Landlord and tenant — Tenant holding over — Whether tenant a tenant at will or trespasser — Whether landlords entitled to current rental value or rents under previous lease for period of holding over
By a lease
dated January 3 1972 the plaintiff landlords let business premises for a term
expiring on September 29 1991 at a rent, following a review, of £27,500 pa for
the last seven years of the term. Although the tenant served a notice under
section 26 of the Landlord and Tenant Act 1954 requesting a new lease, it
failed to make an application to the court within the time-limit. On July 5
1991 the defendant acquired the residue of the term and initially sought to agree
terms for a new lease. When terms could not be agreed, the defendant gave up
possession on September 22 1992 and the premises were let at a rent of £50,000
pa. The landlords claimed that for the period of holding over the defendant was
a trespasser and liable to pay damages at a rate of £50,000 pa; the defendant
contended that it was a tenant at will and liable to pay a rent at the rate of
the rent under the original lease.
disagreement as to the amount of the rent under the tenancy at will and, in the
absence of agreement, the court must determine the rent having regard to the
principle of ordinary market value. The proper approach is to consider what a
holding-over tenant carrying on its business would pay for a further year at
the end of its tenancy, on the basis that it would be its last year, in order
to evaluate the asset of the tenancy the tenant actually got. In those
circumstances a holding-over tenant ought to consider: (1) what the premises
would let for in the market; (2) the fact that it is paying rent in respect of
a yearly tenancy; and (3) that if it wants to carry on business for that
period, it realistically has nowhere else to go. Making appropriate adjustments
to the market rent of £50,000 for a full repairing and insuring lease, the
appropriate annual figure was £43,560 and £42,724.60 for the actual period of
holding over.
The following
cases are referred to in this report.
Elgar v Watson (1842) Car&M 495
Javad v Aqil [1991] 1 WLR 1007; [1991] 1 All ER 243; (1991) 61
P&CR 164; [1990] 2 EGLR 82; [1990] 41 EG 61
Ministry
of Defence v Ashman (1993) 66 P&CR 195;
[1993] 2 EGLR 102; [1993] 40 EG 144
Swordheath
Properties Ltd v Tabet [1979] 1 WLR 285;
[1979] 1 All ER 240; (1978) 37 P&CR 327; [1979] 1 EGLR 58; [1979] EGD 330;
249 EG 439, CA
Thetford,
Mayor and Corporation of v Tyler (1845) 8 QB
95
Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538
Wrotham
Park Estate Co Ltd v Parkside Homes Ltd [1974]
1 WLR 798; [1974] 2 All ER 321; (1973) 27 P&CR 296
This was the
hearing of a claim for damages, alternatively arrears of rent, by the
plaintiffs, Dean and Chapter of the Cathedral and Metropolitan Church of Christ
Canterbury, against the defendant, Whitbread plc.
Anthony
Radevsky (instructed by Lee Bolton & Lee) appeared for the plaintiffs;
Louis Schaffer (instructed by Field Fisher Waterhouse) represented the
defendant.
Giving
judgment, Judge Roger Cooke
said: The issue before me is the appropriate sum that the defendant, a tenant
of business premises who held over for just under a year after the expiry of
its lease, ought to pay to its landlords in respect of such holding over.
It divides
really into two. (1) Whether as a matter of mixed law and fact the landlords
are, in fact, bound to accept only the rent reserved by the former lease or, if
the answer to that first question is ‘no’, (2) what, as a matter of valuation,
should such payment be?
It is
necessary first to state some facts. The plaintiff landlords own a number of
properties in Canterbury near the cathedral, including the subject property,
which is known as Tudor Tavern, 11, 11A and 12 Burgate. This consists of
restaurant premises with a bar and the usual ancillary premises together with a
manager’s flat over it.
On January 3
1972 the landlords let it for a term of 21 years from the Michaelmas Quarter
Day of 1970 to Berni Inns Ltd, the well known restaurant chain. The lease,
therefore, would come to an end on the Michaelmas Quarter Day of 1991.
