Landlord and Tenant Act 1954 — Determination of rent for new tenancy — Whether barristers’ Inn operated on open market
The
applicants, who held a tenancy of the basement, ground and first floors at 13
Gray’s Inn Square, London WC1, applied for the grant of a new tenancy under
Part II of the Landlord and Tenant Act 1954. All the terms of a new tenancy had
been agreed, save that relating to rent. The applicants proposed £12,780 and
the respondent landlords, who also sought an interim rent, contended for
£41,850. On behalf of the applicants it was submitted that the comparables
relied on by the respondents should be disregarded because lettings inside
Gray’s Inn are not open market lettings and reliance could be placed only on
lettings outside the Inn.
less than three years to run, was determined at £27,400 represented by £20 per
sq ft for the ground and first floors and £4 per sq ft for the basement. An
open market did operate in Gray’s Inn. For the purposes of section 34 of the
1954 Act an open market includes: a situation to create a market, a wiling
lessor and willing lessee, a reasonable period in which to negotiate the
letting and the negotiations at arm’s length, the property freely exposed to
the market and in the market account is not to be taken of any higher rent that
might be paid by a potential lessee with a special interest. A market can still
be an open market and does not cease to be such a market even though most of
the persons occupying premises in that market belong to a particular profession
or engage in a particular trade.
The following
cases are referred to in this report.
Air
Canada v Heathrow Airport Ltd unreported,
March 30 1993
English
Exporters (London) Ltd v Eldonwall Ltd
[1973] Ch 415; [1973] 2 WLR 435; [1973] 1 All ER 726; (1972) 25 P&CR 379;
[1973] EGD 439; 225 EG 255 & 433
Evans
(FR) (Leeds) Ltd v English Electric Co Ltd
(1977) 36 P&CR 185; [1978] EGD 67; 245 EG 657, [1978] 1 EGLR 93
Inland
Revenue Commissioners v Clay [1914] 3 KB
466; (1914) 83 LJKB 1425; 111 LT 484; 30 TLR 573, CA
Law Land
Co Ltd v Consumers’ Association Ltd (1980)
255 EG 617, [1980] 2 EGLR 109, CA
Tomlinson v Plymouth Argyle Football Club Ltd [1960] EGD 330; (1960)
175 EG 1023; 6 RRC 173, CA
Yorke
(Violet) Ltd v Property Holding & Investment
Trust Ltd [1968] EGD 74; (1968) 205 EG 429
This was the
hearing of applications to determine the rent and interim rent of 13 Gray’s Inn
Square under Part II of the Landlord and Tenant Act 1954.
David Christie
(instructed by Howletts) appeared for the applicants; Michael Barnes QC and
David Holgate (instructed by Hunters) represented the respondents.
Giving judgment,
JUDGE ARON OWEN said: This is an application by Anthony Ian Baptist and
John Philip Ralph, the applicants, for a new lease of the offices which they
occupy as tenants at premises in Gray’s Inn, London WC1.
The
respondents, trustees of the real estate of the Honourable Society of Gray’s
Inn, are the landlords of the applicants.
The applicants
are a firm of solicitors, trading as ‘Howletts’, whose offices are in the
chambers at 13 Gray’s Inn Square. They occupy suites of rooms on the ground and
first floors and certain rooms in the basement. The precise location of each of
the rooms is shown on the floor plans. The agreed areas are: ground floor 802
sq ft; first floor 492 sq ft; basement 380 sq ft.
The applicants
at one time also occupied a suite of rooms on the ground floor and a room in
the basement at 14 Gray’s Inn Square. They left these rooms on July 24 1992 and
the rooms remain vacant.
In addition to
the applicants’ request for a new lease, I also have before me the respondents’
application for interim rent. This relates to the subject premises, the rooms
and basement at 14 Gray’s Inn Square and to certain other basement rooms at 6
Gray’s Inn Square. The parties have agreed all the terms of a new lease for 13
Gray’s Inn Square save that relating to the new rent. There is a very wide
divergence between the parties as to rent. The applicants say £12,780; the
respondents say £41,850. The issue, therefore, to be dealt with falls under the
1954 Act.
Landlord
and Tenant Act 1954, section 34
That section
provides:
Rent under
new tenancy
(1) The rent payable under a tenancy granted by
order of the Court under this Part of this Act shall be such as may be agreed
between the landlord and the tenant or as, in default of such agreement, may be
determined by the court to be that at which, having regard to the terms of the
tenancy (other than those relating to rent), the holding might reasonably be
expected to be let in the open market by a willing lessor, there being
disregarded —
(a) any effect on rent of the fact that the
tenant has or his predecessors in title have been in occupation of the holding;
(b) any goodwill attached to the holding by
reason of the carrying on thereat of the business of the tenant (whether by him
or by a predecessor of his in that business);
(c) any effect on rent of any improvement to
which this paragraph applies.
