by Stephen Shaw
The vexed question of “When is an offer really an offer” can sometimes arise in unlikely places, for example in a recent unreported decision in the county court and in the context of an application to the court for a new tenancy under the provisions of the Landlord and Tenant Act 1954.
The statutory formula for applying to the county court for a new business tenancy is well known, and governed by Ord 43 of the County Court Rules 1981 and by the provisions of the Act itself. In the county court the tenant must make the application (within the statutory time limits) by originating application, which must provide certain mandatory details. In particular, the tenant must state “the applicant’s proposals as to the terms of the new tenancy applied for, including, in particular, terms as to the duration thereof and as to the rent payable thereunder” (see Ord 43 r 6(c)). The landlord is required to respond to this application by filing an answer in which he must state, among other matters:
(a)whether or not the respondent opposes the grant of a new tenancy and, if so, on what grounds;
(b)Whether or not, if a new tenancy is granted, the respondent objects to any of the terms proposed by the applicant and, if so, the terms to which he objects and the terms which he proposes in so far as they differ from those proposed by the applicant; [see Ord 43 r 7(a) and (b)].
The case of Blair v Park Investments Ltd (1989) came before the county court against this familiar statutory background. The landlords had granted a three-year lease of certain professional rooms in Harley Street in 1982, which in 1985 had been extended for a further three years until September 1988. The landlords had served a section 25 notice under the 1954 Act terminating the tenancy at the expiration of the contractual term, but indicating that they would not oppose the grant of a new tenancy. The tenant had served a counternotice under the provisions of the Act indicating that he was opposed to giving up his tenancy. He had then, on February 9 1988, issued an application in the county court seeking an order for a new tenancy. He made proposals — as he was required to do under the above-mentioned rules — as to the terms for the new tenancy and suggested a rent of £5,000 pa and a term of 14 years.
The landlords responded by answer dated August 24 1988 confirming that they were not opposed to the granting of a new tenancy, but stating that they objected to the terms proposed by the tenant. They also gave details, as required under the rules, of the terms they proposed for a new tenancy, which in this case were a term of three years at a rent of £12,000 pa, and otherwise upon the terms of the pre-existing lease.
There was then, as is often the case, a substantial delay before the next step in the application. It can sometimes be to the advantage of the tenant not to pursue his application with the greatest vigour, enjoying as he does in the meantime the benefit of the old rent under the section 24 continuation tenancy (subject, of course, to the right of the landlord to make an application for an interim rent to be fixed). In this case, it was left to the landlords to make the application for directions, which took place in July 1989, over a year after the tenant’s application was made to the court. One of the directions was to the effect that expert’s reports were required to be exchanged no later than September 21 1989. The tenant failed to serve his list of documents or expert’s report by the stipulated date, but the landlords — in an effort to comply with the directions — served their expert’s report on the tenant on September 21 1989. By September 1989, of course — 13 months after the date of the answer — there had been a substantial uplift in the rental valuation, and the landlords’ expert’s report after a review of the comparables was to the effect that the appropriate rent for the new tenancy should be £18,720 pa.
The tenant then played his trump card. By letter dated October 17 1989 his solicitors wrote to the landlords’ solicitors stating:
Take notice that, on behalf of our client, the proposals of your client company are openly and unreservedly accepted as detailed in your Answer. In the circumstances we are writing to the Court informing them that the hearing fixed for November 22 1989 can be vacated. Please let us have an engrossed lease incorporating the terms for signature by our client.
The news that their proposals had been “accepted” by the tenant came as something of a bombshell to the landlords. Were they to be held to proposals made in the answer filed in the proceedings over a year previously, but which, it had to be conceded, had never been expressly or formally withdrawn? The question is as practical as it is academic, because there are many cases in which landlords make proposals in an answer (and in the affidavit in the High Court procedure) which are then followed by a substantial delay before the hearing occurs. In a volatile property market much can change in the period between the filing of the answer and the date of the hearing. Is the landlord open to having his “offer” in the proposals snapped up by an “acceptance” by the tenant at any time that it may be commercially advantageous to do so before the hearing?