The original
rent under the lease was £1,500 pa, but, as a result of various reviews, the
rent for the last seven years had risen to the annual figure of £27,500, which
is at what it stood when the lease came to an end.
No doubt, as a
result of the acquisition by them of the Berni operation, the lease was
assigned on April 2 1987 to MER Properties, part of Grand Metropolitan Group.
Ultimately,
the tenant, as a result of some reorganisation, with which I am not concerned,
became part of Grand Metropolitan itself and it was they who in the last year
of the lease, on October 10 1990, served a notice under section 26 of the
Landlord and Tenant Act 1954 seeking a new tenancy beginning on September 29
1991. The landlords served no counter-notice and the time for an application to
the court expired on February 10 1991. By some mischance the advisers of Grand
Metropolitan failed to make any such application, so that after February 10 the
tenant lost its statutory rights. This did not greatly matter because the
attitude of the landlords then and thereafter was that they were quite
agreeable to granting a new tenancy if terms could be agreed. Nevertheless,
everything henceforth proceeded against the background that the tenant had no
rights of occupation after the expiry of the lease, save at the will of the
landlords.
Meanwhile the
defendant to this action, Whitbread plc, the well known brewery chain, had
acquired the Berni operation from Grand Metropolitan and were in the process of
reorganising it. It would seem that Tudor Tavern fell into that part of the
Berni operation whose future in the hands of its new owners was uncertain. That
is as to whether it would be retained, possibly as a new and revamped Berni
Inn, or disposed of. The difficulty facing Whitbread, of course, was that, save
for selling goodwill, inventory and stock to an incoming tenant, there was
little else to sell unless they took on a new lease first. At all events, what
was left of the lease was assigned to Whitbread on July 5 1991.
There then
followed protracted and often rather slow negotiations between the plaintiffs
and Whitbread. Many of these negotiations were conducted in correspondence
which bore the well known rubric ‘without prejudice’, but I have by the
agreement of the parties been shown all of it, which, in any event, everybody
agrees would not be privileged as regards the issues in this action, where at
least one critical matter is precisely what was or was not the common ground
between the parties after the lease expired.
I shall need
later on to come back to the negotiations in rather more detail. For the
present a short summary will suffice.
(a) From July
8, when the plaintiffs first quoted a rent for a new lease, to January 1992, a
period overlapping the expiry of the lease on the September quarter day of 1991,
the parties exchanged proposals for the rent. They were and remained quite a
distance apart.
(b) On January
9 1992 there was a meeting at which for the first time the tenant made it clear
that it was no longer interested in carrying on the business, but were prepared
to give back possession. Terms were discussed and from now on there were
periodic exchanges of what would be suitable figures for the defendant to pay
in respect of its holding over after the expiry of the lease.
(c) Between
January and April 1992 very little happened, but in April a new player appeared
on the scene, Letherby & Christopher, a substantial and established
concern, who were seeking to diversify, and they expressed interest.
(d) In May
there was a change of personnel at the defendant. Mr Wormald, who previously
had conducted the negotiations, left, handing over to Mr Ridgeway, with whom
the matter stayed until the end. So far as anybody is able to say, Mr Wormald
kept no file notes, so there is little internal evidence of the defendant’s
activities prior to Mr Ridgeway taking over. Mr Ridgeway’s records were good
and clear, but were only and, regrettably, disclosed on the second day of the
trial. Mr Ridgeway gave evidence before me that the only evidence on the
defendant’s side of what happened before he took over were the inter partes documents.
(e) After the
entry on the scene of Letherby & Christopher, dealings between the parties
took this form. As well as Letherby & Christopher, there were other
interested people. There was a Mr Zavery. There was also the ultimately
successful bidder, a Miss Angela Long, a local business woman who already owned
two restaurants in the city. The defendant, although by now it was plain that
it did not want to stay in the long term, remained in occupation and were
especially concerned (and this was abundantly clear on the evidence) to sell
the goodwill, inventory and so on to an incoming tenant, if it could, and also
— and this in the evidence loomed large — to be able to pass on their staff on
the basis of the transfer of an undertaking.
(f) By the end
of July the plaintiffs were feeling that matters should be brought to a head.
