Landlord and tenant — Rent review — Premises at Heathrow and Gatwick Airports — Construction of several leases — Issues relating to character of demised premises and identity of hypothetical bidder — General principles
plaintiff, British Airways plc, holds the terms of eight leases of parts of
Heathrow Airport and Gatwick Airport — The first defendant, Heathrow Airport
Ltd, is the owner of the reversion of the four leases of parts of Heathrow
Airport and the second defendant, Gatwick Airport Ltd, is the owner of the
reversion of the other four leases of parts of Gatwick Airport — The rent
review provisions in the leases are in broadly similar terms and the
disagreement between the parties about the true construction of the rent review
clauses is typified in the lease dated December 31 1986 of the West Base No 1
Maintenance Area at Heathrow for a term of years from April 1 1971 to June 30
2055 (‘the West Base lease’) — The West Base lease was granted in consideration
of the plaintiff’s erecting and constructing a servicing hangar,
computer-training building and other buildings and works — The demise was of
plots of land containing 84 acres and the ‘demised premises’ were defined as
including the land together with all buildings, works, fixed plant and fixtures
for the time being thereon — The rent review provision distinguished between
what were defined as the first premises and the second premises, the latter
comprising nine individual lettered plots of land — From April 1 1990 until
June 30 2000 the plaintiff lessee covenanted to pay the initial reserved rent
or the current market rental value of the plots, whichever was the higher — The
current annual market rental value was defined of the plots as if they were let
individually on a building lease for a term of years equivalent in length to
the actual lease on the same terms and conditions and excluding the first
premises — The lease contained covenants by the lessee relating to the carrying
out of improvements and user — The nine plots were not undeveloped at the date
of the lease but had been equipped with hardstanding and associated drainage —
The plaintiff issued an originating summons which, following amendment, raised
nine questions of construction
approach of the court to the construction of rent review clauses — (1) The
paramount principle is that stated in Basingstoke and Deane Borough Council
v Host Group Ltd — (2) The purpose of a rent review clause is to ensure
that the rent payable during the term of a long lease reflects changes in the
value of money and of the property let — (3) The court should not trespass on
the territory of the expert valuer — (4) The only relevant hypotheses are those
expressly or impliedly agreed by the parties — (5) It is a question of
construction whether the rent to be determined on the hypothetical lease should
take account of the buildings actually on the property — (6) An assumption or
disregard about the actual state of the property may have to be implied to give
commercial efficacy
principles, declarations were made as follows: (1) It must be assumed that each
of the plots comprised in the second premises is an undeveloped plot excluding
all buildings, hardstanding and drainage at the review date — (2) Each
hypothetical lease imposed upon the tenant a covenant to build at the tenant’s
cost what actually exists on the respective plots at the review date — The
hypothetical lease is required to be a ‘building lease’, not just a lease — (3)
On the hypothetical letting of any one plot comprised in the second premises
none of the other plots are assumed to be available for letting on the open
market but rather are assumed to be occupied by the plaintiff on the terms of
the actual lease — That assumption reflects the reality of the position — (4)
On the hypothetical letting of any plot comprised in the second premises to
which access cannot be obtained by virtue of the right granted by the
hypothetical lease for the purpose for which the plot is permitted to be used,
the valuer is to disregard the lack of such access — (5) Taking three questions
of construction together, it is for the independent surveyor, and not for the
court, to decide who is likely to be a bidder in the open market for the hypothetical
lease and, if he concludes that the plaintiff is likely to be a bidder, what is
likely to be the amount of its bid for such a lease — (6) In relation to a
lease of the East Base maintenance area at Heathrow, the tenant is only
entitled to use certain areas as a means of access to the demised premises as
defined in the actual lease and/or as a taxi track for aircraft — (7) In
relation to a lease of land at Gatwick Airport, it was to be assumed that the
land identified on the plan annexed to the actual lease was to be let on a
single hypothetical lease
The following
cases are referred to in this report.
Basingstoke
and Deane Borough Council v Host Group Ltd
[1988] 1 WLR 348; [1988] 1 All ER 824; (1987) 56 P&CR 31; [1987] 2 EGLR
147; 284 EG 1587, CA
City of
London v Nash (1747) 3 Atk 512; 1 Ves Sen 12
Compton
Group Ltd v Estates Gazette Ltd (1977) 36
P&CR 148; [1977] EGD 237; 244 EG 799, [1977] 2 EGLR 73, CA
Cornwall
Coast Country Club v Cardgrange Ltd [1987] 1
EGLR 146; (1987) 282 EG 1664
Evans (FR)
(Leeds) Ltd v English Electric Co Ltd (1977)
36 P&CR 185; [1978] EGD 67; 245 EG 657, [1978] 1 EGLR 93
First
Leisure Trading Ltd v Dorita Properties Ltd
[1991] 1 EGLR 133; [1991] 23 EG 116
Goh Eng
Wah v Yap Phooi Yin [1988] 2 EGLR 148;
[1988] 32 EG 55; [1985] Malayan Law Journal 329, PC
Hallett v Martin (1883) 24 Ch D 624
Ipswich
Town Football Club Co Ltd v Ipswich Borough
Council [1988] 2 EGLR 146; [1988] 32 EG 49
Jeffries v O’Neill (1983) 46 P&CR 376; 269 EG 131, [1984] 1 EGLR
106
Jones d
Cowper v Verney (1739) Willes 169
Law Land
Co Ltd v Consumers’ Association Ltd (1980)
255 EG 617, [1980] 2 EGLR 109, CA
Ponsford v HMS Aerosols Ltd [1979] AC 63; [1978] 3 WLR 241; [1978] 2
All ER 837; (1978) 38 P&CR 270; [1978] EGD 137; 247 EG 1171, [1978] 2 EGLR
81, HL
By an
origin2ating summons the plaintiff lessee, British Airports plc, sought
declarations as to a number of questions of construction relating to eight
leases of parts of Heathrow and Gatwick Airports, the reversions to which are
held by the defendants, Heathrow Airport Ltd and Gatwick Airport Ltd
respectively.
David
Neuberger QC and Erica Foggin (instructed by Herbert Smith & Co) appeared
for the plaintiff; Hazel Williamson QC and Jonathan Gaunt QC (instructed by
McKenna & Co) represented the defendants.
Giving
judgment, MUMMERY J said: Exercises in property valuation sometimes
generate difficult demarcation disputes between the real world, occupied by the
relevant property, and an abstract world peopled with spectral willing vendors
and purchasers, or lessors and lessees, higgling hypothetically in accordance
with stipulated assumptions.
The valuation
dispute in this case is unusually complex. It arises in the context of rent
review clauses contained in eight leases of parts of Heathrow Airport and
Gatwick Airport. In its original form the originating summons taken out by the
present lessee, British Airways plc (‘BA’), on November 30 1989 raised no less
than 53 questions of construction. Thanks to the good sense of the parties and
their legal advisers the questions have been reduced, to the immense relief of
the court, so that there are now only nine identified in an extensively amended
summons.
