Landlord and tenant –– Part II of Landlord and Tenant Act 1954 –– Landlord’s opposition to new tenancy –– Section 30(1)(f) –– “Eggshell tenancy” –– Load-bearing walls not forming part of demised premises –– Landlord proposing demolition and reconstruction –– Whether demolition or reconstruction of “premises” –– Whether tenant entitled to rely upon section 31A –– Whether landlord entitled to oppose grant of new tenancy
The appellant tenant held a tenancy of shop premises under the terms of an underlease granted in June 1967 for a term of 25 years. The tenancy was an “eggshell tenancy”, since the demise was of an enclosed space that excluded the main structure of the building (save for the internal skin of the part of the building occupied by the tenant). However, the tenancy gave the tenant rights of support from the structural elements of the building. The landlord proposed extensive works to the building and premises. The trial judge found that the existing floor would be removed, 60% of a dividing wall would be taken down, the shopfront roller blind would be replaced with a plate-glass shopfront, the ceiling would be removed and all existing wiring, plaster and tiling on the two other walls would be removed. The judge held that the works fell within section 30(1)(f) of the Landlord and Tenant Act 1954, but that the tenant could not rely upon section 31A because the landlord could not reasonably carry out the proposed works without obtaining possession of the premises. The tenant appealed, contending that the proposed works were not works within the meaning of section 30(1)(f), alternatively that it was entitled to rely upon section 31A.
Held: The appeal was dismissed. In relation to section 31A, the landlord could not reasonably carry out the intended works without obtaining possession, in the sense of putting an end to the tenant’s legal right to possession under a new tenancy. That was because, whether through the covenant for quiet enjoyment or the principle that a landlord cannot derogate from his grant, an aspect of the tenant’s legal right to possession includes the ability to occupy the holding and thus enjoy, as part of it or ancillary to it, rights of support and access that enable it to enter upon, use and occupy the holding. Section 31A is directed to the works that the landlord intends to do. The court should consider the terms of the new tenancy and whether the tenant could, upon regaining possession, carry out works of alterations that would undo some of the landlord’s proposed works. In respect of section 30(1)(f), the ordinary meaning of the words “demolish” and “reconstruct” is wide enough to apply to an eggshell; an eggshell with no structural element can be reconstructed and demolished. The works intended by the landlord involved either the demolition of the eggshell that was demised or the demolition of the eggshell together with the rights of support that rendered the eggshell demised capable of occupation and use by the tenant. The word “premises” in section 30(1)(f) is not confined to parts of a built structure that perform some structural function. Non-load-bearing features can be capable of being demolished and reconstructed.
The following cases are referred to in this report.
Barth v Prichard [1990] 1 EGLR 109; [1990] 20 EG 65, CA
Bewlay (Tobacconists) Ltd v British Bata Shoe Co Ltd [1959] 1 WLR 45; [1958] 3 All ER 652, CA
Blackburn v Hussain [1988] 1 EGLR 77; [1988] 22 EG 78
Bracey v Read [1963] Ch 88; [1962] 3 WLR 1194; [1962] 3 All ER 472, Ch
Cadle (Percy E) & Co Ltd v Jacmarch Properties Ltd [1957] 1 QB 323; [1957] 2 WLR 80; [1957 1 All ER 148, CA
Cerex Jewels Ltd v Peachey Property Corporation plc (1986) 52 P&CR 127; [1986] 2 EGLR 65; 279 EG 971, CA
City Offices (Regent Street) Ltd v Europa Acceptance Group plc [1990] 1 EGLR 63; [1990] 05 EG 71
Cook v Mott (1961) 178 EG 637
Coppen (Trustees of Thames Ditton Lawn Tennis Club) v Bruce-Smith (1999) 77 P&CR 239; [1998] JPL 1077, CA
Decca Navigator Co v Greater London Council [1974] 1 WLR 748; [1974] 1 All ER 1178, (1973) 28 P&CR 107, CA
Graysim Holdings Ltd v P&O Property Holdings Ltd [1993] 1 EGLR 96; [1993] 05 EG 141, CA
Heath v Drown [1973] AC 498; [1972] 2 WLR 1306; [1972] 2 All ER 561, (1972) 23 P&CR 351, HL
Housleys Ltd v Bloomer-Holt Ltd [1996] 1 WLR 1244; [1996] 2 All ER 966, CA
Joel v Swaddle [1957] 1 WLR 1094; [1957] 3 All ER 325, CA
Price v Esso Petroleum Co Ltd [1980] 2 EGLR 58; (1980) 255 EG 243, CA
Redfern v Reeves (1978) 37 P&CR 364; [1978] 2 EGLR 52; 247 EG 991, CA
Romulus Trading Co Ltd v Henry Smith’s Charity Trustees (No 1) [1990] 2 EGLR 75; [1990] 32 EG 41; (1990) 60 P&CR 62, CA
This was an appeal by the tenant, Pumperninks of Piccadilly Ltd, from a decision of Judge Rich QC, sitting in Central London County Court, on a preliminary issue in an application by the tenant for a new tenancy under Part II of the Landlord and Tenant Act 1954 in proceedings against the landlords, Land Securities plc, Shaftsbury (Piccadilly) (No 1) Ltd and Shaftsbury (Piccadilly) (No 2) Ltd.
Kim Lewison QC (instructed by Samuel Phillips & Co, of Newcastle-upon-Tyne) appeared for the appellant; Michael Driscoll QC (instructed by Nabarro Nathanson) represented the respondents.
Giving the first judgment, Charles J said:
Introduction
1. This is an appeal with the permission of the judge from a decision of Judge Rich QC made on the application of the appellant (the applicant in the county court) for the grant of a new tenancy under Part II of the Landlord and Tenant Act 1954 (the 1954 Act). I shall refer to the appellant, Pumperninks of Piccadilly Ltd, as the tenant. There are three respondents to the appeal. This is because, during the course of the proceedings, the landlord changed. The original respondent, Land Securities plc, was the landlord who served the section 25 notice, and the additional respondents are in the same group of companies. Nothing
2. The issue before the judge was whether the landlord had proved its ground of opposition to the grant of a new tenancy. The ground relied upon was that set out in section 30(1)(f) of the 1954 Act and the issues before the judge were therefore whether that ground was satisfied, having regard to the terms of that subsection and the terms of section 31A of the 1954 Act.
Overview
3. This case concerns what is commonly referred to as an “eggshell tenancy” because the demise is of the internal skin of the part of the building occupied by the tenant. No load-bearing parts of the building are included in the demise. Counsel confirmed that this was not an uncommon type of business lease. However, they did not refer us to any reported case under the 1954 Act relating to such a lease. The only case dealing with an eggshell tenancy to which we were referred was City Offices (Regent Street) Ltd v Europa Acceptance Group plc [1990] 1 EGLR 63*.
* Editor’s note: Also reported at [1990] 05 EG 71
4. There is therefore no authority directly in point, and this case raises points as to the application of the 1954 Act to tenancies of this type.
5. The 1954 Act gives security to business tenants in respect of the parts of the property let to them that they occupy. This is clear from the terms of the 1954 Act itself. Further, the cases we were referred to on section 31A show that it was introduced into the 1954 Act to provide additional protection to tenants. However, as was confirmed by leading counsel for the tenant (who has considerable expertise in the field), it has often been said that the 1954 Act is not intended to stand in the way of redevelopment. As Lord Reid said in Heath v Drown [1973] AC 498 at p506F, when construing the 1954 Act:
One must first look at the apparent policy of the Act. I think that this was to give security of tenure to business tenants so far as that was thought to be reasonably practicable. Security of tenure was no new idea.
[He then refers to other examples when security of tenure has been given]
In every case one has to examine the relevant Act to find the limits of the security.
6. This case gives rise to problems in connection with the point that work that involves the removal of the skin of a building, or a part thereof (and thus the eggshell), and its later replacement could be categorised as glorified works of redecoration. The tenant says that, having regard to the purposes of the 1954 Act, it would be surprising if a landlord could obtain possession on the ground specified in section 30(1)(f) of the 1954 Act on the basis that such works, or works that could fairly be so described, were to be carried out. This point has considerable force. But so does the point made by the landlord that it would be surprising if a landlord intended to demolish an entire building let on an eggshell lease (or a number of eggshell leases) if this work did not satisfy the ground in section 30(1)(f) in respect of each of the eggshell tenancies. In argument, the example of a third-floor eggshell tenancy in a building that was to be demolished was taken. By reference to that example, there are plainly a multitude of examples, ranging from the position as in the example when the whole building is to be demolished, through demolition of parts of the building that support all, or parts of, the relevant eggshell, to removal of only the eggshell, leaving all the parts of the building that support it (which could be a mixture of load-bearing and non-load-bearing walls and joists). Further, the application of the 1954 Act in such situations can be complicated by reason of the terms of the relevant leases and the rights they give to a landlord to enter to carry out certain works to the building (eg to floor joists).
7. The width of potential examples highlights the point made in many of the cases that, in applying the relevant provisions of the 1954 Act, the court is dealing with issues of fact and degree. This applies in the case of an eggshell tenancy just as it does in other situations.
8. Finally, by way of overview and before turning to the detail of this case, I add that an eggshell tenancy such as this is a letting of an enclosed space that the tenant will use and occupy as such. To enable such use and occupation to take place, the eggshell must be supported. It follows that, in using and occupying the eggshell, the tenant is taking advantage of, and making use of, that support.
Lease
9. This is an underlease dated 25 June 1976 for a term of 25 years. It therefore created a legal estate in land. Clause 1 provided (so far as relevant) as follows:
In consideration of the respective rents and covenants by and on the part of the Lessee hereinafter reserved and contained the Lessors HEREBY DEMISE unto the Lessee ALL THAT shop and premises situate on the ground floor of the Building… including the shopfront and fascia thereof and pavement lights (if any) or such interest as the Lessors may have therein TOGETHER with the Lessors fixtures or fittings therein or thereon and the appurtenances thereunto appertaining… but there shall be excluded from the demise hereby made the excluded parts of the said premises (hereinafter called “the excluded parts”) defined in the First Schedule hereto AND which said premises (less the excluded parts) are hereinafter referred to as the “demised premises.
