Landlord and tenant — Construction of provisions in rent review clause in lease in relation to improvements carried out by tenants — Improvement made by tenants not during the current tenancy but during their previous tenancy which had been surrendered by operation of law when the current tenancy was granted — Whether such improvement fell to be disregarded in rent review — Plaintiff was the landlord of premises used as a golf club by the tenant company — Original lease contained a covenant by tenants to lay out the premises as a golf course and gave them liberty (but no obligation) to erect at their own expense a clubhouse — Tenants erected a clubhouse during the currency of that lease — The present lease was subsequently granted — The material provision in the rent review clause was in similar terms in both leases, namely, that in ascertaining the open market rent there should be disregarded those matters set out in paras (a), (b) and (c) of section 34 of the Landlord and Tenant Act 1954 — The question which arose was whether this meant section 34 as originally enacted or section 34 as amended by the Law of Property Act 1969, in the light of the House of Lords decision in East Coast Amusement Co Ltd v British Transport Board (Re ‘Wonderland’, Cleethorpes) [1965] AC 58, to give a measure of protection to tenants who had carried out improvements during an earlier tenancy — Plaintiff landlord argued in favour of the former construction, defendant tenants for the latter — In Euston Centre Properties Ltd v H J Wilson Ltd Cantley J had assumed that the latter construction was correct, but the matter was not there in issue — Judge Finlay QC in the present case decided that on the true
construction the words in the lease referred to section 34 as originally enacted — He pointed out that as originally enacted section 34 had no subsections, whereas as amended it had subsections (1) and (2) — The words in the lease were ‘section 34’ totidem verbis — Also, section 34(2) in the amended version refers to an application for a new tenancy under the statute, which fits awkwardly with the rent review provisions of a lease — But, he held that if the wording of the original section 34 is simply read into the lease, and the ordinary canons of construction are applied, the words include an improvement carried out by the tenant at any time — The House of Lords decision in Re ‘Wonderland’ on the statutory meaning for the purpose of the 1954 Act applications was not conclusive for the interpretation of the lease — Accordingly the clubhouse erected by the tenants should be disregarded in applying the rent review clause — The circumstances of the surrender of the original lease and the grant of a new one which in effect extended the original term by five years, with only slight changes in the terms of the lease, particularly as to rent review, provided a ‘matrix of fact’ which supported this construction
Mr Brett, the
plaintiff in this action, sought against the defendants, the Brett Essex Golf Club
Ltd, rectification of a lease of the club premises and a declaration as to the
true effect of rent review provisions contained in the lease, of which he was
the landlord and the club were the tenants. As it was common ground that the
lease required to be rectified, the judgment deals only with the second matter.
Timothy R F
Jennings (instructed by Kenwright & Cox) appeared on behalf of the
plaintiff; A G Steinfeld (instructed by Leonard Kasler & Co) represented
the defendants.
Giving
judgment, JUDGE FINLAY QC said: This is an action in which the plaintiff, the
lessor of certain premises used as a golf club by the defendant company, the
Brett Essex Golf Club Ltd, has sought rectification of the lease and also a
declaration as to the operation and effect of the provisions for the review of
rent contained in the current lease. The matter of rectification now gives rise
to no difficulty, since it is common ground that the lease in question falls to
be rectified; and the only matter that I have to deal with is the question of
the meaning and effect of one of the provisions for the review of rent.
In 1973 the
plaintiff, by a lease dated August 13 1973, let certain land forming part of
Clapgate Farm at Little Warley, in Essex, to the defendant company for a term
of 50 years from July 9 1973 at the rent and subject to the covenants and
conditions therein contained. The lease contained a covenant on the part of the
lessee to lay out the demised premises as a golf course, and not to erect at
any time thereon any dwelling-house or other building except such buildings as
were permitted by the provisions in the lease; and the landlord covenanted that
the tenant should be at liberty to erect, at his own expense, at the demised
premises at the point designated on the plan annexed to the lease a clubhouse
with all necessary offices and outbuildings for the use of the members and
servants of the club. The lease provided for review of rent in accordance with
provisions therein set out, and in the provision dealing with the manner in
which the reviewed rents were to be determined it was provided that there
should be disregarded, if applicable, those matters set out in paragraphs (a),
(b) and (c) of section 34 of the Landlord and Tenant Act 1954.