On the July 29 they told the defendant to vacate on August 17. On August 10 the
defendant expressed unwillingness, wishing to continue so as to transfer staff.
On August 6 Miss Long had offered £50,000. She was prepared, indeed, to go to
£55,000 pa and, in the event, her offer was accepted. There was a somewhat
grotesque bit of tactics by the defendant in which it told its staff to turn up
on the morning of completion of the lease to Miss Long, so as, I suppose, in
some way to force a ‘transfer of undertaking’ liability upon her. However, her
solicitors were far too astute for that.
In the event,
the defendant sold the inventory to Miss Long, but otherwise they simply gave
possession and walked away on September 22 without having negotiated anything
else with Miss Long, who thereupon enters as the new tenant at a rent of
£50,000 pa.
For the sake
of completeness at this stage, I will refer to the terms of the letting to Miss
Long. The old lease had been internal repair only, but the landlords intended
to let to her on a full repairing basis. The premises were externally not in
the best of repair, which had up to
the landlords would be responsible for putting the exterior in repair at the
start of the lease. Miss Long wanted to proceed quickly and so it was agreed
that the dilapidations would be valued at £25,000. Miss Long would do the work
and the landlords would pay for it. Payment was arranged by deducting half the
first year’s rent, making that rent £25,000 instead of £50,000.
Mr Anthony
Miller [frics], the defendant’s
expert, was at first disposed to think that this concessionary rent period had
an effect on valuation, but, when he had considered all the facts in the
witness box, he accepted, rightly to my mind, that it did not. It can therefore
now be left on one side.
The defendant
therefore remained in occupation of the premises for just under a year. It is
common ground that it should pay for it. The landlords say that it should pay
what in the event the new tenant paid, that is at the rate of £50,000 or,
alternatively, at some rate that is based on £50,000 with appropriate
discounts.
The defendant
seeks by a number of routes to say that all that it should pay is the rent
reserved under the old lease, that is at the rate of £27,500.
The first
group of issues with which I am concerned is these:
(1) What is
the nature of the defendant’s occupation? Is it tenant at will or trespasser?
(2) If tenant
at will, are the landlords bound in law to accept the old rent?
(3) If tenant
at will and the landlords are not bound to accept the old rent, is the basis of
liability any different from that of the trespasser?
I consider
these in turn.
(1) What is the nature of the
defendant’s occupation?
Factually,
there is little dispute. On the termination of the lease, the defendant held
over and did not go out of occupation. It paid no more rent at all, apparently
as a result of an internal instruction. It is obvious that at least until very
near the end, when an informal notice to quit was served, as I have described,
the landlords took no objection at all to the tenant’s continued presence and,
indeed, once it was clear that the tenant was not going to take a new tenancy,
negotiated with the tenant on the common basis that the tenant was going to
agree to pay something for its continued occupation. To my mind, this clearly
represents at least tacit consent to the tenant’s continued occupation. I do
not, therefore, think that the tenant can properly be considered a trespasser.
A tenancy at
will (see Woodfall’s Law of Landlord and Tenant, para 6.062 and
succeeding paras) is where land is let by a landlord to tenant to hold at the
will of the landlord, so that either party may determine at any time. It is
clear from Woodfall (the same reference) that the courts are less minded
to find a tenancy at will than once they were, but among the surviving
circumstances where one may be found is where a tenant is allowed to continue
in possession at the expiry of his tenancy, especially where he holds over
while seeking to negotiate a new lease.
Mr Louis
Schaffer, for the tenant, cited to me the recent authority of Javad v Aqil
[1991] 1 WLR 1007*, but I do not think, with respect, that authority is of
much assistance to me here. It is concerned with whether a particular entry
linked to negotiations for a lease, coupled with payment of rent, was a tenancy
at will or a proper tenancy, not with the question of whether an interest is a
tenancy at will or something even less. The decision was, as Nicholls J there
said, rather artificial, because leave to amend to allege a licence in the alternative
had for good procedural reasons been refused. Mr Anthony Radevsky, for the
landlords, points out that in this case neither party appears to have regarded
the occupation as a tenancy at will and, further, within their negotiations as
to the amount to be paid, both parties spoke consistently of ‘mesne profits’,
a term, of course, inappropriate to a tenancy at will.