The first schedule provided that:
“the excluded parts” shall mean the main structure of the Building of which the demised premises form part (but not the internal or external surfaces claddings finishes thereto or thereon within or contiguous to the demised premises) which main structure comprises without prejudice to the generality of the foregoing…
and it then particularised that general description. I use the term “demised premises” in this judgment to refer to the demised premises as defined in the lease.
10. The second schedule set out exceptions and reservations in favour of the lessor, and included rights to enter onto the demised premises to build upon or into any boundary or party wall and to repair and maintain all other parts of the remainder of the building making good any damage thereby caused.
11. The lease includes a covenant for quiet enjoyment and a covenant by the lessor to repair the excluded parts and the remainder of the building. Additionally, the lease provided by clause 5 thereof that: (i) the lessor could, without derogating from grant, carry out works to the remainder of the building, but this was subject to the obligation that the lessor had to make good to the reasonable satisfaction of the lessee “any physical damage occasioned to the demised premises”; and (ii) if possession of the demised premises should be required for, or in connection with, any scheme or works of demolition, reconstruction or construction, modernisation or improvement, the lessor may, in the penultimate year of the term, determine the underlease by notice to expire at any time during the past year.
12. Additionally, the lease contained a covenant by the lessee in clause 2(14) thereof to permit workmen employed by the lessor to enter the demised premises to carry out works to the building, making good any damage done to the demised premises by such entry (this covenant essentially mirrors the reservations and obligations of the lessors). Further, by clause 2(19), the lessee covenanted as follows:
(19)(i)(a) Not without the consent in writing of the Lessors and Superior Lessors (such consent in the case of the Lessors not to be unreasonably withheld) at any time during the said term to make or suffer to be made any external projection from the demised premises or make or change the existing design or appearance of the external decorative scheme of the demised premises
(b) Not to cut maim injure or alter any of the excluded parts
…
(ii) Not at any time during the said term to make any alterations or addition whatsoever either externally internally or otherwise in or to the demised premises or any part thereof without first submitting to the Lessors and (where necessary) the Superior Lessors and receiving their consent in writing to the plans erections drawings elevations and specifications of the proposed alteration or addition such consent in the case of the Lessors not to be unreasonably withheld
(iii) If the Lessee shall carry out any works which are prohibited by sub-clause (i) hereof or without such consent as is required under the provisions
13. Standing back from the detail of the terms of the lease, it provides the tenant with a right to use and occupy a ground-floor shop. To enable the tenant to do this, it is making use of the rights of support to the “demised premises” (ie the floor, the ceiling, and the remainder of the eggshell) provided by the covenant for quiet enjoyment and the obligation not to derogate from grant.
Works the landlord intends to carry out
14. There was no effective dispute as to what these were. The judge said this about them:
I turn first to the question of whether the intended work satisfies s30(1)(f). It is essential in order to determine whether the nature of the works proposed involve the demolition of the premises comprised in the holding for the purpose of that paragraph to identify carefully the scope of the proposed works and the extent of the premises so comprised. I should say at the outset that save in respect of one piece of work, to which I shall return, the landlords rely on an intention to demolish –– and only an intention to demolish. There is no difficulty about the works which they identify through the evidence of Mr Mortimore, their architect. They involve the complete stripping out of all the ducts and services within the shop; the cutting back of the surfaces of the walls which contain the shop to the underlying brickwork and, in the case of the wall between numbers 9 and 11 (the adjoining shop) the removal of 60 to 70 per cent of the wall; replacing the support that wall gives to the upper floors by a steel column to be positioned outside the area of the demise; the removal of the roller shutter which forms the shop’s frontage and its replacement by a show window extending in front of all four shops with the entrance into no 13; the removal of the existing floor and ceiling and the replacement of the load bearing floor supporting the shop floor at a level ten inches below the existing floor; the structural floor of the mezzanine will be replaced at a different level. As Mr Driscoll QC for the landlords puts it, every physical built thing in the demise will be removed. The issue is however joined as to whether these built things are part of the premises comprised in the holding.
The work to which the judge said he would return concerned the removal of a roller shutter and the runners to either side of it at the front of the shop. The judge returned to this when setting out his overall conclusion on whether the intended works satisfied the first part of section 30(1)(f). He said:
The case with which I am concerned of course, is a case in which there is no load bearing element and it is a matter for consideration under the 1954 Act. I do not think that in the case of an eggshell demise, which includes no load bearing element, there are for that reason no premises capable of demolition. The structure is the fabric which encloses the demise in so far as it is itself demised, in my judgment the physical boundaries of the demise, be they constituted by walls, ceiling or floor, or only their surfaces, are premises within the meaning of the paragraph at least if they are of such physical quality as to be sensibly capable in ordinary language of being constructed or part of the construction, or of being demolished. I think in the present case that the tile work which lines the wall, the wooden floorboards covered by a metallic surface which constitute the demised floor and the roller shutter which provides the enclosure of the fourth side of the shop are all capable of being described as having been constructed or at least meaningfully of being demolished, and they constitute the premises which I hold that the landlord has proved he is intending to demolish; and, in the case of the roller shutter, to reconstruct by inserting a new shop front. I take this view of the roller shutter notwithstanding that it appears to be removable from within the runners on each side, which are no doubt affixed to the building at least in part because it is a replacement of the shop front which itself constituted the envelope of the demise. It is in that sense, therefore, part of the fabric or structure of the demise.
On the other hand I would not regard its replacement, as proposed, by a shop front consisting of glass within an aluminium frame which would be a day’s work costing some £4,200, as “substantial work of construction” within the second limb of s30(1)(f). The work of demolition and reconstruction, however, is to the whole of what constitutes the premises so that for the reasons set out in Housley’s Limited v Bloomer-Holt Limited the works intended are within the first limb of the paragraph.
15. Later, when considering section 31A and the argument as to whether the landlord could reasonably carry out the intended works without obtaining possession of the holding, the judge said about the works:
The works which the landlord intends include the substitution for the roller shutter of a new shop front, continuous across the whole frontage. If that were carried out the tenant would immediately alter the work done by substituting a new front with an access and would be entitled to expect consent so to do. The work to the floor would involve the laying of a floor of continuous level through the four shops. If the landlord carried out that work, the tenant would rely upon it although below the tenant’s own demise to provide support for a new floor at the level of the existing floor. The work includes opening up the wall between numbers 9 and 11. If the landlord carried out that work the tenant would construct a new wall within its own demise to obstruct the opening and be entitled to expect consent to do so.
It is to be noted that the findings that the tenant could expect consent to carry out works do not extend to the reinstatement of a floor at the existing level.
16. Those findings show that the effect of the intended works is:
(i) the removal of the existing floor (there was evidence, but no finding, that the joists underneath the floor did not form part of the main structure and were thus excluded from the “demised premises”) with the result that after the works have been done to provide a floor to stand on at the present level, it would have to be provided with support from outside the area contained in the demised premises, and this is so whether that support is from the new floor or from joists;
(ii) the removal of about 60% of the dividing wall, with the result that, to provide a partition, the tenant would have to build a partition wall within the area of the existing demise, or a wall in the same place as the one to be removed would have to be constructed;
(iii) the removal of the roller blind at the front of the shop and its replacement with a plate-glass window, part of which would have to be removed if the tenant is to be able to gain access from the street, which is the only access at present;
(iv) the removal of the existing ceiling, with the result that a new ceiling would have to be put in that would have to be suspended or supported from outside the present demise;
(v) all the existing wiring and all the existing plaster and tiling on the other two walls will have been removed.
17. The work that the landlord intends to carry out is part of a substantial programme of works. As to the time that it would take to carry out the intended works, the judge recorded and found that:
They agreed that if the works were carried out as proposed in the s31A terms “in one continuous operation” they would take between 17 and 23 working days during which the tenant would have to vacate the holding and could not use it for the purposes of its business. On the other hand, if the landlord’s works were carried out in the order which their architect, Mr Mortimore, would propose such that all necessary demolition began at the beginning of the landlord’s contract and no access to the building was permitted until after all the works at the building had been completed, the tenant would have to vacate for over 40 weeks. Even total vacation, which is of course the maximum possible interference with the tenant’s use of the holding, if limited to 17 to 23 working days (say up to four weeks) does not appear to me to be interference for such a substantial time as to prevent the tenant relying upon s31A if it is willing to grant the landlord appropriate rights.
18. The overall effect of the intended works is therefore that, effectively, the eggshell, and thus the material enclosing the “demised premises”, will be removed, and what was the tenant’s shop will become part of an open space including other parts of the ground floor. That open space will have to be fitted out by, or on behalf of, the new occupier or
19. To enable a new lease of the “demised premises” to be granted, it would be necessary for it to be provided with support from other parts of the building. Any new lease of an eggshell within the ground-floor area would have such support through the operation of the covenant for quiet enjoyment and the principle that the lessor cannot derogate from his grant. This would be so whether the lessor or the lessee carried out the work to provide such support.
Most relevant provisions of the 1954 Act
20. As the judge recognised, the most important sections are sections 30(1)(f) and 31A. They are in the following terms (so far as is relevant):
Opposition by landlord to application for new tenancy
30.–– (1) The grounds on which a landlord may oppose an application under subsection (1) of section twenty-four of this Act are such of the following grounds as may be stated in the landlord’s notice under section twenty-five of this Act or, as the case may be, under subsection (6) of section twenty-six thereof, that is to say: ––
…
(f) that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding
…
Grant of new tenancy in some cases where section 30(1)(f) applies
31A.–– (1) Where the landlord opposes an application under section 24(1) of this Act on the ground specified in paragraph (f) of section 30(1) of this Act the court shall not hold that the landlord could not reasonably carry out the demolition, reconstruction or work of construction intended without obtaining possession of the holding if ––
(a) the tenant agrees to the inclusion in the terms of the new tenancy of terms giving the landlord access and other facilities for carrying out the work intended and, given that access and those facilities, the landlord could reasonably carry out the work without obtaining possession of the holding and without interfering to a substantial extent or for a substantial time with the use of the holding for the purpose of the business carried on by the tenant; or
…
21. In my judgment, those sections should not be construed and applied in isolation, and sections 23(1) and (3), 32 and 35 are also of particular relevance. They are in the following terms (so far as is relevant):
Tenancies to which Part II applies
23.–– (1) Subject to the provisions of this Act, this Part of this Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes.
