable landlords to redevelop the property let to the tenants in conjunction with other property of the landlords — The work of redevelopment was substantial — It was feasible to carry it out with the tenants in occupation, but at a greater cost and more slowly — The tenants desired a reasonably long lease as their Toyota franchise required that they should retain showrooms near to premises which they had purchased and equipped as a workshop — Having weighed all the considerations the judge decided that the best solution was the grant of a five years’ lease with an option to break as mentioned above — Held that it could not be said that the judge had erred in law in taking into account any matter which he should not have taken into account or in failing to take into account any matter which he should have taken into account — Appeal dismissed
As explained by
Waller LJ, these were in form two appeals, but the main appeal was against the
decision of Judge White at Wandsworth County Court granting a tenancy limited
to five years with a break at three years to the appellants, Amika Motors Ltd.
The respondents were the landlords, Colebrook Holdings Ltd. The premises in
question were at 136 and 142a Tooting High Street, London SW17.
Alan Rawley QC
and J Buxton (instructed by Peter Nash of Guildford) appeared on behalf of the
appellants; Derek Wood QC and K Lewison (instructed by Victor Mishcon & Co)
represented the respondents.
Giving
judgment, WALLER LJ said: These are, in form, two appeals from Judge White at
the Wandsworth County Court — the main hearing having been on July 7 1980. The
main appeal is against his decision in an application under Part II of the
Landlord and Tenant Act 1954 for the grant of a new tenancy of business
premises, when he ordered a five-year lease with a break at three years —
effectively a break two years after the hearing.
The second
appeal is against the refusal of the judge to order a new trial on the grounds
of fresh evidence. Since the second hearing before the judge, further evidence
has come to light and we have heard this appeal on the assumption that this
additional fresh evidence was admitted.
The premises
with which the application is concerned are 136 and 142a Tooting High Street.
The applicant company carry on business there as motor dealers at the premises,
which consist of showrooms fronted by an open forecourt area; a 14-year lease
of the premises which they held expired on August 29 1979, and prior to this
day, an effective notice to terminate the tenancy had been served by their
landlords under section 25 of the 1954 Act. The original lease, to Balham Autos
Ltd, was from August 29 1965 for 14 years, and it was of part of a block
consisting of the address which I have just given.
In 1973 the
appellants came into possession as subtenants of Balham Autos Ltd. On July 10
1978 they took the assignment of the original lease, paying £2,000 for it.
Therefore in September 1978 they had been in possession of those premises for
something in the order of six years.
On September
15 1978 the landlords served a notice under section 25 of the Landlord and
Tenant Act 1954 terminating the tenancy on August 29 1979. That notice stated
in terms that the landlord would not oppose the grant of a new tenancy. The
tenants, the present appellants, served a counternotice on October 5 of the
same year claiming a tenancy.
In 1976 the
tenants, who as I say were motor-car dealers (and the premises which they
occupied were motor-car showrooms), obtained a franchise for Toyota motor cars.
We were told that when there is a franchise of that sort it is necessary to have
the use of premises for service facilities, and for a time the appellants had
premises some distance away which were not very satisfactory. But in 1978 the
premises next door to the premises in question in this case became available,
and the tenants (the appellants) at first were negotiating for a lease, but
then it became possible to purchase those premises, and they did purchase them,
at a price of some £80,000. Completion took place on September 4 1978 — that is
just before the notice was served under the Landlord and Tenant Act. It was 11
days later that they received the notice, which of course said that there was
no objection to a new lease.
On November 27
1978, an originating application was issued by the tenants and thereafter there
were negotiations between the tenants and the landlords. In the course of those
negotiations, the landlords disclosed that they intended to apply, at some
stage, to reconstruct or improve the premises but, at that stage, nothing was
said about a break clause.
The construction
of the premises next door, with workshop, was commenced in mid-1979 and then,
on August 17 1979, the landlords made the suggestion — and the court knows
nothing about the discussions apart from this — that any new lease should have
a break clause entitling the landlords to redevelop, and that clause to be a
break clause at August 1982. By that time the work of building including the
workshop was in progress and could not really be interrupted, and in due course
it was finished in April 1980 at a cost of some £40,000 plus equipment
amounting to some £20,000 and an office costing £15,000. There was also work
which the tenants had done to the premises in issue in this appeal. The total
expenditure was something over £160,000 of which £80,000 was the cost of the
land next door.
