Landlord and tenant — Arrears of rent — Assignment of lease — Expiration of contractual term — Tenancy continued by Part II of the Landlord and Tenant Act 1954 — Landlords claiming rent from original tenants — Whether original tenants liable for arrears after expiration of contractual term
lessors granted 10-year term to defendant lessees from March 25 1976 — Defendants
assigned term to Grove Bell Group plc in June 1979 — Initial yearly rent of
£27,500 reviewed and increased to £38,500 with effect from March 25 1981 — Rent
payable quarterly in advance — Contractual term expired on March 24 1986 —
Assignees continued in occupation of the premises pursuant to Part II of the
Landlord and Tenant Act 1954 — Assignees surrendered premises to plaintiff
lessors on January 23 1987 — Assignees were compulsorily wound up on December 1
1986 — No rent was paid by assignees after Christmas quarter day 1985
lessors claimed rent from defendants as original tenants — Defendants denied
any liability for arrears of rent arising after expiration of the contractual
term — Dispute as to whether assignees remained in occupation after expiration
of contractual term — Plaintiffs contended that the term of the lease was
continued by the 1954 Act — Defendants submitted that their covenant as
original tenants to pay rent for the term did not extend their liability to any
continuation tenancy under the 1954 Act
contractual term — The words ‘tenancy’ and ‘term’ must bear their precise
meaning — There is no reference to the extension of ‘the term’ in the 1954 Act
— No provisions in the 1954 Act which may be taken to perpetuate the
obligations of anyone other than the lessor and the business occupant at the
time of the expiry of the lease — Proposition of Nourse J in GMS Syndicate
Ltd v Gary Elliott Ltd [1982] Ch 1 that the term granted by a
tenancy continues by way of statutory extension not followed — The contract of
lease should be strictly construed in so far as it defines the duration of the
original tenant’s liability to pay rent — It is not possible to bring within
the ambit of the object of the 1954 Act an imposition and continuation of the
contractual position which has no relevance to enabling a tenant occupying
business premises to obtain a new tenancy — The defendants’ liability to pay
rent upon the assignees’ default came to an end at the expiration of the term
as defined in the lease
The following
cases are referred to in this report.
Associated
Dairies Ltd v Pierce [1983] EGD 383; (1982)
265 EG 127, [1983] 1 EGLR 45, CA
Baker v Merckel [1960] 1 QB 657; [1960] 2 WLR 492; [1960] 1 All ER
668, CA
Baynton v Morgan [1888] 2 QB 74
Bolton
(HL) (Engineering) Co Ltd v Graham (TJ) &
Sons Ltd [1957] 1 QB 159; [1956] 3 WLR 804; [1956] 3 All ER 624, CA
Centrovincial
Estates plc v Bulk Storage Ltd (1983) 46
P&CR 393; [1983] EGD 556; 268 EG 59, [1983] 2 EGLR 45
Cornish v Brook Green Laundry Ltd [1959] 1 QB 394; [1959] 2 WLR 215;
[1959] 1 All ER 373; [1959] EGD 116; (1959) 173 EG 307, CA
GMS
Syndicate Ltd v Gary Elliott Ltd [1982] Ch
1; [1981] 2 WLR 478; [1981] 1 All ER 619; (1980) 41 P&CR 124; [1981] EGD
331; 258 EG 251, [1981] 1 EGLR 37
Green v Bowes-Lyon [1963] AC 420; [1961] 3 WLR 1044; [1961] 3 All
ER 843; [1961] EGD 301; (1961) 180 EG 429, HL
Junction
Estates Ltd v Cope (1974) 27 P&CR 482;
232 EG 335
Plesser
(A) & Co Ltd v Davis (1983) 267 EG 1039,
[1983] 2 EGLR 70
Skelton
(William) & Son Ltd v Harrison & Pinder
Ltd [1975] QB 361; [1975] 2 WLR 238; [1975] 1 All ER 182; (1974) 29
P&CR 113
Weinbergs
Weatherproofs Ltd v Radcliffe Paper Mill Co Ltd
[1958] Ch 437; [1958] 2 WLR 1; [1957] 3 All ER 663
This was a
claim by the plaintiff lessors, the City of London Corporation, seeking
£33,460.64 as arrears of rent from the defendants, John Fell, John Hayward and
Edward Sturmer partners in Wilde Sapte, the original lessees under a lease
dated July 15 1977 of Boston House, 63-64 New Broad Street, London EC2.
Mark Pawlowski
(instructed by the solicitor to the City of London) appeared on behalf of the
plaintiffs; Miss Erica Foggin (instructed by Wilde Sapte) represented the defendants.