…
(3) In the following provisions of this Part of the Act the expression “the holding”, in relation to a tenancy to which this Part of this Act applies means the property comprised in the tenancy, there being excluded any part thereof which is occupied neither by the tenant nor by a person employed by the tenant and so employed for the purposes of a business by reason of which the tenancy is one to which this Part of this Act applies.
Property to be comprised in new tenancy
32.–– (1) Subject to the following provisions of this section, an order under section twenty-nine of this Act for the grant of a new tenancy shall be an order for the grant of a new tenancy of the holding; and in the absence of agreement between the landlord and the tenant as to the property which constitutes the holding the court shall in the order designate that property by reference to the circumstances existing at the date of the order.
(1A)…
(2)…
(3) Where the current tenancy includes rights enjoyed by the tenant in connection with the holding, those rights shall be included in a tenancy ordered to be granted under section twenty-nine of this Act except as otherwise agreed between the landlord and the tenant or, in default of such agreement, determined by the court.
Other terms of new tenancy
35.–– (1) The terms of a tenancy granted by order of the court under this Part of this Act (other than terms as to the duration thereof and as to the rent payable thereunder) 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; and in determining those terms the court shall have regard to the terms of the current tenancy and to all relevant circumstances.
22. The “holding” is defined. The definition is linked to section 23(1), and the term the holding is expressly referred to in sections 30(1)(f) and 32, but words within that definition, and section 23(1), namely “property” and “occupied” are not defined.
23. “Premises” is a word used in both sections 23(1) and 30(1)(f). If the definition of “holding” is written into section 30(1)(f), the relevant part thereof would read:
intends to demolish or reconstruct the premises comprised in the property comprised in the tenancy there being excluded any part thereof which is neither occupied by the tenant…
24. It follows that, in this case, the landlord has to show that he intends to demolish or reconstruct the premises comprised in the property comprised in the tenancy that is occupied by the tenant. This is not necessarily the same as the “demised premises” because:
(i) “property” is a word that, as its definition in section 205 of the Law of Property Act 1925 shows, is capable of a wider meaning than the extent of the “demised premises”, and thus the eggshell; and
(ii) “occupied” is also a word with a breadth of meaning.
The definition of “property” in section 205 of the Law of Property Act 1925 is that it: “includes any thing in action, and any interest in real or personal property”. Naturally, that definition does not apply, but, in my judgment, it reflects the natural breadth of meaning of the word and provides a pointer to the extent of its meaning when used to describe the subject matter of a tenancy. Leading counsel for the tenant pointed out that, normally, a person does not “occupy” a right or an easement; I agree. Further, it seems to me that this is reflected in, and catered for by, section 32(3), which recognises the possibility of there being “rights enjoyed with the holding” and that they need to be included in the new tenancy that section 32(1) requires to be a new tenancy of the holding.
25. I return to the possible meaning of the phrase “the premises comprised in the holding” (as defined –– and thus the property comprised in the tenancy occupied by the tenant) at the end of this judgment, when considering what constitutes work of demolition or reconstruction where no structural parts of a building are included in the demise, but what is demised enjoys rights of support from the building without which it cannot be used or occupied.
26. The word “possession” is used in sections 30(1)(f) and 31A. It has been held by the House of Lords in Heath that, for the purposes of section 30(1)(f), the phrase “obtaining possession of the holding” means obtaining legal possession that would yield physical possession rather than simply physical possession of the holding. Lord Kilbrandon gave the speech of the majority, and the most relevant passages of his speech are at pp515E-516F and 517B-F, where he says (with my emphasis):
Looking at the terms of section 30(1)(f) it seems clear that what the respondent proposes to do is not demolition, which would have caused the holding to cease to exist physically, nor is it properly described as reconstruction of the premises, since at the end of the operation the premises will exist exactly as they existed before, with the holdings now occupied by the tenant continuing to be capable of being leased out of the premises. Conceding that the work is a “substantial work of construction,” that is not inconsistent with its being, what it has always been accepted as being, a necessary repair for the carrying out of which the landlord was entitled to access in terms of the leases. If the respondent is correct in his submission that the work proposed falls under section 30(1)(f) an inexplicable situation has arisen, namely, that although the appellant could have been obliged to tolerate a substantial amount of construction, irreconcilable with her occupation of the premises for the purposes of her business, being carried out over a substantial period during the currency of the present leases, she is nevertheless disentitled from the statutory
I do not think that section 31A enters into this question. It was suggested in the Court of Appeal that, if the appellant’s construction of section 30(1)(f) is correct, she is in a better position under the earlier statute than under the later, which was no doubt passed for the additional security of tenants. In my view, however, it is the reservation of the landlord’s right of entry in the old leases which is recognised by section 35 as being capable of importation into the new leases, that makes it unnecessary for the appellant to rely on the new section 31A. The history of the later Act seems to show that it was passed for the protection of tenants whose original leases had contained no such term, and in order to authorise the court to incorporate a term of this kind in the new lease, which would otherwise have been doubtfully competent under section 35 in default of agreement by the landlord. It seems likely that this doubt arose from the contrasting decisions of the Court of Appeal in Little Park Service Station Ltd v Regent Oil Co Ltd [1967] 2 QB 655 and in Fernandez v Walding [1968] 2 QB 606. In the former case the tenant succeeded in his contention that the case did not fall within section 30(1)(f). It is clear from the judgments in that case that the current lease contained a clause under which the landlord could have carried out the intended work of reconstruction; and it is implicit in the reasoning of Russell LJ [1967] 2 QB 655, 673, when he paraphrased the final words of the paragraph “without obtaining possession of the holding” as meaning “if a new tenancy is granted,” that he was contemplating a new tenancy incorporating similar terms as respects the landlord’s right of entry for the purpose of reconstructing the premises as were contained in the current lease. In the latter case, Fernandez v Walding [1968] 2 QB 606, the current tenancy was oral. It reserved no right of entry to the landlord, and the tenant failed. It appears to have been tacitly assumed that in these circumstances there was no power under section 35 to incorporate in the new lease a right of entry adequate for the landlord’s purposes. One can see that, in such circumstances, a term which substantially and for a substantial time interfered with the use of the holding by the tenant would be inappropriate, since that interference would have been inconsistent with the very security of tenure which it is the policy of the statutory code to promote. But it is not possible to say that such a term would be thus inconsistent, or that it would be so anomalous as to be outside a reasonable relationship of landlord and tenant, when it is merely a repetition of a term, and having the same practical incidents as that term, which had been freely negotiated between the parties when the relationship was originally entered into. (pp515E-516F)
…
Where I differ from the Court of Appeal is upon the crucial question of construction of the words “without obtaining possession of the holding.” I have already indicated the inherent improbability, upon a purposive construction of the Act as whole, that Parliament should have intended to deny security of tenure to a tenant because the landlord intended to carry out the work upon the premises which he was entitled to do under the terms of the existing tenancy. That such was not the intention of Parliament appears to me to be plain from an analysis of the actual words of section 30(1)(f) themselves.
The “holding” referred to in section 30(1)(f) is ex hypothesi one in respect of which there is a subsisting tenancy, since section 24(1) extends the current tenancy until the tenant’s application for a new lease has been finally disposed of. “Obtaining possession of the holding” (sc by the landlord) must, in my view, mean putting an end to such rights of possession of the holding as are vested in the tenant under the terms of his current tenancy. This is the ordinary meaning of “obtaining possession” in the context of the relationship of landlord and tenant. Moreover, an examination of the Act shows that when the word “possession” is used it means the legal right to possession of the land. (p517B-E).
27. As Lord Morris points out in Heath at p511G, to obtain possession, the landlord has to terminate the current tenancy without it being followed by a new tenancy. Section 30(1)(f) is a ground of opposition to a new tenancy. The terms of the new tenancy sought by the tenant can be introduced pursuant to section 35 or section 31A, and, as Lord Kilbrandon points out in Heath at p516E, a purpose of section 31A was to enable the court to introduce a term into the new lease equivalent to a term of the lease in question in that case (and which exists in this case) to enable the landlord to enter to do repairs. Lord Kilbrandon’s approach (and, thus, the approach of the majority of the House of Lords) was based upon the effect of a term of the existing tenancy, which would be incorporated into the new tenancy by section 35, rather than section 31A, and thus the meaning of the statutory phrase “obtaining possession of the holding” in section 30(1)(f). Additionally, and perhaps in contrast to what goes before, the last passage I have emphasised in the citation in para 26 hereof focuses upon the current tenancy, rather than the new one with the relevant term included in it pursuant to section 35. However, in my judgment, Heath applies to:
(i) a consideration of the effect of the relevant terms of (a) the new lease, whether they are introduced therein pursuant to section 31A or section 35, and (b) the existing tenancy (as continued by section 24 of the 1954 Act); and
(ii) the statutory phrase “obtaining possession of the holding” in both sections 30(1)(f) and section 31A.
Indeed, the contrary was not argued.
28. Heath therefore provides that “obtaining possession of the holding” in section 31A(1)(a) means putting an end to the tenant’s legal right to possession, and thus that the question to be asked under that subsection is whether, given the access and other facilities provided to the landlord under the terms that the tenant agrees can be included in the new tenancy, the landlord can reasonably carry out the intended works without putting an end to the tenant’s legal right to possession under that new tenancy.
My approach on this appeal
29. The judge found that the ground of opposition to the grant of a new tenancy in section 30(1)(f) was satisfied, and the tenant appeals that conclusion on two bases, namely that the judge was wrong in law to conclude that:
(i) the works upon which the landlord relied were works of demolition or reconstruction of the premises comprised within the holding; and further or alternatively
(ii) the tenant was not entitled to rely upon section 31A.
30. The landlord argues that the judge was right for the reasons he gave, and that his conclusions can be supported by further and alternative reasons.
31. Clearly, a logical approach to the application of sections 30(1)(f) and 31A is, first, to consider the first part of section 30(1)(f), namely whether the landlord has an intention to demolish etc, and then to consider the second part of section 30(1)(f) and thus section 31A. This is what the judge did, and was the order in which the issues were argued before us and the judge. However, for the purposes of analysis, I shall take the arguments under the second part of section 30(1)(f), and thus section 31A, first. One of my reasons for doing so is that, in argument, it was asserted that section 31A provides protection to a tenant if the intended works are properly classified as “glorified works of decoration”.