There is a
fourth disregard, namely (d). This relates to licensed premises which
are not relevant for our case and subsection (2) further identifies
improvements.
Let me make
some general observations as to the statutory requirements of section 34.
(i) An important feature is that, in determining
the new rent, there is the specific requirement to have regard ‘to the terms of
the tenancy (other than those relating to rent)’. Logically, therefore, section
35 which deals with ‘Other terms of new tenancy’ should precede section 34; the
fixing of the new rent under section 34 should come right at the end after all
the other terms and the duration of the new lease have been determined.
(ii) It will be noted that the Act refers to a
‘willing lessor’. But it is obvious that within this statutory framework there
must also be a willing lessee.
(iii) The section requires the letting to be ‘in
the open market’. There is no definition of ‘open market’ to be found in the
Act.
Dealing first,
then, with the terms of the new lease (apart from rent), the parties in this
case have agreed all the terms. They are what I would call ‘the standard terms’
upon which Gray’s Inn usually grants and has granted new leases.
The main
features are:
(1) Duration: a term of six years.
(2) Rent review at the end of three years.
(3) A user clause restricting (in our case) to
use as offices only for the tenants’ profession as solicitors.
(4) An absolute prohibition against assigning or
underletting of the whole or part of the demised premises.
(5) A rolling break clause enabling the tenant to
determine on three months’ notice at any time expiring on a quarter day.
(6) Tenant has internal repairing obligation
only; landlord responsible for external repairs.
(7) Landlord insures, but does not recover cost.
(8) No service charge.
David
Christie, for the applicants, made forceful submissions, which I shall set out
later in this judgment, that Gray’s Inn is not an open market. He submitted
that the comparables put forward by Jennifer Ellis [FRICS], the surveyor and
expert valuer for the respondents, which were all from inside Gray’s
Inn, were not open market lettings.
The
applicants’ surveyor and expert valuer, Charles Macqueen [FRICS], took as his
comparables lettings outside Gray’s Inn and not far away from the
subject premises which showed rents vastly lower than rents in Gray’s Inn. Mr
Christie submitted that the lettings outside Gray’s Inn reflect what is the
open market rent.
Needless to
say, Michael Barnes QC and his junior David Holgate, for Gray’s Inn, strongly
contested Mr Christie’s submissions. Their case is that lettings within Gray’s
Inn are open market lettings.
I am thus
confronted with the stark issue: does Gray’s Inn, one of the four Inns of
Court, operate on open market principles with regard to the letting of chambers
within their Inn?
It is accepted
that, within the framework of section 34 of the Act, the willing lessor is to
be regarded as an abstraction or hypothetical person (ie not Gray’s Inn). And,
similarly, the lessee is also, for the purpose of the statutory exercise, to be
taken as a hypothetical person: see F R Evans (Leeds) Ltd v English
Electric Co Ltd (1977) 36 P&CR 185*, which case, I was told by Mr
Barnes, who appeared in it, went to the Court of Appeal and the judgment of
Donaldson J at first instance was accepted without demur.
*Editor’s
note: Also reported at (1977) 245 EG 657, [1978] 1 EGLR 93.
But the actual
premises (the rent for which the court has to determine), the precise location
and the surroundings of the premises, the time and the prevailing circumstances
in which the premises are reasonably expected to be let are not
hypothetical. All those items constitute the factual background and situation
on the basis of which the hypothetical lessor lets to the hypothetical lessee.
Let me, therefore, set out first what this factual background is in our case. I
summarise matters from the statement of agreed facts.
Gray’s Inn
Gray’s Inn is
one of the four Inns of Court — the others being Lincoln’s Inn, Middle Temple
and Inner Temple. Each Inn is an unincorporated body of barristers which, for
five centuries or more, have had the exclusive power to call to the Bar those
of their members who are qualified for the rank or degree of barristers at law.
The four Inns
are grouped around the Royal Courts of Justice, Gray’s Inn being the furthest
away.
Gray’s Inn
covers an area of approximately 13.8 acres. It is bounded to the north by
Theobald’s Road, to the west by Jockey’s Fields, to the south by High Holborn
and to the east by Gray’s Inn Road. The Inn comprises groups of buildings
arranged around two squares, namely South Square and Gray’s Inn Square (facing
gardens) and buildings at Field Court, Gray’s Inn Place and Holborn.
The oldest
buildings date back to the 17th century while others have been built and added
to at various times since then, including properties rebuilt after the war.
Collectively, the buildings form an important group of historic buildings.