There are four
leases of parts of Heathrow Airport. The lessor is Heathrow Airport Ltd, a
company owned by the British Airports Authority plc (‘BAA’). There are four
leases of parts of Gatwick Airport. Gatwick Airport Ltd, also a subsidiary of
the British Airports Authority, is the lessor. Together those companies are the
freeholders of, and are responsible for operating, respectively, Heathrow
Airport and Gatwick Airport. I shall refer to them collectively in the judgment
as ‘the defendants’.
The rent
review provisions in the leases are in broadly similar terms. It is agreed
between the parties that the six questions which arise on the construction of
the lease of the West Base No 1 Maintenance Area at Heathrow, to which I shall
refer as ‘the West Base lease’, will dispose of most of the questions arising
on the other seven leases. I shall initially deal with the construction of the
West Base lease. I shall then construe the terms of the three other leases in
order to answer the three remaining questions.
The other
three leases are the lease of the East Base No 1 Maintenance Area at Heathrow
(I shall call that the ‘East Base lease’); the lease of MT Operations Base at
Heathrow, which I shall refer to as the ‘MT Operations Base lease’; and the
lease of the Maintenance Base East No 3 at Gatwick, to which I shall refer as
the ‘No 3 Gatwick lease’. BA is the present lessee under all the leases.
The position
on the machinery of the rent review clauses is that notices have been served by
the defendants proposing increases in rent to which BA objects. BA has served
counternotices, but, because of disagreements about the true construction of
the rent review clauses, which emerged in the course of discussions between the
surveyors advising the parties, no progress has been made with the
determination of the new rent.
The West
Base lease
I shall now
turn to the terms of the West Base lease. The West Base lease was granted by
Heathrow Airport Ltd to BA on December 31 1986 for a term of years from April 1
1971 expiring on June 30 2055. The grant of the lease was expressed in clause
1(a) to be:
In
consideration of the expense incurred by the lessee in erecting and
constructing a servicing hangar, a computer training building, engine overhaul
offices and ancillary works and of the rents hereafter reserved and of the
covenants by the lessee and condition hereafter contained . . .
The demise was
of:
All those
plots of land (hereinafter called ‘the said land’)
containing
about 84 acres delineated on an attached plan verged in different colours and
comprising 22 different titles registered at HM Land Registry. The demise was:
Together with
all buildings, works, fixed plant and fixtures for the time being thereon
(which together with the said land are collectively called ‘the demised
premises’).
It is
important to note that the lease draws a distinction between the plots of land
and the buildings on those plots. The expression ‘demised premises’ includes both
the land and the buildings on the plots. This distinction is made in other
provisions in the lease and is relevant to one of the important questions for
decision.
The demise
also includes rights, easements and privileges specified in the first schedule
and expressed to be:
Appurtenant
to the said land for all purposes connected with the use, occupation and
enjoyment thereof.
Para (a) of
the first Schedule refers to the rights granted to the lessee in these terms:
(a) A right at all times during the said term for
the lessee and persons authorised by the lessee in common with the lessor and
all other persons authorised by it or entitled thereto to pass and repass with
or without vehicles to and from the demised premises over such road or routes
on the airport as may from time to time be specified by the lessor.
There are
reserved to the lessor rights variously expressed to be in respect of ‘the said
land’ or of ‘any building thereon’ or of ‘the demised premises’.
The rent
provisions of the lease are in these terms; that the lessee shall pay:
in respect of
those plots of land verged red and verged red hatched black on the plan
(hereinafter called ‘the First Premises’) the following rents namely:
(a) until the thirtieth day of June Two Thousand
the clear yearly rent of Forty-Two thousand four hundred and fifty nine pounds
(£42,459).
(b) from and including the first day of July Two
thousand and during the remainder of the said term such rent as shall become
payable by virtue of the provisions of the second schedule hereof.
I pause to
mention that this case is not concerned with the operation of the rent review
provisions for the first premises, which do not come into operation until the
year 2000. This case is concerned only with what are next defined as ‘the
Second Premises’.
The second
premises comprise nine individually lettered plots of land on the perimeter of
the first premises. The first premises contain the principal buildings required
for BA’s aircraft maintenance and administration operations and the nine
individual plots are peripheral. I shall describe them in more detail later.
The lease
refers to the second premises as:
Those plots
of land verged blue and verged blue hatched black on the plan and being
individually lettered ‘A’ ‘B’ ‘C’ ‘D’ ‘E’ ‘F’ ‘G’ ‘H’ and ‘J’ respectively (the
extent of each individual plot being marked by dividing blue lines on the plan)
(hereinafter together called the ‘Second Premises’).
The rents
payable in respect of the second premises are:
(a) until the thirty-first day of March 1990 the
clear yearly rent of Thirty three thousand and thirty six pounds (£33,036).
(b) from and including the first day of April One
thousand nine hundred and ninety until the thirtieth day of June Two thousand
either the clear yearly rent reserved in sub-clause (a) hereof or the current
market rental values (as hereinafter defined) of those plots comprising the
Second Premises as at the first day of August 1989 (‘the review date’)
whichever is the higher.
(c) from and including the first day of July Two
thousand and during the remainder of the said term such rent as shall become
payable by virtue of the provisions of the second schedule hereto.
Provided that
for the purposes of the sub-clause (b) hereof it is agreed that the following
definitions and provisions shall apply.
These
definitions and provisions are at the heart of most of the arguments in this
case. There is a definition of the expression ‘current market rental value’ as
meaning:
The total of
the current annual market rental values of those plots comprising the Second
Premises if let individually on a building lease for a term of years equivalent
in length to the term of years hereby granted such lease being on the same
terms and conditions (other than as to amount of rent but including the
provisions as to review of rent and excluding the First Premises and the provisions
of this lease solely relating to the First Premises) as this present demise
without the payment of any fine or premium.
Detailed
provisions are then made for the manner in which the current annual market
rental value for the second premises should be determined. I omit those
provisions and turn to the final provision as to rent, in which all such rents
in respect of both the first premises and the second premises are provided to
be paid without any deduction by equal quarterly payments in arrears on the
quarter days in every year. I read para (b) on p 8 of the lease:
The demise
hereby made shall not include or operate so as to confer on the lessee any
liberty privilege easement or advantage (except such as are specifically
granted by this lease) in through over or upon any land or premises adjoining
or near to the said land nor shall the lessee be entitled hereunder to any
airport or other facilities over from or upon such land or premises.
Clause 2
contains various covenants by the lessee with the lessor. The relevant
covenants are as follows:
(1) To pay the rents hereby reserved at the times
and in manner aforesaid.
(2) From time to time and all times during the
said term to pay and discharge all rates taxes duties charges assessments and
outgoings whatsoever (whether Parliamentary parochial local or of any other
description) which are now or may at any time hereafter be assessed charged or
imposed upon or payable in respect of the said land and all buildings works
fixed plant and fixtures for the time being erected constructed placed or
standing thereon or therein or in the course of erection or construction
thereon the demised premises and the said rights or on the owner or occupier
thereof (Income Tax on the said rents excepted) or if the demised premises are
not separately assessed for rates to refund to the lessor any payments made by
it or on its behalf in respect of rates.