Obtaining possession of the holding
32. It follows from the decision in Heath, and is confirmed, for example, in Cerex Jewels Ltd v Peachey Property Corporation [1986] 2 EGLR 65* at p68D-F, that a first stage in the consideration of whether the landlord can reasonably carry out the work intended without obtaining possession is to consider what parts of the work the landlord can carry out pursuant to the terms of the existing lease, and a new lease containing those terms and the terms of access and other facilities the tenant agrees should be included therein for carrying out the work intended. Heath established that if the landlord can carry out the intended work under an existing term of the tenancy, he cannot satisfy the second part of section 30(1)(f). To my mind, this, in part, prompted the remark of Templeman LJ in Price v Esso Petroleum Co Ltd [1980] 2 EGLR 58† at p62E that:
It is also true that, if section 31A of the Landlord and Tenant Act 1954 is construed in the manner indicated in Redfern v Reeves, the legislature may, in large part, have given away, in the last portion of paragraph (a), that which they have conferred on tenants by the first part.
* Editor’s note: Also reported at (1986) 279 EG 971
† Editor’s note: Also reported at (1980) 255 EG 243
In my view, this remark was also prompted by the point that section 31A was introduced to give further protection to tenants (see Redfern v Reeves [1978] 2 EGLR 52* at p53F) by, for example, adding a term to the lease, such as that which existed in Heath and Price, to enable the landlord to enter to carry out the intended work, but then cutting down the protection it gives by the second part of section 31A(1)(a). It follows that a landlord is, or is arguably, in a better position if the term to enter and carry out improvements or repairs is introduced into the new lease through section 31A than he is if it is contained in his existing lease. Indeed, this is shown by the decision in Esso because, in that case, the effect of the decision of the Court of Appeal was that the tenant lost on the application of section 31A in accordance with the approach in Redfern, which had not been referred to the judge (see p60A-D), but won because the landlord could carry out the intended work under a term of the existing lease: see pp60F-H, 60K-L, 62D and 62H-M.
* Editor’s note: Also reported at [1978] 247 EG 991
33. It is clear that, as is pointed out in Cerex at p72G-J, the Court of Appeal in Price felt some difficulty with the decision in Redfern: see Price at p62E and 62J-K. However, the fact that it is binding was recognised in both Price and Cerex. I, too, recognise that these decisions are binding, but, in my judgment, the difficulties in the interpretation and application of section 31A recognised in them have the result that their extent should be examined with care when they are being considered in a different factual matrix.
34. Further, I comment that the point made by Templeman LJ in Price should be read with passages from the speech of Lord Kilbrandon in Heath quoted in para 26 hereof. As to those passages, I comment:
(i) Lord Kilbrandon makes it clear that he is considering premises that, after the works were completed, would exist precisely as they did before;
(ii) Lord Kilbrandon was of the view that section 31A did not enter into the question, and recognised the existence of the problem identified later by Templeman LJ in Esso, and, in a slightly different form, by the Court of Appeal in Heath, and answered it on a purposive approach by reference to the difference between a mere repetition of a term and the introduction of a new term in the new tenancy; and
(iii) argument as to whether Lord Kilbrandon’s purposive approach (and thus the approach of the majority of the House of Lords) fits with the decision in Redfern was not advanced before us, and does not arise on this appeal.
35. In the county court, the tenant argued that the landlord could do the intended works under the terms of the lease. The judge rejected those arguments, and there is no appeal against that conclusion. The position before us is therefore that it is accepted that the intended works cannot be carried out in reliance upon the terms of the lease. It follows that if, as the judge found, the intended works are within the first part of section 30(1)(f), to succeed, the tenant has to rely upon section 31A.
36. The judge said that section 31A contained two conditions, and described them as follows:
The first is that given that access and facilities, the landlord could reasonably carry out the work without obtaining possession; the second is that it could carry out the work “without interfering to a substantial extent or for a substantial time with the use of the holding for the purposes of the business carried on by the tenant.”
He found that the second condition was satisfied on the basis of a finding that the works could be done as a continuous operation in 17 to 23 working days: see para 17 hereof. However, he found that the first condition was not satisfied. As to this, he said:
I return, however, to the question whether the landlord could reasonably carry out the works given access and facilities without obtaining possession. Mr Lewison says I must do no more than consider the intended works and ask myself only whether the landlord could do those works without undue disruption. That is the question which I have just answered in the tenant’s favour. The decision in Decca, says Mr Lewison, turning that authority to the tenant’s advantage, is that it is no part of the enquiry of the court whether that which the landlord proposes is or is not reasonable.
The judge then sets out the headnote in Decca Navigator Co v Greater London Council [1974] 1 WLR 748, and continues:
It seems to me to be a far cry from questioning whether the landlord could reasonably carry out those works which he intended if the absence of possession meant that their being carried out would be rendered useless…
He then describes the works in the terms quoted in para 15 hereof, and continues:
I do not say that because some part of the work which the landlord intends to carry out would be undone by the tenant after it is done, it necessarily becomes unreasonable for the landlord to carry out the work which he intends without the legal possession which would enable him to preserve it. Indeed, I am inclined to think that work such as installation of the shop front might be carried out and then replaced without its being unreasonable to carry out the work in the first place. I would, in this case, have wanted some evidence perhaps as to the aesthetic considerations before founding myself on this part of the work alone. Again, I accept that sometimes the doing of structural work to the building as a whole may reasonably be carried out even if the individual tenants do work to adapt the results to their particular needs. That could be the case with the floor or even the wall between numbers 9 and 11. Considered individually therefore it may be that the landlord not only could physically carry out each item of that work which he intends, but also he could reasonably carry out that intention without having possession. There must, however, in my judgment, come a point where the necessity of permitting the tenant to undo what the landlord intends would leave so little purpose in the landlord’s doing what he intends that he could not reasonably do that which he otherwise intends without possession. As a matter of fact and degree I think that that point is reached in this case and the tenant is not entitled to rely on s31A as precluding a finding that the landlord could not reasonably carry out the works which I have held are within s30 (1)(f) without obtaining possession.
In taking this approach, the judge had earlier stated, and concluded, that:
The terms which the tenant proposes should be included in the new tenancy (“the s31A” terms) are as follows.
“The right on reasonable notice to enter the demised with workmen and others to carry out the scheme of works described in the reports of Mr Graham Mortimore dated 15th December 2000 and 9th May 2001 and 31st May 2001 (“the intended works”) in so far as the intended works cannot be carried out without such entry provided that
(a) this right shall only be exercisable if the intended works in so far as they affect the demised premises are carried out in one operation…
…
(c) the exercise of this right shall not prejudice the exercise of the lessee of any easement including, for the avoidance of doubt, the easement of support enjoyed by the floor of the demised premises.”
The tenant also offers in the form of what had been paragraph (B) of the original draft of such terms an undertaking as follows:
“The lessee shall indemnify the lessor against the reasonable additional costs incurred by the lessor in carrying out the intended works in so far as they affect the demised premises in one continuous operation.”
Mr Kim Lewison QC for the tenant provided the court with five other proposed modifications to the terms of the current tenancy, not being terms giving the landlord access or other facilities for carrying out the work; that is to say, not being s31A terms. These are modifications that the tenant would seek if this preliminary issue were determined in the tenant’s favour. I think, on any of the bases advanced by Mr Lewison, for the tenant to succeed on the preliminary issue they would be intended to secure that if the works were carried out under the terms of any new tenancy, the tenant could reinstate the premises in such a manner as would enable it to carry out its existing business. They are not, however, a matter for consideration on this preliminary issue, and if I do order, on determination of the preliminary issue, that the tenant is entitled to a new tenancy (whether upon the inclusion of the 31A terms or otherwise), the other terms of the tenancy would be for later determination. If the court then refused the modification of which Mr Lewison has given notice, the tenant may apply for revocation of the order under s36(2) of the Act.
37. I agree that section 31A contains the two conditions the judge identified and that these are separate conditions. This flows from the
the tenant agrees to the inclusion in the terms of the new tenancy of terms giving the landlord access and other facilities for carrying out the work intended and given that access and those facilities, the landlord could reasonably carry out the work:
(1) without obtaining possession of the holding (the first condition), and
(2) without interfering to a substantial extent or for a substantial time with the use of the holding for the purpose of the business carried on by the tenant (the second condition).
Additionally, this conclusion has strong support from the statement of Templeman LJ in Price set out in para 32 above.
38. I agree with the conclusion of the judge that the first condition is not satisfied. My reasoning in support of this conclusion is not on all fours with that of the judge. But it has a substantial overlap with it, and this has the consequence that, in my judgment, there is no need for any further facts to be found.
39. In reliance upon Redfern (and its application in Cerex and Price) and Decca Navigator, it was argued on behalf of the tenant that:
(i) the judge erred by asking himself the question of whether it was reasonable for the landlord to carry out the intended work at all;
(ii) the correct question is that, given that the landlord intends to carry out the work, can he do so in a reasonable way that does not interfere to a substantial extent or for a substantial time with the use of the holding by the tenant; and
(iii) the judge was wrong to look beyond the programme of works, and the correct approach was to look only at the effect on the tenant’s use of the holding while the works intended by the landlord were carried out.
I do not accept any of these points.
40. As to point (i), in my judgment, when considering both the first and the second condition in section 31A(1)(a), the judge did not ask himself this question. Rather, he asked himself the correct statutory question, and thus, in respect of the first condition, he considered whether the landlord could reasonably carry out the work it intended without obtaining possession. His references to reasonableness that are used by the tenant to found this ground of attack are addressed to the landlord’s need to obtain possession, and not to the issue of whether it was reasonable for it to carry out the intended works. I accept, and, in my judgment, so did the judge, that, as Stephenson LJ says in Decca Navigator at p753E:
The question for the court is not, were the landlords reasonable in intending to do the particular work defined in the drawing? But, were they, having genuinely formed that intention, reasonable in dispossessing the tenants completely in order to carry it out? Could they in common sense and in reason have carried out that substantial work of construction — not some different work answering to that general description — without obtaining possession of the whole holding, or could they have carried it out while leaving the tenant in possession of the 15ft wide strip?
