Leasehold enfranchisement — Leasehold Reform Act 1967 — Section 9(1A) valuation — Improvement disregard — Whether erection of house improvement — Whether improvements made by predecessor in title — Whether building agreement a ‘tenancy in equity’
On 26 January 1998 the leasehold valuation
tribunal for London determined that the price payable by the appellant tenant
for the acquisition of the freehold in the subject house, in accordance with
section 9(1A) of the Leasehold Reform Act 1967, was £729,400. He appealed, and
contended that his predecessors in title carried out improvements within the
meaning of section 9(1A)(d), first, in the original erection of the
house in 1851-1852 and, second, in further works licensed in 1937, and that
these improvements should be disregarded in determining the enfranchisement
price. For the purposes of the appeal, the parties agreed that the proper price
should be £717,000 if no improvements fell to be disregarded, £696,000 if only
the 1937 improvements fell to be disregarded and £417,650 if the erection of
the house was an improvement to be disregarded. The house was erected by I
under an agreement for a lease made in 1850; its erection was completed before
the grant of a lease in 1852 to I for a term of 99 years at an annual rent of
£8. A further lease was granted in 1937 to G, and it was G who carried out the
1937 works.
out the 1937 works before the grant of the 1937 lease in his capacity as tenant
of the house under the 1852 lease. Upon this lease coming to an end by merger
with the 1937 lease, G held the 1937 lease, which must be treated as a single
tenancy pursuant to section 3(3) of the Act. The appellant was therefore
entitled to have the 1937 works treated as improvements to be disregarded under
section 9(1A)(d). The erection of a house where no house had previously
existed cannot be an improvement under section 9(1A)(d) of the 1967 Act.
However, the ambit of para (d) is not concerned with whether the
improvement and expenditure was voluntary or under covenant; an improvement would
not be excluded if it were carried out at the tenant’s expense because it was
consideration for the grant of the lease. A building agreement, under which a
lease would only be granted when the erection of the building reached a certain
stage, did not give rise to a tenancy in equity. Accordingly, when I erected
the house in 1851‑1852 under the 1850 agreement, he was not then a
predecessor in title of his successors in title of the 1852 lease. The erection
of the house was therefore not to be disregarded under section 9(1A)(d).
referred to in this report.
Cornish v Brook
Green Laundry Ltd [1959] 1 QB 394; [1959] 2 WLR 215; [1959] 1 All ER 373;
[1959] EGD 116; (1959) 173 EG 307, CA
Eastham v Leigh
London & Provincial Properties Ltd [1971] Ch 871; [1971] 2 WLR 1149;
[1971] 2 All ER 887, CA
Euston Centre Properties v H&J Wilson [1982] 1 EGLR 57; (1982) 262 EG 1079
Hambros Bank Executor & Trustee Co Ltd v Superdrug Stores Ltd [1985] 1 EGLR 99; (1985) 274 EG 590
Hasham v Zenab
[1960] AC 316; [1960] 2 WLR 374
Henry Smith’s Charity Trustees v Hemmings [1983] 1 EGLR 94; (1983) 265 EG 383
Lyon v Reed
(1844) M&W 285
Michaels v Harley
House (Marylebone) Ltd [1999] 1 All ER 356
Walsh v Lonsdale
(1882) 21 ChD 9
Simon Berry QC and Edwin
Johnson (instructed by David Conway & Co) appeared for the appellant
tenant; Jonathan Gaunt QC (instructed by Lee Bolton & Lee) represented the
respondent landlord.
Giving his decision, JUDGE RICH QC said: This is an appeal against the
decision of the leasehold valuation tribunal for London (LVT) dated 26 January
1998, whereby the LVT determined, in accordance with section 9(1A) of the
Leasehold Reform Act 1967, the price payable by the appellant for the freehold
of 25
on a vacant possession value of the freehold at the relevant date of £875,000.
The appellant’s statement of case complained that the freehold value should
have been £850,000, and, upon the same assumptions otherwise as adopted by the
LVT, the price should have been determined at £708,544.
