by Paul Morgan
In general, tenancies of leisure premises are treated like other business tenancies and are protected by Part II of the Landlord and Tenant Act 1954. The test for protection under the 1954 Act requires the property comprised in the tenancy to be or to include premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by the tenant. Section 43(1)(d) of the 1954 Act provides that the Act does not apply to a tenancy of premises licensed for the sale of intoxicating liquor for consumption on the premises. This exclusion is itself subject to three specific exceptions. Section 43(1)(d) will be repealed when the Landlord and Tenant (Licensed Premises) Bill becomes law. However, the effect of the repeal will not be complete until July 11 1992 and the Bill provides for a transitional period from July 11 1989 to July 11 1992. Accordingly, during that period the provisions of section 43(1)(d) will continue to be relevant. Indeed, precisely because the period up to July 11 1992 is a transitional period prior to the imposition of full security of tenure for on-licensed premises, landlords and tenants and their advisers may be looking more closely at section 43(1)(d) during the transitional period than was their custom in the past.
I — Security of tenure
Section 43(1)(d)
Section 43(1)(d) applies only to premises licensed for the sale of intoxicating liquor for consumption on the premises. Accordingly, off-licensed premises are treated like other shop premises and are within the 1954 Act. Section 43(1)(d) is subject to three exceptions and in those exceptional cases the 1954 Act applies to the tenancy. The first exception concerns hotels and restaurants. The second exception applies to premises used for judicial or public administrative purposes, or as a theatre or place of public or private entertainment, or as public gardens or picture galleries, or for exhibitions, or for any similar purpose to which the holding of the licence is merely ancillary. The third exception applies to premises used as refreshment rooms at a railway station. This classification into on-licensed premises which are not protected by the 1954 Act and on-licensed premises which are so protected derives from certain distinctions which were drawn for the purpose of the licensing laws in force when the Landlord and Tenant Act 1954 was passed.
Schedule 4 to the Customs and Excise Act 1952 provided for certain on-licensed premises to pay a reduced excise duty. Such premises included hotels and restaurants, premises with auxiliary licenses, refreshment rooms and places of entertainment. In 1954, such on-licensed premises were brought within the Landlord and Tenant Act 1954 although, in general, on-licensed premises were excluded from its protection. Schedule 4 to the Customs and Excise Act 1952 was repealed by the Finance Act 1959 and the present section 43(1)(d) were enacted to give effect to a similar classification of premises as had been created by the Customs and Excise Act 1952.
Public house or hotel or restaurant?
The important distinction in section 43(1)(d) is that between a public house on the one hand and a hotel or restaurant on the other. The hotel or restaurant business must be “a business a substantial proportion of which consists of transactions other than the sale of intoxicating liquor”. Guidance on the meaning of this phrase is contained in the decision of the Court of Appeal in Grant v Gresham (1979) 252 EG 55. The sale of soft drinks is not the sale of intoxicating liquor. Similarly, the sale of snacks over a bar is not the sale of intoxicating liquor. In order for the non-liquor sales to form “a substantial proportion” of the business and thus to bring the tenancy within the 1954 Act, it is not necessary for that proportion to exceed 50%. Accordingly, the non-liquor sales may be substantial even though the restaurant or hotel activity is ancillary to the business of selling alcohol.
The question of substantiality is not answered by a mathematical comparison of the amount of turnover from the sale of alcohol and the amount of turnover from the other transactions. All the relevant facts must be assessed in a broad way to see whether it can fairly be said that the proportion of business consisting of transactions other than the sale of intoxicating liquor is “substantial”. No doubt, the courts would apply a test similar to the test identified in Palser v Grinling [8] AC 291 (dealing with furnished premises for the purposes of the Rent Acts), which has treated “substantial” as a synonym for “considerable, solid or big”.