Clause
2(10)(a) provides:
Save as
provided in clause 10(b) hereof not any time during the said term to erect or
suffer to be erected any new building or erection whatsoever on the said land
without the written consent of the lessor (which consent shall not be
unreasonably withheld).
— and —
10(b) In respect of the land verged blue hatched
black and lettered ‘A’ on the plan not at any time during the said term to
erect or suffer to be erected any new building or erection whatsoever on such
land without previous written consent of the lessor (which consent shall not be
unreasonably withheld).
Clause
2(13)(a) is a covenant:
Not to use or
occupy the said [land] (with the exception of the land verged blue hatched
black to which the provisions of cl. 13(b) hereof shall apply) or any part
thereof for any purpose other than those required in connection with the
lessee’s business as an airline operator provided always that such land will
not without the consent of the lessor be used for:
(i) Passenger handling
(ii) freight handling or
(iii) in such a manner as to compete with
concessionaires of the lessor provided that in this case the lessor’s consent
shall not be unreasonably withheld; and
(b) not to use or occupy the land verged blue
hatched black on the plan for any purpose other than as a means of access to
other parts of the demised premises and a taxi track for aircraft.
Clause 2(16)
provides as follows:
Not to fix or
exhibit or permit or suffer to be fixed or exhibited to or upon any part of the
said land or to or upon any part of the exterior of the said buildings or of
the external railings or fences (if any) of the demised premises any placard
poster electric sign or other advertisement or sign whatsoever without the
previous consent in writing of the lessor and forthwith to remove at the
lessee’s cost from the interior of the demised premises any placard poster
electric sign or other advertisement or sign which shall be objected to in
writing by the lessor.
There is a
provision on p 18 of the lease concerning the eventuality of a surrender of
part of the demised premises. It is provided that in that event:
(i) The lessee will undertake to grant to the
lessor its lessees tenants and licensees at no cost to the lessor such rights (inter
alia) of access to the part surrendered (any such part being hereafter
called ‘a part’) and to a metered supply of services to the part as the lessor
might reasonably require and
(ii) In assessing the sum to the paid by the
lessor to the lessee as aforesaid in respect of the lessee’s leasehold interest
in the part the rent shall be deemed to be payable by the lessee in respect of
the part and shall be calculated as follows.
and there
follow two paragraphs:
(a) In respect of the First Premises by
apportioning the rent payable in respect of the First Premises at the date of
the surrender in the proportion which the area of the part bears to the area of
the whole of the First Premises;
(b) In respect of the Second Premises by
apportioning the rent payable in respect of the Second Premises at the date of
the surrender in the proportion which the area of the part bears to the area of
the whole of the Second Premises.
Clause 2(24)
contains an insurance covenant in which it is provided that at all times during
the term the lessee is to keep the demised premises insured against loss or
damage.
Clause 2(25)
contains a covenant:
To permit the
lessor or its agents with or without workmen and other at all reasonable times
to enter the demised premises for the stated purposes which include viewing the
state and progress of any building or erection at any time during the said term
in course of erection on the said land . . .
Clause 2(28)
provides that:
If the lessee
shall at any time make default in the performance of any of the covenants
herein contained for or relating to the repair or rebuilding of the demised
premises it shall be lawful for the lessor to enter upon the demised premises
and repair or rebuild the same at the expense of the lessee in accordance with
the covenants and provisions contained.
Clause 2(39)
provides that the lessee is:
To make good
or pay compensation for any damage loss or injury (including injury resulting
in death) to any property or person by reason of anything done or purported to
be done or omitted by the lessee or its servants and arising out of the
lessee’s use and occupation of the demised premises.
The provisions
of the Second Schedule complete my reference to the West Base lease. The
provisions in the Second Schedule apply to the rent review of the first
premises and of the second premises as from June 30 2000. They are relevant for
present purposes only in so far as they bear on the construction of the rent
review provisions which operate in relation to the second premises before that
date. I need read only para 1 of that Schedule:
(1) The rent payable under this lease in respect
of the demised premises shall be revised after the 30th day of June Two
thousand so as to represent the then current annual market rental value of the
demised premises (without any buildings erected or other constructions made
thereon by the lessee) if let on a building lease from the 30th day of June Two
thousand for the residue of the said term then unexpired on terms similar to
the terms of this lease but excluding this sub-clause and such revised rent
shall thereupon be deemed to have been substituted for the rents received
hereunder from and including the first day of July Two thousand and this lease
shall thenceforth be read and construed accordingly but so nevertheless that
until the lessor shall have notified the lessee of the amount of the revised
rent the said rents hereby reserved shall continue to be payable subject to
such adjustment as may be necessary being made between the parties hereto on
the quarterly date for payment of rent next following such notification as
aforesaid.
I should next
describe the property at the West Base. The second premises let under the West
Base lease are nine plots lettered alphabetically A to J and they are
geographically peripheral to the first premises. I should say something about
the historical and geographical background of these premises.
Leases of part
of the demised premises were granted to BA’s predecessor, BEA, as long ago as
September 1956. Prior to September 1956 BEA had erected part of the West Block
Building on the West Base and it was demised to it on September 27 1956 until
June 2000. At about the same time BEA was granted a lease of the East Block
Building on the West Base for a term expiring in the year 2055. BEA covenanted
to construct an engineering base comprising hangars and workshops with aprons.
The lease provided for a rent review as at June 2000 on the basis of the market
value of the land without the buildings.
In 1958 and
1967 further leases were granted to BEA with similar rent review clauses and
limited to expire in 2055. BEA covenanted to construct a car park on the
premises. By an agreement dated January 5 1970 BEA covenanted to erect on 28
acres of the West Base area a servicing hangar, computer-training building,
engine overhaul offices and various ancillary works. On completion BEA and BAA
were to take a lease in an agreed form to expire on June 30 2055 with rent to
be reviewed as at June 30 2000 to the then current annual market value of the
land without buildings made thereon by the lessee if let on a building lease.
The agreement
also provided for BAA to grant to BEA a ‘subsidiary lease’ of various plots
including plots A to J for the same term. Occupation was taken and rent paid in
accordance with the agreement, but the leases were not in fact granted until
1986 prior to the imminent privatisation of BAA.
The physical
state of the individual plots can be briefly stated as follows:
Plot A is of
an area of 6.92 acres used as a taxi way for aircraft and access to the
maintenance base on the first premises.
Plot B is 2.95
acres in area and provides an apron for standing aircraft and access similar to
that provided by plot A to the first premises. Both of the plots are covered
with pavement-quality concrete or with grass.
Plot C is a
concreted area of 0.25 acre of apron and access to the maintenance base. Part
was surfaced by the lessee between 1967 and 1970.
Plot D is a
tarmac area of 1.8 acres surfaced by the lessee pursuant to a lease in 1967 and
used as an open car park.
