Landlord and tenant — Easement — Construction of lease — ‘Right to receive a supply of gas’ — Whether lessees’ rights extended to right to lay a new gas main under service roads retained by lessors
company held a lease for 20 years from 1974 of premises used for the
manufacture of autoderivative gas
association with Rolls-Royce — Plaintiffs had been successful in largely
increasing the horsepower of their engines — Their work required a sufficient
supply of gas at adequate pressure — Even at the time when the present lease
was granted both parties accepted that the then existing gas main was not
providing adequate pressure and a second main was then in contemplation — This
was subsequently installed and satisfied the plaintiffs’ requirements for 13
years — Then, with business developing, the plaintiffs needed much more gas, a
five-fold increase in fact, which, according to British Gas, required an
additional pipeline, a new gas main — The plaintiffs claimed that they were
entitled to install it under the provisions of the lease, but the defendant
lessors objected, thus causing the present proceedings
contained a number of provisions concerning easements and similar rights,
expressly granting some and excluding others — The material provision was the
grant of ‘a right to receive a supply of water electricity gas and heat to the
demised premises’ — Plaintiffs contended that ‘a right to receive a supply of
gas’ meant a right to receive gas in such quantities and at such pressures as
they might from time to time reasonably require — It was, they argued, by
virtue of this right that they were entitled to install the second gas main and
they claimed to rely on the same right to install the third — Defendants argued
that the installation of the second main exhausted the plaintiffs’ rights under
the easement — They drew an analogy with a right-of-way over an undefined
route, in which case it was established by authority, such as Deacon v South-Eastern
Railway, that a route once selected could not be changed
held that the plaintiffs’ construction was correct and gave six reasons in
support of this view — He rejected the right-of-way analogy and the implication
that the plaintiffs were confined in their business to such activities as
required no more gas than could be supplied through the first and second gas
mains — The judge also considered that the suggestion that the new main would
increase the burden on the defendants in supplying services was without
foundation — Judgment in favour of plaintiffs
The following
cases are referred to in this report
Bolton v Bolton (1879) 11 ChD 968; 48 LJ Ch 467; 43 JP 764 sub
nom Bolton v London School Board 40 LT 582
Deacon v South-Eastern Railway (1889) 61 LT 377
The issue in
these proceedings, which turned on the construction of the lease of premises on
an industrial estate in Bootle, was whether the plaintiffs, Coopind (UK) Ltd,
the lessees, had the right to lay a new gas main under service roads retained
by the defendants, Walton Commercial Group Ltd, the lessors.
David
Neuberger QC and Nicholas Dowding (instructed by Baker & McKenzie) appeared
on behalf of the plaintiffs; John S Colyer QC and William Edis (instructed by
Davis Campbell, of Liverpool) represented the defendants.
Giving
judgment, HOFFMANN J said: The issue in this action is whether a tenant of
premises on an industrial estate in Bootle has a right to lay a new gas main
under service roads retained by the landlord. It therefore turns upon the
construction of the lease under which the premises are held.
The lease was
granted on August 13 1975 pursuant to a written agreement dated December 1
1974. The demised premises covered about two acres and the initial annual rent
was £100,000. The term was 20 years. The user clause was in wide terms
(‘factory assembly and production premises testing and storage centre and
ancillary offices’) and the assignment clause did not permit the landlord
unreasonably to withhold consent to an underletting or assignment of all or
part of the premises.
The plaintiff
intended to use the premises to manufacture aeroderivative industrial gas
turbines. This is a new technology, based upon aero engines, which the
plaintiff has developed in association with Rolls-Royce. When the lease was
granted, the plaintiff was making engines capable of developing about 15,000
horsepower. Subsequent improvements enable the plaintiff now to make engines of
35,000 horsepower.
At the time of
the agreement for the grant of the lease, both parties were aware that a
sufficient supply of gas at adequate pressure was important for the purposes of
the business which the plaintiff proposed to undertake. The existing gas main
(‘the first gas main’), which entered the estate from Dunnings Bridge Road to
the west and ran along its southern boundary, could not provide adequate
pressure. The plaintiff therefore entered into negotiations with the North West
Gas Board. It ascertained that suitable gas could be brought to the premises by
constructing a new pipeline (‘the second gas main’) running from Dunnings
Bridge Road along the northern boundary of the estate and then turning south
down the western side of a service road called Third Avenue until it reached
the demised premises. The cost of installing the second gas main was estimated to
be about £85,000. Mr Scholes, who acted for the plaintiff in the negotiations,
says in an affidavit:
. . . the
laying of the second gas main was contemplated and discussed with the Defendant
not only before the grant of the Lease but before the execution of the
Agreement for Lease.