In this case, it is accepted that the landlord has a genuine intention to carry out the works, and there was no issue that it had been tailored to enable the landlord to obtain possession. In those circumstances, the above passage from the judgment of Stephenson LJ (and the other judgments in Decca) show that, for the purposes of section 31A, the court is to look at the work the landlord intends to do, and not some other work that might be said to achieve the same object, or additional work that the landlord might have carried out to make the ground floor ready for reletting.
41. As to points (ii) and (iii), in my judgment they fail to have regard to the first condition in section 31A(1)(a), and the point that none of the cases relied upon were directed to that condition.
42. More generally, and, in my judgment, importantly, the arguments advanced on behalf of the tenant fail to have proper regard to the fact that, in this case, when the works that the landlord intends to carry out are completed:
(i) the premises demised by the lease (ie the eggshell) and rights enjoyed with it and thus the holding will no longer physically exist and be capable of occupation; and
(ii) before the tenant can occupy the holding under the new tenancy it seeks (a) some of the works carried out by the landlord will have to be undone and (b) additional work will have to be carried out.
This was not the position in any of the cases to which we were referred. Further, as I have pointed out, in Heath, Lord Kilbrandon mentioned that after the works had been completed, the premises would exist precisely as they had before. To my mind, this provides support for the view that if after the intended works are carried out the premises would not exist precisely as they had before, this would be a relevant factor in deciding whether those works could be carried out without obtaining possession.
43. As a matter of language, the first condition in section 31A(1)(a) is separate and distinct from the second condition, and thus, in my judgment, as none of Redfern, Price and Cerex is concerned with the first condition, they do not support an argument that when the court is considering whether a landlord can reasonably carry out the intended works without obtaining possession, it should not look beyond the programme (and period) of the works the landlord intends to carry out.
44. The terms of the new tenancy referred to in section 31A(1)(a) are for the limited purpose of giving the landlord access and other facilities to carry out the work it intends to do, and Decca makes clear that what the court has to consider is those works. Therefore, the terms referred to in section 31A(1)(a) do not extend to terms that enable the landlord (or the tenant) to carry out works the landlord does not intend to do, and thus, for example, replacement of support or an interior.
45. If (as was argued on behalf of the tenant before us and the judge found) it is correct that, in considering the application of section 31A, the court should ignore the terms of the new lease that would make provision for:
(i) some of the works carried out by the landlord being undone; and
(ii) additional work being carried out so that the tenant can occupy and trade from the holding,
in my judgment, it is clear that the landlord cannot reasonably carry out the intended works without obtaining possession in the sense of putting an end to the tenant’s legal right to possession under the new tenancy. This is because, whether through the covenant for quiet enjoyment, or the principle that a landlord cannot derogate from his grant, an aspect of the tenant’s legal right to possession includes the ability to occupy the holding and thus to enjoy as part of it, or ancillary to it, rights of support and access that enable the tenant to enter upon, use and occupy the holding.
46. The point can be tested by more obvious examples, namely: (i) the demolition of a building let as a whole and the construction in its place of a different building; or (ii) the demolition of a building the third floor of which is let on an “eggshell basis” (or on the basis that some parts of the structure are included in the demise) and the construction in its place of a two-storey building. The latter was the example considered in argument. To my mind, in both examples it is quite unreal to say that a landlord can reasonably carry out the intended works without obtaining possession, because after those works have been done the holding simply will not exist: see, for a similar view, Blackburn v Hussain [1988] 1 EGLR 77* at p78G-H. Further, to my mind the holding cannot sensibly and reasonably be recreated on the basis of terms that could be included in a new tenancy of the holding or arrangements that were ancillary to such a tenancy.
* Editor’s note: Also reported at [1988] 22 EG 78
47. In more general terms, in my judgment, when a tenant agrees to the inclusion in the terms of the new tenancy (which, in broad terms, has to be of the holding — see section 32) of terms giving access and other facilities for carrying out the work intended, and that work will have the result that the holding will no longer exist, they cannot be terms that enable the landlord to carry out the works without obtaining possession
That is sufficient to dispose of the issue arising on this appeal, but it was also submitted on behalf of the appellant that section 31A did not really arise at all, because it cannot have contemplated an agreement which involved the destruction of the subject-matter of the original holding. Were it otherwise it would involve a tenant’s being able to say: “I agree to the destruction of my holding, but I demand that, it having been destroyed, I am granted a new tenancy, not of my holding, but of some entirely different entity.”
Without finally deciding the matter, I should say that I accept that there is great force in that contention and that for my part I do not, as presently advised, accept that it is possible for a tenant by any such agreement to avoid the plain meaning of section 30(1)(f)
48. However, I am of the view, having regard to the terms and purpose of the 1954 Act, that, in some circumstances, when a landlord intends to do work that the tenant wants to undo, and, further or alternatively, when the tenant will need to do work after the landlord has finished his work to enable him to use the holding, the tenant should be able to take advantage of section 31A, and that, in those circumstances, issues of fact and degree are likely to arise. An example could be one in which a landlord intends to produce a shell for letting and fitting-out by a tenant. This has similarities to the present case and to the situation in Blackburn, in particular, in my judgment: (i) the point that the overall test in sections 30(1)(f) and 31A is whether the landlord could or could not reasonably do the work he intends (and not other work, see Decca Navigator) without obtaining possession; and (ii) the purposes underlying the 1954 Act have the result that, in such cases, when deciding whether section 31A applies:
(i) the court is not limited to considering only whether the intention of the landlord is genuine (although this would be a relevant consideration — see the judgment of Stephenson LJ in Decca Navigator); and
(ii) when, as here, the landlord has a genuine intention, the court should consider the terms giving the landlord access and facilities to carry out the intended works, together with the other relevant terms of the new lease.
49. It follows that, in my judgment, the judge was wrong to conclude that the terms of the new lease suggested by the tenant, providing for effective reinstatement to enable it to carry on business, should not be considered at this stage, and, thus, that those terms should only be considered later on the basis that if the tenant did not like the terms ordered by the court it could exercise its right under section 36(2) not to take up the new tenancy. However, in my judgment, this error does not mean that this court should remit the case for further consideration because:
(i) the findings made by the judge as to (a) the works intended by the Landlord and (b) the effect of those works, and thus the work that would have to be done to recreate the holding and to enable the tenant to use and trade therefrom;
(ii) the finding of the judge when he concluded that the landlord could not carry out the intended works under clause 2(14) of the lease, when he said:
In my judgment, the circularity of the position which would arise from the exercise of the rights under clause 2.14 means that the landlord could not reasonably carry out any work permitted thereby without having legal possession if the absence of such possession required him to reinstate as soon as he had done the work.
and
(iii) the overall finding by the judge that, in this case, as a matter of fact and degree the point had been reached that the tenant is not entitled to rely upon section 31A
have the result that it is clear that, having regard to sections 32 and 35 of the 1954 Act, the tenant would not be able to persuade the court to include further terms in the new lease that would enable it to argue successfully that, having regard to those terms (and other offers made by the tenant), it could rely upon section 31A.
50. I am of this view notwithstanding:
(i) the point that section 32(3) provides for rights enjoyed by the tenant in connection with the holding to be included in the new tenancy, and, thus, that if terms that enabled the tenant to reinstate the floor (and the remainder of a new eggshell) could be included, they would “carry with them” rights of support; and
(ii) the views of the judge, quoted in para 15 hereof, as to the tenant getting consent to do some of the works it would wish to carry out, which, as I pointed out, did not include the reinstatement of a floor at the existing level.
I add that I have some doubt as to whether the views expressed by the judge concerning the giving of consent for the replacement of part of the plate-glass window and the erection of a partition within the area of the existing demise are correct if they are considered in the context of section 35, and the intention of the landlord to create a letting space that incorporates other units on the ground floor. However, for present purposes, I shall assume that these views are correct and could lead to terms being introduced into the new tenancy that allow such works to be done, or a finding that consent should be given for them under clause 2(19) of the existing lease.
51. On that assumption, in my judgment the insuperable difficulty for the tenant relates to reinstatement of the floor. This is recognised and confirmed by: (i) the fact that the terms offered to enable the landlord to carry out its intended works were offered on the basis that they would not prejudice the easement of support enjoyed by the floor; and (ii) the point made by the judge that, to reinstate the existing floor, the tenant would have to use a replacement floor as support for it. It was common ground before us that the intention was that the landlord would leave a shell and that a new floor (with support and, no doubt, with appropriate underfloor services) would be installed throughout the ground floor and that it would be at a different level to the old floor. The difference in level is a matter of inches, but is not de minimis because the existing floor is slightly above street level, and its reintroduction would recreate the existing small “step up”, whereas the intended new floor will be at street level.
52. It follows that, to reinstate the existing floor, the tenant would have to carry out works outside the area of the existing demise, and thus work that:
(i) is not within the ambit of the work for which it can seek consent (not to be unreasonably withheld) under clause 2(19) of the existing lease (see para 12 hereof); and
(ii) is likely to involve work that is prohibited by clause 2(19)(i)(b).
Further, I do not see why: (a) reinstatement of a floor at the existing level would be regarded as an improvement; or (b) a court would agree to a term being included in the new lease that enabled the tenant, or compelled the landlord, to install a floor at the existing level, because what the tenant is seeking is reinstatement of a substantial part of the holding (together with support for it, if such support is not included within the holding as defined) in a manner that “undoes” a substantial part of the work carried out by the landlord and undermines its purpose.
53. It may be that equivalent, albeit perhaps less compelling, points could be made in respect of the ceiling, but as there was no finding, and so far as I am aware no evidence, that the ceiling would be reinstated at a different height, I have not taken such points into account.
54. I accept that points of fact and degree arise in the above approach that were not addressed in this context by the judge, but, in my judgment, the findings made by the judge, and the common ground relating to the floor, mean that it is not necessary to remit for further consideration of the works that the tenant would have to carry out to enable it to use and occupy the holding under a new tenancy.