*Editor’s
note: Also reported at [1990] 2 EGLR 82.
Mr Radevsky
very frankly advanced neither point with much confidence and his diffidence was
well placed. As to his first point, I do not understand the issue to turn on
what the parties consciously call ‘the arrangement’ rather than the substance
of what the arrangement actually is.
As to the
second, it is, I think, the common experience of landlord and tenant
practitioners, especially those who practice regularly in the county court in
respect of residential tenancies that the expression ‘mesne profits’ is
frequently used loosely. So I think it was here.
I think that
the critical test is: (a) that this was a holding over for all practical
purposes except, arguably, rent, as if the old tenancy had continued, (b) that
it was, as I found, wholly consensual, and (c) the initial purpose was to
negotiate terms for a new tenancy. When that purpose was exhausted nothing was
done by either party to change the nature of the arrangement.
In my
judgment, all of these points point strongly in the direction of a tenancy at
will and, as I have already said, against trespass. I hold it to be a tenancy
at will.
I come,
therefore, to question (2).
(2) Are the circumstances
such, this being a tenancy at will, to force the landlords to accept the
contractual rent under the old tenancy?
The basic rule
is (again see Woodfall at para 6.062) that where there is a tenancy at
will at a fixed rent, that rent may be distrained, but where there is no fixed
rent an action for use and occupation may be maintained.
At first sight
the answer seems simple enough, no rent was agreed, but there is more to it,
because it is clear on authority that there are circumstances where in a
holding-over situation such as this, the rent may be presumed to be the rent
under the old tenancy and, therefore, it follows a fixed rent.
There are two
old cases. The earlier is Elgar v Watson (1842) reported in the
rare volume of Car&M 495. What is actually reported is an extract from
Coleridge J’s summing up, the case having been tried by jury on assize. The
judge said this of the holding over tenant:
… it was
assumed … that as nothing was said the price was to go on as before. There is
no rule of law to that effect. The law, in these cases, exists only by the
construction of the contract; generally speaking, in the absence of any new
contract, the old continues; but if here, the facts and circumstances exclude
the former agreement from attaching to the subsequent holding, I think the
terms of a new tenancy remain open, and then, no new arrangement having been
made, it is for the jury to say what was a fair sum to be paid under that new
holding.
The jury then
brought in an appropriate verdict for the plaintiff following that direction.
The second
authority, Mayor and Corporation of Thetford v Tyler (I will
refer to it as the Thetford case) (1845) 8 QB 95, was decided a bare
three years later in 1845. It was a decision of the Court of Queen’s Bench on
effectively, in the procedure of those days, appeal from Mr Baron Alderson and
the jury. The facts are complicated, but are most easily summarised from the
headnote as follows: the landlord agreed with a new party for that party to
enter on expiry of the tenant’s term. The new party was then let in before the
term expired with everyone’s consent and paid the existing rent to the end of
the original term. There was then a dispute about what the new agreement ought
to be. It was abandoned, but the new tenant continued in occupation.
Elgar v Watson was cited in argument and, indeed, it does appear
that Coleridge J, who decided it, was a member of the court, but was absent
through illness when the judgments were delivered.
The judgments,
after the fashion of those days, are brief, but clear enough. Lord Denman CJ
said at p100:
… the case
rests upon a principle … that he who holds my premises without an express
bargain agrees to pay what the jury may find the occupation to be worth. Where
a party, having held for a term at a certain rent, continues to occupy after
the expiration of his term, it is presumed, if there be no evidence to the
contrary, that he holds at the former rent. But in the present case there is so
clear an indication of an intent to alter the terms that that principle cannot
apply.