Although no such claim had been made to the LVT,
on 3 December 1998, I gave the appellant leave, upon terms set out in an agreed
minute of order dated 25 January 1999, to amend the statement of case to claim
that the LVT’s decision was also wrong, in that there had been improvements to
the property that, by virtue of para (d) of section 9(1A), fell to be
disregarded in the determination of the price. This paragraph provides that the
price payable for a house and premises within the higher rateable value band,
within which the subject premises fall, should be determined:
(d) on the assumption that the price be
diminished by the extent to which the value of the house and premises has been
increased by any improvement carried out by the tenant or his predecessors in
title at their own expense…
The appellant contends before this tribunal that
his predecessors in title carried out material improvements, first, in the
original erection of the house in 1851-52, and, second, in carrying out some
work permitted by a licence dated 8 April 1937, to which I will refer as ‘the
1937 works’.
The parties have agreed for the purposes of this
appeal that if the price was to be determined, as the LVT did, without
reference to the improvements relied on for the first time in the amended
statement of case, the proper price should be £717,000 (instead of the £729,400
determined by the LVT). They have also agreed that if the 1937 works only are
relevant to diminish the price in accordance with para (d), then the
price should be determined at £696,000 (I shall call this ‘the 1937 works
value’); and, finally, they have agreed that if the erection of the house is
itself relevant for this purpose, then the price should be
been necessary to call any valuation evidence before this tribunal.
The parties have also been successful in
identifying documents and agreeing facts as to the nature and timing of the works
relied upon by the appellant to diminish the price at which he is entitled to
purchase and as to the history of occupation and leases of the house and
premises. It has not therefore been necessary for either party to call the
authors of the two extremely helpful reports prepared on this subject by Mr VR
Belcher ma, for the appellant,
and Mr WHH Van Sickle ba, msc(pl),
for the respondents, respectively. I do, none the less, think it right that I
should record the debt that the tribunal owes to these gentlemen for providing
agreed answers to questions that arose in the course of the hearing,
demonstrating their willingness to put their considerable expertise impartially
at the service of the tribunal. Their agreements were set out in three short
documents signed by them both, and in the acceptance by Mr Jonathan Gaunt QC,
who appeared for the respondents, of para 9.5 of Mr Belcher’s report. I think
it most convenient, however, to refer to the agreed matters as they arise in
the course of dealing with the issues that I have to determine.
Issues
The appellant is entitled to purchase the freehold
of 25 Kensington Gate by virtue of the assignment to him, on 5 July 1994, of
the benefit of a notice of claim made by one Odgers, as tenant of the premises
under a lease granted by the respondents, to one Guise on 8 April 1937 for a
term of 61.5 years from 29 September 1936 at a rent of £40 pa, payable on the
usual quarter days in arrear (the 1937 lease).
The house had originally been built by one
Inderwick under an agreement for lease granted following an auction on 15
January 1850. It is accepted by Mr Simon Berry QC, for the appellant, that what
is now number 25 was completed before the grant of a lease dated 9
1852 (the 1852 lease), even though some of the other houses the subject of the
same agreement may not at the date of the grant have been completed beyond
carcass and roof stage. By this 1852 lease, the then Trustees of the Campden
Charities demised 25 Kensington Gate, together with 28 other houses also built
by him, to Inderwick for a term of 99 years from Christmas 1849, thus until
1948, at a rent apportioned to the house of £8 pa, also payable quarterly in
arrear.
The appellant’s claim to have the price determined
on the basis that the erection of the house is a relevant improvement is
accepted by Mr
that he has posed:
1. Is the erection of a house capable of being a
relevant improvement?
2. If so, was such an improvement carried out by a
‘predecessor in title’ of the appellant?
This in itself, I note, raises two subsidiary
questions:
(i) was Inderwick, at the time he erected the
house, a predecessor in title of his successors in title to the 1852 lease by
virtue of the agreement for a lease?; and
(ii) if so, was Inderwick the predecessor in title
of Guise when Guise became the relevant tenant under the 1937 lease?
3. If so, was it carried out by Inderwick ‘at
[his] own expense’?
The respondents put the appellant to proof that
the 1937 works were carried out by Guise as a predecessor in title to the
appellant. There is no issue that Guise did the work. The issue is whether he
was a predecessor in title of the appellant when he did it. Mr Gaunt accepts,
of course, that that would be the case if: (i) Guise did such work after the
grant of the 1937 lease on 8 April 1937.