Giving
judgment, MR DESMOND PERRETT QC said: This is an action brought by the
plaintiffs, the lessors, against the defendants, the lessees, for recovery of
rent payable but unpaid in respect of business premises forming part of a
building known as Boston House, 63-64 New Broad Street, in the City of London,
which are business premises. By a lease dated July 15 1977 and made between the
parties to this action, the premises were let by the plaintiff lessors to the
defendant lessees for a term of 10 years from March 25 1976. The lease provides
for a yearly rent of £27,500 or more as agreed to be paid during the term of 10
years and specifies the dates upon which and the manner in which the yearly
rent is to be paid.
The defendants
are and were a distinguished firm of solicitors and by 1979 they required other
premises. In June 1979 the lease of the demised premises was assigned to Grove
Bell Group plc, the assignees, for the residue of the unexpired term of years,
subject to the payment of the rent and observance of the covenants and
conditions which on the part of the lessees fell by the lease to be observed.
At that time the term of the lease still had six years and nine months
unexpired.
By provision
in the lease, the rent was to be paid quarterly in advance upon specified
quarter days. In June 1981, in accordance with the provisions in the lease, the
assignees by then having been in occupation of the business premises for some
two years, the yearly rent was reviewed and increased to £38,500 with effect from
March 25 1981.
Pursuant to
clause 1 of the lease, the final payment of rent was due at Christmas 1985 in
respect of the final quarter year of the 10-year term. I am told that the final
quarter’s rent was paid to the plaintiffs by the assignees at or about
Christmas 1985. At the expiration of the 10-year term on March 24 1986, the
assignees continued in occupation of the premises pursuant to the provisions of
Part II of the Landlord and Tenant Act 1954, as tenants of the lessors, until
January 23 1987, when they surrendered the demised premises to the lessors. On
December 1 1986 the assignees were compulsorily wound up by an order made in
the companies court and on March 2 1987 W H Cork Gully & Co (‘Cork Gully’)
were appointed joint liquidators
rent to the lessors in respect of their tenancy of the business premises, and
at the date of the demised premises being surrendered to the lessors the sum of
£33,460.64 was owed to the lessors for rent and other outgoings covenanted for
in the lease.
Inquiries were
made by the plaintiffs of the official receiver as to whether there was any
prospect of a dividend being paid to them as unsecured creditors of the
assignees. Cork Gully, as liquidator, in letters to the lessors of April 28
1987 and November 27 1987 expressed their view that the prospect of a dividend
was, in April 1987, ‘uncertain’, and in November 1987 ‘remote’. Time passed,
and it was not until September 7 1989 that the lessors, by letter of that date,
stated their intention of looking to the original lessees for payment of the
outstanding charges. The defendant lessees denied the lessors’ entitlement to
look to them for arrears of rent arising after expiration of the contractual
term contained in the lease and, accordingly, on July 6 1990 the lessors issued
their writ against the lessees.
In the
proceedings the only question of fact which required determination was whether
the assignees, either by themselves or by their subsidiary companies, had
remained in occupation of the demised premises after the expiration of the
contractual term until the alleged date of surrender to the lessors. In that
regard, I heard evidence from Mr Kenneth Gardner to the effect that he, as
company secretary of the assignees, Grove Bell Group plc, and as company
secretary of Grove Bell Group plc’s several subsidiaries, maintained a presence
with other people at the premises, conducting the affairs of the various
subsidiaries to a greater or lesser degree right up to the date of surrender.
There was some support for this from Mr Ferguson of Cork Gully who gave
evidence, and, as I indicated after short but not strenuous argument from Miss
Erica Foggin, counsel for the lessees, my finding is that either by themselves
or their subsidiaries the assignees remained in occupation of the premises for
business purposes until January 23 1987, upon which date the lessors regained
possession.
By clause 1 of
the lease the lessors demised the premises to the lessees for the lessees to
hold from March 25 1976 for a term of years (hereinafter called ‘the term’)
yielding and paying therefor during the term unto the lessor the agreed rent or
as later reviewed in the course of the term. It is the defendants’ contention that
clause 1 of the lease defines clearly and without equivocation the extent in
time to which, as original lessee, they will remain liable for payment of rent,
and that the lessors, having received the agreed rent for the full duration of
the term, are entitled to no more from them than was payable in respect of the
occupancy of the premises during the term. The plaintiffs, however, allege that
this being a business tenancy to which the provisions of Part II of the
Landlord and Tenant Act 1954 apply, the privity of contract between the
original parties to the contractual lease continues during the statutory
extension of the contractual lease. By section 24(1) of the Act, a business
tenancy is not to come to an end unless determined in accordance with the provisions
of the Act, and the effect of the Act is that the contractual tenancy continues
with a statutory variation as to the mode of determination and thus remains,
throughout, one and the same tenancy. For these reasons, it is contended, the
lessees’ obligation to pay rent, despite the unequivocal agreement with the
lessors as to the duration of the obligation contained in the contractual
lease, is extended beyond ‘the term’ and into the period of the statutory
continuation of the tenancy.