During the
currency of that lease, in about 1975, the lessees erected on the designated
site a clubhouse and did so, as I understand it, at their own expense.
In 1978 the
lease with which I am now concerned was granted. It was dated February 14 1978.
It, like the lease of 1973, demised the premises for a term of 50 years, but in
this case from February 14 1978. It contained covenants for review of the rent
at the end of the third year of the term and thereafter at seven-year
intervals. It contained the covenant which I have read already, that is the
covenant to use the demised premises and such buildings as might be erected
thereon as a private golf course and/or a country and sporting club with the
requisite ancillary buildings for the convenience of members of the club and
its staff only. The provisions for review of the rent contained a provision in
similar terms to that in the 1973 lease, providing, that is, that on the
ascertainment of the open market rent in accordance with the provisions of the
lease there should be disregarded, if applicable, those matters set out in
paragraphs (a), (b) and (c) of section 34 of the Landlord and Tenant Act 1954.
The question
that arises in these circumstances is whether that reference to the Landlord
and Tenant Act 1954 is a reference to that Act as originally enacted or a
reference to that Act as amended by the Law of Property Act 1969. The relevant
paragraph that gives rise to the difficulty is paragraph (c). I will read the
relevant section of the 1954 Act as unamended, having regard in particular to
paragraph (c) which gives rise to this difficulty. The section provides:
The rent
payable under a tenancy granted by order of the court under this Part of this
Act shall be such as may be agreed between the landlord and the tenant or as,
in default of such agreement, may be determined by the court to be that at
which, having regard to the terms of the tenancy (other than those relating to
rent) the holding might reasonably be expected to be let in the open market by
a willing lessor, there being disregarded —
(a) any effect
on rent of the fact that the tenant has or his predecessors in title have been
in occupation of the holding,
(b) any
goodwill attached to the holding by reason of the carrying on thereat of the
business of the tenant (whether by him or by a predecessor of his in that
business),
(c) any
effect on rent of any improvement carried out by the tenant or a predecessor in
title of his otherwise than in pursuance of an obligation to his immediate
landlord . . .
There is a
further provision, (d), which I need not read.
It will be
noted that the improvement which gives rise to the main issue between the
parties, that is to say the erection of the clubhouse, was not carried out by
the defendant company during the currency of the present (1978) lease, but
carried out some three years or thereabouts before the term of that lease
commenced.
The Act as
amended provides in section 34(1):
the rent
payable under a tenancy granted by order of the court under this Part of this
Act . . .
It then
contains the same provisions for agreement in default of agreement, and
continues with a reference to the rent:
at which . . .
the holding might reasonably be expected to be let in the open market by a
willing lessor, there being disregarded . . .
(c) any
effect on rent of an improvement to which this paragraph applies.
And in order
to determine to what paragraph (c) in section 34(1) of the amended Act applies,
one has to look at subsection (2). That provides that:
Paragraph (c)
of the foregoing subsection applies to any improvement carried out by a person
who at the time it was carried out was the tenant, but only if it was carried
out otherwise than in pursuance of an obligation to his immediate landlord and
either it was carried out during the current tenancy or the following
conditions are satisfied —
(a) that it
was completed not more than 21 years before the application for the new tenancy
was made,
(b) that the
holding or any part of it affected by the improvement has at all times since
the completion of the improvement been comprised in tenancies of the
description specified in section 23(1) of this Act; and
(c) that at
the termination of each of those tenancies the tenant did not quit.