He also accepts that that would be the case even
if the work was done before that date if: (ii) (a) Guise was, at that date, the
tenant under the 1852 lease, and (b) the two leases are to be treated as a
single tenancy in accordance with section 3(3) of the Act; or (iii) Guise did
such work as a ‘tenant in equity’ within the meaning of section 37(1)(f)
of the Act.
Since the work must have been done either before
or after the grant of the 1937 lease, the determination of issue (ii) in the
appellant’s favour entitles him to have the price determined at no more than
the 1937 works value. On the other hand, the determination of question (b)
against the appellant would mean that Inderwick could not be the appellant’s
predecessor in title, so that the claim to have the price determined at site
value would, for that reason, fail. I therefore think it is convenient to
address the question of the entitlement to the 1937 works value before
considering the other questions raised by the claim to have the price
determined at site value.
1937 works value
The 1937 works were permitted under a licence
dated 8 April 1937, that is to say the same date as the 1937 lease. Both deeds
are between the trustees and Guise, who is in each case described as being ‘of
25
The rate books… indicate that… Guise… took up
occupancy on 27 December 1936. Guise had… been making preparations to move into
the house for some time. Plans for alterations… were submitted to Kensington
Borough Council on 21 September 1936. The plans themselves were dated July
1936.
Although the licence permits the lessee ‘to carry
out’ work upon condition that ‘the work shall be done in proper manner’, and
that ‘ the lessee shall give notice to the [insurers]’, I accept that licences
in such form are commonly granted after completion of works, and the use of a
future tense is not conclusive as to whether the works had already been
completed before the grant of the 1937 lease. A notice to the council of
intention to do drainage works, dated 19 January 1937, is likewise not
conclusive, but, in my judgment, the history of occupation makes it more
probable than not that the works were begun and probably completed before the
grant of the 1937 lease.
There is no evidence of an agreement for the grant
of the 1937 lease, such as to provide a basis for suggesting that Guise was a
tenant in equity, and I cannot therefore find that it is established on behalf
of the appellant that the 1937 works were carried out by Guise, either as
tenant under the 1937 lease or any agreement for that lease that preceded it.
The original 29 houses had, on Inderwick’s death,
been divided among his family. Number 25 was one of 10 held from 1904 by what I
shall call ‘the Inderwick successors’. There is no record of any further
assignment of the 1852 lease as it relates to number 25. The licence, however,
refers to the 1852 lease and recites ‘which lease is now vested in the Lessee’,
by which is meant Guise. If the licence is right that the 1852 lease was, at
the date of the 1937 lease and licence, ‘vested in’ Guise, the absence of any
reference in the new lease to the contemporaneous assignment or surrender of
the 1852 lease by Inderwick’s successors makes it more probable than not that
any such assignment antedated these documents, and I would hold that it is a
proper inference that it also antedated Guise’s occupation.
Guise’s occupation could itself have been
explained by the grant of an underlease by the Inderwick successors to Guise.
Mr Gaunt drew my attention to that being a common way for the Inderwick
successors to deal with the houses that they held under the 1852 lease. Their
practice was not, however, uniform, and that it operated in this case is not
consistent with the 1852 lease being ‘vested in’ Guise. Mr Berry has gone so
far as to submit that that recital is, by virtue of the application of section
45(6) of the Law of Property Act 1925, conclusive unless disproved or even that
it raises an estoppel by deed. I agree with Mr
concerned only with the deducing of title, and that the estoppel by deed
operates only between the parties. Nevertheless, Mr Gaunt accepts that the
recital is admissible as evidence and I find as a fact that Guise carried out
the 1937 works before the grant of the 1937 lease in his capacity as tenant of
number 25 under the 1852 lease.
It follows that the 1937 works, which are
otherwise admitted to constitute a relevant improvement, are to diminish the
price for the house and premises, which I have to determine, providing that
Guise, as tenant of the 1852 lease, is to be treated as the predecessor in
title of the appellant as successor to the 1937 lease. Section 3(3) of the Act
provides that:
Where the tenant of any property under a long
tenancy, on the coming to an end of that tenancy, becomes or has become tenant
of the property or part of it under
Part of this Act… shall apply as if there had been a single tenancy granted for
a term beginning at the same time as the term under the earlier tenancy and
expiring at the same time as the term under the later tenancy.