The buildings
which comprise Gray’s Inn can be divided into two categories: the collegiate
and the tenanted buildings. The collegiate buildings of the Inn provide various
facilities and services to the Bar. These include the treasury office, the
Holker Library (a place for study and for reference), the chapel and the hall
where lunch and dining facilities are provided for barristers and bar students.
The Inn also houses the College of Law, the educational establishment run by
the four Inns of Court.
The tenanted
buildings provide working and living accommodation for, in the main,
barristers, but there are also other professions, principally solicitors and
including patent agents.
The
subject premises
13 Gray’s Inn
Square is situated on the east side of the square and has frontages to the
square and to Gray’s Inn Road. On the opposite side of Gray’s Inn Road there are
shops at ground level and general commercial uses above. Gray’s Inn Square was
developed in about 1685, but half the buildings — nos 2 to 5 and 9 to 11 — were
totally destroyed by enemy action in 1944. Two fire bombs fell on and gutted no
12, but nos 13 and 14 were almost untouched.
The principal
vehicular entrance into Gray’s Inn is in High Holborn and the principal
vehicular exit is through an archway (with a headroom of 11ft 6ins) between the
subject premises 13 and 14. There is a limited amount of parking space in
Gray’s Inn Square available to tenants of the Inn (in 1992 the annual fee was
£1,500 plus VAT). At present there is a small waiting list for parking
licences. There is also a separate vehicular access to Verulam Buildings and
Raymond Buildings, but these do not intercommunicate with the main part of
Gray’s Inn except by pedestrian gateways.
The subject
premises are in a building, built on basement, ground and three upper floors,
of traditional brick construction with pitched slate roof and suspended timber
floors. Like many of the buildings in the Inns of Court they are double fronted
with accommodation lying to both sides of a central staircase. Each group of
rooms is known as a set of chambers. At no 13 the top floor is occupied as two
residential flats and the remainder of the buildings as offices. One
second-floor set of chambers is let to the Free Representation Unit and the
other is vacant. The first floor is also vacant. The applicants’ premises
comprise the remainder of the first floor, both sets on the ground floor and
four rooms in the basement. There is no lift.
At no 14 the
top floor is a residential flat and the remainder is offices, part formerly
occupied by the applicants and now vacant, and part by barristers and the
Barristers’ Benevolent Association.
The common
parts of no 13 comprise an entrance hall and staircase with painted matchboard
walls which are simply painted with bare wooden floors. I would agree with the
description ‘spartan’ applied to these common parts.
I carried out
an inspection of Gray’s Inn and of the subject premises and of the comparables
on Wednesday June 2 1993.
The policy
of Gray’s Inn
The Right
Honourable Sir Michael Mann, a Lord Justice of Appeal who is the current Master
of Estates of Gray’s Inn and one of the trustees in whom the legal estate of
Gray’s Inn is vested, was one of the witnesses who gave evidence. He said, inter
alia, that the Inn gives preference to lettings to the Bar and that since
1984 has not let to anyone but the Bar because there was an adequacy of demand
from the Bar.
It appears,
however, that this was not always the case and the present preponderance of
barristers in Gray’s Inn is a more recent phenomenon. There was a time — a year
as recent as 1965 was mentioned — when there were no barristers in Gray’s Inn.
Mann LJ
and the Law Courts by the main High Holborn road.
The Inn
adopted a policy of attracting barristers to Gray’s Inn. This was achieved by
granting a discount in rents to barristers as compared with the rents paid by
non-barrister tenants of the Inn. For many years the position was that
barristers in Gray’s Inn (and it is said this may also have been the situation
in the Temple) paid lesser rents than the rents prevailing outside the Inn.
Then came the great rises in rents in the 1980s, which peaked in about
1988-1989 followed by the recession. The experts agree that, outside Gray’s
Inn, rents fell by a huge 66 2/3%. Inside Gray’s Inn the fall was less
dramatic; Miss Ellis puts it at about 10% pa from about the middle of 1991.
The
changing Bar
Over the last
decade or so, the operation of the Bar in London has changed radically. There
was a time when it was regarded and accepted as de rigueur that practising
barristers in London could practise only from chambers situated within one of
the four Inns of Court.
I do not know
of any regulations which required this restrictive siting of barristers’
chambers to the four Inns of Court. Counsel thought that it was based on
consent being required before a new set of barristers’ chambers could be set up
and no one considered asking (or, perhaps, dared to ask!) for such consent
outside the Inns. In those days, any barrister who had chambers in London
outside the Inns was the rare exception and regarded as something of a maverick
and even, to some extent, disdained by the profession generally.
All that has
now changed. Barristers’ chambers — and these include many chambers headed by
eminent Queen’s Counsel and senior juniors — are to be found outside the four
Inns of Court, many in streets and locations much nearer to the law courts.
