Landlord and Tenant Act 1954 — Compensation — Whether quitting tenant of business premises without domestic element entitled to compensation determined by reference to rateable value of premises on March 31 1990 — Whether para 4 of Schedule 7 to the Local Government and Housing Act 1989 so provides
By a lease
dated March 20 1964 the applicants held a 21-year term of purely business
premises. By notice dated September 22 1992 the respondent landlord determined
the tenancy continued by the Landlord and Tenant Act 1954. In due course the
applicants abandoned their application for a new tenancy, but applied to the
court to have determined that they were entitled to compensation under section
37 of the 1954 Act, subject to the transitional provisions of para 4 of
Schedule 7 to the Local Government and Housing Act 1989: compensation on this
basis would be 16 times the rateable value on March 31 1990 as they had been in
possession more than 14 years. The respondent landlord contended that: (1) the
transitional provisions applied only where the premises were partly or wholly
domestic because, having regard to the scheme in section 37 for compensation,
the transitional provisions were designed to deal with the abolition of
domestic rating; (2) the application of the rule in Pepper v Hart
[1992] 3 WLR 1032 showed that the intended purpose of para 4 was to limit the
transitional provisions to partly or wholly domestic properties; and (3) the
applicants failed to serve an effective notice within the meaning of para
4(1)(c) of Schedule 7 claiming the higher basis of compensation.
Government and Housing Act 1989 does not apply to purely business premises. All
that para 4 does is to put a gloss on the preceding para 2, which introduced
amendments to section 37 of the 1954 Act concerned with domestic property. Its
provisions apply ‘instead’ of those introduced into section 37 by para 2 of the
Schedule. There was no ambiguity and the principle in Pepper v Hart
therefore did not apply: however, if it did apply Hansard makes clear
that the transitional provisions were concerned with partly or wholly domestic
properties. In the event the applicants has served a notice which satisfied
para 4(1)(c) of the Schedule.
The following
case is referred to in this report.
Pepper v Hart [1992] 3 WLR 1032
Edmund Cullen
(instructed by AG Freeman & Son, of Benfleet) appeared for the applicants;
Guy Fetherstonhaugh (instructed by the solicitor to the Co-operative Insurance
Society Ltd) represented the respondent.
Giving
judgment, JUDGE O’BRIEN said: In this case the applicants Alan Busby and
Malcolm Roy Stockwell practised for many years as accountants in the premises,
the subject-matter of the application, and seek the construction by this court
of the compensation provisions in section 37 of the Landlord and Tenant Act
1954 (as amended). Against them is the Co-operative Insurance Society Ltd.
The applicants
were the tenants of the property in question and the respondent the landlord.
The facts of this matter are agreed between the parties. There is one
quasi-factual dispute which turns on the admissibility of a letter headed
‘without prejudice’. If inadmissible, there is one particular fact which is not
before the court.
The tenants
were granted a business lease of the relevant premises on March 20 1964; it was
a lease of 21 years less three days because, as I understand it, the landlords
were themselves lessees, granting in effect a sublease.
On September
22 1992 the respondent landlord served a notice of termination of the lease
under section 25 of the Landlord and Tenant Act 1954. The applicant tenants
replied by solicitor’s letter of December 14 1992 headed ‘without prejudice’. They
refer to the fact that they have until January 23 1993 to issue proceedings for
a new lease. The letter then went on to consider various possibilities,
indicating that the tenants might be prepared to go quietly without a dispute
if they got a covenant from the landlord indicating that the premises would not
be let to other accountants; and if they got a favourable answer, they might be
prepared to deliver up possession, in which case:
There will,
of course, be the question of compensation and in this respect it seems that
our clients have the alternative of claiming twice the current rateable value,
which is £6,825
— I interpose:
on that basis, compensation would be in the region of £13,650. I go back to the
text —
or
alternatively, 16 times the old rateable value which is £1,113, making a total
of £17,808. Clearly, it will be in our client’s interest to adopt the latter
basis. Perhaps you would confirm that if our clients did give up possession on
25th March, this is the figure that would be payable. We look forward to
hearing from you.
The
respondent’s solicitors replied to that letter on January 22 1993. It was an
open letter. In the second paragraph they said:
It is their
intention to occupy these premises for the purposes of their own business. Accordingly,
it is not my clients, intention to relet these premises. They are not prepared
to enter into any covenant such as your clients have requested. What is your
authority for saying that your clients have the option of seeking compensation
of twice the current rateable value or 16 times the old rateable value? My clients are concerned that your clients
have not in fact been in occupation of the whole of the premises they currently
occupy for in excess of 14 years and I should therefore be pleased to know what
evidence is available to substantiate that claim.
I note that
before me today it is not suggested that the applicants have not been in
occupation for 14 years. Certainly the respondent’s solicitors have taken note
of what had been said regarding compensation and were disputing the basis that
the applicants had indicated would be more advantageous. The applicants did in
due course serve a counternotice dated January 19 1993. By that counternotice
they sought a new lease.