In order, therefore, to bring into being a single
tenancy deemed to have begun at Christmas 1849 and ending on 25 March 1998, it
is necessary that the tenant under the 1937 lease should have been the tenant
under the 1852 lease, when the 1852 lease came to an end.
Mr Berry submits that that must be the case,
because the mere grant of the 1937 lease to Guise for a term beginning during
the term of the 1852 lease, which term he held, worked a surrender of the 1852
lease by operation of law, because otherwise the landlord had no capacity to
grant the 1937 lease. Such surrender, he submits, works irrespective of the
intention of the parties, and he cites a very emphatic passage in the judgment
of Parke B in Lyon v Reed (1844) M&W 285 at pp306-307. Thus,
he submits the 1852 lease came to an end when the 1937 lease came into being,
notwithstanding that the 1937 lease is expressed to be ‘subject to and with the
benefit of the [1852] lease so far as the same relates to and affects the said
premises’.
Such conclusion depends on the incapacity of the
grantor to make the grant of the 1937 lease so long as the 1852 lease subsists
in so far as it relates to number 25. But, if the 1937 lease were to operate
and take effect as a reversionary lease until the expiry of the term of the
1852 lease, there would, so far as I can understand, be no such incapacity.
That is all that the 1937 lease purports to grant when it makes the grant
subject to the 1852 lease. I do not therefore accept that the 1852 lease of the
house came to an end on 8 April 1937.
If the 1852 lease did not come to an end until the
expiry of its term at Christmas 1948, it is agreed that, in February 1946,
Guise had assigned the 1937 lease to a Mrs Martin, and she, in 1946, to one
Doughty-Wylie, who remained in occupation until 1950. Unless, therefore, the
1852 lease was brought to an end before the assignment to Mrs Martin or was assigned
to her with the 1937 lease and by her to Doughty-Wylie, the tenant under the
1937 lease was not also the tenant under the 1852 lease when the latter came to
an end. There is no evidence of a subsequent surrender of the 1852 lease nor of
any assignment of it. Nevertheless, there is evidence, and it is agreed, that
both Mrs Martin and Doughty-Wylie did occupy. Unless the 1852 lease was brought
to an end during Guise’s occupation or it was assigned or some other underlease
was created (of which, again, there is no evidence or suggestion), neither of
the successors to the 1937 lease would, by virtue of its acquisition, have been
entitled so to occupy. Guise, however, had the remedy in his hands. He could
treat the 1852 lease, in so far as it related to number 25, as merged with the
1937 lease. In my judgment, he must be treated as having done so no later than
on the assignment of the 1937 lease to Mrs Martin. Accordingly, upon the 1852
lease coming to an end by merger, he, Guise, held the 1937 lease, which must
therefore be treated as a single tenancy with it. It follows that the appellant
is entitled to have the price determined at no more than the 1937 works value.
Site value
Although I have thus concluded that the appellant,
as tenant under the 1937 lease, is to be treated as a successor to Inderwick’s
title under the 1852 lease, the appellant must, in order to be entitled to a
price determined at site value, first establish that erection of the house
itself is a relevant improvement within para (d). I think that, in view
of Mr
it is an improvement ‘carried out at [the tenant’s] own expense’ at the same
time as this question, thus running Mr Berry’s questions A and C together. The
appellant’s final hurdle is then to establish that the agreement under which
the work was done was itself a ‘tenancy in equity’ of which the 1852 lease was
a continuation, such as to create a single tenancy, beginning in 1850, in
accordance with section 3(3).
Is erection of a house a relevant improvement?
The price is to be diminished by ‘the extent to
which [1] the value of [2] the house and premises has been increased by [3] any
improvement [4] carried out… at [5] [the tenant’s] own expense’. I have
prefaced the separate phrases that, in my judgment, need consideration by
numbers in order to facilitate reference. The price subject to this and the
other assumptions contained in subsection (1A) is to be ‘the amount which at
the relevant time the house and premises, if sold in the open market by a
willing seller, might be expected to realise’. Thus, the price to be diminished
is otherwise a ‘market price’.
It follows that the reference to [1] ‘value’ is to
the relevant ingredient of the market price. The relevant improvement, it was
accepted, therefore cannot be to the value. It was indeed common ground that
since the improvement is to be [4] ‘carried out’, it must involve some physical
work of improvement.