Plot E is also
used as an open car park. It is 1.06 acres and was tarmacked by the lessee
pursuant to an agreement made in 1969.
Plot F is a
two-lane roadway forming part of Viscount Way and is 0.64 acre in area.
Plot G is a
small area of 0.15 acre of landscaped grass and flower beds.
Plot H is 1.66
acres in area. It is concreted and used for apron manoeuvring, turning space
and parking aircraft.
Plot J is 1.47
acres in area and is of similar surface and use.
In many cases
the plots comprised in the second premises were not undeveloped plots at the
date of the 1986 leases or when they were previously demised but had been
equipped with hardstanding and associated drainage. In most cases the leases
did not impose an obligation on the lessee to construct any buildings or works
on the second premises. This is to be compared to the provisions in relation to
the construction of buildings on the first premises.
Approach
of the court
I now turn to
the approach of the court to the construction of clauses of this kind. I should
preface the exercise of construing the leases by stating briefly the guidance
which can be gathered from the relevant authorities.
1. The
paramount principle in the construction of a rent review provision is that
stated by the Court of Appeal in Basingstoke and Deane Borough Council v
Host Group Ltd [1988] 1 WLR 348* at p 353 D-F:
What the
court is seeking to identify and declare is the intention of the parties to the
lease expressed in that clause. Thus, like all points of construction, the
meaning of this rent review clause depends on the particular language used
interpreted having regard to the context provided by the whole document and the
matrix of the material surrounding circumstances. We recognise therefore, that
the particular language used will always be of paramount importance. None the
less it is proper and only sensible, when construing a rent review clause, to
have in mind what normally is the commercial purpose of such a clause.
*Editor’s
note: Also reported at [1987] 2 EGLR 147.
2. It is
common ground that the purpose of a rent review clause is to ensure that the
rent payable during the term of a long lease reflects changes in the value of
money and of the property let. This purpose is achieved by enabling the lessor
to obtain from time to time the market rent which the property would command if
let at the rent review date on the same terms in the open market. It is a
procedure for up-dating the rent to keep pace for inflation during the residue
of a long term. Clauses of increasing complexity are negotiated by the parties
as part of the original bargain and usually postulate, for valuation by an
independent surveyor, a notional lease of the property by a hypothetical lessor
to a hypothetical lessee on the same terms as the subsisting lease.
3. In
construing such a clause the court should be on its guard against trespassing
on the territory of the expert valuer. This is a court of law, not a court of
valuation. The construction of the clause is a question of law for decision by
the court, so that the independent surveyor can know what is to be valued and
what, as a matter of construction of the lease, the parties have expressly or
impliedly agreed should be the assumptions on which his valuation is to be
made. It is not, however, the function of the court to answer questions or give
general directions as to how the independent valuer should go about making his
valuation, such as the factors to be taken into account or the weight to be
attached by him to those factors: see Compton Group Ltd v Estates
Gazette Ltd (1977) 36 P&CR 148†
at pp 152, 159 and 161.
† Editor’s
note: Also reported at (1977) 244 EG 799, [1977] 2 EGLR 73.
4. The court
should also be alert to the danger of confusing reality and hypothesis. The
only relevant hypotheses are those expressly or impliedly agreed by the parties
in the rent review clause. Agreed assumptions and disregards must be adhered to
but, subject to that, it is the real circumstances affecting the actual
property which are relevant to valuation: see Cornwall Coast Country Club
v Cardgrange Ltd [1987] 1 EGLR 146 at pp 149 G — 150 E.
Thus, the
definition of the expression ‘current market rental value’ in the West Base
lease predicates the letting of the relevant properties on certain terms. The
properties are real but the letting is hypothetical; so also are the lessor and
lessee who are parties to the hypothetical letting. The hypothetical lessee is
not the actual lessee in actual occupation of the property. He does not have
the personal characteristics of the actual lessee which might operate to
increase or decrease the rent which he would be willing to pay: for example,
his actual occupation of the property; his financial position; his resources or
lack of them; or his monopolistic position in the market: see F R Evans
(Leeds) Ltd v English Electric Co Ltd (1977) 36 P&CR 185* at pp
189-192.
*Editor’s
note: Also reported at (1977) 245 EG 657, [1978] 1 EGLR 93.
That does not
mean, however, that the actual lessee is necessarily excluded from
consideration as a potential lessee of the property, unless the rent review
clause expressly or impliedly makes that direction to the valuer. As Vinelott J
observed in First Leisure Trading Ltd v Dorita Properties Ltd
[1991] 1 EGLR 133 at pp 137M and 138, there is no principle of law which
requires the valuer to assume that a lessee is not a potential hypothetical
lessee of the relevant property. Depending on the circumstances of the
particular case (for example, where the actual lessee is also the lessee of
adjoining property), the independent surveyor may be entitled to find as a fact
that the lessee is a potential hypothetical lessee.
5. Although
the property to be let under hypothetical letting is real, the terms of the
rent review clause may direct that, for valuation purposes, certain aspects of
it be disregarded or that certain assumptions be made about it. For example,
the hypothetical lease of the property carries with it a right to vacant
possession of the property, even though in reality the property is occupied at
the relevant time by the lessee under the terms of the actual lease. It is also
a question of construction of the particular rent review clause whether the
rent to be determined on the hypothetical lease should take account of the
buildings actually on the property or should be fixed on the assumption that
the property is free of the buildings which are actually on it: see Ipswich
Town Football Club Co Ltd v Ipswich Borough Council [1988] 2 EGLR
146; compare Ponsford v HMS Aerosols Ltd [1979] AC 63.†
† Editor’s
note: Also reported at (1978) 247 EG 1171, [1978] 2 EGLR 81.
Prima facie if the demised premises consist of land and buildings the rent
should be determined by reference to both: Goh Eng Wah v Yap Phooi
Yin [1988] 2 EGLR 148. But the lessor and the lessee are contractually
entitled to direct that, for valuation purposes, the presence of the buildings
on the land let should be ignored by the independent surveyor.
6. In some
cases it may be necessary, in order to give commercial efficacy to a rent
review provision, to imply into that provision an assumption or a disregard
about the actual state of the property. In Jeffries v O’Neill
(1983) 46 P&CR 376§ Nourse J implied
a disregard of any effect on rental value caused by the position of access to
the property since, without such an implication of a disregard, no practical
effect could be given to the clause requiring the rent to be assessed in the
open market. In that case the lessee failed to persuade the court that the
rental value should proceed on the basis that, having regard to the access
arrangements, there was, in fact, no open market for the property. The rent
review clause predicated the existence of an open market for the property. The
lessee could not negative that hypothesis by asserting that he was in a very
special position and that, in fact, there was no open market for that property.
§ Editor’s
note: Also reported at (1983) 269 EG 131, [1984] 1 EGLR 106.
By reference
to that guidance I shall now attempt to construe the particular questions which
have been fully argued before me. I shall state as briefly as I can the
conclusions which I have reached on each question.