The
respondent, on February 9 1993, formally opposed the grant of a new lease and
on July 30 1993 the applicants formally and effectively abandoned their
application for a new lease and indicated that they were quitting the premises
in question. On June 8 1993 the applicants had given notice to the court, and
to the landlord, that they would apply to the court today for a termination of
the amount of compensation payable following the termination of the new lease
on the ground set out in para (g) of section 30(1) of the Landlord and
Tenant Act 1954.
The dispute is
whether the basis of compensation amounting to £13,650 should be adopted or one
which would give them £17,808. Counsel for the respondent raises three
arguments why the lower basis of compensation is applicable. He argues that it
is based on the scheme set out in section 37 of the Landlord and Tenant Act
1954. He argues that that provision so far as these premises are concerned,
which are purely business, is unaffected by the legislation passed to amend the
1954 Act in the Local Government and Housing Act 1989, which he says was
designed to provide for a new state of affairs when domestic rates were being
abolished and the community charge was introduced. Those amendments were
required for premises containing a domestic element because the old rating
basis of compensation was no longer appropriate. So he says the whole point of
this amending legislation was to deal with domestic or partly domestic property
only.
Counsel for
the applicants argues that Schedule 7 to the Local Government and Housing Act
1989 absolutely and clearly, by its terms, unambiguously and literally, has
amended the situation in respect not only of domestic but also of premises with
no domestic element. There is no authority that either party has been able to find
after what I am quite sure, having seen the other fruits, were the most
diligent researches. I have been helpfully referred to a number of standard
texts and legal articles. None of them is binding on me. I approach this
material, therefore, merely as an example of how the arguments have been set
out. But it is clear that opinion in the profession is divided.
Woodfall says that a literal reading of para 4 of Schedule 7 to the Local
Government and Housing Act 1989 suggests that para 4 applies to any tenancy and
not merely tenancies of wholly or partly domestic premises, thereby assisting
the applicants.
Delyth
Williams in Handbook of Business Tenancies [published by Sweet &
Maxwell] is silent on the matter, without suggesting that para 4 is limited to
domestic premises and therefore the applicants say that it assists them. Aldridge
on Leasehold Law expresses the matter in such a way that both parties say
he assists them. Hill and Redman’s suggests in terms that para 4 is
limited to domestic premises and therefore assists the respondent. Legal
journals: Howel Lewis in two articles dated July 1 1990 and January 29 1993 in New
Law Journal has argued that the amending provisions relied upon by the
applicants are limited to premises with a domestic element. On the other hand,
it has been argued in Estates Gazette by Patrick McLoughlin (a solicitor
with Theodore Goddard) on August 18 1990 and two solicitors in Finers [Michael
Bibring and Katherine Miller] on July 28 1990, and in the Law Society’s
Gazette on September 12 1990 by two solicitors in Titmuss Sainer & Webb
[Margaret Spencer and Steven Fogel], that these provisions apply as well to
purely business premises as they do to domestic premises. These are the
arguments as set out in those articles to which I have been referred.
The basic
scheme of compensation as set out in the 1954 Act is based upon the rateable
value. Because these premises had been occupied for more than 14 years
compensation would have been twice the product of the appropriate multiplier
and the rateable value and would have yielded compensation in the sum of
£13,650. The alternative basis contended for is introduced by the Local
Government and Housing Act 1989, and in particular by section 149, which in
turn brings in Schedule 7 headed ‘Compensation provisions of Landlord and
Tenant Act 1954 Part II’. The first paragraph of that schedule says that:
Any reference
in this Schedule to a section which is not otherwise identified is a reference
to that section of the Landlord and Tenant Act 1954, Part II of which relates
to security of tenure for business, professional and other tenants.
Para 2, it
seems, is the effective amending provision of that Schedule. It has four
subparagraphs, the first of which says:
Subject to
the following provisions of this Schedule, section 37 . . . shall have effect
with the amendments set out below.
It then sets
out the amendments in the following three subparas (2), (3) and (4). The
effect, principally, is to add four subsections, 5(A), 5(B), 5(C) and 5(D) to
section 37 of the principal Act. They are then set out as subpara (3) of para
2, Schedule 7. There is a fourth subparagraph which alters the way a multiplier
is set out. My understanding of para 2(1) is that when it says ‘Subject to the
following provisions of this Schedule’, it means the provisions after para 2;
and when it says ‘the amendments set out below’, it means those numbered
subparagraphs; and, in my judgment, it is only by approaching para 2 in that
way that one understands the whole system and it all makes sense. After para 2
there are three more paragraphs, all of which I understand to be ‘the following
provisions of this Schedule’ and all of which I understand to be qualifying in
some way para 2. For example para 3 says:
The
amendments made by paragraph 2 above do not have effect unless the date which,
apart from paragraph 4 below, is relevant for determining the
after 1st April 1990
That is a
provision perfectly sensibly pointing the ambit or effect of the preceding
paragraph. Then we get to para 4, which says:
(1) Subject to paragraph 3 above and paragraph 5
below, in any case
— words relied
upon by the applicant —
where —
(a) the tenancy concerned was entered into
before 1st April 1990 or was entered into on or after that date in pursuance of
the contract made before that date, and
(b) the landlord’s notice under section 25 or,
as the case may be, section 26(6) is given before 1st April 2000, and
(c) within the period referred to in section
29(3) for the making of an application under section 24(1), the tenant gives
notice to the landlord that he wants the special basis of compensation provided
for by this paragraph,
the
amendments made by paragraph 2 above shall not have effect and section 37
shall, instead effect with the modification specified in sub-paragraph (2)
below.