There are now barristers’ chambers in Bedford Row, Bell Yard, Bolt Court, Breams
Buildings, Britton Street, Chancery Lane, Doughty Street, Falcon Court, Fleet
Street, Serjeant’s Inn, Staple Inn, Strand, Temple Avenue, Cursitor Street and
Essex Street. The General Council of the Bar is in Bedford Row.
I understand,
too, that conferences and consultations now often take place away from chambers
and restrictions in that respect have been relaxed. And I note, from a recent
report in the media, that the Bar Council is this month (July 1993)
experimenting with the first-time use of video conferencing.
There is also
a marked trend for barristers grouping together in much larger numbers and in
larger sets of chambers, preferably all in the same building under one roof.
This is to be contrasted with the small sets — a group of only several barristers
with a senior and junior clerk — occupying just a few rooms. This was quite a
normal situation in years gone by. Today, what are termed ‘mega-chambers’ are
quite common.
The whole
perception of the Bar has altered. It is no longer the 19th-century Dickensian
picture of musty law books and quill pens, the leisurely profession of a
gentleman, when it was said that the traditional pocket which is still attached
to the back of a junior counsel’s stuff gown was intended for the purpose of a
grateful client putting a few guineas therein because the barrister himself
would be offended if lucre crossed his palms.
The modern Bar
fits in more with the story of the gushing lady client who said to Queen’s
Counsel who had just won the case for her, ‘Oh thank you sir, however can I
thank you?’ To which counsel replied
‘Madam, since the Phoenicians invented money there has been no better way!’
Today,
barristers chambers are conducted on strictly business lines. Business tenants
are more concerned with the layout and facilities provided inside their offices
than with the views on looking outside. In the larger sets of chambers there
are fine reception and waiting rooms or areas. There is all the modern
technology and equipment for the running of an up-to-date office: rooms with
computers, fax machines, word processors; rooms for senior and junior clerks
and secretaries. It goes without saying that central heating, under-floor
wiring, the provision of modern office kitchen and toilet facilities are taken
for granted.
It is against
this new background, of what has happened and is happening outside the Inns,
that the Inns of Court, operating with premises many of which have interiors of
a standard far below modern business requirements, now have to compete. As to
barristers leaving the Inn, what began as a mere drop, which then became a
trickle, is now quite a respectable stream. It would be a disaster for the Inns
if that stream turned into a river. It so happened that a quarter day
(Midsummer June 24) occurred during the hearing of this case. I was told of a
contemporary exit of 32 barristers leaving their chambers at nos 3 and 8 Gray’s
Inn Square and moving to 33 Bedford Row: see The Times June 22
1993 at p38.
The evidence
before me as to vacancies in Gray’s Inn indicated, in general terms, that more
premises were now vacant and for longer periods than in the past. Mr A Lush,
Estates Bursar for Gray’s Inn since 1984, gave evidence about vacancies and
admitted that there are now within Gray’s Inn more premises vacant and more
premises remaining vacant for longer periods than when he first came in 1984.
As to Verulam
Buildings, Mr Lush said it is the intention of Gray’s Inn to carry out
substantial works of refurbishment beginning, it was hoped, soon after
September 1993. Where property has become vacant within the building it has not
been relet and all remaining leases are due to expire in time for works to
begin. He said that the need to obtain vacant possession has also resulted in
the Inn keeping property available elsewhere to rehouse tenants from Verulam
Buildings. However, the actual position of what has happened at Verulam
Buildings is set out in Mr Lush’s schedule. This shows that, out of eight sets
of barristers’ chambers, five are leaving or have left the Inn and that, out of
seven sets of solicitors’ offices, four have left or are leaving the Inn, or do
not require any accommodation there.
Although the
policy of the Inn is for new lettings to be restricted to barristers, this
policy appears not to be rigid. In his witness statement dated March 11 1993 Mr
Lush said, about 11 South Square:
One set of
chambers within this building has been vacant for fifteen months. For nine
months the Inn chose not to relet it for this period as it was deciding whether
it needed the space itself for its own administration and other purposes.
It was
screened (the process by which the availability of the space is advertised and
application invited) about five months ago. Offers were received on part of the
available premises, which were not accepted, and the Inn is currently
negotiating with a non-Bar tenant who may be interested in a substantial part
of the available premises.
It is also to
be noted that there are a number of Gray’s Inn leases where the user clause is
not restricted to barristers, but has the wider general office user. Such user
would not preclude solicitors.
I have set
out, at some length, the factual position and background against which the
letting of 13 Gray’s Inn Square (between the hypothetical parties) has to take
place in the open market.
What is the
meaning of ‘open market’ in section 34 of the 1954 Act?