The amendment
appears to have been enacted in the light of the decision of the House of Lords
in 1965 in East Coast Amusement Company Ltd v British Transport
Board, on appeal in a case reported as Re ‘Wonderland’, Cleethorpes
[1965] AC 58. There, improvements had been effected by the appellant company
prior to the lease in relation to which the tenants had served notice under
section 26 of the Landlord and Tenant Act 1954 requesting a new tenancy. The
lease which was current at the time of their request was one granted in 1938
and the structural works which effected the development and improvement had
been carried out in 1926. It was held by the House of Lords that on its true
construction paragraph (c) of section 34 referred only to improvements carried
out by the tenant who was making the application for a new tenancy and effected
during the term of the tenancy current when the application was made or by a
predecessor entitled to the same tenancy, since in the context of section 34
‘the tenant’ was limited to the person who under the current tenancy was making
application to the court for the renewal of such tenancy. In consequence, the
work carried out by the company, the tenant at all material times, but carried
out in 1926, should not be disregarded. Viscount Simmonds said at p 70 at F:
For me the
critical question is — What is meant by ‘the tenant’? and I reject the premise
upon which the appellants must rely that it includes the individual tenant in
any other capacity than that in which he makes his application to the court,
ie, as tenant under the current tenancy which he seeks to have renewed.
Part II of the Act (within which section 34 falls) begins and ends with the
tenancy then current which is to be extended or renewed. When that tenancy was
created, a new relation was established between landlord and tenant. It is to
be assumed that, when it was established and the old chapter, if there was one,
was closed, the parties took into account what were then their respective
rights and liabilities and founded on them accordingly. A new chapter then
began and it is only with what thereafter happened that the court is concerned.
This is perhaps only another way of saying that in the context the words
‘carried out by the tenant’ import carried out during the current tenancy, and
I arrive at that conclusion upon a consideration of the meaning which must be
given to ‘the tenant’.
In consequence
of that decision I am told, and it seems a reasonable proposition, the 1969 Act
made the amendments which I have already indicated when reading the relevant
provisions of that section. There appears to be no direct authority on the
question which now arises as to whether a reference in a lease granted after
the passing of the amending Act, the Law of Property Act 1969, to section 34 of
the Landlord and Tenant Act 1954 or the provisions contained in that section is
to be construed as a reference to the provisions contained in the 1954 Act as
originally passed or to the Act as amended by the Act of 1969. But in Euston
Centre Properties Ltd v H J Wilson Ltd (1981) 262 EG 1079, [1982] 1
EGLR 57 Cantley J was concerned with a question which arose under a lease
granted in 1975, that is after the amending Act, which contained a provision
dealing with the revision of rent that there should be disregarded any of the
matters referred to in section 34(a), (b) and (c) of the Landlord and Tenant
Act 1954. It was assumed by Cantley J and counsel that that reference was a
reference to the 1954 Act as amended in 1969. Nothing appears to have turned
upon that assumption because the question which arose in the case was whether
improvements effected prior to the grant of the relevant lease, and at a time
when the company which later became the tenants were licensees of the ground on
which the improvements were erected, should or should not be disregarded by the
reason of the provisions contained in the lease. Had the reference been assumed
to be not to the Act as amended but to the original Act the very same result
would have followed, because in any event the tenants, the parties to the
litigation, had not been tenants at the relevant time.