There is
apparently no case in which the point at issue has been decided as between the
lessor and lessee and it appears to be the opinion of the author of the current
edition of Woodfall (at p 22/31) that the point should, by analogy with
the decision in GMS Syndicate Ltd v Gary Elliott Ltd [1982] Ch
1*, be resolved in favour of the lessor. The broad effect of Part II of the
Landlord and Tenant Act 1954 was alluded to in general terms by Denning LJ (as
he then was) in H L Bolton (Engineering) Co Ltd v T J Graham &
Sons Ltd [1957] 1 QB 159 at p 168 where he said, when discussing the effect
of a notice to quit on a business tenancy for a term of years certain:
The right
view is that the common law tenancy subsisted with a statutory variation as to
the mode of determination.
*Editor’s
note: Also reported at [1981] EGD 331; (1980) 258 EG 251, [1981] 1 EGLR 37.
In Weinbergs
Weatherproofs Ltd v Radcliffe Paper Mill Co Ltd [1958] Ch 437,
Harman J at p 445, when deciding whether a notice purporting to terminate a
contractual business tenancy in accordance with the terms of the lease was
effective, even though no notice had been served under section 25 of the
Landlord and Tenant Act 1954, said:
The term must
be thought of as continuing by way of a statutory extension.
He cites the
passage from Denning LJ’s judgment in Bolton Engineering.
Mr Mark
Pawlowski, counsel for the lessors in this case, places reliance on the
apparent view expressed by Harman J that it is ‘the term’ that must be thought
of as continuing, and I can see the force of that when he is attempting to
extend the obligations contained in the covenants of the contractual lease in
this case beyond the term as therein defined. But it appears from Denning LJ’s
judgment in Bolton Engineering that at no time was he referring to
anything other than ‘the tenancy’; that is to say, the right to occupy pursuant
to the lease, and that it was this tenancy or right to occupy which subsisted
with the statutory variation by reason of the Act. Denning LJ made no mention
of ‘the term’ in its strict sense as continuing. It was in no way essential to
his decision in Weinbergs that Harman J should have an eye to any
difference in meaning between the words ‘tenancy’ and ‘term’, but, in my view,
if he was basing himself upon Denning LJ’s view as expressed in Bolton
Engineering, he was using the word ‘term’ as if it were synonymous with
‘tenancy’. In my view, and for the purposes of the instant case, the words
‘tenancy’ and ‘term’ must bear their precise meaning and are not to be regarded
as interchangeable, as clearly they were in the context of their use by Harman
J.
In Cornish v
Brook Green Laundry Ltd [1959] 1 QB 394, Romer LJ in the Court of
Appeal, in deciding that the rights and obligations created by a lease of
business premises were still in force during the period of statutory extension,
cited (at p 409) Harman J’s proposition that ‘the term’ must be thought of as
continuing. The Court of Appeal in that case were not concerned to differentiate
between the words ‘term’ and ‘tenancy’ in their task of ascertaining whether
the landlord was a competent landlord within the meaning of Part II of the 1954
Act, and the precision in interpretation which seems to me to be essential in
this case was unnecessary to the decision in Cornish.
A reference to
the long title of the Landlord and Tenant Act 1954 shows that the object of
Part II was:
To enable
tenants occupying property for business purposes to obtain new tenancies in
certain cases.
There is no
reference to the extension of ‘the term’ of an existing lease. It is clearly
the law (see Cornish) that when the contractual tenancy is by reason of
Part II to be thought of as continuing by way of a statutory extension, the
tenancy continues upon the same terms as were contained in the contractual
lease before its expiry. That is to say, the landlord and the party entitled to
the tenancy as continued by statute are bound by the same covenants as were
contained in the original contractual lease. The contractual lease, after
expiry of the contractual term, defines the rights and obligations of the
parties to the statutory extension of the tenancy. That statutory arrangement
holds no benefit to the original lessee. If he is not in possession at the date
of expiry of the contractual term, he is afforded no right to possession. He is
not privy to the statutory consequences in any way. Whether an assignee of the
original lease elects to hold over after the expiry of the contractual term is
a matter entirely beyond the control of the original lessee. There appears to
be no provision in the Act which may be taken to perpetuate the obligations of
anyone other than the lessor on the one hand and the business occupant at the
time of the expiry of the lease on the other.