The break
suggestion had been made by the landlords because of the possibility of getting
possession of one commercial part of the building which was not let to the
tenant. That had been demised to a doctor. A notice under section 25 was served
at the same time on the doctor. He asserted that it had not been served, and
some time in the summer — that is to say some time before August 1979 —
litigation to establish that assertion failed, and so the landlords had vacant
possession of that part of the building. They applied
the building of a one-storey showroom over the forecourt in front. There was a
forecourt in front of the building for a distance of about 12 ft which was used
by the tenant for the display of cars as part of his business.
In June 1980
the solicitors for the landlords for the first time suggested a one-year
tenancy — that was a few days before the hearing before the judge — enclosing
the proposals for development of the whole of the premises, including that
which had formerly been occupied by the doctor, and the hearing took place some
12 days later.
Behind the
forecourt on which the tenants had cars displayed was a block of 26 flats which
had been erected and which were becoming empty. There were, at that time, only
six tenants left, and we were told in the course of the hearing before us that
now there were only four. The landlords wished to redevelop the front, as I
have indicated, and that was taking in the part which was formerly occupied by
the doctor, and closing the entrance in the middle.
The tenants’
premises consisted of three shops on one side of the central entrance and two
on the other; the doctor’s premises making up the third, and the proposal was
to close the entrance to the flats, which was at the front, and make a new
entrance at the back. This, together with the improvements to the showrooms,
was thought to improve the quality of the whole building and would enable the
flats to be redeveloped and improved and generally to improve the whole of that
neighbourhood. The tenants were in favour of the premises being redeveloped and
expressed their willingness to take a tenancy of the whole of the premises —
that is including the former consulting room.
The tenants’
case at the hearing was that the consequences of terminating the tenancy would
be very serious indeed. Their Toyota franchise depended on their being in the
same neighbourhood and the workshop had to be reasonably close to the
showrooms. A substantial proportion of the money invested in the workshop
would, said the tenants, probably be lost because it was unlikely that they
would get other premises from which to sell their cars; they would then have to
sell the workshop premises and the money spent on the additional equipment
would be wasted.
The tenants
were prepared to have the work done, which the landlords wished to do, while
they remained in occupation.
The judge, in
the course of his judgment, said this:
The project
does require substantial works to be carried out to the premises. All the
partition walls had to be taken down, the present ceilings have to be removed,
the internal floors will have to be taken up, the forecourt must be broken up,
there will have to be substantial alterations to the services and a single
storey extension covering the forecourt has to be built on to the existing
structure. In all, with free access to the whole of the ground floor, it is
estimated that between six and nine months’ work will be necessary to complete
the scheme. It would be possible for the work to be done with the tenants
remaining in occupation of part. A scheme could be devised whereby work was
done to one-half of the premises at a time the applicant company occupied the
other half. Such a plan is feasible but would add up to 25 per cent to the cost
and two to three months to the time required. In any event, however, the
redevelopment of the ground floor not only involves substantial work to the
tenants’ holding but of necessity will involve the addition to it of the area
which at present forms the shop unit No 134. If the work was to be carried out,
therefore, I have no power to give the tenant rights over that additional area
by any term, such as an option clause, I might wish to incorporate in the new
lease of the existing premises in these proceedings.
The judge then
set out the landlords’ in this way. He said:
It was set
out in a solicitor’s open letter to the applicant just over a week before the
hearing. It is contended that as the landlords now have the intention and the
ability to carry out a scheme which would fall within section 30(1)(f) of the
Act a reasonable term in all the circumstances would be five years. It would
run from the expiration of the last term but would give the landlord an option
to terminate the lease for the purpose of reconstruction by giving not less
than six months’ notice, such notice not to expire before June 24 1981. The
remainder of the terms and conditions would be the same save for the rent which
would reflect all the terms including the break clause. In other words, having
to concede that because of their section 25 notice a new lease cannot in these
proceedings be opposed under section 30(1)(f), the landlords asked the court, nevertheless,
not to thwart the reconstruction project by granting more than what would, with
the break clause, effectively be a 12-month term.