Open
market
A number of
authorities, many of them in a statutory context other than the 1954 Act, were
usefully cited to me by Mr Christie. Miss Ellis referred helpfully to some
definitions relating to ‘market’ and ‘open market value’ in a 1989 publication The
Glossary of Property Terms published by The Estates Gazette Ltd.
‘Open market’
is not a technical term and is a commonly used, ordinary English expression.
However, for the purpose of section 34 of the Landlord and Tenant Act 1954 I
consider that it should include the following:
(1) A situation to create a market. Normally this
would be a sufficient number of lessors and lessees to create the opportunity
of comparing rents, thereby enabling the forces of supply and demand to
operate. But this does not necessarily exclude a monopoly situation: see Tomlinson
v Plymouth Argyle Football Club Ltd (1960) 6 RRC 173*, a rating
valuation case based on hereditament; see also the
Association Ltd (1980) 255 EG 617 at p623, [1980] 2 EGLR 109. In a recent
county court decision, Air Canada v Heathrow Airport Ltd March 30
1993, Judge Barr, at Uxbridge County Court, held that although in that case
there was only one lessor, namely Heathrow Airport, for the premises, which was
a special passengers’ lounge, there were a number of possible lessees each of
whom had an equal opportunity of bidding to become the lessee.
*Editor’s
note: Also reported at (1960) 175 EG 1023.
(2) In this market there must be a willing lessor
and a willing lessee. There are hypothetical persons: see F R Evans (Leeds)
Ltd v English Electric Co Ltd (1977) 36 P&CR 185, to which case
I referred earlier in this judgment.
(3) A reasonable period in which to negotiate the
letting and the negotiations to be at arm’s length.
(4) The property freely exposed to the market.
(5) In this market, account is not to be taken of
any higher rent that might be paid by a potential lessee with a special
interest. For a case of special purchaser: see Inland Revenue Commissioners
v Clay [1914] 3 KB 466 (CA).
In such an
open market the landlord will seek to obtain the best rent for the premises on
the terms offered and the tenant will seek to agree the lowest rent which he
can persuade the landlord to accept.
It is
important to bear in mind that the negotiations between the hypothetical lessor
and lessee in this open market will be taking place at a particular time and a
relevant consideration will be the state of the market at such time. Here we
have the well-known expressions of a ‘tenant’s market’ or a ‘landlord’s
market’.
In the office
premises market, we are today, and have been for some time, in a period of
recession. The advantages in negotiating are weighted very much in favour of
the tenant; it is a tenant’s market.
Applicants’
submissions
Mr Christie
submitted that lettings in Gray’s Inn were not open market lettings. He said
they were closed or not open, or not fully open lettings.
He based his
submissions on a number of grounds, the main ones being as follows:
(a) The policy of Gray’s Inn to grant new leases
restricting user to that of barristers only.
(b) Gray’s Inn itself is an organisation of
barristers and there is thus a kind of ‘family’ association and special
relationship.
(c) Negotiations are not conducted at arm’s
length.
(d) Gray’s Inn does not operate commercial leases.
(e) There is a marked difference between what is
happening as to rents inside the Inn when contrasted with rents outside. The
resolution passed by members of the Bar, after their Annual General Meeting
held on November 22 1991, that the Bar Council
should
require the four Inns of Court not to charge their Bar tenants . . . a rental
which exceeds the open market rental obtainable for similar leases of similar
type buildings in the immediate vicinity of each Inn.
(f) The system of ‘screening’, the process
whereby vacant chambers are advertised only on notice boards within the Inn
itself and thus the premises are not fully exposed in the market.
(g) Barristers regard the Inn as ‘beneficent’ and
they pay the rents asked.
(h) Barristers, unlike solicitors, derive unique
benefits from having chambers situated within the Inns of Court. They include:
the Inns’ dining and refreshment facilities; library facilities; and the
advantage of a small profession being closely grouped together in London (in
the close vicinity to the High Court and other central London courts and
tribunals) enabling, inter alia:
(i) a system of returns to operate between
different sets of chambers and
(ii) the daily listing/information as to listing
operated by clerks to function.
Let me say,
first of all, that, in my judgment, a market can still be an open market and
does not cease to be such a market even though most of the persons occupying
premises in that market belong to a particular profession or engage in a
particular trade. In the medical profession there are clusterings of
specialists and consultants in Harley Street and other streets nearby. Antique
dealers have clustered together in Camden Passage and adjoining streets near
this very court.
Mr Christie
said that in all other clusterings the landlord was not himself identified as
practising the same profession or being in the same trade as the tenant. For
example, the Howard de Walden Estate, which owns Harley Street, is not the BMA.
Similarly, the landlords of all other clustered groups were at arm’s length
with their respective tenants. (I can deal with this submission under ‘family
connection’ below.)