In GMS
Syndicate v Gary Elliott Ltd Nourse J held that the effect of
section 24(1) of the Landlord and Tenant Act 1954 was to extend ‘the term’ of a
business lease so that, although by the instrument itself a tenant’s covenant
was expressed to be given ‘during the residue of the term granted’, those words
were to be construed as extended by the section as ‘the residue of the term so
extended by section 24(1)’, so as to require observance of the covenant after
the ‘contractual term’ and during the statutory subsistence of the tenancy.
Again, Nourse J adopts the use of the word ‘term’ as being that which Part II
of the Act is extending. Although I do not doubt that the learned judge would
have reached the same conclusion had he referred to the extended term as ‘the
common law tenancy subsisting on the same terms’, it is in my view not correct
to hold that Part II extends ‘the term’ if by that is meant the original
contractual period, for the original lessee has no tenancy or right of
occupation after the expiry of the term. It is the assignee in occupation whose
rights are extended by the statute, albeit upon the same conditions and subject
to the same covenants as governed the rights of the original parties to the
lease Thus, I do not differ from Nourse J’s conclusion that a landlord may
successfully sue an assignee in possession, or sublessee in possession, in
respect of breaches of covenant during the period of statutory extension of the
tenancy. But I respectfully decline to follow the proposition on p 10 at B:
It is now
well established that the term granted by the tenancy continues by way of
statutory extension.
It is my
conclusion upon the wording of Part II of the 1954 Act that it is the tenure of
the business premises that is sustained by operation of the Act and not the
original term. His Honour Judge Edgar Fay QC in William Skelton & Son
Ltd v Harrison & Pinder Ltd [1975] QB 361 at p 367, when
referring to the Court of Appeal’s decision in H L Bolton (Engineering) Co
Ltd v T J Graham & Sons Ltd, correctly recited Denning LJ’s
dictum that under Part II the common law tenancy subsists, and he made no
reference to the Act extending the term. That it may be important for certain
purposes under Part II of the Act to distinguish between ‘term’ and ‘tenancy’
is apparent from the speech of Lord Reid in Green v Bowes-Lyon
[1963] AC 420, at p 434. There Lord Reid records his agreement with the
expressed wording of Denning LJ in Bolton and, by implication, of the
conclusion of Harman J in Weinbergs, and makes it clear that it is the
tenancy and not the term that is carried on by Part II of the Act.
Mr Pawlowski
further relied on the judgments in Baker v Merckel [1960] 1 QB
657 and Centrovincial Estates plc v Bulk Storage Ltd (1983) 46
P&CR 393*. Both those cases were concerned with the liability of original
tenants during the currency of either the original term or the term as extended
pursuant to an option in the original lease which was exercised by the
assignee. In both cases the default of which the landlords complained occurred
during the term which was within the contemplation of the parties to the
original leases, as defined by the leases themselves. I do not find much
assistance from those authorities in the present case, for there was no
question in either case of liabilities being explored beyond the scope of the
express agreements.
*Editor’s
note: Also reported at (1983) 268 EG 59, [1983] 2 EGLR 45.
In Junction
Estates Ltd v Cope (1974) 27 P&CR 482+ MacKenna J considered the
position of a guarantor of a lessee’s obligation to pay rent, the reference to
arrears of rent arising in the period of a Part II statutory extension of the
tenancy. He held that the guarantor’s liability fell to be determined by
construction of the contract of guarantee contained in the lease and that the
guarantee was in respect of payment of rent reserved by the lease during its
seven-year term. Within that term the original lessee whose obligation to pay
rent was the subject of the guarantee assigned his interest in the lease to a
third party who fell into arrears during the statutory extension of the
tenancy. The learned judge recites the guarantee (clause 3) verbatim at p 483.