Wightman J,
the only other judge of the three present to give a reasoned judgment, said at
p101:
When a party
is allowed to hold after the expiration of a tenancy by agreement, the terms on
which he continues to occupy are a matter of evidence rather than of law. If
there is nothing to show a different understanding, he will be considered to
hold on the former terms; but here we have evidence to the contrary. The terms
of the future holding were stated by an agreement anterior to the defendant’s
possession; He was to come in on those terms at the expiration of the tenancy
then subsisting … The usual inference from the original terms of the holding
did not arise …
On the basis
of these authorities, really I think more on Wightman J’s judgment than
anything else, Mr Schaffer submits for the defendants that, unless there is
agreement to the contrary, the old rent applies. The difficulty with the
argument put that way is that, of course, on both of the authorities there was
no enforceable agreement as to the new rent and the matter was properly left to
the jury to fix it. Driven from that position, Mr Schaffer contends that there
must at least be some sort of common ground or understanding about what a new
rent is to be. The argument has at least some superficial foundation in
Wightman J’s judgment, because there he refers to what were the facts in that
case (that is that there was, indeed, agreement, in the end neither pursued nor
enforced, as to what the tenant’s new rent should be).
I fully accept
that, if one reaches the sort of situation on the facts as was found in the Thetford
case, then it would be impossible to enforce the old rent. But it does not
follow from that it would only be possible, as it were, to leave the rent to
the jury if the facts were as extreme as that. Principle apart, there are good
practical reasons why the principle should not extend that far. If Mr Schaffer
was right, then, where a tenant holds over while negotiating a new tenancy, he
can by refusing to agree even in principle a new rent for the period prior to
the execution of a new lease, force the landlord either to accept the old rent
until the new lease is executed or to break off negotiations and throw him out.
I do not believe, for my part, such a strange result represents the law.
In my
judgment, a careful analysis of the authorities reveals a somewhat different
principle to that argued for by Mr Schaffer. The starting point I think is as
stated by Wightman J that the question is one of evidence rather than law. So
the court asks: ‘What is the evidence of any particular term as to rent?’ The
usual answer to such a question is, of course, that the parties have agreed it.
But another and equally cogent answer can be that there is no evidence that the
parties actually agreed anything, but nothing was said on either side to depart
from the proposition that the old rent, after all the only fixed figure in the
story, should apply. In those circumstances, the court will presume from the
parties’ silence that they accepted that obvious proposition. If, therefore,
what one is looking at is an evidential presumption of what the parties agreed
(and after all a fixed rent would normally be based on some agreement presumed
or actual), what will rebut the presumption will be evidence that shows that
the parties disagreed or, of course, agreed something else. But to my mind disagreement
will do. The purpose of an evidential presumption is to cover a situation where
there is no evidence of anything positive and it yields readily to evidence of
what was actually going on.
Accordingly, I
conclude that, if there is evidence that the parties were in disagreement with
each other, and one of them at least was in disagreement with the proposition
that the old rent should be the rent payable, then the presumption does not
apply and the value is, as it were, for the jury. If that be right, then on the
facts of this case, the result is obvious. Even before the lease expired, the
parties were in negotiation and disagreement as to what the rent should be
under the new lease. The underlying supposition being that the new lease would
continue from the end of the old. Thus on July 8 the plaintiffs quoted £73,000,
reduced in a further proposal on August 15. On October 15, now after the expiry
of the old lease, Mr Christopher Robinson [arics],
the plaintiffs’ agent, wrote to Mr Nicholas Wormald [arics], for the defendant, suggesting provisional ‘mesne profits’
of £27,500. At this stage I pause to say that the defendant was paying nothing
at all, but on the basis that: (1) those could be set against the rent finally
agreed; and (2) the new lease would run from the expiry of the old (that is
that the proper analysis of this letter is that agreement to £27,500 did not
preclude a higher final rent for that period). Therefore, there is not
agreement to £27,500 being the only figure payable.
On January 27
1992, the point at which the defendant indicated that it was going to give up,
the defendant itself suggested £35,000 in respect of ‘mesne profits’, as
everybody called it. The remainder of the correspondence can shortly be
summarised by saying that in April the defendant went back to £27,500 and the
plaintiffs disagreed.