I find as a
fact that there are now many commercial landlords just outside the Inns of
Court who are the landlords of barristers’ chambers outside the Inns. This was
always the position to some extent in Lincoln’s Inn, where not all the premises
there are owned by the Inn itself — there are ‘flying freeholds’ — though
restrictions as to user do operate by virtue of the Lincoln Inn Act 1860.
I have already
set out, in my judgment above, addresses outside the Inns where barristers’
chambers are now to be found. There has grown up an area, including but also
extending beyond the four Inns, which can be conveniently termed ‘legal London’
and which has the Royal Courts of Justice as its focal point. Many of the
barristers’ chambers outside the Inns are much more conveniently sited, by
reason of closeness to the law courts, than the chambers in Gray’s Inn.
Miss Ellis
gave reasons why barristers have moved out of the Inn. She said these were not
necessarily financial, but often were a combination of a wish to expand when
the Inn could not afford them any more accommodation, to have fully modern
facilities and to move from various sets of chambers to a single location. But
I have no doubt that one of the current main reasons, apart from the other
reasons, is the question of rent. Market forces are operating. There is a
supply outside the Inn of accommodation superior in modern facilities and at
lower rents. The Inn operates within that market.
Dealing with
submissions made by Mr Christie
‘Family
connection’ and negotiations said to be not at arm’s length
I had some
suggestion that barristers would be inhibited in dealing with the benchers and
judges of their Inn and that they would not like to be seen as ‘rocking the
boat’.
It may be
significant that the applicants in this case are solicitors and not barristers.
I am told that this is the very first case to come to court under the Landlord
and Tenant Act 1954 relating to determining the rent of chambers in any of the
four Inns of Court, and that Act has now been in operation for some 40 years.
In his witness
statement, Mann LJ said:
I confirm
that every transaction with barrister tenants is conducted at arm’s length and
regardless of the identity of members of the chambers involved and particularly
whether they are members of the Inn, senior or otherwise.
He stated that
the Inn received advice as to rents from its surveyors appointed for that
purpose. In the course of his evidence he said that while there was, in a
general sense, a special relationship, between members of the Bar and the Inn
that did not apply in negotiating rents.
Restricted
use to barristers only
A restricted
user clause in a lease does not vitiate the concept of open market. It would be
ridiculous to say that section 34 of the 1954 Act cannot operate where there is
a restricted user clause. And, in the instant case, the willing hypothetical
parties negotiating on the basis of the agreed terms means that, here, the
letting would be restricted to a solicitor and not to a barrister.
The
hypothetical lessee in our case is a solicitor, but he is a solicitor seeking
the lease of premises which are in an area where the predominant users are
barristers. To counter any suggestion that Gray’s Inn treats solicitors
differently from barristers as regards rent, Miss Ellis carried out a
statistical analysis.
This analysis,
she conceded readily, was rough and crude. She took a considerable number of
transactions — separate lettings to barristers and solicitors — and produced
statistics which are set out in a number of tables.
Though Mr
Christie criticised this statistical exercise and submitted that it was flawed
in a number of respects, I am prepared to accept that, by and large and within
accepted valuation tolerances, it does show that there is no difference between
rents being paid by solicitors or barristers within Gray’s Inn.
Screening
In my
judgment, it is reasonable, as Mr Barnes submitted, for a landlord who wishes
to let to a particular class of persons to advertise in such a manner as would
be likely to reach that particular class. That does not mean that the premises
are consequently not freely exposed to the market. Any solicitor, patent agent
or accountant who wishes to take premises in Gray’s Inn will have no difficulty
in knowing where to make inquiries.
Special
benefits enjoyed by barristers
These same
benefits are available to barristers who have taken chambers outside the Inns.
It is the fact of their being called to the Bar, and paying the appropriate fee
to the Inn, which entitles them to all the benefits, not the fact of a tenancy
within the Inn.
In all the
circumstances I find that Gray’s Inn does operate ‘open market’ principles in
respect of lettings.
Comparables
Mr Macqueen’s
comparables were three properties all outside Gray’s Inn, but not far away from
the subject premises. They are: Highlight House, 80-82 Gray’s Inn Road; Peer
House, Verulam Street, London WC1; and 1-5 Portpool Lane, London EC1.
Each of these
properties is very different from the subject premises. Their location is all
to the east of the busy Gray’s Inn Road and in areas (which include a school
and local authority housing) bearing no comparison whatsoever with the subject
premises.
If I may now
use some other well-known expressions which include the vexed word ‘market’, I
would describe these properties in general terms as ‘downmarket’ when compared
with the ‘upmarket’ location of the subject premises.