A further difficulty in the application of section 43(1)(d) arose in Ye Olde Cheshire Cheese Ltd v Daily Telegraph plc [8] 2 EGLR 107; [1988] 39 EG 88. In that case the premises the subject of the tenancy were part only of the licensed premises. The question arose whether one applied the test of substantiality to the transactions which took place in the demised premises alone or in the entirety of the licensed premises. Having reviewed the legislative history of section 43(1)(d), the court held that the test was to be applied in relation to the entirety of the licensed premises rather than the demised premises alone.
Landlord and Tenant (Licensed Premises) Bill
As indicated above, the Landlord and Tenant (Licensed Premises) Bill, when enacted, will come into full effect from July 11 1992. The period between July 11 1989 and July 11 1992 must be considered with some care. By clause 1(1) of the Bill, any tenancy entered into on or after July 11 1989 will be protected immediately upon the commencement of the Act. The Act will come into force at the end of two months beginning with the day on which it is passed: clause 2(3). Accordingly, in relation to a tenancy granted on or after July 11 1989, there is no question of any transitional period before full protection applies to the tenancy.
Clause 1(1) does not apply to a tenancy granted on or after July 11 1989 if it was granted “in pursuance of a contract” made before July 11 1989. This provision plainly covers the case where the proposed landlord and the proposed tenant entered into an agreement for the grant of a tenancy, the agreement being made before July 11 1989. The tenancy when subsequently granted is treated as a pre-July 11 1989 tenancy and does not attract full protection immediately it is granted. It seems that the phrase “in pursuance of a contract” is not restricted to a contract between the proposed landlord and the proposed tenant, but can extend to any contract which imposes an obligation to grant a tenancy; such a contract might, for example, have been made between the landlord of the premises and a superior landlord: see Proma Ltd v Curtis [0] 1 EGLR 117; [1990] 02 EG 74, a decision on the Leasehold Reform Act 1967. However, that kind of contract is likely to be a rarity.
Clause 1(2) of the Bill applies to tenancies entered into before July 11 1989 (or tenancies entered into after that date pursuant to contracts made before that date). Such a tenancy will not be protected by the 1954 Act unless it continues in existence until July 11 1992 whereupon it will become protected. There is a special provision which overrides section 24(3)(b) of the 1954 Act in relation to a notice under that subsection which is served before July 11 1992 to expire on or after July 11 1992.
Clause 1(3) makes further provision for tenancies falling within clause 1(2). In outline, clause 1(3) permits the landlord or the tenant to serve certain notices under the 1954 Act and take steps in consequence of such service as if section 43(1)(d) of the 1954 Act had already ceased to have effect. For example, if a landlord knows that a tenancy which is at present unprotected by reason of section 43(1)(d) will continue in force until July 11 1992 and will then become protected, the landlord may wish to operate the provisions of the 1954 Act in readiness for July 11 1992, for example by serving a notice under section 25. Under clause 1(3) the landlord can start time running before July 11 1992 by serving a section 25 notice with a termination date on or after July 11 1992. Clause 1(3) contains a similar provision for a tenant’s section 26 request and a tenant’s notice under section 27 (which provides for a notice to be given by the tenant to terminate the tenancy).
Difficulties may arise under clause 1(3) in the case of those tenants who come within section 26 of the Landlord and Tenant Act 1954. Section 26 applies to tenancies for a term of years certain exceeding one year or granted for a term of years certain and thereafter from year to year. In the case of such a tenancy, a tenant can serve a section 26 request for a new tenancy specifying as the date for commencement of the new tenancy any date not less than six months and not more than 12 months after service of the notice. Clause 1(3)(b) of the Bill entitles a tenant to give a notice under section 26 of the 1954 Act, such notice to be given before July 11 1992 provided it requests a new tenancy beginning not earlier than July 11 1992.
Accordingly, a tenant of on-licensed premises whose tenancy qualifies under section 26 can serve such a notice on or after July 11 1991.