It is also common ground that the word [3]
‘improvement’ imports a relativity, that is, there must be some subject-matter
for improvement. Mr Berry accepted, as I think rightly, that not any work
undertaken by the tenant that increases the value of the subject property would
be an improvement within the paragraph. He accepted that work on an adjoining
site, in which the landlord had no interest, could not be relied on to diminish
the market price, even if it had enhanced the value of the landlord’s property.
This is because it is not the ‘value’ that is the subject-matter of the
relevant improvement.
Mr Berry submits that it can be any work to the
demised property. Mr Gaunt submits that it is restricted to work of improvement
to [2] ‘the house and premises’. Mr Berry referred me to a number of
authorities where the meaning of the word ‘improvement’ has been considered in
relation to other statutes or contractual documents. I do not think it is
necessary to deal with them. They all depend on first asking the question, what
is the subject-matter of the improvement. They support the proposition that
building anew on a greenfield site may be an improvement of the site, and
demolishing and reconstructing a building may be an improvement of such
building. But that is not what is here in issue. The question is, to what must
the improvement relate if it is to a relevant improvement for the purposes of
the paragraph?
It appears to me that, grammatically, Mr Gaunt
must be right. Mr
clear if the draftsman had added the word ‘thereto’ to ‘improvement’, thereby
referring back directly to ‘house and premises’. But I think that, in the
absence of express direction elsewhere, the reference would grammatically be
taken back to the last-mentioned object. This, for the reasons that I have
already given and are common ground, cannot be [1] ‘the value’. The immediate
reference back is therefore to the last words of the antecedent phrase, that
is, [2] ‘the house and premises’. Certainly, there is no grammatical basis for
referring to the demised property, which is never mentioned in the subsection
and is not the subject-matter of the valuation.
The ‘house and premises’ are defined by section 2
of the Act. It is provided in subsection (3) that ‘the reference to premises is
to be taken as referring to… appurtenances which at the relevant time are let…
with the house and are occupied with and used for the purpose of the house…’.
It follows that, in the absence of a house, there
is no house nor can there be any premises nor any ‘house and premises’ to
improve. From this it must follow that the erection of a house, where no house
was there before, cannot be an improvement within the paragraph.
It is not necessary to decide whether the
demolition and reconstruction of a house could be a relevant improvement. I am
inclined to think that it would be, and, for that question, if it arose, I
would regard the cases cited by Mr Berry as being of assistance. But those are
not the facts of this case. It is accepted on behalf of the appellant that the outbuildings
of a workhouse, which Inderwick demolished to make way for number 25, could not
reasonably be called a house so as to bring it within the definition in section
2(1).
Mr Berry, none the less, submits, and I accept in
a case where the language used by parliament may be said to lack absolute
grammatical certainty, that the tribunal should not rely only on grammatical
construction, but should seek to resolve any ambiguity by a consideration of
the purpose of the legislation. He submits that the purpose of the 1967 Act is
to allow long leaseholders to purchase their
provide. Although I think that the complex formulae enacted to determine the
purchase price under the Act may be broadly summarised in such terms, I do not
think that such formulation takes sufficient account of the different bases of
valuation under section 9(1) in respect of the lower value houses included in
the 1967 Act as originally enacted, and that provided under the present
subsection in respect of higher value houses brought within the ambit of
enfranchisement in 1974.
The valuation under section 9(1) requires the
presumption that the lease is extended for 50 years on terms provided under
section 15, which assumes a ‘modern ground rent’ in the sense, as section
15(2)(a) puts it, ‘that it shall represent the letting value of the site
(without including anything for the value of any buildings on the site)’.
This, in effect, defers the landlord’s entitlement
to the benefit of the house for 50 years, which is usually, but not always,
sufficient to deprive him of it altogether.
The formula for higher value properties makes
assumptions that, I apprehend, were intended to be less unfavourable to the
landlord. For example, in valuing under section 9(1A) account is taken of the
so‑called tenant’s bid, which was specifically excluded from section 9(1)
by amendment in 1969. Moreover, the valuation is expressly of ‘the house and
premises’. The exception is that contained in para (d), that the tenant
is to have, in effect, the entire benefit of those improvements that he has
paid for. If those words are to have the effect of giving the landlord only
site value, in what is a common case, namely where the original tenant has built
the house under a building lease, it will have the effect of making the price
in many high rateable value cases not more but even less favourable to the
landlord than would arise from the application of the formula for lower value
houses under section 9(1). If one is to resort to purposive construction, that
does not seem to me to be likely to have been the purpose of the legislation.