So many
adjustments have to be made in respect of the various and very different terms
which appertain to these three properties in order to achieve some kind of
equation with the subject premises. Certainly these three properties provide
factual evidence of the kind of rents, broadly less than £10 per sq ft, which
are currently available on the open market on certain terms. However, I do not
consider them as the best comparables to assist in determining the rent for the
subject premises.
Before I turn
to the comparables put forward and relied upon by Miss Ellis, I mention three
other properties. These were discovered by Miss Ellis in the course of trawling
for premises which had that special feature found in the Gray’s Inn leases,
namely the rolling three-months break clause coupled with the security afforded
by the Landlord and Tenant Act 1954.
Such details
as Miss Ellis was able to obtain (and English Exporters (London) Ltd v Eldonwall
Ltd [1973] Ch 415*, criteria required for factual evidence are absent) are
set out. Briefly they are as follows:
(1) Essex House, 12-13 Essex Street, which is
almost directly opposite the main entrance to the law courts. Here, a lease of
the fifth floor (which has approximately 1,150 sq ft) and the second floor is
on offer to barristers, with a rolling option to break on three months’ notice.
There are full repairing and insuring obligations. The amenities are new
refurbishment, lift, commissionaire, central heating, carpeting. The asking
rent is £19 per sq ft.
(2) 87 Chancery Lane, Lease with rolling option
to break on three months’ notice offered to barristers. The amenities are new
refurbishment, central heating, carpeting, double glazing, discreet lighting,
entryphone. Full repairing and insuring obligations. The asking rent is £20 per
sq ft.
(3) 61 Fleet Street, first to fifth floors. This
relates to a property called Byrom Chambers, which is a letting to barristers
dated September 29 1992 for a term of 13 years with an upward-only break clause
on September 29 1999. It is an office user with no restriction on alienation
and, after the first year of the lease, the tenant has the right to surrender
at any time on three months’ notice. The tenant has internal repairing
obligations only. The landlord insures, but does not recover the cost. The
amenities consist of new refurbishment, central heating, carpeting, curtains,
discreet lighting, gas log fires. The rent here analyses at £20 per sq ft.
*Editor’s
note: Also reported at (1972) 225 EG 255.
These
properties indicate what is available in close proximity to the law courts. Mr
Macqueen said, and I understand it is an opinion shared by the experts, that in
the present state of the market landlords are desperate to find tenants. All
kinds of incentives are offered, eg rent-free periods, moving expenses, and
landlords are amenable to negotiating rents downwards from the asking price.
Respondents’
comparables
Miss Ellis
relied on comparables taken only from within Gray’s Inn. I consider that she
was right to do so. There is still a cachet attached to having premises within
Gray’s Inn and an ambience there which is not to be found outside — though I do
find that the importance and value of that cachet has been reduced and eroded
by what has been taking place in recent years. I have already referred in this
judgment to the changed Bar and to chambers set up outside the Inns. There were
seven transactions (these were referred to as the ‘primary comparables’) plus a
further two. However, I was also given details and analyses of other lettings
within Gray’s Inn.
In the course
of his final submissions, Mr Barnes added up the rents relating to 10 Gray’s
Inn lettings and worked out averages from various combinations arriving at
averages of £34, £38 and £36 per sq ft. He readily accepted that this was a
crude exercise, but he submitted that this supported Miss Ellis’ adjusted
figures of £30 and £28.50 for the subject premises.
I do not
consider that averaging the rent of different comparables is a correct
approach. I have to evaluate the quality of the evidence and I agree with Miss
Ellis that the letting which is the latest in time (and thus nearer to the time
which is the date of the court hearing when the rent has to be determined) is
of the greater value and assistance. In my judgment, the final letting which
has taken place in 4-5 Gray’s Inn Square provides the best comparable for this
case. Those premises are the subject of two lettings and there are two separate
leases. In each case the tenant is Gray’s Inn Square Ltd (I note what is
perhaps a new phenomenon: barristers taking a lease with their tenancy granted
to a limited company. The head of these chambers is Elizabeth Appleby QC. I
shall refer to this lessee as ‘the barrister company’).
The barrister
company was already in occupation of much of 4-5 Gray’s Inn Square when the
opportunity arose to acquire the first floor, the previous tenant there having
moved out. The barrister company obtained a lease of that first floor for a
term of six years from September 29 1991 on the usual Gray’s Inn terms at a
rate at which (unadjusted) analyses at £46 per sq ft. This September 1991
letting is used by the respondents as their first comparable. I have little
doubt that the rent of £46 per sq ft represents an element of special purchase
value. Here, the barrister company, which clearly wanted to expand, was
presented with the golden opportunity of acquiring additional premises in the
same building under the same roof.