Each question
on the West Bank lease is prefaced in the originating summons by these words:
Whether on
the true construction of a lease dated 31st December 1986 between the first
defendant as lessor of the one part and the plaintiff as lessee of the other
part of property at West Base number one maintenance area, Heathrow Airport,
London (‘West Base’), the current market rental value of the plots of land
edged blue and edged blue hatched black on the plan annexed to the actual lease
and lettered individually ‘A’, ‘B’, ‘C’, ‘D’,
Premises is to be assessed on the review date on the following assumptions.
The questions
are then formulated by reference to the various assumptions.
In the amended
originating summons the first question arising for decision is under (iii). The
alternative constructions are posed in these terms:
(a) that each of the plots comprised in the
Second Premises is an undeveloped plot excluding all buildings hardstanding and
drainage thereon at the review date;
Alternatively:
(b) that each of the plots comprised in the
Second Premises is in its actual physical state at the review date it being
assumed (if not a fact) that the covenants on the part of the tenant in the
actual lease have been complied with.
I agree with
BA that, on the true construction of the West Base lease, the current market
rental value of the plots of land which are part of the second premises are to
be assessed on the assumption that each of the plots is an undeveloped plot,
excluding all buildings, hardstanding and drainage thereon at the review date.
I shall make a declaration in the terms of (iii) (a).
In many parts
of the West Base lease the parties have drawn a distinction between (1) the
land; (2) the buildings on the land; and (3) the land together with the
buildings, and they have defined terms accordingly.
On this
question the definition of the expression ‘current market rental value’ is
crucial. On p 5 of the lease it is defined as meaning ‘the total of the current
annual market values of those plots comprising the Second Premises’. What are
the second premises? That is a term
defined at the top of the same page as the aggregation of ‘those plots of
land verged blue and verged blue hatched black on the plan’.
It appears
from other provisions in the West Base lease that the expression ‘plots of
land’ means land alone without buildings on it. When reference is made to land and
buildings collectively a different defined term is usually used, namely ‘the
demised premises’. The independent surveyor is not directed to determine the
rental value of the demised premises, that is land plus buildings, but of the
plots, by which I understand the parties to mean the plots of land lettered A
to J respectively.
I am unable to
accept the defendants’ submission that the reference to plots in the lease and,
in particular, in relation to the second premises is not a reference to land as
a green field site but is simply a matter of delineation of boundaries of the
relevant areas on the attached plan. I am also unable to accept the defendants’
submission that the second premises referred to in the definition of current
market rental value on p 5 should be regarded, like the first premises, as
simply a subdivision of the ‘demised premises’, defined earlier in the lease to
include both land and buildings.
In my
judgment, the general rule that what should be valued is the land with the
buildings is displaced in this case by the language of the lease, even though
there is in the rent review clause no express disregard of buildings of the
kind that is found in the Second Schedule on p 30 of the lease. In my judgment,
the language of the rent review provisions on p 5 makes a clear distinction for
valuation purposes between land which is the subject-matter of the notional
lease and the land and buildings which are the subject-matter of the actual
lease as ‘Demised Premises’.
The next
question in the originating summons is (iv) and there are posed no less than
five possible constructions:
(a) That each hypothetical lease imposes upon the
tenant a covenant to build at the tenant’s cost what actually exists on the
respective plots at the review date.
Alternatively:
(b) That each hypothetical lease is granted in
consideration of the tenant having built, at its own cost, what actually exists
on the respective plots at the review date.
Alternatively:
(c) That each hypothetical lease is only on the
terms and conditions of the actual lease excluding the First Premises and the
provisions relating solely to the First Premises and without any covenant to
build.
Alternatively:
(d) That each hypothetical lease is only on the
terms and conditions of the actual lease excluding the First Premises and the
provisions relating solely to the First Premises without any covenant to build
but in consideration of such expense, if any, as may have been incurred in the
construction of such works as exist at the review date as have been constructed
on the premises by the actual tenant or its predecessors in title.
Alternatively:
(e) That each hypothetical lease is on the terms
and conditions of the actual lease excluding the First Premises and the
provisions relating solely to the First Premises and is subject to a covenant
on the part of the tenant to develop the plot by executing such works as would
be appropriate as at April 1990 in order to develop the plot for use by an
airline operator in the manner permitted by the terms of the hypothetical
lease.
In order to
decide which of these is the appropriate construction it is first necessary to
decide what is meant by the expression ‘building lease’ as used in the definition
of ‘current market rental value’ on p 5 of the West Base lease. The expression
‘building lease’ is not defined in the West Base lease. It should, therefore,
be construed according to its ordinary and natural meaning, as controlled, of
course, by the context in which the parties have used that expression.
In its
ordinary meaning the expression ‘building lease’ connotes a lease for building
purposes granted, usually for a substantial period, in consideration of the
lessee’s entering into a covenant to build; for example, by erecting new
buildings or adding to or improving existing buildings in accordance with
agreed specifications. This appears from Jones d Cowper v Verney
(1739) Willes 169 at p 175; City of London v Nash (1747) 3 Atk
512 and Hallett v Martin (1883) 24 Ch D 624 at p 631. I also
derive this meaning from section 99 (3) and (9) and section 205(1)(iii) of the
Law of Property Act 1925 and similar provisions in the Settled Land Act 1925.
Adopting that
approach, I agree with BA that the definition of ‘current market rental value’
on p 5 of the lease requires the independent surveyor to assess the rent on the
review date on the assumption that the hypothetical lease imposes on the lessee
a covenant to build, at his cost, what actually exists on the respective plots
at the review date. I shall make a declaration in the terms of para (a) of
question (iv).
The
hypothetical lease is required to be a ‘building lease’, not just a lease. What
did the parties mean by that expression?
As I have said, they did not define it, either on p 5 or in the Second
Schedule on p 30 where the same expression is used in a different context of a
rent review due to take place on June 30 2000.
The defendants
do not dispute that the adjective ‘building’ requires the lease to have some
quality not present in an ordinary lease. The area of dispute is to what that
quality is. Various alternatives are set out under question (iv). As I have
indicated, in the absence of a contractual definition I take the parties as
intending the term ‘building lease’ to be used in its ordinary sense of a lease
in which the lessee is under an obligation to build. The crucial question is
what is the hypothetical lessee to be under an obligation to build. The
building works are not specified and therefore have to be inferred.
Using the
touchstone of reality, I conclude that the only realistic workable assumption
to make is that, for the purposes of determining the rental value of the plots
of land uncovered by any buildings, the lessee is to be assumed to be under an
obligation to build what is already on the plots of land. I reject the
defendants’ submission that the assumption to be made does not import a
covenant to build or that the ‘building purposes’ element of the hypothetical
lease is a reference either historically to the grant of a lease in
consideration of past building or prospectively to future building in a form
appropriate to the land in question at the rent review date. I reject the
submission that ‘building’ is referred to simply as a possibility permitted by
the terms of the hypothetical lease.