The consequence is that if the tenancy is not of a kind which falls within section 26 of the Landlord and Tenant Act 1954, and if the tenancy was granted before July 11 1989, then the tenant can acquire protection under the 1954 Act by waiting until July 11 1991 without having to wait until July 11 1992 and even if the tenancy would have ended in the period July 11 1991 to July 11 1992. This is because on July 11 1991 or any later date during the existing tenancy the tenant can serve a notice under section 26 of the 1954 Act calling for a new tenancy beginning not earlier than July 11 1992; the tenant can then apply for a new tenancy and the court has power to grant a new tenancy, all before July 11 1992.
Landlord and Tenant (Licensed Premises) (no 2) Bill
When the Landlord and Tenant (Licensed Premises) Bill was being considered in committee, a government spokesman gave certain assurances that certain tenants of public houses would receive compensation in certain circumstances. It was not possible to amend the Licensed Premises Bill to include provisions for this compensation because such an amendment would fall outside the scope of the Licensed Premises Bill. This difficulty delayed the passing of the Licensed Premises Bill and resulted in the introduction of the Landlord and Tenant (Licensed Premises) (no 2) Bill.
The no 2 Bill amends section 37 of the Landlord and Tenant Act 1954 and introduces a new section 37A into the Act. In summary, the amendments entitle certain tenants who are refused new tenancies under the 1954 Act as a result of their landlord’s reliance on the ground of opposition in section 30(1)(g) (landlord’s intention to occupy for the purposes of its own business etc). Compensation is to be calculated on the basis of the goodwill attached to the holding by reason of the carrying on thereat of the business of the tenant (whether by him or by a predecessor of his in that business), such amount to be decided by the court in default of agreement between the landlord and the tenant. This new basis of compensation is in addition to the compensation otherwise payable under section 37.
There are several curiosities in the amendments which deserve brief mention:
(1) A tenant only becomes entitled to the additional compensation if “the Court is precluded . . . from making an order for the grant of a new tenancy by reason of the ground specified in section 30(1)(g) . . .” This wording is similar to the wording of section 37(1) before that subsection was amended in 1969. Accordingly, a tenant who wishes to become entitled to the additional compensation must serve a counternotice to the landlord’s section 25 notice, must make an application for a new tenancy and must pursue that application to a stage where the court declines to grant a new tenancy by reason of the landlord’s ground of opposition. A tenant is not obliged to go to that length in order to obtain the basic compensation under section 37(1).
(2) Section 37(1) refers to the court being precluded from granting a new tenancy by reason of the grounds specified in paras (e), (f) and (g) of section 30(1) and not by reason of any other grounds; section 37(4A) does not include words such as “and not by reason of any other ground”.
(3) Section 37A applies only to tenancies to which Part II of the 1954 Act applies “by virtue of section 1(1) or 1(2) of the Landlord and Tenant (Licensed Premises) Act 1990”. It would seem, therefore, that if the licensed premises would have been protected by the 1954 Act under the old law section 37A does not apply. The reference to section 1(2) of the Landlord and Tenant (Licensed Premises) Act 1990 is a little curious; that subsection applies only to tenancies which continue in existence until July 11 1992 and section 37A applies only to a transitional period which ends on July 11 1992.
(4) A question may arise as to the effective date for the tenant’s entitlement to the additional compensation during the transitional period ending on July 11 1992. In general, compensation under section 37 (and it would seem also under the new section) becomes due to the tenant only upon the tenant’s quitting the holding: see Cardshops Ltd v John Lewis Properties Ltd (1982) 263 EG 791.
(5) It seems that the only tenants who will benefit from the additional compensation are those tenants of premises which would not otherwise have been within the 1954 Act, who have been granted a tenancy on or after July 11 1989, receive a landlord’s notice of opposition to the grant of a new tenancy in reliance on section 30(1)(g), none the less apply for a new tenancy and carry their proceedings to court where the court is precluded from granting a new tenancy, then have approximately four months under section 64 of the 1954 Act before they are obliged to quit the holding and then quit within the transitional period which expires on July 11 1992.