I approach the
matter, therefore, without the assistance of any guiding authority, save for
the background furnished by the two cases to which I have already referred. Mr
Jennings, who appears for the plaintiff landlord, submits that the reference in
the lease is plainly in its terms to the Landlord and Tenant Act 1954 as
originally enacted; and that in consequence, construing the section in the
light of the decision of the House of Lords, it follows that the clubhouse,
erected not by the tenant in the course of the current tenancy but by the
company which is now the tenant but at an earlier date, does not fall to be
disregarded in ascertaining what is the appropriate rent. Mr Steinfeld for the
defendant tenants submits firstly that a reference in the lease to the statute
should be construed as referring to the statute in the condition of amendment
or re-enactment as one finds it at the date of the lease. Accordingly, it is to
the 1954 Act as amended by the Law of Property Act 1969 that one must look, and
when one looks at the provisions there, the result is that the clubhouse does
fall to be disregarded because it was erected within 21 years of the question
arising. Also, the holding has at all times since the clubhouse was erected
been comprised in tenancies to which section 23(1) of the 1954 Act applied and
there has never been any quitting of the building by the tenant. That, he says,
means that the improvement is one to which paragraph (c) of section 34(1) of
the amended Act is applicable and that consequently the clubhouse, being such
an improvement, should be disregarded. Alternatively, he submits that if he is
wrong in that and it is to the original Act that the words in the lease are to
be taken to refer, then the effect of those words in the lease is simply to
incorporate words from the 1954 Act. Those words are to be construed in the
context of the lease, having regard to the factual matrix within which one
finds the lease was granted. In doing that, the decision of the House of Lords
in Re ‘Wonderland’ is not of any, or any decisive, assistance in
determining what the significance of the words are; and he submits that,
construing them in the way that he suggests is the proper mode of construction,
the result is that the clubhouse once again falls to be disregarded for, to put
it shortly, the simple reason that it is an improvement made by the tenant.
The words in
the lease are ‘disregarding if applicable, those matters set out in paragraphs
(a), (b) and (c) of section 34 of the Landlord and Tenant Act 1954’.
Notwithstanding the fact that Cantley J and counsel in the case to which I have
referred, Euston Centre Properties Ltd v H J Wilson Ltd, assumed
that very similar words were to be treated as referring to the Act as amended,
I come to the conclusion that, on a true construction, these words in this
instance refer to the Act as originally enacted.
It will be
noted that the paragraphs are referred to as paragraphs of section 34, not as
paragraphs of section 34(1), which is what they would be if it were the 1969
Act that was referred to. Subsection (2) of the amended Act also contains
paragraphs (a), (b) and (c), but it is the case that the paragraphs so
designated in the subsection of the amended section 34 are in the nature of
conditions rather than matters. But there is this further significant
difficulty, that paragraph (c) in section 34(1) of the amended Act is in these
terms: ‘any effect on rent of any improvement to which this paragraph applies’,
and when one looks at subsection (2) to determine to what paragraph (c) is
referring, one finds the improvements to which the paragraph applies must be
improvements in relation to which the three conditions designated (a), (b) and
(c) in subsection (2) are satisfied, and the first of those conditions is ‘(a)
that it’ — that is the improvement — ‘was completed not more than 21 years
before the application for the new tenancy was made’. It appears to me to
involve a considerable degree of imaginative construction to ascertain how that
first condition can be made applicable to a provision in a lease which is not
concerned in any way with applications made under statute but is simply
concerned with a review of the rent. On that ground alone, fortified by the
further ground that there is no reference to subsection (1) in the wording of
the lease, I come to the conclusion that it is to the unamended Act that the
lease is referring, when it refers to paragraphs (a), (b) and (c) of section 34
of the Landlord and Tenant Act 1954.
There then
arises the question — What on the true construction of the lease is to be
disregarded so far as paragraph (c) of section 34 of the original 1954 Act is
incorporated in the lease? The words of that provision in paragraph (c) of the
Act are ‘any effect on rent of any improvement carried out by the tenant or a
predecessor in title of his otherwise than in pursuance of an obligation to his
immediate landlord’. I have already indicated that Mr Jennings submits that the
result of that is that the clubhouse, the improvement now in question, is not
such an improvement as is there referred to for the simple reason that although
carried out by the Brett Essex Golf Club Ltd it was carried out by them
otherwise than in their capacity as tenants under the current lease, and he
relies upon the decision of the House of Lords to which I have referred. Mr
Steinfeld submits that the words in the lease, those matters set out in
paragraphs (a), (b) and (c), are to be construed as meaning that one
incorporates into the lease the matters referred to in the section and that one
does so by simply reading the wording which is used to describe those matters
in the statute into the lease itself, so that one would then read the lease in
this manner, ‘disregarding if applicable — (a) any effect on rent . . .’ and
then (c) ‘any effect on rent of any improvement carried out by the tenant or a
predecessor in title of his otherwise than in pursuance of an obligation to his
immediate landlord’. I should say that it is common ground that the clubhouse
was not erected in pursuance of any obligation to the landlord.