The nub of the question is whether these proposals really amounted to an offer which is capable of being accepted at all. The authority on the matter is sparse and inconclusive. There appears to be only one reported decision touching the matter, namely Lovely & Orchard Services Ltd v Daejan Investments (Grove Hall) Ltd (1977) 246 EG 651, a first-instance decision of Judge Finlay QC, sitting as a deputy judge of the Chancery Division. In that case it was the landlords who purported to accept the offer of the tenants as contained in their originating summons. The proposals were:
(1)Period: 15 years from the date of the current tenancy:
(2)Rent: £27,500 pa with rent reviews every five years;
(3)Other Terms: As in the above-mentioned lease dated 11th April 1972.
The tenants then served subsequent affidavit evidence proposing reduced rents of first £21,000 pa and then £15,300 pa. The landlords then wrote, prior to the hearing (and nearly two years after the originating summons), a letter to the tenants to accept the offer in the application to take a lease:
… for a period of 15 years from 14th October 1975 at a rent of £27,500 per annum with rent reviews every five years and otherwise on the terms as in the Lease of 11th April 1972 set out.
The date of October 14 was the date upon which the tenancy was expressed in the originating summons to come to an end in accordance with the section 25 notice. In the event, the judge held that the offer had not been accepted because the proposal was for a term of 15 years which had to be construed as an offer to take a tenancy for 15 years from the date falling three months after the date when the application is finally disposed of, in accordance with section 64 of the Landlord and Tenant Act 1954. He observed:
That in my judgment gives rise to an initial difficulty in regarding the proposals, as put forward in the summons, as constituting an offer, because it leaves uncertain the date when the tenancy is to commence, making that date ascertainable only by reference to the determination of the proceedings under the provisions of section 64 of the 1954 Act. That uncertainty is, of course, capable of being resolved in that in due course in one way or another the proceedings will be finally disposed of and, therefore, the date of termination as ascertained under section 64 will be determined.
This circumstance, however, that the ascertainment of the date of commencement of the term depends upon the date of termination of the proceedings, suggests to me that the proposals as put forward in the summons were not intended to be put forward as an offer.
On the facts of the case, therefore, and because of the degree of uncertainty as to the commencement date, the claim by the landlords that the proceedings had been compromised and an agreement concluded was rejected. However, the court did not reject in principle the suggestion that proposals in the context of the 1954 Act tenancy application could constitute an offer capable of acceptance.
Similar findings were made in the more recent Blair case referred to above. It was argued for the tenant that although the answer and purported acceptance were silent as to the commencement date, the operation of section 64 was such as to remove any uncertainty because the starting date would be three months from the date of the hearing which was then taking place before the court. This was rejected by Mr Assistant Recorder Bradbury on the basis that it could not be predicted whether his decision would be appealed or not, and the parties themselves could not have known at the date of the alleged acceptance whether the hearing itself would be adjourned or not, all of which rendered the commencement date too uncertain. He held, obiter, that, even if he were wrong in this regard, he accepted the arguments raised on behalf of the landlords, that an offer endures only for a reasonable period of time and a period of 15 months was such as to cause the offer to lapse, and further that the effect of serving an expert’s report with a different suggested rent from that contained in the answer was such as to withdraw the original “offer” and substitute it with a counter offer.
Neither of the above decisions is firmly against any possibility of a finding that in a case where the proposals are clear and certain as to the length of the tenancy, the starting date, the rent and all other general terms and form, such proposals are capable of being accepted by the other party at any time unless modified or withdrawn before the determination by the court. It is a danger which is perhaps not often encountered, since so many of these cases settle without need for a hearing, but the danger is real in a significant number of cases. It is submitted that in most cases it is somewhat unrealistic to regard these proposals as offers capable of binding the party putting them forward to a legal contract. The overall intention will generally be the determining factor, but in many cases these proposals are not put forward with a view to entering into a binding contract so much as with the intention of complying with the County or High Court Rules which are mandatory, and which require such proposals to be set out.
Clearly, parties not wishing to be bound by their proposals should take some steps to ensure that, either by way of amendment or other formal modification, the proposals are kept under constant review, or by making the proposals in such a way as to render them not immediately precise (eg a rent of “not less than …” or “within a range of …”). Another option would be to serve the proposals under a covering letter making it clear that they were made in order to comply with the rules and not with the intention at that stage of entering into binding legal contractual relations. A failure to do so in cases where the proposals are certain would leave (on the present state of the law) the proposing party vulnerable to an acceptance which is neither expected nor desired.