It remains to be seen whether there will be many tenants who fall into this special category.
Agricultural holdings
Earlier in this talk I said that, in general, tenancies of leisure premises were treated like other business premises protected by Part II of the Landlord and Tenant Act 1954. However, it must not be overlooked that some leisure businesses are carried on in the countryside on what is predominantly agricultural land. Indeed, with the threat to farm incomes in recent years, many agricultural tenants have diversified their activities and some have turned to leisure businesses as an additional source of income. The Agricultural Holdings Act 1986 can apply to land which is used for mixed uses, namely farming and leisure provided that the land comprised in the tenancy (subject to such exceptions only as do not substantially affect the character of the tenancy) remains let for use as agricultural land: see section 1(2). It is worth remembering that in Dunn v Fidoe [0] 2 All ER 685 a tenancy of an inn, outbuildings, an orchard and pasture land (the land extending to some 12 acres) was held to be a tenancy of an agricultural holding.
Many leisure activities in the countryside involve the use of horses. Horses of that kind are not “livestock” for the purpose of the Agricultural Holdings Act 1986 and so the keeping of horses is not of itself “agriculture” within the meaning of that Act. However, the grazing of land by horses is a use of the land for agriculture and a tenancy of land which is intended to be, and is, used for grazing by horses for the purposes of a business will be a tenancy of an agricultural holding: see Rutherford v Maurer [2] 1 QB 16.
II Rent
On a lease renewal under the 1954 Act, the rent is to be determined in accordance with section 34. That section is, of course, of general application and I will not attempt a comprehensive description of how it works. Similarly, the problems which arise under contractual rent review clauses apply to many different kinds of business premises and are not confined to leisure and licensed premises. I have attempted to isolate a number of points which may have particular relevance for leisure and licensed premises. The issues I wish to discuss are:
(a) Must an assumption be made as to whether the actual tenant would bid for the premises if notionally vacant and to let?
(b) The disregard relating to licenses.
(c) The difficulties of a profits valuation.
(d) Whether the actual operator’s trading accounts are admissible in evidence and/or are discoverable.
(a) Must an assumption be made as to whether the actual tenant would bid for the premises if notionally vacant and to let?
Rent review clauses usually provide for the rent to be assessed on the assumption that the premises are vacant and to let and that there is a willing landlord and a willing tenant. Disregarding any complications created by the existence of a subtenancy, this is also the position under section 34 of the 1954 Act. This assumption necessarily involves the assumption that any existing tenancy or right to occupation will have ended before the date of the hypothetical letting: see Daejan Investments Ltd v Cornwall Coast Country Club (1984) 273 EG 1122; [5] 1 EGLR 77 at p 79.
Free from authority, my view would be that one does not make any legal assumption as to whether the actual tenant is a bidder nor as to whether the actual tenant is the successful bidder for the premises, if notionally vacant and to let. Instead, one starts with vacant premises, one disregards previous occupation and goodwill and any other matters expressly directed to be disregarded and then one asks whether in that hypothetical case the actual tenant would bid for the premises and, if so, whether it is likely that the actual tenant would be the successful bidder. If the evidence supports a particular finding on these matters, effect should be given to that evidence and the evidence should not be over-ridden by any legal assumption either way. However, the matter is not free from authority and the authorities are open to interpretation and possibly even conflict.
The problem starts with F R Evans (Leeds) Ltd v English Electric Co Ltd (1977) 245 EG 657. As is well known, that case concerned a rent review of extensive industrial premises where the lessee was the English Electric Co. Donaldson J said that the willing tenant was an abstraction, a hypothetical person, and was therefore not the English Electric Co. It is open to question whether the judge meant that the actual tenant could never be the hypothetical tenant or that the hypothetical tenant was not necessarily the same as the actual tenant.