He concludes at p 484:
In my opinion
the question between the plaintiffs and the defendants depends on the true
construction of clause 3. I construe it as guaranteeing the performance of the
obligation created by clauses 1 and 2 of the lease, namely, in the case of rent,
the payment of the rent reserved by the lease during its seven years’ term. I
do not read clause 3 as covering any obligation of the tenant to pay his rent
during any statutory extension of the term. If the plaintiffs had wanted a
guarantee which would impose that indefinite liability on the defendants, that
is, a liability continuing until either the plaintiffs had served a notice of
termination, or the tenants had served a notice to quit, or a new tenancy had
been applied for by the tenant and granted by the court, or the landlord had
forfeited the tenancy, they should have made that intention clear in the
language of the guarantee. They have not done so. I think that the language of
clause 3 makes it clear that the guarantors are to be liable only for the seven
years’ rent if any part of that should be unpaid. If clause 3 is ambiguous
about the guarantor’s obligation, it should, on well-established principles, be
construed against the plaintiffs, and I would so construe it.
† Editor’s
note: Also reported at (1974) 232 EG 335.
So also in A
Plesser & Co Ltd v Davis (1983) 267 EG 1039, [1983] 2 EGLR 70 on
facts which he found indistinguishable from those in Junction Estates Ltd
v Cope, French J arrived at a similar conclusion and found that in
effect the duration of the guarantor’s liability was defined by strict
construction of the contract and was thus coterminous with the contractual
term, adding that it was clear that a contractual term and a statutory
continuation are distinguishable as concepts. He continues:
A document
may be couched in language which without doubt or equivocation points to a
guarantee of liability in respect of contractual term obligations or in respect
of statutory continuation obligations or it may be of both. An example is to be
found in the documents which the court had before it in Associated Dairies
Ltd v Pierce. Clause 31 of each of the leases under consideration in
that case started with the words: ‘To yield up at the expiration or sooner
determination of the term or any statutory continuation thereof . . .
— the judge’s
emphasis —
. . . as the
case may be’. Some such expression could have been used here and, in my
judgment, should have been used here in order to produce the result for which
the plaintiffs contend.
It has been
urged upon me that the position of a guarantor is distinguishable from that of
an original lessee in these circumstances, but I can see no practical
difference between the two situations and can conclude only that, in order to
discover the contractual obligations attaching to either position, one must
construe the respective contracts to see whether they cover the nature, extent
and circumstance of the debt sought to be recovered. It is said that the contract
of guarantee should be strictly construed: see Associated Dairies Ltd v Pierce
(1982) 265 EG 127 at p 129, [1983] 1 EGLR 45; per May LJ. I can see no
reason why the same degree of precision should not also be brought to bear upon
the construction of the contract in this case. It has been submitted that an
original lessee would well have in contemplation when he enters upon a lease of
business premises for a defined term of years that the tenancy would, by
operation of Part II of the 1954 Act, outlast the term. If that is the case, it
seems to me to be all the more important that the contract should be strictly
construed in so far as it defines the duration of the original tenant’s
liability to pay rent; and I can see no reason for importing any implied term
into the lease when, if it had been the intention of the parties so to agree, a
simple form of wording could have catered for the payment of rent during any
statutory continuation of the tenancy. Although it may not be the most reliable
method of testing a proposition of landlord and tenant law, I suspect it would
come as a surprise to a man who had promised in plain terms to be liable to pay
rent either by himself or his assigns for a fixed period that the fixed period
meant nothing and that the assignee might continue in possession indefinitely,
with the landlord looking each quarter day to the original lessee for rent for
as long as the landlord chose. I can find nothing in Part II which evinces a
desire on the part of Parliament to confer such an open-ended advantage upon a
landlord or impose such a burden upon a business tenant for a term certain who
assigns his tenancy. Part II of the Act, as I have recited earlier, has as its
object to enable tenants occupying the property for business purposes to obtain
new tenancies in certain cases, and it is simply not possible, in my view, to
bring within the ambit of that object an imposition and continuation of the
contractual position which has no relevance to enabling a tenant occupying
business premises to obtain a new tenancy. It has been pointed out to me that,
since Baynton v Morgan [1888] 2 QB 74, it is settled that an
original lessee is not a surety. That, of course, I accept, but both functions
arise out of contract and, in my view, in this case the contract defines the
limit of the duration of the defendants’ liability to pay rent to the
plaintiffs, namely during the term defined in the lease.
So I can find
no reason for drawing any distinction, upon the facts of the Junction
Estates case, between the liability of the guarantor in that case (who,
‘being connected’ with the original business tenants, might, would or should
have had in mind, in 1964, the effect upon business tenancies of Part II of the
1954 Act) and the position of the lessee in this case. For those reasons I
conclude that the defendants’ liability to pay rent upon the assignees’ default
came to an end at the expiration of the term as defined in the lease and,
accordingly, there will be judgment for the defendants.
Judgment for
the defendants.