55. More generally, I add that, in my judgment, when a court is considering whether a landlord could reasonably carry out the work it intends and wishes to carry out without obtaining possession and thus the terms of the new lease (i) that would allow access and facilities to carry out those works, and (ii) that would allow the tenant to undo some of those works and to reinstate to enable him to use and occupy the holding, each aspect of the tenant’s works should be considered against the background that section 31A is directed to the works that the landlord intends to do. Although this is not an essential part of my
Further arguments on obtaining possession of the holding
56. In reaching the above conclusion, I have found that the authorities relied upon by the tenant to support the assertion that, when considering section 31A, the court should have regard only to the period of the programme and period of works of demolition etc intended by the landlord, do not apply to the first condition in section 31A, and therefore do not have that result in respect of that condition. Additionally, it was submitted on behalf of the landlord that those authorities do not have that result in respect of either the first or the second condition in a case such as this one, where the works that the landlord intends to carry out do not result in: (i) replacement of the premises as they were; or (ii) an improvement (and alteration) carried out pursuant to a term of the existing lease. Although a finding on this point is not necessary to support my conclusion set out above, I record that I agree with this submission.
57. As I have already said (see para 33 above), in my judgment Redfern, Price and Cerex should be examined with care when they are being considered in a different factual matrix. In Price, the intended works are described at p60F-G, and it is made clear at, for example, pp60H, 61B and 62D that the case was decided upon the basis that the works intended were works of improvement within an existing term of the lease. In reaching its conclusion, that if that had not been the case and, thus, the tenant would have had to rely upon section 31A, Redfern meant that the tenant would fail (see pp60A-D, 62E and 62J-K), the Court of Appeal was: (i) considering a case where the intended works resulted in an improved filling station that could be occupied without further work being done; and (ii) focusing upon the judge’s approach, which took into account interference with the business (or the goodwill of the business), as opposed to the point as to whether the physical effect of the works, when completed by the landlord, could, or could not, be taken into account. In Redfern, it seems that, after the completion of the works intended by the landlord (some of which were covered by a term of the existing lease and some of which were not), the tenant could go back into occupation. The argument for the tenant was that the tenant’s business could be safeguarded while the works were carried out by her moving her business, on a temporary basis, to other premises. This was rejected, and the submission that was accepted (with my emphasis) was, at p53G:
the court must look to the physical effects of the work and not to the consequences of the work from a business point of view. He submitted that this must be so from the use of the words “use of the holding”.
This focuses upon the issue in that case, and does not address the question of whether the physical effects of the work when completed can be taken into account. Indeed, to my mind, both the language of this submission and the phrase “the use of the holding” in the section favour the conclusion that the physical effects of the landlord’s intended works after they have been completed, and thus whether, at that stage and without doing more works, the tenant could occupy the holding, can be taken into account.
58. In Cerex, the Court of Appeal was concerned with intended works that, when they were completed, resulted in the reinstatement (or effective reinstatement without a new shopfront) of the holding: see p69C-D. The works were works of demolition and reconstruction. Thus, the court was not concerned with a case such as this when, following completion of the works by the landlord, further works have to be carried out to enable the tenant to occupy and use the holding. In my judgment, the conclusions of Slade LJ at pp68F-G and 72F-J have to be read with that in mind and in the context of my comments set out above on Redfern and Price, and the point that Slade LJ is setting out what those cases decide. I add that it is also clear from p68F that Slade LJ was considering only the second condition in section 31A.
59. On that approach to Cerex, in my judgment it does not deal with, and therefore is not binding authority upon, cases such as this, when the physical effect of the landlord’s works when completed is that further work has to be done to enable the tenant to occupy and use the holding. As I have explained, the citations from Redfern and Price focus upon the distinction between the physical effects of works that will result in premises that can be occupied and used, and the overall effect of the works upon the goodwill of the business and its continuation.
60. In my judgment, the language of section 31A supports the conclusion that when considering interference with “the use of the holding”, the physical effects of the result of the works intended by the landlord should be taken into account. The problems that then arise, concerning the further works that are necessary to enable the tenant to occupy and use the holding, merge with those discussed above in respect of the first condition, ie obtaining possession. In my judgment, in the context of the second condition, the extent and time of the interference should include consideration of the nature, extent and period of the works that would have to be done pursuant to terms of the new lease to enable the tenant to occupy and use the holding. These factual issues were not considered by the judge.
61. Finally, as to section 31A, I mention that it was argued on behalf of the landlord that the judge was wrong not to apply a dictum in Graysim Holdings Ltd v P&O Property Holdings Ltd [1993] 1 EGLR 96* at p101G and to conclude, as a matter of law, that, in considering how long the works it intended to carry out would take, he could take into account an indemnity offered by the tenant to cover additional costs incurred by an alteration of the timetable to reduce the period to one of between 17 to 23 working days: see para 17 above. The judge reached his conclusion that, as a matter of law, he could take such an indemnity into account (and thereby avoid it being a term of the new tenancy that has to be taken into account in determining the rent) because, and I quote, section 31A:
requires the court to consider whether the landlord could reasonably carry out those intended works given the facilities which the tenant offers. That so clearly indicates that the landlord may have to adjust his method or sequence of work in order to carry out his intended works, as compared with that which he would adopt if he had possession instead of merely access and facilities, that I feel bound to say that this dictum is clearly wrong and I should not follow it
* Editor’s note: Also reported at [1993] 05 EG 141
As appears in para 49 above, I agree that, as a matter of law, the overall test of reasonableness gives the court this flexibility. As the judge recognises, this conclusion gives rise to issues of fact and degree that have to be considered in the light of the decision in Decca Navigator that the works to be considered are those that the landlord intends and not some other works: see the citation in para 40 above from the judgment of Stephenson LJ in Decca Navigator.
62. In my judgment, the conclusion in para 61 above means that, in considering other aspects of the application of the two conditions within section 31A, the court is not, in my judgment, precluded from considering offers made by the tenant outside the terms of the new tenancy, for example, as to carrying out refitting works.
Section 30(1)(f): The works
63. The tenant argues that the judge was wrong to hold that works intended by the landlord were within section 30(1)(f) because, in the context of works of demolition (and reconstruction), the word “premises” in section 30(1)(f) applies only to parts of a built structure that perform some structural function.
64. In support of this argument, the tenant accepts that it means giving “premises” a narrower meaning than it has in section 23, where, the tenant accepts, it includes open land: see Coppen (Trustees of Thames Ditton Lawn Tennis Club) v Bruce-Smith (1999) 77 P&CR 239 at p245. It follows that the tenant accepts that the possible breadth of meaning of the word “premises” in section 30(1)(f) is wide enough to include open land, but points out that: (i) it is difficult to see how open land could be demolished or reconstructed; and (ii) the second part of section 30(1)(f) (which refers to substantial work of construction on the holding) could apply to open land, and from those points argues that there is nothing odd in a result that both parts of section 30(1)(f) should not apply to the subject matter of all tenancies covered by the 1954 Act, and, thus, that the first part should apply to some tenancies and not to others. On the assumption, but without deciding, that open land cannot be demolished, I agree. But this does not mean that the dividing line between what is included and excluded from the first part of section 30(1)(f) should be drawn where the tenant asserts, when, as the tenant correctly accepts, the word “premises” can include open land and thus, to my mind, can also include an eggshell within a building.
65. Further, in my judgment, the ordinary meaning of the words “demolish” and “reconstruct” is wide enough to apply to an eggshell. In other words, in my judgment, in this case the eggshell (and thus, in this case, the outside skin of the enclosed shop that is occupied by the tenant and includes the floor, the ceiling, the plaster and tiling and the shopfront) is capable of being demolished and reconstructed. In my judgment, strong support for this view is found in City Offices, in particular at p65A-F. I accept that that case was concerned with the construction of the lease in question, so that the court was giving meaning to the phrase “redevelopment or reconstruction of the demised premises” as used in the lease itself, and thus in circumstances in which the parties to the lease plainly intended it to apply to the eggshell demised. City Offices would therefore be a closer analogy with clause 5 of the lease in this case (see para 11 above), albeit that that clause does not refer to works on, or to, the demised premises. None the less, in my judgment, City Offices provides clear support for the view that, as a matter of language, an eggshell with no structural element can, as found in that case, be reconstructed and thus, in my view, demolished.
66. To support the argument that, in the context of section 30(1)(f) of the 1954 Act, “premises” applies only to parts of a built structure that perform some structural function, leading counsel for the tenant referred us to a number of authorities. These included the two cases referred to in City Offices, namely Percy E Cadle & Co Ltd v Jacmarch Properties Ltd [1957] 1 QB 323 and Joel v Swaddle [1957] 1 WLR 1094. They also included Housleys Ltd v Bloomer-Holt Ltd [1966] 1 WLR 1244 (in particular at pp1252E, 1250C-F and 1253D-F), Barth v Prichard [1990] 1 EGLR 109* (in particular at pp110F-K and 111D-K) and Romulus Trading Co Ltd v Henry Smith’s Charity Trustees (No 1) [1990] 2 EGLR 75† (in particular at pp76K and 77B-E). As he indicates, the judge was referred to these, and further cases, of which he mentions Bewlay (Tobacconists) Ltd v British Bata Shoe Co Ltd [1959] 1 WLR 45 and Cook v Mott [1961] EGD 294‡.
* Editor’s note: Also reported at [1990] 20 EG 65
† Editor’s note: Also reported at [1990] 32 EG 41
‡ Editor’s note: Also reported at (1961) 178 EG 637
67. As I have already mentioned, none of these cases deals with an eggshell tenancy, and thus one where a part of a building is demised but the demise excludes the load-bearing structure of the building and includes nothing that performs a structural function in relation to the building. When that is taken into account, in my judgment none of the passages in those cases is authority for the proposition advanced on behalf of the tenant, that, in section 30(1)(f), “premises” refers only to parts of a built structure that perform some structural function.
68. As Nicholls LJ points out in City Offices at p65E-F, the cases referred to therein (and, in my judgment, the other cases relied upon by the tenant) may be authority for the proposition that where the demised property includes structural parts of the building, there can never be reconstruction (or demolition) unless there is some demolition or alteration to a load-bearing part of the structure (or, I would add, in agreement with the judge, enclosing walls, floor and ceiling, even if not load-bearing or structural) included in the demised property. I respectfully agree, and, in my judgment, they go no further.
69. Here, any load-bearing parts of the building and its enclosing walls are excluded from the demised premises, but they include the floor, ceiling and roller blind. In my judgment, having regard to the language of section 30(1)(f) and the purpose of the 1954 Act, the works intended by the landlord (leaving aside the work relating to the roller blind, which involves demolition or reconstruction; see Bewlay) are works that involve demolition of the premises comprising the holding, or a substantial part of those premises, because either:
(i) as found by the judge, they involve the demolition of the eggshell that was demised; or
(ii) they involve the demolition of that eggshell, together with the rights of support that render the eggshell demised capable of occupation and use by a tenant.
