Rushmoor Borough Council v Goacher and another

Landlord and tenant — Construction of rent review clause in lease — Question was whether the reference in the clause to any planning permission, as included in all the circumstances to which regard should be had in determining the rent, prevented the arbitrator from having regard to development potential in the absence of an extant planning permission — Landlords argued that development potential, if proved to exist, was an existing circumstance and the reference to planning permission did not imply that planning was a relevant circumstance only if and to the extent that there was an actual planning permission in existence — Tenants argued that, on the contrary, planning was a circumstance to be regarded only if there was a planning permission in existence — Held that the correct construction was that all circumstances existing at the material time had to be taken into account, including any existing planning permission, but not excluding development potential if it was a fact proved in evidence — Question raised in notice of motion answered accordingly

This was an
originating motion pursuant to the Arbitration Acts 1950 and 1979 by which the
applicants, the Borough of Rushmoor, the landlords, sought to have determined
two questions (which became at the hearing only one question) on the
construction of the rent review clause of a lease (actually a main and a
supplemental lease) of land in Aldershot of which the respondents, Charles
George Goacher and Mrs Joan Clarissa Richmond, were the tenants.

F P Hinks
(instructed by Sharpe Pritchard & Co) appeared on behalf of the applicants;
R J Simpkiss (instructed by Gilbert H White & Co, of Godalming) represented
the respondents.

Giving
judgment, MERVYN DAVIES J said: This is an originating motion dated March 18
1985 pursuant to the Arbitration Acts of 1950 and 1979. There is currently a
rent review arbitration and the parties and the arbitrator have, as I
understand, consented that some points of law arising be determined by the
court. The points of law were referred by the Commercial Judge for decision by
a judge of the Chancery Division.

The applicants
are the Borough of Rushmoor. The respondents are Mr Charles George Goacher and
Mrs Joan Clarissa Richmond. The notice of motion seeks to have determined the
following questions of law which have arisen during the course of the
arbitration.

Question 1.
Whether upon the true construction of the Lease dated the 26th August 1971 and
made between (1) the Mayor Aldermen and Burgesses of the Borough of Aldershot
and (2) Bernard Reginald Wildman and Charles George Goacher (‘the 1971 Lease’)
the word ‘then’ in the fifth line of paragraph 1 of the Schedule thereto
relates

(a) To the 15th, 29th, 43rd, 57th, 71st or 85th
year of the said term (as the case may be) as set forth in the third and fourth
lines of the said paragraph; or

(b) to the date of the commencement of the term
created by the 1971 Lease; or

Question 2.
Whether upon the true construction of the 1971 Lease and in particular the
fourth to eighth lines of paragraph 1 of the Schedule thereto, the words
‘including any permissions for the carrying out of any development of the said
piece of land granted pursuant to the Town and Country Planning Acts 1962 to
1968 or any subsequent legislation or any regulations thereunder’ should be
construed as limiting the words ‘having regard to all the circumstances then
existing’ with the effect that an arbitrator appointed pursuant to the
provisions of the said Schedule is prevented from having regard as a relevant
circumstance to the potential of the said piece of land for development in the
absence of an extant permission therefor at the date determined by this
Honourable Court under paragraph 1 of this Notice of Motion?

I need say no
more about question 1 than that counsel for the parties informed me that it was
agreed that the answer to question 1 was in the sense of para 1(a).
Accordingly, it remains for me to deal with question 2.

The evidence
in support of the motion consisted of an affidavit filed on the applicant’s
behalf. It was by Mr Richard Whitfield, sworn on March 14 1985. I need not
refer to the affidavit or its exhibits, because the question before me is a
question of pure construction.