Mr Berry points out, however, that the
construction that I think is right creates an anomaly. The right to purchase
the freehold arises irrespective of whether the property was let for the
purpose of a house. It is sufficient if it is a house and has been so occupied
for the relevant period when notice is served. It may therefore have become a
house by works of improvement to the original property, carried out at the
tenant’s expense, which adapted the original building for living, so as to
bring it within the definition of house in section 2(1) of the Act. I see no
obvious reason why parliament should have wished to prevent the landlord having
the value of the work that has had the effect of enabling the tenant to
purchase the landlord’s freehold. But I do not suppose that it is a case
considered by the draftsman when he drafted para (d), and, so, even if I
were persuaded that this was indeed an anomaly and one likely to be of
significance, I do not think that that fact would justify my construing para (d)
otherwise in accordance with what I take to be its literal and natural meaning.
Mr Gaunt has a solution that might avoid this
alleged anomaly, although it was not advanced as doing so. He submits that
although the 1852 lease recites that it is granted ‘in consideration of the
expense which… Inderwick hath been at in pulling down… the late… Workhouse and
of erecting and building in lieu thereof the… dwellinghouses…’, I should none
the less hold that the work was not at the expense of the tenant, because it
was expenditure for which he got good consideration, namely the lease. I deal
with this argument at this stage because if I were persuaded, particularly by
Mr Berry’s argument as to anomaly, that my construction of the scope of
improvement as not including the creation of a house where none had been before
was wrong, I think that the effect of these words might deserve further
consideration. Having construed the word improvement as I have, I would
likewise construe this phrase [5] ‘at the [tenant’s] own expense’ literally, so
as to include work done at his expense even for the purpose of obtaining the
lease. The ambit of para (d) is not concerned with whether the
improvement and expenditure was voluntary or under covenant. I do not see why
it should exclude work done at the tenant’s expense because it is consideration
for the grant of the lease.
Was Inderwick a predecessor in title before
the grant of the 1852 lease?
The 1852 lease recites that the premises on which
the Kensington Workhouse stood ‘were… on 15th January 1850 put up to be let by
public auction… and… John Inderwick was then declared to be the highest bidder…
and… the Auctioneer… as Agent for… [the ] trustees… signed an Agreement with
the said John Inderwick for a lease of the said premises on the terms
hereinafter contained’, and provides that ‘this
indenture witnesseth that in pursuance of the said recited contract so
entered into at the said Auction…’ the demise is duly made.
The experts are agreed that a normal type of
building agreement at that time ‘would provide for mutual obligations — the
obligation on the part of the builder to build the houses to carcase and roof
stage, and the obligation on the part of the landlord to grant a lease or
leases to the builder when that stage had been reached. It would not
normally have contained a contingency clause for non-fulfilment.’ The emphasis
is mine.
It is accepted that number 25 was in fact
completed, and not built only to carcass and roof stage before the grant of the
lease; thus, this work was carried out by Inderwick under the 1850 agreement
‘in pursuance of’ which the lease was granted.
Section 37(1)(f) of the Act defines
‘tenancy’ to mean ‘a tenancy at law or in equity’. If, therefore, the effect of
the agreement was to create a tenancy in equity, Inderwick would have been a
tenant within the meaning of the Act at the date when the house was built, and
the parties do not dispute that that tenancy would have been a long tenancy at
whose end the 1852 lease began. Thus, if the agreement created a tenancy in
equity before the stage at which the landlord was obliged to grant the 1852
lease, such tenancy is to be treated as one with the 1852 lease in accordance
with section 3(3) of the Act.
The lease reserved the rent from Christmas 1850,
payable quarterly from Lady Day 1851, and the trustees’ rent records seem to
indicate that there were no arrears at Christmas 1851, but the appellant does
not rely upon the payment of rent as creating any relevant tenancy prior to the
grant of the lease. Mr Berry relies upon the principle established in Walsh
v Lonsdale (1882) 21 ChD 9 that if the agreement is one of which
specific performance will be ordered, the parties are to be dealt with in the
same way as if the lease had been granted.