In those
circumstances, it seems to be abundantly clear that right from the start the
parties were in disagreement as to the amount of the rent. It was plain that
the plaintiffs were not accepting that the rent from the old tenancy should be
at the old rate. Indeed, for much of the period both negotiated on the basis
that it would be both something different and higher, but really the relevant
facts are that there was negotiation and disagreement as opposed to passivity
and presumed agreement. That being so the presumption does not apply and I have
to fix the amount.
I come now to
question (3).
(3) What is the basis upon
which the court should approach the figure?
Where the
holding is consensual, as here, and not trespassatory, the basis of the action
is for a payment for use and occupation; see the Thetford case. If the
holding is trespassatory, then the action is for ‘mesne profits’,
damages for trespass. Woodfall at paras 10.017 takes the view that the
distinction is of no practical importance and none of the authorities cited to
me suggest that there is any real difference in the measure of damage or sum
payable or that the proposition in Woodfall is in any way to be doubted.
It seems to me that I can obtain help from authorities on both types of claim.
How one
approaches the assessment of the figure and what principles one applies are,
however, somewhat more complex to explain.
(a) There is
no need for the landlord to show that he could or would have let the premises
to somebody else at the material time; see Swordheath Properties Ltd v Tabet
[1979] 1 WLR 285* following the well known ‘wayleave’ case of Whitwham
v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538.
*Editor’s
note: Also reported at [1979] 1 EGLR 58.
(b) There are
alternative and mutually exclusive bases of claim: (1) loss actually suffered;
and (2) value of benefit which the occupier has received. The letter is a
restitutionary claim and there has to be election before judgment; see Ministry
of Defence v Ashman (1993) 66 P&CR 195*, at p201, Hoffman LJ, as
he then was. The restitutionary claim is, in effect, the same as the Whitwham
claim.
*Editor’s
note: Also reported at [1993] 2 EGLR 102.
(c) The
ordinary measure is a proper letting value of the property for the relevant
period, there being in the ordinary case in a free market the value to the
trespassers of its use, see Swordheath.
In the instant
case there is certainly evidence that the plaintiffs would have let the
premises and probably, so far as anybody can tell, could have done. Certainly
there were people around in the market at the relevant period and the landlords
in principle wanted to let this property; probably one need go no further than
that.
Thus far it
does not seem to me to make any real difference whether one looks at it as gain
for the tenant or loss to the landlords, the principle would be the same,
ordinary market value. I pause to say that, if the amount is the same viewed
either way, there is really no point, other than mere formality, in electing.
But the authorities do not give much guidance as to how to approach ordinary
market value in a case such as the present, where (a) the holding over is for
an uncertain and unprotected period, (b) leases in the market are more usually
for a term that appears certain as opposed to a periodic let, (c) nobody in the
restaurant business would be likely to pay much for a period of less than a
year with no prospect of staying afterwards.
Inevitably,
cases on business tenancies will differ from the ordinary domestic residential
let in the county court where the tenancy is almost always periodic and the
rent monthly and, indeed, has usually been fixed by the rent officer anyway.
I get this
much help from the authorities, that it is legitimate for the court to look at
the actual parties in their actual situation. This is to be contrasted with the
approach to be found in the report given to the court by Mr Miller, the expert
for the defendant, that one should look at the situation as it were in vacuo,
taking not these parties but some hypothetical party operating not in the
actual situation, but in an unreal world that almost of necessity is full of
disregards. I am fortified in this view by two authorities: (a) Ministry of
Defence v Ashman to which I have already referred, where the whole
approach to quantum was based on the value to this tenant, as opposed to
some hypothetical tenant and also (b) to Wrotham Park Estate Co Ltd v Parkside
Homes Ltd [1974] 1 WLR 798 to which I referred counsel in argument. The
latter case is far removed on its facts, of course, being a case of damages in
lieu of an injunction in a case of a breach of restricted covenant, but an
example of the application of the Whitwham principle, and what Brightman
J, as he then was, did in that case was to assess the damages on the basis of
the real developers, their real expected profit and the real conduct of a real
plaintiff, not some abstract valuation exercise.
Through many
of the cases runs the thread of the court seeking to do what is fair. It is, I
think, a good guide to how to approach what is on the authorities not always an
exact science.