In Daejan Investments Ltd v Cornwall Coast Country Club the court was concerned with the rent review clause in the headlease of Crockfords Club. That casino was not occupied by the headlessee or by the underlessee but by an associated company of the underlessee and the associated company held the appropriate gaming licence. The judge held that it would be wrong to treat the actual licence holder as the hypothetical tenant. He appeared to hold that this was because as a matter of law the actual licence holder could not be the hypothetical tenant. The judge was prepared to accept that the actual licence holder would be a bidder for the vacant premises. That view does not appear to have been the result of any assumption of law, but simply due to such a likelihood arising on the facts. The judge then held that because the actual licence holder would be a bidder but could not be the hypothetical tenant, the hypothetical tenant must have outbid the actual licence holder.
In Cornwall Coast Country Club v Cardgrange Ltd [7] 1 EGLR 146; (1987) 282 EG 1664 a different judge had to consider the rent review provisions in the underlease of Crockfords Club. Although there were differences between the provisions of the headlease and the provisions of the underlease, those differences did not directly affect the present point. In the Cardgrange case, the judge was asked to consider whether the arbitrator was entitled to assume and/or find that the underlessee was a possible hypothetical tenant in the market for the property on the rent review date. The judge appeared to accept that if the actual underlessee or the actual licence holder would be a bidder for the premises then the hypothetical tenant must outbid such other bidder.
This appears to involve an assumption that the hypothetical tenant cannot be the actual tenant or actual occupier. The judge went on to hold that there was no assumption of law that the actual tenant or the actual occupier would be a bidder for the vacant premises. In my view, that holding is entirely correct. However, the judge did not directly answer the other part of the question, whether the arbitrator was entitled to find on the evidence (rather than assume) that the actual tenant or the actual occupier may be a bidder. Instead, the judge appears to have held that because there was no assumption of law that the actual tenant or actual occupier was a potential bidder for the vacant premises, there was an assumption of law that the actual tenant and the actual occupier would not be a potential bidder for the vacant premises. If that is what the judge held, then it conflicts with the earlier decision in Daejan Investments Ltd v Cornwall Coast Country Club.
In this state of the authorities, it seems possible to argue that there should be no legal assumption either way. In a proper case, carefully observing any express disregards, if the evidence led justifies a finding that the actual tenant would be a bidder, effect should be given to that evidence. If the evidence justifies a finding that the actual tenant would be the successful bidder, should not effect be given to that finding also?
This approach is supported by the rating cases cited and analysed in Ryde on Rating and the Community Charge at paras E154-E156. The rating cases have not been cited in argument in the rent review cases.
(b) The disregard relating to licences
Section 34(1)(d) of the 1954 Act directs a disregard:
in the case of a holding comprising licensed premises, [of] any addition to its value attributable to the licence if it appears to the court that having regard to the terms of the current tenancy and any other relevant circumstances the benefit of the licence belongs to the tenant.
This wording or similar wording is often used in contractual rent review clauses although in the case of some premises such as gaming premises, where the gaming licence is of great importance, it is now usual to find more detailed provisions as to the gaming licence. One question which arises under section 34 of the 1954 Act is whether the reference to “licensed premises” is restricted to premises licensed for the sale of intoxicating liquor. There are arguments either way, but the argument in favour of holding that the phrase “licensed premises” is not restricted to premises licensed for the sale of intoxicating liquor appears to be the stronger. Indeed, in a recent county court decision, Cambos Enterprises Ltd v John Parker & Son (Cheltenham) Ltd (February 1990), it was held that the reference to licences in section 34(1)(d) applied to a gaming licence under the Gaming Act 1968 permitting premises to be used as a bingo hall. The argument which found favour in that case was that although the phrase “licensed premises” in ordinary parlance means premises used for the sale of intoxicating liquor, there were, prior to 1954, and still are, many other premises which require licences so that they may be used for their intended purpose.