By a lease
dated March 14 1968 and made between the Mayor, Aldermen and Burgesses of the
Borough of Aldershot of the one part and Flexicote Ltd of the other part 0.4
acre of land in Aldershot was demised to Flexicote for 99 years from February 7
1968 at a rent of £350 a year. The tenants’ covenants include in clause 3(12) a
provision that the tenant is not to erect or alter buildings without consent,
which consent is not to be unreasonably withheld, and in 3(14) a provision not
to use the demised premises without consent, which consent is not to be
unreasonably withheld, except for the purposes of a like industry. I abbreviate
clauses 3(12) and 3(14), but such is I think their general sense.

Where the
lease provides for the rent of £350 per year already mentioned, there then
occur the words:

Subject,
however, to the provisions for increasing the said rent contained in the second
schedule hereto.

The second
schedule provides machinery for such rent increase, but I need not
particularise the second schedule because, as will appear, it has been replaced.

On August 5
1968 Flexicote assigned the lease to the first respondent and a Mr Wildman. On
August 26 1971 there was executed a second lease. This was between the
Aldershot Corporation of the one part and Messrs Goacher and Wildman of the
other part. This second lease recites the first lease and the assignment by
Flexicote. The third clause of this second lease or supplemental lease, as it
is called, is in these terms:

By this lease
(hereinafter called the supplemental lease) the Corporation has agreed to
demise unto the tenant additional land at Deadbrook Lane, Aldershot aforesaid
for the purposes of identification delineated on the plan A annexed hereto and
thereon coloured pink from 7th February 1968 for a term of years coterminous
with that granted to the tenants by the main lease and the parties have agreed
that the covenants, conditions and provisions contained in the main lease
should apply and have effect with regard to the land included in the
supplemental lease (so far as they are applicable thereto) or as though it had
been included in the main lease.

So additional
land was to be demised and held for the same term as was held the original
land, that is for 99 years from February 7 1968.

The
supplemental lease in its operative parts proceeds to effect this arrangement.
The basic rent for both areas of land became £525 per year instead of £350.
Clause 3 of the supplemental lease reads as follows:

The tenant
hereby covenants to hold the property demised under the main lease and the
property demised under this supplemental lease which is for the purpose of
identification delineated on the plan B annexed hereto upon the same terms and
subject to the same reservations and the same covenants as were expressed and
contained in the main lease (varied as hereinafter provided), as if the same
were herein set forth at length with such modifications only as are necessary
to make the same applicable to the supplemental lease.

There is then
in clause 5 a provision about a rent review. Clause 5 reads:

The main
lease shall be further varied by deleting therefrom the second schedule thereof
wherein there were provisions for variation of the rent and replacing the said
schedule by the schedule annexed to this Deed.

141

The schedule
referred to in this clause 5 is, so far as now material, in these terms:

Schedule above
referred to.

(Provisions
for variation of rent.) This Schedule
shall apply to increased rent. If the Corporation shall give to the tenant
notice in writing at any time within the 14th, 28th, 42nd, 56th, 70th or 84th
year of the said term hereby created or in any of such years that the rent
thereafter payable under this lease for the remainder of the said term should
be increased, then and in any such cases the rent payable for the remainder of
the said term beginning on the first quarter day in the 14th, 28th, 42nd, 56th,
70th or 84th year of the said term (as the case may be) shall be increased by
such sum if any as shall be agreed by the parties hereto or determined by
arbitration in accordance with the following rules.

1. The amount
of the increase shall be such as shall increase the amount payable by way of
rent hereunder to the amount for which the said piece of land hereinbefore
described and hereby demised might reasonably be expected to be let in the
15th, 29th, 43rd, 57th, 71st, or 85th year of the said term (as the case may
be) in the open market by a willing lessor to a willing lessee having regard to
all the circumstances then existing including any permission for the carrying
out of any development of the said piece of land granted pursuant to the Town
and Country Planning Acts 1962 to 1968 or any subsequent legislation or any
regulations thereunder.

2. It shall
be assumed for the purposes of the above calculation that (i) the said piece of
land is a bare site clear of any building erections or other structures; (ii)
the lease to be granted is in all respects (except as to the amount of rent)
similar (both as to the term of 99 years but reduced by the part of that term
then expired and the other stipulations, conditions, requirements and provisions
thereof) to the present lease.