Mr Steinfeld
submits that when one reads these words into the lease, one should then
construe the lease in accordance with the ordinary principles of construction,
and bearing in mind also the principle that one must have regard to the factual
matrix, a phrase taken from the observations on that matter made by Lord
Wilberforce in Prenn v Simmonds [1971] 1 WLR 1381, where he says
at the foot of p 1383:
The time has
long passed when agreements, even those under seal, were isolated from the
matrix of facts in which they were set and interpreted purely on internal
linguistic considerations.
Mr Steinfeld
submits that there is a distinction between the words used in the present
lease, which are ‘those matters set out in paragraphs (a), (b) and (c)’ and
those found in the lease that was subject to consideration in the Euston
Centre Properties Ltd v H J Wilson Ltd case, namely, ‘any of the
matters referred to in section 34(a), (b) and (c)’; and he submits the
distinction is that ‘set out’ merely involves the incorporation of the wording
of the statute, whereas what is referred to in the paragraphs of the section
involves determining what matters are referred to, having regard to any judicial
aids to construction or interpretation of the section. Without deciding whether
the mere difference between ‘set out’ on the one hand and ‘referred to’ on the
other gives rise to this distinction, the distinction appears to me to be a
valid one.
The decision
of the House of Lords on the construction of paragraph (c) was a decision made
in relation to an application for a new tenancy. It was, therefore, a decision
dealing with the true construction of the section in relation to a matter to
which the statute was applicable. That is not the case here. I have come to the
conclusion that Mr Steinfeld’s submission is well founded and that the proper
approach here is to look at the lease and see what words are incorporated in
it, and, having done that, to construe the words so incorporated in accordance
with the ordinary canons of construction. That does not mean, of course, that a
judicial interpretation of those very words in a different context might not in
certain circumstances throw the clearest light upon that meaning. But it does
mean, in my judgment, that the decision of the House of Lords as to what is
meant by section 34 of the original 1954 Act is not decisive of the question —
what is meant by words taken from section 34 and incorporated in this lease by
the reference made in the manner that I have already several times indicated.
What then is
the true construction of the wording of paragraph (c) when it is incorporated
in this lease? I have come to the conclusion that the words in referring to an
improvement carried out by the tenant refer to and are apt to include an
improvement carried out by the tenant at any time. It might well be that in
certain circumstances the matrix of fact would clearly indicate that that was a
construction which was entirely unacceptable. For example, suppose there had
been an improvement effected by this tenant some 15 years before, that other
lessees had in the meantime occupied the premises, and that the tenant who in
the distant past had made the improvement then became tenant again, it would be
contrary to reason and common sense to construe the words ‘an improvement
carried out by the tenant’ as attributable to such a matter. But here the
matrix of fact, far from contradicting the conclusion which one reaches on mere
consideration of the literal meaning of the words, reinforces that conclusion.
Here the improvement was carried out by the tenant holding the premises of the
same landlord; it was carried out during the currency of a term which at the
time when the improvements were effected had some 48 years to run. That term
was within a few years surrendered by operation of law when the same landlord
granted to the same tenant a new lease at a different rent and with some slight
changes of the terms of the lease, particularly as to rent review, for another
term of 50 years, thus extending the original term in effect for a further five
years. In that matrix of fact I find support for, and nothing repugnant to the
adoption of, the construction which I place upon paragraph (c) as incorporated
in the lease, namely, that it is apt to refer to this particular improvement,
the erection by the present tenant of the clubhouse that was erected in about
1975. Accordingly, I come to the conclusion that that improvement falls to be
disregarded under the conditions of the lease.