The judge then
set out the tenants’ case in this way. He said the tenant:
. . . is
prepared to put himself out to allow them to go ahead. He is prepared to allow
the landlords part access and to pay a higher rent — in other words, to be
generally accommodating to allow a scheme which he thinks is a good one to be
completed provided his company’s position at the site can be protected. If the
landlords are not prepared at this stage to offer him an option on a new
tenancy over the enlarged and improved showrooms and if the court has not the
power to order such an option as a term of the next lease he in effect is asking
for a 14-year term which would either protect the applicant’s tenure of the
existing premises or at least give him a better bargaining position with the
landlords if agreement could be reached to enable the project to be carried
out.
The judge then
made this finding:
There is no
doubt that if the applicant company does not obtain a new long-term lease it
will be in grave difficulties. Having invested heavily in the workshop premises
on the other side of Effort Street, the purpose of which is to supplement the
car-dealing business, it may lose that main business if the showroom is no
longer available. A major disruption of this kind may not only destroy the
goodwill but could also lead to a withdrawal of the valuable Toyota agency
rights. The service station has been valued now at £132,000 so that if it had
to be sold the applicant company would suffer a loss of recently invested
capital. Their total outlay so far has been of the order of £166,000.
The learned
judge then discussed the problem of the tenants having been misled. He held
that the misleading was an innocent misleading on the part of the landlords,
and concluded in this way:
There is
force in the point that bearing in mind the importance of the project to the
applicant company they took a risk in proceeding with it before the terms of
the new lease for the showroom premises had finally been settled. At the same
time the landlords’ section 25 notice and their general approach in the initial
negotiations probably did — be it unwittingly — induce in the tenant before
August 1979 a sense of security as to the length of the new lease that was
likely to be agreed or, on the basis of the landlords’ intentions as then known
to the tenant, likely to be ordered by the court.
The learned
judge then said:
It is this
factor which I have found the most difficult to balance fairly in all the
circumstances of the case. It arises not from any deliberate deception action
on the part of the landlords or from any gross foolhardiness on the part of the
tenant. It is the result of the sequence of events from the service of the
section 25 notice onwards.
The learned
judge then said:
Further, I
find that the landlords do now intend to carry it through. I am also satisfied
that the project could not reasonably be carried out until the tenant’s rights
in the existing holding have come to an end. The landlords reasonably need
access to the whole of the premises and an entirely new holding will be created
over which I have no power to create rights in this tenant.
He then went
on to set out very fully all the difficulties, and came to his final conclusion
in this way:
In my
judgment reasonable protection in all the circumstances will be given to both
sides by the granting of a five-year lease with an option for the landlords to
terminate the lease for the purpose of reconstruction by giving not less than
six months’ notice, such notice not to expire before three years from the date
of the commencement of the lease.
Section 30(1)
sets out the grounds on which a landlord may oppose an application for a new
tenancy; none of those grounds specifically arise in the present case because
the landlords had said that they were prepared to grant a new tenancy; but the
argument before this court has centred round section 30(1)(f), which says this:
The grounds
on which a landlord may oppose an application under subsection (1) of section
24 of this Act are such of the following grounds as may be stated in the
landlord’s notice under section 25 of this Act, or, as the case may be, under
subsection (6) of section 26 thereof, that is to say: . . . (f) that on the
termination of the current tenancy the landlord intends to demolish or
reconstruct the premises comprised in the holding or a substantial part of
those premises or to carry out substantial work of construction on the holding
or part therof and that he could not reasonably do so without obtaining
possession of the holding.
I quoted that
subsection because the landlords submit that the point will arise very shortly
when that subsection is precisely applied to the circumstances in this case.
I should also
mention the second hearing before the learned judge which was this, that in
1980 the tenants applied to the learned judge for a new trial on the ground
that it had come to their notice that the forecourt probably had been dedicated
to the public and that that fact (if known) would have led the judge to a
different conclusion. In a careful judgment, the learned judge refused to order
a new trial and said that even if the evidence had been reliable — and he did
not think it was reliable — it would not, in his opinion, have altered his
original view. Since that date, further information has come to light
establishing, much more strongly, that such dedication had taken place, and we
have taken that additional evidence into account in our consideration of this
appeal.