I need read no
further from the schedule.

Question 2 of
the notice of motion is concerned with the true construction of clause 1 of the
schedule. To complete the events of title, I mention that the Aldershot
Corporation is now known as the Rushmoor Corporation and the tenants under the
lease are the respondents, Mr Goacher and Mrs Richmond. No doubt some difficult
technical questions may be asked as to the effect of the two leases and as to
whether or not the object of regarding both the original and the additional
land being now the subject of one consolidated lease has been achieved. Both
counsel inform me that there was no desire on either side to raise any such
questions. The sole desire is to have answered question 2 in the notice of
motion on the footing that there is in effect one lease on the terms as set out
in the supplemental lease or as incorporated into the supplemental lease.

Reading clause
1 of the schedule to the supplemental lease, one sees that in fixing a new rent
one has to have regard:

to all the
circumstances then existing including any permission for the carrying out of
any development of the said piece of land granted pursuant to the Town and
Country Planning Acts 1962 to 1968 or any subsequent legislation or any
regulations thereunder.

Mr Hinks for
the corporation said that that meant that in fixing the rent regard may be had
to the development potential of the land. That, he said, is an existing
circumstance, and the fact that the wording in question makes specific
reference to an existing planning permission does not mean that there is any
implicit direction that development potential is a circumstance not to be taken
into account. He said all the circumstances had to be taken into account and
that the reference to planning permission was an illustrative reference only.

Mr Simpkiss
appeared for the respondents, and among other submissions his most persuasive
argument was, to my mind, that the reference to planning after the phrase ‘all
the circumstances then existing’ showed the extent to which planning was to be
taken into account as a circumstance. It was plain, he said, that planning was
a circumstance only if there was a planning permission in existence. By
inference that meant that the possibility of planning permission by reason of
development potential was to be disregarded. Mr Simpkiss referred to Plinth
Property Investment Ltd v Mott, Hay & Anderson (1978) 38
P&CR 361. That case, it was said, showed that the arbitrator is not to
speculate about planning permission. He is to look at settled circumstances. To
my mind the Plinth case does not greatly assist Mr Simpkiss. I say that
because the arbitrator plainly has to take account of the permitted user of the
premises, not only in the light of planning permission but also in the light of
clause 3(12) and clause 3(14) of the lease; but that does not necessarily mean
that the arbitrator must ignore the development potential if it be a fact shown
to exist by professional evidence, and if it be a fact that it is not excluded
from consideration by the wording of clause 1. So one turns to the wording of
clause 1.

The point is
short and to be decided by the impression made on the mind by the words. I do
not accept Mr Simpkiss’ suggestion that the words ‘including any permission for
the carrying out of any development of the said piece of land granted pursuant
to the Town and Country Planning Acts 1962 to 1968 or any subsequent
legislation or any regulations thereunder’ mean there is there defined or
explained the extent to which planning matters can be taken into account. To my
mind clause 1 is not saying ‘to this extent and to this extent only is the
planning position a ‘circumstance” within the phrase ‘all the circumstances
then existing’. The impression in my mind made by clause 1 is that all
circumstances then existing are to be taken into account, and in particular,
but without excluding the generality, one may take into account any existing
planning permission. In that situation, if development potential exists as a
fact proved in evidence, then it may, in my view, be taken into account. I add
that while I think the arbitrator is not prevented from having regard to
development potential, it may be that such development potential will be of
little importance in the matter of fixing the rent. I say that because the rent
is to be fixed by reference to all the circumstances. The circumstances include
the existing user in the planning sense and the user provisions of the lease,
including clauses 3(12) and 3(14). In the face of those circumstances, it may
be that development potential will be of little importance, but that, I think,
is a matter for the arbitrator, who will no doubt be assisted by professional
evidence.