For the purposes of deciding this appeal it does not matter which.
70. Reason (ii) was raised by me during the course of the hearing, but it was not adopted by leading counsel for the landlord and was not fully argued. Accordingly, in my judgment, I should leave the point open. I raised it in the context of the purposive arguments raised on behalf of the parties and referred to in para 6 above, and, in particular, in respect of the points made by the tenant that a tenant who had an eggshell tenancy would have less security than a tenant whose demise contained the walls enclosing his shop etc, or some of those walls, and all or part of the structure of the floor and the ceilings. This would be because, in the latter case, by reference to the authorities referred to in para 66 above, there is force in the points that the removal of all the plastering and wall coverings, false ceiling and floorboards leaving a shell for refitting would be properly classified as glorified works of redecoration, which did not satisfy section 30(1)(f).
71. An answer to that purposive point could be that the tenant of an eggshell would be able to rely upon section 31A to give him equivalent protection, when the result of the intended works was to remove the eggshell leaving a shell for refitting by, or on behalf of, a new tenant. However, having regard to (a) the complications and difficulties relating to the application of section 31A referred to above in respect of the creation of the new eggshell, (b) the purposes of the 1954 Act and the competing interests of landlord and tenant (see para 5 above), and (c) the desirability, to my mind, of section 30(1)(f) applying in the same way to tenancies of an enclosed shop or offices, or other business premises, whether they include none of the structural parts of the building and no dividing walls, or some of those parts of a building, my preliminary view remains that reason (ii) has much to recommend it.
72. The reasoning behind it is based upon the points set out in paras 23 to 25 above, from which it would be argued that, looked at pragmatically, what is occupied is the shop, and that as the rights to structural support that are necessary to enable the tenant to use the shop etc are based upon the covenant for quiet enjoyment or non-derogation from grant and not on an express grant, in the context of the 1954 Act the premises comprised in the holding (as defined — and thus the property comprised in the tenancy occupied by the tenant) includes those rights of support. A counter-argument would be that rights of support are within, and are catered for by, section 32(3), and that “premises comprising the holding” does not cover rights enjoyed in connection with the holding.
Overall conclusion
73. For the reasons set out above I would dismiss this appeal.
Giving the second judgment, Chadwick LJ said:
74. Part II of the Landlord and Tenant Act 1954 contains provisions that give some degree of security to occupying tenants of business premises. A tenancy to which Part II of the Act applies does not come to an end unless terminated in accordance with those provisions. If the landlord gives notice under section 25 of the Act to terminate such a tenancy, the tenant
(f) that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding.
75. In that context, “the current tenancy” means the tenancy under which the tenant holds for the time being: see section 26(1) of the Act; and “the holding” means so much of the property comprised in that tenancy as is occupied by the tenant (or by a person employed by the tenant for the purposes of the business carried on there): see section 23(3) of the Act.
76. It is clear that in order to rely upon ground (f) of section 30(1) of the Act, a landlord must establish two distinct elements: (A) that he intends either (i) to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or (ii) to carry out substantial work of construction on the holding or part thereof; and (B) in either case, that he could not reasonably do so without obtaining possession of the holding. The landlord succeeded before the judge in establishing elements (A)(i) and (B). It did not succeed in establishing element (A)(ii) — in so far as it attempted to do so — and there is no challenge to the judge’s decision on that point.
77. The first issue on this appeal is whether, in the circumstances that the property comprised in the current tenancy was demised in terms that exclude any structural element, there are any “premises comprised in the holding” that are capable of being demolished. The appellant submits that there are not; as it is put in the skeleton argument prepared for its appeal, in the context of section 30(1)(f) of the 1954 Act: “the word [“premises”] applies only to parts of a built structure which perform some structural function”.
78. In order to succeed (as it did) in establishing the second of those elements — element (B) — the landlord had not only to satisfy the judge that, having regard to the terms of the current tenancy, it could not reasonably carry out the demolition intended without obtaining possession of the holding, but also to surmount the hurdle posed by para (a) in section 31A(1) of the Act. The section is in these terms (so far as material):
(1) Where a landlord opposes an application under section 24(1) of this Act on the ground specified in paragraph (f) of section 30(1) of this Act the court shall not hold that the landlord could not reasonably carry out the demolition, reconstruction or work of construction intended without obtaining possession of the holding if —
(a) the tenant agrees to the inclusion in the terms of the new tenancy of terms giving the landlord access and other facilities for carrying out the work intended and, given that access and those facilities, the landlord could reasonably carry out the work without obtaining possession of the holding and without interfering to a substantial extent or for a substantial time with the use of the holding for the purposes of the business carried on by the tenant;…
(b)…
79. Section 31A(1) of the Act became material only if the landlord had first satisfied the judge that, under the terms of the current tenancy, it could not reasonably carry out the demolition intended without obtaining possession of the holding. The judge expressed himself satisfied of that, and there is no challenge to his conclusion on that point. It was then necessary for him to address para (a) of section 31A(1). That paragraph also contains two elements. The condition is that, given access and other facilities for carrying out the work intended (under the terms of the new tenancy for which the tenant has applied under Part II of the Act), the landlord could reasonably carry out the work: (A) without obtaining possession of the holding; and (B) without interfering (i) to a substantial extent or (ii) for a substantial time with the use of the holding for the purposes of the business carried on by the tenant. If both elements of that condition are satisfied, then the landlord cannot succeed in establishing ground (f) of section 30(1) of the Act.
80. The judge held that element (B) of the condition in para (a) of section 31A(1) was satisfied, but nevertheless held that element (A) was not satisfied. He reached the conclusion that he did on element (A) because he was satisfied that the tenant would immediately seek to undo the effect of the work that the landlord intended to carry out in relation to the building of which the holding formed a part. As he put it in his judgment, at p23, lines 11-17 in the transcript:
there must come a point where the necessity of permitting the tenant to undo what the landlord intends would leave so little purpose in the landlord’s doing what he intends that he could not reasonably do that which he otherwise intends without possession. As a matter of fact and degree I think that that point is reached in this case…
81. The appellant challenges that conclusion. It is said that the judge asked himself the wrong question. The point is put at para 6.7 of the appellant’s skeleton argument:
The question is not: is it reasonable for the landlord to carry out the work which he says he intends to carry out? Rather, the question is: given that the landlord intends to carry out the work, can he carry them (sic) in a reasonable way which does not interfere to a substantial extent or for a substantial time with the use of the holding by the tenant?
The respondent seeks to support the judge’s conclusion in relation to element (A) of the condition in para (a) of section 31A(1) on other grounds (in addition to those that the judge gave). It also seeks to challenge the judge’s conclusion in relation to element (B) of that condition. The scope and effect of section 31A(1) of the Act in the circumstances of the present case is the second issue raised on this appeal.
First issue: Are there any premises capable of being demolished?
82. The expression “the premises” is not defined for the purposes of Part II of the 1954 Act. But there are a number of indications as to its meaning. It is used, first, in section 23(1), in the context of identifying the tenancies to which Part II of the Act applies:
this Part of this Act applies to any tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him…
In Bracey v Read [1963] Ch 88, Cross J held that, in that context, “premises” was synonymous with “property comprised in the tenancy”, although “premises occupied by the tenant… for the purposes of a business” would not, of course, necessarily include all the property comprised in the tenancy. He rejected the argument that parliament must have intended, by the use of the words “property” and “premises” in juxtaposition, to confine premises to what he described as its popular sense or meaning, that is to say “buildings or buildings with land immediately adjoining them”: see (ibid) at p92. But he seems to have accepted that “premises” might have the more restricted or popular meaning in the context of section 30(1)(f) of the Act: see (ibid) at p93.
83. That “premises” does have a more restricted meaning in the context of section 30(1)(f) of the Act is confirmed by the decision of this Court in Housleys Ltd v Bloomer-Holt Ltd [1966] 1 WLR 1244, as Robert Walker LJ has pointed out in Coppen (Trustees of Thames Ditton Lawn Tennis Club) v Bruce-Smith (1999) 77 P&CR 239 at p245. In Housleys, Diplock LJ observed at p1252E-G:
It is, I think, plain, on the true construction of paragraph (f) that “the premises” there referred to must be limited to that part of the holding which is capable of being demolished and capable of being reconstructed.
Russell LJ agreed. He said at p1253C:
It seems to me that what is proposed is the demolition of the whole premises comprised in the holding. The county court judge said that there was to be “no demolition of a substantial part of the premises.” This seems to me to confuse the premises comprised in the holding with the holding… I would allow the appeal on this one ground. It has escaped the notice of the county court judge that the proposal involves demolition, not of a part, let alone an insubstantial part, of the premises, but of the whole of the premises.
84. As I have said, “the holding” means so much of the property comprised in the current tenancy as is occupied by the tenant or an employee: see section 23(3) of the Act. It is, I think, reasonably clear, in the light of Bracey, that “the holding” means much the same as “premises which are occupied by the tenant… for the purposes of a business carried on by him” in section 23(1). Be that as it may, in the light of Housleys, “premises comprised in the holding”, in the context of section 30(1)(f), must be taken, in this court, to mean only so much of the holding as is capable of being demolished and reconstructed.
85. The short question, therefore, is whether the property comprised in the current tenancy and occupied by the appellant as tenant for the purposes of its business (the holding) comprises something capable of being demolished and reconstructed. The judge answered that question in the affirmative, and, in my view, he was right to do so. He said at p14 in the transcript of his judgment:
The structure is the fabric which encloses the demise in so far as it is itself demised. In my judgment the physical boundaries of the demise, be they constituted by walls, ceiling or floor, or only their surfaces, are premises within the meaning of the paragraph at least if they are of such physical quality as to be sensibly capable in ordinary language of being constructed or part of the construction, or of being demolished. I think in the present case that the tile work which lines the wall, the wooden floorboards covered by a metallic surface which constitute the demised floor and the roller shutter which provides the enclosure of the fourth side of the shop are all capable of being described as constructed or at least meaningfully of being demolished, and they constitute the premises which I hold the landlord has proved he is intending to demolish; and, in the case of the roller shutter, to reconstruct by inserting a new shop front.