Each party
called an expert. The plaintiffs called Mr Anthony Mayer frics, partner in Cluttons, the
plaintiffs’ managing agents, in their Canterbury office. He is, according to
his report, a man of nearly 20 years experience in the field. The defendant
called Mr Anthony Miller frics. I
think that his experience is probably not quite so long as Mr Mayer’s, but it
is substantial. He is now a director of Humberts Leisure Ltd, a management
buy-out of a division of the well known firm of Humberts. I regarded both
experts as helpful, knowledgeable and experienced. Mr Miller, I think, had
rather more specialised expertise in the licensed trade, but I think that Mr
Mayer had rather greater general experience and also, of course, local experience
of Canterbury. Their approaches, however, were fundamentally different.
In short order
what Mr Mayer said was this:
(1) He started
on the basis of what the landlords had received by actually letting to another
party.
(2) There was
a letting in the market ending in the letting to Miss Long and the £50,000 at
which the property was let to her was a firm guide as to rental value.
(3) Taking all
the market factors into account, his starting point was, therefore, the
£50,000.
(4) But as the
lease to Miss Long was a full repairing lease, the rent would be less than
under a lease where the landlords assumed liability for the exterior, as had
been the case in the lease to Whitbread; he therefore adjusted upwards to
£55,000.
(5) He then
applied by parity of reasoning the method of arriving at an interim rent under
section 24A of the Landlord and Tenant Act 1954. He did so particularly because
the tenant was in occupation for virtually a year. Accordingly, he adopted a
discount for a yearly tenancy, but he did not think it appropriate to give the
additional usual cushioning discount which is given to absorb some of the
financial shock of having to go from a low rent under an old tenancy to a much
higher one under a new.
(6) He then
applied to this a number of comparables in decided cases, using the discounts
down to annual only and discounted the £55,000 down by 10% as the appropriate
rate per annum (the maths are not exact) and the discount of 10% would actually
get to £49,500 and not the £50,000 at which Mr Mayer actually arrived.
Mr Miller’s
approach was wholly different. In summary, he said:
(a) The
continued occupation was very much in the landlords’ interest;
(b) The
letting for a year would be of no interest or minimal interest to any operator
other than the existing tenant for reasons such as uneconomic outlay required
for only one year’s trading;
(c) Whitbread,
therefore, being the only likely hypothetical tenant and the plaintiffs keen
for it to remain in occupation, should be allowed a substantial reward for the
risk that it took by staying there;
(d) He did not
consider the letting to Miss Long to be useful evidence, although he accepted
in cross-examination that it was evidence of the market;
(e) He pointed
out that on the evidence there is some material to suggest that the landlords
would have let to Whitbread, a solid and nationally known company, for less
than they would have let to Miss Long; and
(f) He
produced evidence (schedule 3 to his report) of lettings of public houses where
they had been identified for disposal so that the lettings were fragile in
terms of length and security, all or most of which showed rents that were nil
or nominal. He concluded by saying that he did not think that anyone would pay
more than the existing rent and he accordingly valued on the basis of that.
In the witness
box, Mr Miller said that he thought that Mr Mayer had given too high a figure
for the difference between full repairing and internal repairing and that, if,
contrary to his view, one should go down the interim rent by analogy road, Mr
Mayer had not made full allowance for his own comparables and the cushion
element should be included.
It was
apparent even before Mr Miller gave his evidence that one prop of his case had
been knocked away. The correspondence alone strongly suggested that Whitbread
had a strong and highly respectable commercial interest in staying in
occupation, especially with a view to trying to sell the undertaking and to
pass on the employees to the new tenant. This was confirmed with total
frankness by Mr Ridgeway in the witness box. I am bound to say that I found
this part of Mr Miller’s report selective and rather lacking in balance. I proceed
on the basis that it was in the interests of Whitbread to stay there, albeit
that there were some interests for the plaintiffs that it should do so, but on
no view did it have the sort of benefit of bovine quality for which Mr Miller
contends in his report and I do not think, for my part, it really affects the
valuation. Whitbread were not in possession doing the landlords a favour nor
was it taking any risks by doing so. Nor do I think the short-term and largely
rent-free lets of public houses have much to do with it. I would have thought
that it was critical, because of the commercial need to achieve continuity of
custom and keep on selling as much beer as possible, to keep a public house
open on almost any terms rather than to close it. In this case there were
restaurant premises which had been run in the style of a well known chain which
inevitably would be let to somebody who might do something a bit different or
might do something a lot different. Although keeping open is for security
reasons better than keeping closed, the pressures are, to my mind, nothing like
as intense.