Mr Rawley, on
behalf of the tenants, drew our attention to section 31A of the Landlord and
Tenant Act 1954, a new section which was inserted by the Law of Property Act
1969, and that section reads:
Where the
landlord opposes an application under section 24(1) of this Act on the ground
specified in paragraph (f) of section 30(1) of this Act the court shall not
hold that the landlord could not reasonably carry out the demolition,
reconstruction or work of construction intended without obtaining possession of
the holding if — (a) the tenant agrees to the inclusion in the terms of the new
tenancy of terms giving the landlord access and other facilities for carrying
out the work intended and, given that access and those facilities, the landlord
could reasonably carry out the work without obtaining possession of the holding
and without interfering to a substantial extent or for a substantial time with
the use of the holding for the purposes of the business carried on by the
tenant: or (b) the tenant is willing to accept a tenancy of an economically
separable part of the holding and either paragraph (a) of this section is
satisfied with respect to that part or possession of the remainder of the holding
would be reasonably sufficient to enable the landlord to carry out the intended
work . . .
Mr Rawley
submitted that that section showed that the policy of the Act, as amended, was
concerned to protect the tenant where it is possible to do the work without
actually dispossessing the tenant, and submitted that although this is not a
section 30(1)(f) case because the landlord was prepared to grant a lease,
nevertheless the underlying policy must be followed.
He submitted
that the learned judge did not exercise his discretion properly for three
reasons. Firstly, because of his finding that it was feasible to do the work
while the tenants remained in possession, the learned judge was wrong to say it
was not reasonable; secondly, having found that the tenant would be in grave
difficulties by reason of this break, did not reflect those grave difficulties
in his decision; and thirdly, as an alternative matter, that the order made by
the learned judge was so wrong that he must have ignored relevant factors.
It was also
submitted by Mr Rawley that the fact that a stopping-up order would be required
was a further ground for not giving an early break.
The effect of
the additional evidence which was put in before the learned judge, and the
further additional evidence which was put in before us, made it highly probable
that the landlords would have to obtain a stopping-up notice before they could
proceed with the work, and Mr Rawley submitted that that was going to take some
time and therefore a break clause should not be put where it was.
Thirdly, as a
broad submission, Mr Rawley submitted that under section 35 of the Landlord and
Tenant Act it was possible to cover all the difficulties that were raised by
the problems of access for work and by the need to include the former doctor’s
surgery in the building, by suitable terms in a lease which properly could be
made, he submitted, under section 35.
Mr Wood,
appearing for the landlords, submitted that the learned judge, when one looked
at his judgment, had clearly considered everything relevant and had arrived at
a conclusion and reminded the court that this court could interfere only if the
learned judge was wrong in law in exercising his discretion. Mr Wood submitted
that he was not; he submitted that even if the court did reconsider the learned
judge’s discretion, the court would have come to a similar conclusion.
Mr Wood
emphasised that when the time of the break came all the matters raised by the
appellants could be reconsidered.
The learned
judge’s judgment was a very full and careful judgment. He set out fully all the
relevant facts; in particular, as I have already mentioned, he explained in
detail the possible consequences to the tenant. The fact that the learned judge
found it was feasible to do the work while the tenants remained in possession
does not necessarily mean that it was reasonable — particularly, as the learned
judge found in the passage which I have already quoted, that the landlords
needed access to the whole building.
Again, the fact
that the learned judge set out in full the grave difficulties in which the
tenants would be is, in itself, an indication that he had them in mind. In
order to interfere with the discretion of a judge it would be necessary to find
that he was wrong in law, in that he failed to take into account matters which
he should have taken into account, or he took into account matters which should
not have been considered (see Ormrod LJ in London & Provincial Millinery
Stores Ltd v Barclays Bank Ltd [1962] 1 WLR 510).
I do not think
it is possible to say on either of the matters which I have mentioned that the
learned judge was wrong in law. Furthermore, I do not think that the learned
judge’s decision was so manifestly wrong that it must have been based on an
error of law. He was faced with a very difficult problem, considering on the
one hand the great hardships which might arise for the tenants, and on the
other hand the underlying policy of the Act not to restrict landlords in
redeveloping their property. Accordingly, I am satisfied that the judge was not
in error in any of those respects.
Furthermore,
in my judgment the learned judge was right to come to the conclusion that the
fresh evidence would not have affected his conclusion, and the further evidence
which has been put in before us does not make any material difference. I say
this, in spite of the fact that I have considerable sympathy with the tenants’
case, because in Reohorne v Barry Corporation [1956] 1 WLR 845
and the observations of Ormrod LJ in the London & Provincial Millinery
Stores Ltd v Barclays Bank Ltd case, the importance of not
preventing redevelopment is emphasised. This case is different on the facts, in
that the work to the premises let to the tenants could be done, but there would
be considerable difficulties arising from the landlords’ wish to develop the
whole building, including that part which was formerly the doctor’s surgery.