Neither the
ordinary meaning of the expression ‘building lease’ nor the context in which it
is used here carries with it any of the connotations submitted by the
defendants. The assumption that the lease is to be a building lease in the
ordinary sense does not involve a departure from reality in the form of the
physical state of the second premises at the date of the review. The
independent surveyor must look at the real state of the premises as at that
date, but, in determining the rental value of what is in fact there, he must
assume that the hypothetical lessee is under an obligation to build what is in
fact there. That does not seem to me to be an absurd assumption to make nor
does it seem to me to be inherently likely to produce such an unfair result
that this construction should be regarded as contrary to the purpose of the
rent review clause.
I turn now to
question (v). The alternatives proposed are:
(a) that on the hypothetical letting of any one
plot comprised in the Second Premises none of the other plots are assumed to be
available for letting on the open market but rather are assumed to be occupied
by the plaintiff on the terms of the actual lease
Alternatively:
(b) that on the hypothetical letting of any one
plot comprised in the Second Premises each of the other plots are assumed to be
available for letting.
I agree with
BA’s submission that it is for the independent surveyor to value each plot
forming part of the second premises on the assumption that the remaining plots
are in fact occupied by BA on the terms of the actual lease. I therefore
propose to make a declaration in the terms of (a). That assumption reflects the
reality of the position and the language of the clause does not, in my view,
require any other assumption to be made to the contrary.
It is true, as
the defendants contend, that in the valuation of each plot that particular plot
is assumed not to be subject to the actual lease and to be available for
letting with vacant possession on the terms of a hypothetical lease. Such an
assumption does depart from reality but is implicit in the exercise of
postulating a lease of that plot to a hypothetical lessee. It is not, however,
implicit in that hypothesis that all the other plots to be separately valued
should also be assumed for that purpose to be available for letting in the open
market.
The
defendants’ argument that, on the hypothetical letting of any one plot, each of
the other plots is assumed to be available for letting relies on wringing from
the language of the rent review clause a meaning which the words do not bear.
In my judgment, neither the fact that the rent review of each plot comes up at
the same time nor the plural reference to ‘values’ in the rent review provisions
nor the reference to the hypothesis that the plots are let ‘individually’
signifies that any of the plots, other than the particular one being valued for
rent review purposes, is to be assumed to be available for letting in the open
market when the fact is that it is not available.
Question (vi)
proposes two alternatives:
(a) that on the hypothetical letting of any plot
comprised in the Second Premises if access cannot be obtained by virtue of the
rights deemed to be available
(i) to any such plot or
(ii) to the First Premises
for the
purpose or any of the purposes for which they are respectively permitted to be
used, (A) the valuer is to disregard the lack of such access when determining
the current market rental value of each such plot, alternatively (B) the value
is to take into account the lack of such access
Alternatively:
(b) that on the hypothetical letting of any plot
comprised in the Second Premises to which access cannot be obtained by virtue
of the rights granted by the hypothetical lease for the purpose or any of the
purposes for which the plot is permitted to be used, the valuer is to disregard
the lack of such access when determining the current market rental value.
On this
question I agree with the defendants that on the hypothetical letting of any
plot comprised in the second premises to which access cannot be obtained by
virtue of the rights granted by the hypothetical lease for the purpose or any
of the purposes for which the plot is permitted to be used, the independent
surveyor is to disregard the lack of such access when determining the current
market rental values. I shall therefore make a declaration in the terms of (b).
The starting
point of this dispute is the provision that the rent review clause predicates a
lease ‘on the same terms and conditions as this present demise’. Those terms
and conditions include the rights of access expressly set out in para (a) of
the First Schedule: that is, access over roads or routes in the airport as
specified by the lessor.
On p 8 of the
West Base lease there is a provision carried over into the hypothetical lease,
which excludes from the demise easements, except those specifically granted by
the lease, in through over or upon land or premises adjoining or near the land
let. Under the terms of the hypothetical lease there is therefore a lack of
rights of access from one plot to another plot comprised in the second premises
or from any plot comprised in the second premises to any part of the first
premises. All the plots, except plot J, abut the first premises. Plots F, G, H
and J abut the highway and have access to it subject to possible planning
permission being obtained.
The point
emphasised by BA is that, as a matter of legal right of access to other plots
or to the first premises, many of the plots are landlocked and it is therefore
wrong to assume that, where the adjoining premises are leased to and occupied
by BA, the lessor under the hypothetical lessee would be able to grant rights
of access to the hypothetical lessee over the adjoining premises. This lack of
legal right is, however, quite different from the position about access in
practice, because BA is the lessee and occupier of all the other plots and of
the first premises.
BA submits
that the independent surveyor should take into account the lack of legal rights
of access when determining the current market rental value of each plot. This
leads to the conclusion that the only possible bidder for those plots would be
BA and that the rent would, therefore, be nominal. On the other hand, the
defendants submit that the independent surveyor should disregard the effect of
such lack of legal access on valuation on the basis of an implied term of the
kind justified on the authority of Jeffries v O’Neill (supra).
Such a term can be implied in order to give practical or commercial efficacy to
the rent review clause.
I agree that,
without such an implied disregard of the lack of legal access, it is difficult
to see here how there could be a market for a hypothetical lease of the property.
There should, in my judgment, be an implied disregard of the kind suggested by
the defendants as a matter of commercial efficacy.
I also agree
with the defendants that, if access cannot be obtained to the first premises by
virtue of the rights granted by the actual lease or otherwise for the purpose
or any of the purposes for which they are permitted to be used, the valuer
should not disregard the lack of such access when he is determining the current
market rental value of each plot comprised in the second premises. I shall make
a declaration to that effect.
The parties
are agreed that, on the true construction of the West Base lease, the current
market rental value of the plots of land comprised in the second premises
should be assessed on the basis that:
(a) the first premises are occupied by BA in
accordance with the terms of the West Base lease; and
(b) that lease does not confer any rights over
any of the second premises in favour of the first premises.
In addition, I
have already declared, contrary to BA’s submissions, that the valuer should
disregard the lack of legal access to any plot comprised in the second premises
on the hypothetical letting of any such plot. BA does not seek to go behind
that ruling. Indeed, BA submits that, if lack of access to individual plots
should be disregarded by the valuer, so also should lack of access to the first
premises. It is in the interests of BA to advance this argument since; if the
valuer may take into account lack of legal access to the first premises, that
factor may well tend to increase the market rental value of those plots, such
as plot A, which do in fact provide access to the first premises. BA submits
that, if the valuer is entitled to take into account lack of legal access to
the first premises, the defendants may well be able to argue for a very
substantial increase in the rent of individual plots based on a ‘ransom value’,
since access over some of the plots comprised in the second premises is vital
to BA’s use in the first premises and without that access the first premises
would be sterilised.