In those
circumstances, to repeat, keeping the restaurant open and occupied, while
desirable, is far less compelling than in the case of a public house. In any
event, to compare a restaurant, even one with a bar, with a public house is
not, I think, to compare like with like for all manner of reasons.
On my view of
the basic law, one is entitled to look not at what some hypothetical market
would have been for a 12-month lease with no security, but what a holding-over
tenant and this tenant carrying on this business and dealing with these
landlords would pay for a further year at the end of its tenancy, on the basis
that it would be its last year (I think that one is entitled to use hindsight)
in order to evaluate the asset of the tenancy that the tenant actually got.
In my
judgment, a holding-over tenant in those circumstances ought to consider: (1)
what the premises would let for on the market; (2) the fact that it is paying
rent in respect of a yearly tenancy rather than for a term of years; (3) the
fact that, if it wants to carry on business for that period, it realistically
has nowhere else to go. These factors, to my mind, go in the direction of
producing something like a discounted market rent based on the ordinary market
for the premises,
Miller hypothesis of nobody being prepared to pay for a single year.
I find,
accordingly, that I am totally unpersuaded of Mr Miller’s approach. I prefer,
with some amendments, Mr Mayer’s approach. It seems to me that, whether one
looks at this as loss to the landlords or gain to the tenant, one really comes
out with something pretty similar. For a start, viewed from the tenant’s end
all it is getting is a yearly tenancy; viewed from the landlords’ end it is not
right to postulate anything more substantial than a yearly tenancy, ie the
bottom of the market rather than the top. That in any case, I suspect, is the
sort of reasoning that lies behind the basic machinery of section 24A. It does
seem to me that that being so and bearing in mind that section 24A is doing up
to a point something not dissimilar, even down to the fact that in not all
section 24A cases is security of tenure assured — and in practice seems to make
very little difference — the section is at least, up to a point, the fair
analogy that Mr Mayer submits it is.
I think the
starting point must be the market rent as shown by what Miss Long actually
paid. There are then two features to be added: the addition of a non-full
repairing lease. I am, for my part, prepared to assume that Mr Mayer knows his
market and probably knows it better than Mr Miller, but I see no reason not to
accept his £5,000 and so one goes up to £55,000. But then I think there is
merit in the argument that Miss Long was not so good a covenant as Whitbread.
One must be cautious in saying this to say why one says it, because that is not
to say that Miss Long, who is still the tenant, is in any way a bad covenant,
but a single trader is more of a risk than a major concern who are nationally
known. I think the certainty of getting their rent through the term, not least
in case of assignment, backed by people as substantial as Whitbread, would have
dropped the market by 10%, which takes us once again down to £49,500.
Then there is
the discount on the section 24A basis. Mr Mayer’s comparable shows a discount
to an annual basis being in most cases 10%, but in two cases — one in the same
street though some years ago — 15%. I think 12% might be fair. There is after
all certainly an unprotected holding and undoubtedly so, despite what I said
about section 24A earlier. I think that, if one is dealing with a bracket of
discounts, one is looking higher rather than lower. That takes off £6,250 and
gets us down to £43,560. I see no justification for a cushion discount. That is
peculiar to the problems of new tenancy cases where there is or may be a new
tenancy. Here there is no such question.
I find,
therefore, the annual rent to be £43,560. The actual period is slightly under a
year being, I think, though I am subject to correction 358 days, so that
dealing with it on a daily basis one actually comes to £42,724.60. That,
subject to any fine tuning of the figures, is the amount I propose to order. I
will hear counsel on interest and costs.
Orders
accordingly.