I agree.
86. I agree, also, with the view expressed by Charles J (whose judgment I have had the advantage of reading in draft) that there is nothing in the passages upon which the appellant relies — Percy E Cadle & Co Ltd v Jacmarch Properties Ltd [1957] 1 QB 323 at pp328 and 329, Joel v Swaddle [1957] 1 WLR 1094 at pp1099, 1100 and 1101, Barth v Prichard [1990] 1 EGLR 109 at p111D-E and J-K, and Romulus Trading Co Ltd v Henry Smith’s Charity Trustees (No 1) [1990] 2 EGLR 75 at pp76K-77E — which compels, or even supports, the conclusion for which they were cited: that “premises” in section 30(1)(f) of the Act is confined to parts of a built structure that perform some structural function. What is plain, from those passages, is that cases on the meaning of “demolish” or “reconstruct” for the purposes of section 30(1)(f) of the 1954 Act turn on their particular facts. In each case, the relevant questions are: (i) what are the physical features of the property comprised in the tenancy; (ii) what, among those features, is capable of being demolished and reconstructed; and (iii) is what is being done to those features that are capable of being demolished and reconstructed, taken as a whole, properly to be described as demolition or reconstruction of those features or a substantial part of them? It is, I think, wrong to start from the premise that physical features that are not load-bearing are incapable of being demolished and reconstructed, although it may well be that, in the particular case where there are load-bearing features, work that does not involve the demolition or reconstruction of any of those load-bearing features will not meet the test under (iii). But there is no reason why, in a case where there are physical features that are capable of being demolished and reconstructed, but none that are load-bearing, the test under (iii) should not apply, or should not be met in appropriate circumstances.
87. In relation to the question of whether the physical features of property comprised in an “eggshell” lease — such as that in the present case — are capable of being demolished and reconstructed, I agree with Charles J that assistance can be found in the decision of this court in City Offices (Regent Street) Ltd v Europa Acceptance Group plc [1990] 1 EGLR 63. The issue in that case was whether notice given under a break clause in such a lease — which permitted the landlord to determine the term by notice of its desire to do so “for the purpose of the redevelopment or reconstruction of the demised premises” — was effective. Nicholls LJ (with whose judgment Balcombe LJ agreed) described the property comprised in the lease in these terms at p64D:
It is apparent from the plan and the terms of the definition clause that the leased property excludes the load-bearing structure of the building, in particular the steel framework structure in the walls and the floor and ceiling slabs. Essentially the demise is of an airspace with a thin enclosing skin.
The works that the landlord proposed to carry out to the building of which the property comprised in the lease formed part did not differ in any material respect from those that are proposed in the present case: see at p64D-E. The arguments advanced on behalf of the tenant by Mr Michael Rich QC (as he then was) were substantially the arguments advanced in this case. Two of the authorities cited to this court — Percy Cadle and Joel — were cited in that case, the others not having been decided at that date.
88. After setting out an analysis of the effect of the works proposed, which he summarised in the sentence at p65D:
In short, as the works proceed, the demolition work will involve the physical demolition of most of the eggshell as well as part of the larger scheme and the rebuilding of something significantly different.
Nicholls LJ went on to say at p65E-F:
In my view the judge was correct in deciding that works having this far-reaching physical effect on the state of the leased property satisfied the requirement of “reconstruction of the demised premises” in clause 8 [of the lease].
I do not think that this conclusion is inconsistent with either of the two authorities I have mentioned. It is a sufficient ground of distinction to note that in both those cases the demised property seems to have included structural parts of the building in question. Whether, in the case of such leases, there can never be reconstruction unless there is some alteration to a load-bearing part of the structure included in the demised property is not a point which calls for decision in the present case. I make no comment either way on that point. Even assuming (but without deciding) in the defendant’s favour that in such cases an alteration to a load-bearing part of the structure is required before the work can constitute reconstruction, that is not this case. Here, as I have already indicated, the demise is in terms which make plain that the load-bearing structure is not included. Clause 8 envisaged that, despite this, the resultant unit could be the subject of reconstruction. In that context, in agreement with the judge, I am in no doubt that works as extensive as those I have described qualify as “reconstruction of the demised premises”. Indeed, those works will change the identity of the leased property and they will make the leased property wholly unusable while being carried out. But the works involve much more than that, as I have sought to indicate.
89. It is said that City Offices turned on the fact that the parties to the lease must be taken to have intended that some effect should be given to the expression “reconstruction of the demised premise” in clause 8 of the lease, in circumstances in which the demise excluded any load-bearing structure. But I am not persuaded that the decision can be distinguished on that basis. The observations of Nicholls LJ seem to me to be of more general application. I think that they support the three-stage approach that I have set out above.
90. It follows that I would reject the submission that there are no “premises” for the purposes of ground (f) of section 30(1) of the Act in the present case.
Second issue: Scope and effect of section 31A(1) of the Act
91. The hypothesis that underlies the question posed by the first element of the condition in para (a) of section 31A(1) is that the tenant agrees to the inclusion in the new tenancy of terms giving the landlord access and other facilities for carrying out the work intended. The new tenancy, in that context, is a tenancy granted pursuant to an order made under section 29(1) of the Act on the application that has been made by the tenant under section 24(1). It is to be assumed that the application has been successful and the order made in circumstances in which the landlord has failed to establish, in the context of ground (f) in section 30(1) read with section 31A(1)(a) of the Act, that, given the access and other facilities for carrying out the work that he will enjoy under the terms of the new tenancy, he could not reasonably carry out the work without obtaining possession of the holding.
92. The property to be comprised in the new tenancy is the holding: see section 32(1) of the Act. It is impossible for the tenant to occupy and
Where the current tenancy includes rights enjoyed by the tenant in connection with the holding, those rights shall be included in a tenancy ordered to be granted under section twenty-nine of this Act except as otherwise agreed between the landlord and the tenant or, in default of such agreement, determined by the court.
That section has to be applied in the assumed circumstances that the tenant has agreed to the inclusion of terms in the new tenancy that give the landlord access and facilities for removing the floor, the existing surface covering on the walls and the suspended ceiling, and which impose no obligation upon the landlord to reinstate. In those circumstances, it is difficult to see any basis for the inclusion of rights of support in the new tenancy. Its terms are inconsistent with the need for such rights. Put shortly, once the landlord has carried out the permitted works, and in the absence of reinstatement, there will be nothing to support.
93. That raises the question whether the tenant would be entitled to reinstate. Section 35(1) of the Act requires that the terms of a tenancy granted by order of the court (other than terms as to duration and rent) shall be such as may be agreed between the landlord and the tenant or, in default of agreement, as:
may be determined by the court; and in determining those terms the court shall have regard to the terms of the current tenancy and to all relevant circumstances.
The terms of the current tenancy are those contained in the lease under which the appellant holds the property. Clause 2(19)(i) contains, at subpara (a), a covenant by the tenant not without the consent in writing of the landlord to make any external projection from the demised premises, and, at subpara (b), a covenant not to cut, maim, injure or alter any of the excluded parts. In that context, “the excluded parts” means the main structure of the building of which the demised premises form part and the main walls, beams, floors and ceilings that run under or over the demised premises: see the first schedule to the lease. Clause 2(19)(ii) of the lease contains a covenant by the tenant not to make any alterations or additions to the demised premises without the consent of the landlord.
94. It follows, as it seems to me, that if the proposed works were carried out with access and facilities given pursuant to the terms of a new tenancy, the property comprised in that new tenancy would thereafter be unusable by the tenant for the purposes of its business. It is not, I think, in dispute that the property comprised in the new tenancy would be incapable of use without reinstatement of (at the least) a floor, and (very probably) surface covering to the walls and a suspended ceiling. The tenant could not do that work, consistently with the terms of the current tenancy, without the consent of the landlord. It is, I think, inconceivable that the court would impose terms in the new tenancy (under section 35(1) of the Act) that permitted reinstatement without the consent of the landlord. The court would be required to have regard to all relevant circumstances, and those circumstances would include the tenant’s agreement, to be assumed in the context of section 31A(1)(a) of the Act, to the landlord having access and facilities to remove the floor, the existing surface covering to the walls and the suspended ceiling. To permit the tenant to reinstate — so as to undo the works that the landlord has been permitted to carry out — would be inconsistent with that agreement. And, in the circumstances that the tenant has agreed to the landlord carrying out works that remove the need for rights of support, it seems to me impossible to say that the rights of support previously enjoyed would be continued under section 32(3) of the Act.
95. The judge thought that there came a point where the necessity of permitting the tenant to undo what the landlord intends to do would leave so little purpose in the landlord doing what he intends to do that the correct conclusion was that he could not reasonably do what he intends to do without possession of the holding. That view finds support, as it seems to me, in the observations of Parker LJ in Blackburn v Hussain [1988] 1 EGLR 77 at p78L, to which Charles J has already referred:
it was also submitted… that section 31A did not really arise at all, because it cannot have contemplated an agreement which involved the destruction of the subject-matter of the original holding. Were it otherwise it would involve a tenant’s being able to say: “I agree to the destruction of my holding, but I demand that, it having been destroyed, I am granted a tenancy, not of my holding, but of some entirely different entity.”
Without finally deciding the matter, I should say that I accept that there is great force in that contention and that for my part I do not, as presently advised, accept that it is possible for a tenant by any such agreement to avoid the plain meaning of section 30(1)(f).
I accept that it is possible to decide this appeal on the basis that (if section 31A(a) had any application) the landlord could not reasonably carry out the proposed works without obtaining possession of the holding — and I do not hold that the judge was wrong to take the view that he did on that point — but, for my part, I prefer to base my conclusion that section 31A(1)(a) of the Act can be of no assistance to the tenant on the ground that, whether or not it would be possible for the landlord to carry out the work without obtaining legal possession of the holding, it would be a necessary consequence of carrying out the work that the holding would become unusable, indefinitely, for the purpose of the tenant’s business. In my view, section 31A(1)(a) cannot have been intended to have any application in such a case.
Conclusion
96. For those reasons, I, too, would dismiss this appeal.
Agreeing, Simon Brown LJ said:
97. For the reasons set out by my lords Chadwick LJ and Charles J, I, too, would dismiss this appeal.
Appeal dismissed.