But what
happened next as to a letting in these very same premises gives the best
indication of the changed position in 1993. The previous lease of the barrister
company, relating to their occupation of parts of the ground, first and second
floors and basement of 4-5 Gray’s Inn Square, had expired. They were
negotiating this year for a new lease for those parts. That new lease has only
just been finalised. It provides for a six-year lease from December 25 1992 on
the usual Gray’s Inn terms, but the new rent (unadjusted) analyses at £28.85
per sq ft on the ground and first floor.
I cannot
accept Miss Ellis’ explanation that there is an element of discount for size
here. On the contrary, since, as Miss Ellis said, one of the reasons for
barristers leaving Gray’s Inn was so as to acquire
seems to me, that in such circumstances a higher rent, rather than a discounted
one, would have been sought.
In my
judgment, this new rent at 4-5 Gray’s Inn Square represents an open market rent
taking place in competition with the rents for premises available outside
Gray’s Inn. Adjustments have to be made to the figure of £28.85 in order to
arrive at the valuation for the subject premises. The adjustments relate to
such matters as post-war building, refurbishment, garden views, traffic noise
and so on. Miss Ellis arrived at a valuation of £22 per sq ft for the side of
the subject premises facing Gray’s Inn Square and £20.50 for the Gray’s Inn
Road side.
Mr Macqueen’s
opinion was that Miss Ellis’ adjustments are not sufficient and should be
larger. Taking all relevant factors into consideration, I agree. The subject
premises, 13 Gray’s Inn Square, are in perhaps the worst position in the
square, adjacent to the vehicular exit and with one side facing the busy Gray’s
Inn Road. The other side does overlook Gray’s Inn Square, but the view from the
ground floor is mainly of cars parked in the square. By contrast 4-5 Gray’s Inn
Square has a whole side overlooking the lovely gardens, The Walks, which are a
special feature of Gray’s Inn. And these premises are situated in a very much
quieter part of the square.
I accept the
evidence of John Ralph, one of the applicant solicitors who is a partner in his
firm Howletts. I refer to his witness statement dated March 16 1993.
In that
statement he deals, in para 3.1, with the general noise and traffic and what is
now taking place at the exit; in para 3.4 with the difficulties caused by the
Free Representation Unit; and in paras 3.6 and 3.9 with the physical state of
the premises. There is also the feature as to the awkward layout of the
premises. In a small set of chambers at 8 Gray’s Inn Square (some 412 sq ft),
where there was an awkward layout, the Inn charged what was called a
‘concessionary’ rent which analysed (unadjusted) at £18.57 per sq ft.
In Violet
Yorke Ltd v Property Holding & Investment Trust Ltd [1968] EGD
74*, Megarry J said that the court had to deal with the matter with a broad
sword rather than exact mathematics and must bear in mind that valuation was an
art rather than a science. On that basis, and taking all the relevant matters
into consideration, I determine the rent for the rooms on the ground and first
floors of 13 Gray’s Inn Square to be at the rate of £20 per sq ft. This will
give the figure of £25,880 for 1,294 sq ft. As to the basement rooms and, in
particular, room 7 I inspected this room. It is very small with a ceiling
height of just 6 ft. There is one small window measuring 2ft high and 3ft wide.
The top of this window is just about level with the pavement outside and the
restricted view out of this window is of the iron railings guarding a
separating gulley.
*Editor’s
note: Also reported at (1968) 205 EG 429.
I accept Mr
Ralph’s evidence that the applicants at one time carried out a brief experiment
to try to use the room as an office. But such use had to be abandoned. This
basement room is damp, claustrophobic and does not have sufficient natural
light or ventilation. It has been used only for storage. This room bears no
comparison whatsoever with the rooms in the lower-ground floor at 3 Gray’s Inn
Square (the offices of Graham Watt & Co, patent agents, which are the
respondents’ fifth comparable) which I also inspected. In my judgment, basement
room 7 is suitable only for storage. I determine the rent of all the basement
rooms (and this includes room 7) at £4 per sq ft. This will give the figure of
£1,520 for 380 sq ft.
So the total
annual rent for the new lease of 13 Gray’s Inn Square, which will now have less
than three years to run, will be £27,400 (ie £25,880 plus £1,520).
Interim
rent
Here, the rent
has to be determined by the court on the basis of the statutory provisions set
out in section 24(A)(3) of the Landlord and Tenant Act 1954. The agreed periods
are:
(i) In respect of 13 Gray’s Inn Square from
February 21 1992 to date.
(ii) In respect of 14 Gray’s Inn Square and the
basement rooms, the period is from September 29 1991 to July 24 1992.
The experts
are agreed that, in all the circumstances, various relevant factors cancel each
other out. Accordingly, I determine the interim rents of the said premises for
the agreed periods at £20 per sq ft and £4 per sq ft for the basement rooms.
That, I
believe, deals with all the issues before me apart from costs.
Orders
accordingly.