The phrase “licensed premises” is not defined in section 34 whereas in section 43, dealing with premises licensed for the sale of intoxicating liquor for consumption on the premises, the wording of the Act is much more specific. Furthermore, the wording in section 34 referring to the benefit of the licence belonging to the tenant suggests that the kinds of licence which Parliament had in mind were not restricted to licences for the sale of intoxicating liquor.
It should be noted that section 34(1)(d) does not disregard the existence of the licence or the effect on rent of the licence but the addition to the value of the holding attributable to the licence. Accordingly, it is essential to consider whether the net effect of the licence is to add to the value of the premises or to detract from the value of the premises. If the net effect is to add value then one must assess the rent which the hypothetical tenant would pay without regard to the licence. If the net effect of the licence is either neutral or to detract from the value of the holding then one takes the licence into account in assessing rental value. In such a case, however, the licence is to be taken into account both for its rent-enhancing as well as its rent-depressing implications provided that it does not have on balance a net rent-enhancing effect: see Cornwall Coast Country Club v Cardgrange Ltd [7] 1 EGLR 146 at pp 151-152. That case concerned a gaming licence and the judge pointed out the possibility that the existence of a gaming licence may indicate that the premises had previously been considered suitable for gaming and that fact may enhance the value of the premises by tending to reduce uncertainty in the mind of the hypothetical tenant. Conversely, the fact that at the rent review date there existed a licence for the benefit of a third party and not for the benefit of the hypothetical tenant and the fact that there could be only one licence for the same premises at any one time may detract from the value of the premises.
The position under section 34 of the Landlord and Tenant Act 1954 may be contrasted with the position under some contractual rent review clauses where the parties have made detailed provision for the assumptions to be made as to any necessary licence. One example of the latter is Ritz Hotel (London) Ltd v Ritz Casino Ltd [9] 2 EGLR 135; [1989] 46 EG 95, where the parties provided that the rent was to be reviewed on the basis that at the time when the market rent fell to be agreed or determined, the tenant did not hold but would immediately be able to obtain a licence under the Gaming Act 1968.
(c) The difficulties of a profits valuation
Ian Hayward will deal in his talk with those points which arise in profits valuations of leisure and licensed premises. If the object is to assess the rent at which the demised premises might reasonably be expected to be let in the open market with vacant possession then the profits valuation should be an attempt to predict how persons bidding in the open market would assess the likely profitability of the proposed use of the premises. It has been held in Cornwall Coast Country Club Ltd v Cardgrange Ltd that the market will not be influenced by facts and matters which would not have been known to persons in the market at the relevant time. In that case, it was held that the private trading accounts of the operator which would not have been available in the open market could not influence the mind of bidders in the market and should not be admitted in evidence. If a valuer is not able to rely on the private trading accounts of the actual operator and if the business is a specialised one then it may be difficult for a valuer to predict how bidders in the market would assess the likely profitability of carrying on such a business from the subject premises.
One way to overcome this difficulty is for the valuer to take advice from an experienced operator in that business and for such an operator to be called to give evidence before the arbitrator or the court. A difficulty may arise if the actual operator is called; he will be influenced by information known to him but not known in the market. Another difficulty may arise if a valuer has prepared a detailed profits valuation which is substantially at variance from the actual operator’s private trading accounts. The actual operator may wish to use his private trading accounts even if they would not be available to bidders in the market for the purpose of attacking the reliability of the figures used in the other side’s profits valuation.
If the trading accounts of the actual operator are available in the market and are relied on in evidence, great care must be taken to ensure that one gives effect to any express disregards in the rent review clause or under section 34. The disregards primarily relevant will be the disregard of the effect on rent of the fact that the tenant has been in occupation of the holding and the disregard of goodwill. It was said in W J Barton Ltd v Long Acre Securities Ltd (1981) 262 EG 877 at p 878 per Oliver LJ:
If one is to take into consideration the results of the tenant’s trading as a relevant factor in arriving at the open market rent, the elimination from that consideration of any effect on rent from the tenant’s occupation and from the goodwill involves an extraordinarily difficult practical exercise.