Mr Gaunt denies that the agreement was one in
respect of which specific performance would have been ordered before Inderwick
had completed all the houses to carcass and roof stage. He relied on the
decision of the Court of Appeal in Cornish v Brook Green Laundry Ltd
[1959] 1 QB 394, where it was held that an agreement for a lease ‘subject to
your first carrying out the works specified in the schedule hereto’ did not
create a tenancy in equity, because as Romer LJ, giving the judgment of the
court, said at p407:
the… Walsh v Lonsdale principle
cannot be invoked in cases where an agreement for a lease is subject to a
condition precedent which remains unperformed by the proposed tenant and has
not been waived by the landlord…
Cantley J applied this rule in Euston Centre
Properties Ltd v H&J Wilson Ltd [1982] 1 EGLR 57* where, as he
said at p58:
[the] agreement was, among other things, an agreement
for the grant of a lease in the form of a draft lease annexed to the agreement,
but it contemplated the happening of two events before the grant of the lease
was to be made: (1) the execution of the works which the landlord was obliged
to carry out and the issue of the certificate he was obliged to procure under
clause 1; (2) the due and proper completion of works which the tenant was at
liberty to carry out, subject to reasonable approval of plans and
specifications for the works by the landlord and its architects and the
obtaining by the tenant of any necessary consents. The tenant was not under
contractual duty to carry out any works to the premises if for some eccentric
reason it did not wish to do any, but once it had been notified by the landlord
of the issue of the certificate under clause 1 and it had procured the
necessary approvals and consents for any works it chose to do, it was obliged
to carry out those works and complete them as provided by clause 3(a) before
it could insist on the grant of the lease under clause 4.
*Editor’s note: Also reported at (1982) 262 EG
1079
It is the words that I have emphasised that Cantley
J treated as amounting to a condition precedent that prevented the invocation
of the principle in Walsh v Lonsdale.
In Henry Smith’s Charity Trustees v Hemmings
[1983] 1 EGLR 94* the Court of Appeal did not, as I read the decision, regard
it as material whether the defendant had a Walsh v Lonsdale
tenancy, but Slade LJ commented relevantly on the following facts as recorded
at p94:
On January 14 1971 Mr Ludovici took an assignment
of the residue of the lease, and the residue was some five months. He had
approval for some repairs and alterations to be done, and after further
negotiations, on June 17 1971, he made an agreement with the landlords to do
certain alterations and repairs, including adding a storey. It was a term of
that agreement that when those alterations and repairs were completed to the
landlords’ satisfaction, they would enter into a lease with him which, in draft
form, had been exhibited to that agreement.
The work was done and approved, and on July 31
1972 the landlords granted Mr Ludovici a lease, the term being from March 25
1971…
*Editor’s note: Also reported at (1983) 265 EG
383
At p95 Slade LJ commented on these facts:
If… the appellant… has to show that Mr Ludovici
carried out the improvements at a time while he was a tenant under the lease of
1972, it is plain he cannot discharge this onus on the facts. The relevant
improvements had been substantially completed prior to May 24 1972. Until Mr
Ludovici had carried them out, he would have had no right even to obtain
specific performance of the agreement for the grant of a lease to him.
Accordingly, he could not successfully have invoked the doctrine of Walsh
v Lonsdale so as to claim that the works done before May 24 1972 were
done under the lease of July 1972. Since all leases lie in grant, the fact that
the term under that lease was thereby expressed to begin on March 25 1971 could
not itself have operated to have made Mr Ludovici retrospectively a tenant
before the grant of the lease.
Mr Berry accepts that the Walsh v Lonsdale
principle cannot be invoked where the agreement is subject to a condition
precedent, but relies on the recent decision of the Court of Appeal in Michaels
v Harley House (Marylebone) Ltd [1999] 1 All ER 356 as showing that the
kind of provision that seems, in the cases that I have cited, to have been
treated as such condition is not to be so treated. This case has complicated
facts, but I think that, for the present purpose, they can be sufficiently
summarised by some simplification. It was a scheme by TWD Ltd to dispose of its
reversionary interest in a block of flats where the plaintiffs were tenants to
an unrelated company, Frogmore, without having to notify the ‘qualifying
tenants’ under Part 1 of the Landlord and Tenant Act 1987. Such notification
was unnecessary in the case of a disposal by a landlord which is a body
corporate to ‘an associated company’. TWD accordingly set up what became Harley
House (Marylebone) Ltd, and I shall call ‘HH’, as a subsidiary to buy the
reversion with money lent to it by TWD, with the intention that TWD should sell
the shares in HH to Frogmore. The issue of relevance to this decision was
whether Frogmore became the owners in equity of the shares in HH, so that HH
was no longer an associated company of TWD, before TWD transferred the freehold
to HH. The issue arose in this form because the relevant statutory provision
required that in determining whether a company was an associated company
‘rights held by a person [in this case TWD] in a fiduciary capacity shall be
treated as not held by him’.