BA does not
base its argument on an implied disregard of lack of access such as I have
found, in the case of lack of access to the individual plots, should be made as
a matter of commercial efficacy in accordance with Jeffries v O’Neill
(supra). BA’s submission is simpler. It is that, following para 4 of the
guidelines summarised above, valuation for rent review purposes should be by
reference to the real circumstances affecting the actual property and not by
reference to hypothesis or, even worse, to hypothesis piled upon hypothesis. In
support of this submission particular reliance was placed on Cornwall Coast
Country Club v Cardgrange Ltd at p 152 and also on Law Land Co
Ltd v Consumers’ Association Ltd (1980) 255 EG 617 at p 619, [1980]
2 EGLR 109. What are the real circumstances on access affecting the first
premises and the second premises?
Together they comprise the ‘demised premises’ under the West Base lease.
BA is the tenant and occupier of both of the first and second premises, which
will be valued together as a single unit for rent review purposes in the year
2000 in accordance with the provisions of the Second Schedule. There are no
access problems in reality and it would, therefore, be in accordance with
reality to disregard the lack of legal access to the first premises under the
terms of the hypothetical lease. To act otherwise would be to embark on a
wholly unrealistic valuation exercise. BA submits that the parties cannot have
intended that the rental value of individual plots should vary according to
BA’s needs for access to the first premises.
BA’s
submissions have been persuasively argued. I find the point an elusive one.
After further argument from both sides, I have been persuaded that BA’s
contentions are not in fact correct.
As I pointed
out in the guidelines above, the paramount principle is that the court should
act in accordance with what is identified as the agreement of the parties. The
parties have agreed that the independent surveyor should determine the total of
the rental values of the plots of land comprised in the second premises if let
individually on the same terms and conditions as the West Base lease but
excluding the first premises. The terms of such a hypothetical lease do not
confer any right of access to the first premises. Further, postulating a lease
of each individual plot involves the necessary assumption that each plot is
vacant and that BA is not in occupation of it. It necessarily follows from what
the parties have agreed about the hypothetical lease that the independent
surveyor, in determining the rent payable under the hypothetical lease, should
not take into account the fact that BA, as tenant in occupation, could use the
plot in question as a means of access to the first premises. In other words,
the subject-matter of the hypothetical lease of each plot is a vacant plot over
which there is no legal right of access to the first premises, which is not in
the actual occupation of BA and which cannot therefore afford access in fact to
the first premises. To accede to BA’s arguments on this point would involve a
departure from the assumptions agreed upon by the parties for the purposes of
valuing the hypothetical lease of each plot.
I shall deal
with questions (vii), (viii) and (x) together.
(vii) that the plaintiff is not a bidder for the
hypothetical lease.
(viii) in the alternative to (vii), if the plaintiff
is to be assumed to be a bidder for the hypothetical leases of the plots, the
plaintiff’s bid is assumed to be in such amount as is just sufficient to secure
a letting to it in the open market.
(x)(a) that the effect on rent of the existence of
the First Premises and/or of the fact that they are occupied by and/or let to
the plaintiff in accordance with the terms of the actual lease shall be
disregarded.
Alternatively:
(b) that the First Premises are occupied by the
plaintiff in accordance with the terms of the actual lease and that the actual
lease does not confer any rights over any of the Second Premises in favour of
the First Premises.
Prima facie it is for the independent surveyor, and not for the court, to
decide who is likely to be a bidder in the open market for the hypothetical
lease, whether the likely bidders do or do not include the actual lessee and as
to the amount of the bid which is sufficient to secure a letting in the open
market for the lessee or for any other likely bidder. The question for the
court is whether the lessor and the lessee have agreed in the rent review
clause that the independent surveyor is to act on the assumption that the
lessee is not a bidder for the hypothetical lease or, if he is a bidder,
whether the bid is assumed to be in any particular amount.
For reasons
which I now state, I decline to make the declarations sought in relation to
questions (vii), (viii) and (x). BA asks the court to hold that, as a matter of
construction, the lease requires the independent surveyor either to assume that
BA is not a bidder for the hypothetical lease or, if it is regarded as a bidder,
it is to be assumed to bid only in such amount as is sufficient to secure a
letting to it in the open market. This is what has been described as a ‘special
purchaser’ point. If BA is assumed not to be a bidder then a question arises as
to whether there would be any other bidder.
I agree with
the defendants that there is nothing in the language of the lease which
requires the independent surveyor to make any assumptions about the identity of
a likely bidder or the amount of the rent to be bid. It is for the independent
surveyor to decide who, in fact, is likely to be a bidder in the open market
for the hypothetical lease and, if he concludes that BA is likely to be a
bidder, what is likely to be the amount of its bid for such a lease.
A similar
point arises on question (x). On that I do not find BA’s arguments convincing.
BA’s submissions were based on the words in parenthesis at the top of p 6 of
the lease which exclude from the terms and conditions of the hypothetical lease
‘the First Premises and the provisions of this lease solely relating to the
First Premises’. It was submitted that those words have the effect of excluding
from the determination of the rental value of the second premises any effect
attributable to the first premises or any tenancy or occupation of the first
premises by BA. Each plot comprised in the second premises should be valued
according to its intrinsic value and not be affected by the fact that BA is the
tenant in occupation of the adjoining first premises. It was submitted that BA’s
actual occupation as a tenant of the second premises should be disregarded and
so also should its actual tenancy and occupation of the first premises.
In my
judgment, this construction is not supported by the language of the lease and
is not forced upon the court by the reasoning in Cornwall Coast Country Club
Ltd v Cardgrange (supra): compare First Leisure Trading Ltd v Dorita
Properties (supra) at pp 135, 136 and 138. It is for the independent
surveyor, and not for the court, to decide on the facts in relation to the
identity of the bidder in the market, the likely amount of any bid and what
effect, if any, on rental values of the second premises will occur by reason of
BA’s tenancy and occupation of the first premises under the actual lease.
Those conclude
the questions on the West Base lease. I turn to the one question on the East
Base lease.
Whether on the
true construction of a lease dated 31st December 1986 made between the First
Defendant as lessor of the one part and the Plaintiff as lessee of the other
part of property at East Base, Number One Maintenance Area, Heathrow Airport,
London (‘East Base’), the current market rental value of the plots edged blue
and edged blue hatched black on the plan annexed to the actual lease and
lettered individually ‘A’, ‘B’, ‘C’ and ‘D’ respectively (and therein referred
to as ‘the Second Premises’) is to be assessed on review on the following
assumptions, namely:
(ix)(a) that under the hypothetical lease of the
Second Premises the tenant is only entitled to use the plots lettered ‘A’ and
‘B’ on the plan annexed to the lease as a means of access to the plots lettered
‘C’ and ‘D’ on the said plan and/or as a taxi track for aircraft
Alternatively:
(b) that under the hypothetical lease of the
Second Premises the tenant is only entitled to use the plots lettered ‘A’ and
‘B’ on the plan annexed to the lease as a means of access to the demised
premises as defined in the actual lease and/or as a taxi track for aircraft.
The demised
premises include plots of land lettered A, B, C and D respectively on the plan.