(d) Whether the actual operator’s trading accounts are admissible in evidence and/or are discoverable
This has proved a fertile field for litigation. In the absence of any agreement to the contrary, if the actual operator’s trading accounts are available in the open market, for example by being available at Companies House, then those accounts are admissible in evidence in any case where a profits valuation is appropriate: compare W J Barton Ltd v Long Acre Securities Ltd and Cornwall Coast Country Club v Cardgrange Ltd. If the actual trading accounts would not be available in the open market at the relevant date then the market rent must be assessed on the basis that persons bidding in the market would not have known the contents of those trading accounts: see Cornwall Coast Country Club v Cardgrange Ltd. In that case, it was held that the private trading accounts were not admissible in evidence at all: see also ARC Ltd v Schofield [0] 38 EG 113 and Temple & Crook v Capital & Counties Property Co Ltd [1990] 38 EG 118.
The point was taken one stage further in Electricity Supply Nominees Ltd v London Clubs Ltd [8] 2 EGLR 152; [1988] 34 EG 71, where it was held that, in the absence of agreement to the contrary, the private trading accounts not available in the market could not be used even for the purpose of cross-examining a valuer who had prepared a profits valuation significantly at variance from the private trading accounts. However, there is now room for doubt as to that finding. In Urban Small Space Ltd v Burford Investment Co Ltd [1990] 28 EG 116 it was held that the private trading accounts of the operator may be used for the purposes of cross-examination.
In the Cardgrange case it was held that because the private trading accounts of the operator would not be known in the market they were not admissible as evidence and were therefore not discoverable. However, that approach was distinguished by the Vice-Chancellor in Urban Small Space Ltd v Burford Investment Co Ltd. It was there pointed out that the test for discoverability is different from the test for admissibility. Discovery may be ordered of documents which are not admissible in evidence. Any document which it is reasonable to suppose contains information which may enable the party applying for discovery either to advance his own case or to damage that of his adversary, if it is a document which may fairly lead him to a train of inquiry which may have either of these two consequences, must be disclosed: see Compagnie Financiere du Pacifique v Peruvian Guano Co (1882) 11 QBD 55.
Similar questions have been before the courts dealing with rating matters (see Ryde on Rating and the Community Charge, paras E611-E620) but, so far, the rating cases have not been cited in argument in the rent review cases.
I have referred above to the fact that the questions of admissibility in evidence and discoverability of the actual operator’s accounts can be affected by agreement to the contrary. For example, in Electricity Supply Nominees Ltd v London Clubs Ltd, where the judge had held that the private trading accounts would ordinarily not be discoverable and not admissible, it was further held that on the true construction of the rent review clause the parties had agreed that there should be discovery of private trading accounts not known in the market, and inferentially those accounts would be admissible in evidence and could be relied upon by either party and by the arbitrator. In Ritz Hotel (London) Ltd v Ritz Casino Ltd the tenant’s trading accounts would have been known in the market, being available at Companies House, but the parties expressly agreed that in assessing the market rent no account should be taken of the turnover or profits of the business carried on by the tenant in the demised premises.
It is open to the parties to a lease to provide that the rent should be fixed by reference to the actual turnover of the tenant’s business rather than by reference to market rental value from time to time. Such an agreement would, of course, get round the difficulties of carrying out a profits valuation with or without the actual operator’s accounts being available, However, I am quite sure that many landlords and many tenants would prefer to have an assessment by reference to market rental value rather than a rent directly referable to the actual turnover from time to time.
This article by Paul Morgan, barrister, is a revised and updated version of the first part of one of this year’s Blundell Memorial Lectures on current problems in property law sponsored jointly by the General Couucil of the Bar, the Law Society and the Royal Institution of Chartered Surveyors.