The agreement for the sale of the shares by TWD to
Frogmore was expressed in clause 2.1 to be ‘conditional upon the completion of
the purchase of the Property [from TWD] by [HH]’. However, as noted in the
judgment of Robert Walker LJ at pp364-5:
In cl 10.3 of the share sale agreement TWD
covenanted with Frogmore in the clearest terms to procure completion of the
sale and purchase of the freehold.
It was in those circumstances that the lord
justice concluded at p365d:
TWD’s obligations under the share sale agreement
were not dependent on some outside contingency beyond its control… Had TWD not
completed on 25 March 1993 [impliedly before the transfer of the
property to HH], it could have been sued for specific performance. Had it
repudiated its obligations to Frogmore before that day, it could have been sued
for specific performance even before the contractual date for completion (see Hasham
v Zenab [1960] AC 316). The condition in cl 2.1 would have been no
defence.
I shall return to the Hasham case, upon
which Mr Berry also relied, but I would meanwhile draw attention to the
distinction that Lloyd J had made at first instance and which the lord justice
approved at p364j:
between a true condition precedent which it is
not within a contracting party’s power to bring about… and a promissory
condition which the party does have power to fulfil or cause to be fulfilled.
I read those words as meaning that a party seeking
specific performance is not to be denied a decree because of a promissory
condition that the other party has the power and obligation to fulfil. It does
not follow that a party may seek specific performance in spite of a promissory
condition that he is under an obligation to fulfil but has failed to fulfil, on
the ground that it is in his power to fulfil it. In my judgment, the three
cases that I have already cited are authority to the contrary, and I do not
read the decision in Michaels as impinging on that question.
The passage upon which I have just commented
follows a citation from the decision of the Court of Appeal in Eastham v
Leigh London & Provincial Properties Ltd [1971] 2 All ER 887, but
that was concerned with whether there was or was not a contract, not whether
the contract was specifically enforceable.
Hasham v Zenab [1960]
AC 316 did decide that equity could intervene with, at any rate, declaratory
relief when a contract was repudiated before the date when it was due to be
completed. I do not doubt that Inderwick had an equitable interest in the site
of the Kensington Workhouse from the moment when the agreement was made after
the auction. It would entitle him, for example, to prevent the trustees from
disposing of the property in a manner inconsistent with their obligations under
the agreement. This, however, is not the same as saying that Inderwick was
immediately entitled to the lease, which the trustees would by the agreement be
obliged to grant only when a particular stage in the building had been reached.
Until that stage was reached, Inderwick was not, in my judgment, a tenant in
equity of the 1852 lease.
Mr Berry alternatively submits, perhaps a little
desperately, that it does not matter if Inderwick was not a tenant in equity.
For this submission, he relies on some observations of Scott J in Hambros
Bank Executor & Trustee Co Ltd v Superdrug Stores Ltd [1985] 1
EGLR 99* as to the possibility of treating improvements carried out shortly
before a tenancy with a view to the grant of the tenancy as improvements
carried out during the tenancy within the meaning of section 34 of the Landlord
and Tenant Act 1954. These observations were, as I read his judgment, entirely obiter
and, I think, tentative. It does not seem to me that there can be any
justification for holding that para (d) requires the price to be
diminished in respect of improvements carried out other than by a tenant under
a long lease at the time that the work is carried out.
*Editor’s note: Also reported at (1985) 274 EG
590
For these reasons also, I determine that the
appellant is not entitled to have the price determined at site value.
Conclusion
I therefore allow the appeal, and determine the
price for the freehold to be £696,000.
Appeal allowed.
Editor’s note: This interim decision determines
all matters save for the question of the costs of the reference.