When the whole building is developed the market value of the whole would be
increased, although the tenants’ holding does not include the surgery and the
tenants would be willing to take a lease of the former surgery; the landlords,
on the other hand, wish to have possession for redevelopment. It is clear from
the judgment of the learned judge that he had those difficulties in mind in
coming to the conclusion which he did. All those problems will arise for
decision again at the time of the break.
In my
judgment, there was no error of law in the judge’s exercising of his
discretion. He considered all the relevant facts; he did not take into
consideration anything which he should not have considered; he clearly gave the
matter the most careful consideration both at the first hearing and then on the
later application for a new trial, and I would dismiss this appeal.
EVELEIGH LJ
(whose judgment was read by Dunn LJ), agreeing, said: I am quite unable to say
that the learned judge wrongly exercised his discretion in determining the
length of the lease. He gave a very careful judgment from which it appears that
he was aware of the facts related in the grounds of appeal.
It is said
that he failed to take them into account sufficiently, or at all. I, however,
am unable to isolate any particular consideration or groups of considerations
which have such overwhelming force in favour of a longer lease so as to say
that the judge must have failed to take any of them into account.
In so far as
the fresh evidence is concerned, the learned judge has made it clear that it
would not have altered his decision. In view of the attitude of the local
authorities, I, too, do not think that the highway problem can be said to
frustrate the landlords’ intentions to develop, for the intention is not to
develop forthwith but in the future when the highway problem may well be
solved.
DUNN LJ,
expressing agreement with the judgment of Waller LJ, said: Once the judge
accepted that the landlords had a bonafide
in Tooting High Street, including No 134, the doctor’s surgery, and the area of
common entrance to Marian Court, both of which were outside the tenants’
holding, then I cannot say that the judge was wrong in principle in refusing to
grant a long lease. Reohorne v Barry Corporation [1956] 1 WLR
845, London & Provincial Millinery Stores v Barclays Bank Ltd
[1962] 1 WLR 510 and Adams v Green [1978] 247 EG 49, [1978] 2
EGLR 46, which were cases relied on by the learned judge, show that where a
landlord has a bona fide intention of developing his land, even if that
intention is not capable of immediate realisation, the terms of a new tenancy
should not impede it.
The learned
judge having properly directed himself as to the law, it is impossible in my
view to say that in the exercise of his discretion under section 33 of the
Landlord and Tenant Act 1954 he took into account any matter that he should not
have taken into account or failed to take into account any matter which he
should have taken into account. He certainly took into account the hardship
likely to be caused to the tenants if they were obliged to give up possession.
Strictly
speaking, the provisions of section 31A of the Act did not arise at the trial
because no notice had been given under section 30(1)(f) but the judge
considered, as a matter of fact, whether the work to the tenants’ holding could
be carried out without the landlords obtaining possession. He came to the
conclusion that, though feasible, it would not be reasonable to require the
landlords to do the work with the tenants still in possession.
In spite of
the able argument of Mr Rawley as to the terms of the new tenancy which would
permit that, I am not persuaded that the learned judge was wrong in his
conclusion.
Mr Rawley’s
terms would themselves attract a break clause, and the situation would then be
the same as it is under the terms of the new lease ordered by the learned judge
— that is to say, the landlords would still have to establish the necessary
facts, under section 30(1)(f), before they could obtain possession. If there
was any stopping-up order in relation to the forecourt, it is probable on the
evidence before this court that the landlords would be unable to gain access to
the forecourt, and in that case the application for possession would be likely
to fail if it was made at the time of the break.
Although the
learned judge might have given more weight to the hardship likely to be
suffered by the tenants, and might have striven to improve their bargaining
position for a new lease for the whole of the frontage, the weight to be given
to those considerations was a matter for him, and his solution seems to me to
be in conformity with the scheme of the Act as a whole. I am doubtful how far
the Act envisages the grant of a new lease which would, in effect, give the
tenant an option for the grant of a tenancy of an enlarged holding, which was,
in my view, what Mr Rawley’s proposed new terms amounted to.
For those
reasons, and for the reasons given by my Lords, I, too, would dismiss this
appeal.
The appeal
was dismissed with costs. Leave to appeal to the House of Lords was refused.