They are defined as the second premises. There are also other premises defined
as the first premises. As under the West Base lease, only the second premises
fall within the current rent review clause. The rent review clause and the
definition of the ‘current market rental value’ on pp 5 and 6 are in
substantially the same terms as those contained in the West Base lease,
including the reference to the exclusion from the hypothetical lease of ‘the
First Premises and the provisions of this lease solely relating to the First
Premises’.
The difference
from the West Base lease, according to the submissions of BA, lies in the
covenant in clause 2(13) on pp 13 and 14 of the East Base lease. Clause
2(13)(b) contains a covenant by the lessee not to use or occupy the plots
lettered A and B on the plan ‘for any purpose other than a means of access to
other parts of the demised premises and a taxi track for aircraft’. BA submits
that this covenant is a provision ‘solely’ relating to the first premises. It
should therefore be excluded from the terms of the hypothetical lease and the
independent surveyor should act on the assumption that under the hypothetical
lease the lessee is entitled to use the plots lettered A and B on the plan only
as a means of access to the plots lettered C and D on the plan and/or as a taxi
track for aircraft. BA therefore asks for a declaration in the terms of (a).
I decline to
make that declaration. I agree with the defendants that the flaw in BA’s
argument is that it fails to take account of the word ‘solely’ in the words of
exclusion. Clause 2(13)(b) is not a provision which refers solely to the first
premises. It refers to plots A and B as a means of access to other parts of
‘the demised premises’ and the demised premises include the lots lettered C and
D as well as the first premises. I shall therefore make a declaration in the
terms of (b).
The next
question concerns the one issue of construction on the MT Operations Base
lease. The question is:
Whether on the
true construction of a lease dated 10th November 1983 made between British
Airports Authority as lessor of the one part and British Airways Board as
lessee of the other part of property at MT Operations Base, Heathrow Airport,
London (‘MT Operations Base’), the open market rental value of MT Operations
Base is to be assessed on review on the following assumptions, namely:
(v) that the Plaintiff is not a bidder for the
hypothetical lease.
(vi) in the alternative to (v), if the Plaintiff
is to be assumed to be a bidder for the hypothetical lease of the premises the
Plaintiff’s bid is assumed to be in such an amount as is just sufficient to
secure a letting to it in the actual market.
These
questions are similar to those raised on the West Base lease on which I
declined to make two similar declarations claimed by BA. The wording of the
rent review clause is, however, different from that in the West Base lease. It
is contained in the Third Schedule on pp 25 and 26 of the lease. In clause (b)
it is agreed that the open market
which the land (excluding the buildings or other erections belonging to the
lessee thereon) could reasonably be expected to be let on the open market at
the review date with vacant possession by a willing lessor to a willing lessee.
It is then
provided that certain matters should be expressly disregarded. They include all
or any matters referred to in paras (a), (b), (c) and (d)
of (1) of section 34 of the Landlord and Tenant Act 1954. Para (a) of
section 34(1) provides for a disregard of ‘any effect on rent of the fact that
the tenant has, or his predecessors in title have, been in occupation of the
building’. BA relied on that particular provision in support of the general
argument that the independent surveyor should assume that BA is not a
bidder for the hypothetical lease.
In my
judgment, the express incorporation in section 34(1)(a) makes no
difference to the general reasons which I have given in relation to the West
Base lease for declining to make similar declarations sought by BA on that
lease. I agree with the defendants that the only effect of the disregard (a)
is to apply for a disregard of the tenant’s occupation of the relevant
premises. It is not directed to the different point which BA attempted to
establish, namely a disregard of the presence of the lessee as a potential
bidder in the market for the hypothetical lease. I therefore decline to make
either declaration sought in (v) or (vi).
I come finally
to the No 3 Gatwick lease on which one question remains to be decided:
Whether on the
true construction of a Deed of Surrender and Supplemental Lease dated 21st
November 1977 made between British Airports Authority as lessor of the one part
and British Caledonian Airways Limited as lessee of the other part and the
leases and deed therein referred to of property at Maintenance Base East (No 3)
Gatwick Airport, London (‘Maintenance Base East (No 3)’), the open market
rental value of part of the said land shown hatched yellow and hatched brown on
the plan annexed to the actual lease is to be assessed for the purpose of the
rent reviews on 29th September 1987 and 29th September 1997 on the following
assumptions namely:
(i)(a) that the said land shown hatched yellow and
hatched brown is let on a single hypothetical lease
Alternatively:
(b) that the land hatched yellow (the hangar
land) and the land hatched brown (the car park land) are to be taken to be let
either on one lease or on two separate leases, whichever will produce the best
rent.
On p 16 of the
Gatwick No 3 lease there is a definition of the expression ‘open market rental
value’ to be determined by the independent surveyor. It is to be taken to be
‘the best annual rent or aggregate annual rents at which the relevant
land’ could reasonably be expected to be let on the open market at the review
date in question with vacant possession.
It is provided
that, with effect from each review date (being September 29 1987 and September
29 1997), the yearly rent payable by the tenant shall be whichever is the
greater of:
(i) the rent payable immediately before the
relevant review date, or
(ii) £2,680 per annum plus 75% of the open market
rental value (as hereinafter defined) at the relevant review date of that part
of the said land shown hatched yellow and hatched brown on the said plan (1.72
acres).
Under the
lease the land shown hatched yellow can be used only as an aircraft hangar and
offices, workshops and ancillary accommodation all associated with the lessees’
business as an airline. The land shown hatched brown on the said plan can be
used only as an area for parking cars of people visiting the premises and of
the tenant or tenant’s staff employed there: see clause 4(16)(a) and (b) on p 8
of the Gatwick No 3 lease.
It should be
noted that there is a different basis of review on the review date arising on
September 29 2007 under clause 2(d)(ii) on p 16, which provides that, with
effect from that date and the last day of every fifth year of the term
thereafter, the yearly rent payable by the tenant shall be whichever is the
greater of:
(i) the rent payable immediately before the
relevant review date.
(ii) the open market rental value (as hereinafter
defined) at the relevant review date of that part of the said land and any
buildings thereon not hatched yellow or brown on the said plan (3.08 acres),
plus the open market rental value (as hereinafter defined) at the 29th
September 2007 of that part of the said land excluding any buildings thereon
shown hatched yellow and brown on the said plan (1.72 acres).
The
defendants, relying heavily on the words ‘or aggregate’ in the definition of
‘open market rental value’, submit that the independent surveyor is to assume
that the hangar land hatched yellow and the car park land hatched brown are to
be taken to be let either on one lease or on two separate leases, whichever
will produce the best rent.
In my
judgment, the defendants’ submissions involve reading too much into the two
words ‘or aggregate’ in that context. I agree with the submissions made on
behalf of BA that, in this context, the draftsman has used the expression ‘or
aggregate’ with reference to the difference basis of review in and after the
year 2000 and that, for the purposes of the current review and the 1997 review,
valuation should be on the basis of a single best annual rent for the two areas
of land let on a single hypothetical lease. I shall therefore make a
declaration in the terms of (a).
Those conclude
my judgment on the individual questions. I will now hear argument from counsel
as to the form of the order which I should make and as to costs.
Declaration
accordingly.