Subpara (2)
provides what has been called the special basis of compensation which in this
case provides the greater figure, and reads:
The
modification referred to in sub-paragraph (1) above is that the date which is
relevant for the purposes of determining the rateable value of the holding
under section 37(5) shall be 31st March 1990 instead of the date upon which the
landlord’s notice is given.
For the sake
of completeness, the statutory instrument which deals with the multipliers — ie
the Landlord and Tenant Act 1954 (Appropriate Multiplier) Order 1990 (SI 1990
No 36) — provides that the multiplier in the normal case will be one, but in
the special basis will be a multiplier of eight.
If my reading
of para 2 is correct then all that para 4 is doing is putting on a gloss upon
para 2. It is providing this special basis if three certain conditions can be
met. And if that approach to Schedule 7 is correct, then the word ‘instead’ in
para 4 makes perfect sense. The contrary argument is that right at the
beginning of para 4 it says: ‘in any case’ which means ‘in any case within Part
II of the Landlord and Tenant Act 1954’. That is not the correct interpretation
of this Schedule of this statute because, as I have already said, the real
amendment is made by para 2. ‘In any case’ in para 4 must be subject to the
main amendment and ‘instead’ is not surplusage and makes sense whereas on the
applicants’ argument ‘instead’ is pure surplusage. So I come to the conclusion
that the construction contended for by the applicants is wrong. On that ground
alone the applicants’ contention fails.
I think it
right in deference to the arguments which have been addressed to me to deal with
the other arguments put forward. It was also argued for the respondent that if,
contrary to its arguments, the provisions of Schedule 7 were ambiguous,
obscure, or led to an absurdity, the recently enunciated doctrine in Pepper
v Hart [1992] 3 WLR 1032 would come into effect and this court would be
entitled to look at material which was a statement by a minister or a promoter
of the Bill provided that the same was clear. With all due deference to the
applicants’ argument, once I had grasped the matter and considered it as
carefully as I am able to do. I concluded that the matter is clear perhaps not
beyond a peradventure but clear. I do not find that there is any ambiguity or
obscurity in the matter. Certainly it would not lead to any absurdity. But in case
I am wrong on this point then the respondent would, in my judgment, be entitled
to rely upon Pepper v Hart and to pray in aid what one of the
ministers moving the Bill said about the matter. That is to be found in Hansard
for October 11 1989 beginning at col 305 when Lord Hesketh moved that the House
do resolve itself into committee on the Local Government and Housing Bill and
when the Earl of Caithness (the Government’s Paymaster General at the time), at
col 338, moved the provision. At col 339 the Earl of Caithness said:
The abolition
of the present rating system does not alter the basis of compensation under the
1954 Act for purely non-domestic leasehold premises.
— I should
have thought that one could hardly wish for a clearer statement —
The amendments
in this schedule are particularly
— Again I
regard that as clear, he could have said ‘particularly but not exclusively’ but
he did not. He said ‘particularly’ —
directed
towards business tenants’ holdings which contain a domestic element, for
example, shops with flats above. Existing tenants of such mixed hereditaments
will have a choice for a transitional period from 1st April 1990 as to the
basis of compensation.
So if the
respondent was to have failed on his first argument, he would have succeeded on
this. He (counsel for the respondent) goes further in any event and says that
the applicants failed to get over the third condition in para 4 of Schedule 7
(para 4(1)(c)) regarding the notice to be given in that they did not give
notice to the landlord requiring the special basis of compensation. That turns
on the construction of the applicants’ solicitor’s letter dated December 14
1992 in which they said:
There will,
of course, be the question of compensation and in this respect it seems that
our clients have the alternative of claiming twice the current rateable value .
. . or alternatively, 16 times the old rateable value . . . Clearly it will be
in our client’s interest to adopt the latter basis.
Well, in my
judgment, that did just enough to give notice that they wanted the special
basis of compensation. It would not be the form of notice that I would
recommend to practitioners, but it just passes muster. There is a second
objection: that the letter was ‘without prejudice’. It was answered by an open
letter, but it is said that the applicants cannot waive privilege unilaterally.
I do not think that either party came to court expecting to argue this point,
because if they did they would have come armed with authority as they have done
on the first two points. In those circumstances I do not propose to decide that
point. I have not had enough assistance on it. I determine that the amount
which was due to the applicants by way of compensation was £13,650.
Declaration
accordingly.