Mr McArdle,
the landlord’s manager who conducted the negotiations with the plaintiff, says
much the same:
. . . the
Defendant’s attitude at the time was to permit the Plaintiff to choose whatever
type of supply it wanted and to provide every assistance to it. Accordingly,
before the lease was granted the parties thereto both understood that a supply
of gas would be brought to the premises through the medium of a new gas pipe to
be laid under the [estate] . . . How this was to be done was within the
plaintiff’s option.
The second gas
main was duly installed and has satisfied the plaintiff’s requirements for the
past 13 years. Recently, however, the plaintiff has taken on a much larger
volume of business and needs more gas. It asked British Gas for a five-fold
increase. British Gas says that the only way it can supply such quantities is
by a new pipeline (‘the new gas main’) entering the estate from Bridle Road in
the east, running along the northern boundary and then, like the second gas
main, turning south along Third Avenue, this time down its eastern side. The
plaintiff claims a right under the lease to install the new gas main and the
defendant objects.
The demise
includes a number of easements. First:
a right of
way (in common with the Landlord and all other persons now or at any time
hereafter entitled to the like right) over the road or way coloured brown on
the (lease) plan.
Second:
the free
right of passage and running of water and soil through the sewers and drains
passing under the remainder of the Lessor’s estate.
Third:
a right to
receive a supply of water electricity gas and heat to the demised premises
(hereinafter called ‘the Services’).
The grant of
these easements is concluded by a statement of intent that:
all
quasi-easements privileges and rights herefore appurtenant to the demised
premises other than the Services and those expressly referred to herein shall
not be included in this demise and which said quasi-easements privileges and
rights are hereby excepted and reserved unto the Lessor.
The expression
‘the Services’ appears, according to context, to have two meanings in the
lease. In some places it means the actual supply of water, electricity, gas and
heat. Thus in clause 8(b) the lessor covenants to ‘supply and maintain the
Services’, subject to a proviso against liability for failure to do so through
circumstances beyond its control. In clause 2(3)(a) the tenant covenants to pay
the lessor for the Services whatever sums according to the meters he would have
had to pay to the Electricity, Water and Gas Boards if they had supplied the
tenant direct. In practice, British Gas has billed the tenant direct and no
payments have been made to the landlord for gas supply under this covenant. In other
places, ‘the Services’ means the easements in respect of the pipes or other
conduits by which the water, electricity, gas and heat reach the demised
premises. This is the meaning in the parcels of the demise and in an exception
and reservation in favour of the lessor of
the right for
the Lessor at any time or times from time to time during the said term after
reasonable notice in writing to the Lessee to vary alter or substitute all or
any of the services or the access roads in such manner as the Lessor may
reasonably require in connection with the development of the Lessor’s Estate
subject to
certain provisos for the protection of the tenant.
In this case
we are concerned with the meaning of the Services as easements and in
particular with the words ‘a right to receive a supply of gas’. These are very
general words. How much gas, at which pressures and by which route or
routes? In construing the grant, it is
important to have regard to all the surrounding context, including what the
parties contemplated that the tenant would be doing, Thus, apart from context,
one possible meaning of ‘a right to receive a supply of gas’ might have been
‘whatever gas could be obtained through the gas main existing at the date of
the grant’. But the context, both of other provisions of the lease and
surrounding circumstances, rules out such a narrow construction. If one looks
at the lease itself, the grant of a right-of-way is confined to a specified
road shown on the plan and the right to dispose of water and soil is confined
to the sewers and drains passing under the rest of the estate. The right to
receive the Services does not specify any particular routes. If one considers
the surrounding circumstances, the parties clearly thought that the language of
the lease would allow the plaintiff to do what was then in contemplation,
namely to install and receive gas through the second gas main.
Neither party
therefore contends that the plaintiff would have been confined to the route and
supply existing at the date of the grant. The plaintiff says that ‘a right to
receive a supply of gas’ means a right to receive gas in such quantities and at
such pressures as the plaintiff might from time to time reasonably require by
whatever routes might from time to time be reasonably needed to convey the
supply. It was by virtue of the grant having this meaning that the plaintiff
was entitled to install the second gas main. Now, in the light of its new
requirements, it is entitled to install the new one.
Mr Colyer, for
the defendant, accepts that the plaintiff was entitled to install the second
gas main but says that this choice exhaustively defined the extent of its
easement. He drew an analogy with the grant of a right-of-way over an undefined
route, either expressly or by implication as a way of necessity. The
authorities show that the grantor is entitled to select a single route which
cannot afterwards be changed: see Deacon v The South-Eastern Railway
Co (1889) 61 LT 377 and Bolton v Bolton (1879) 11 ChD 968. It
would, he submitted, be unreasonable that the plaintiff should be entitled to
lay any number of pipelines to satisfy its needs. One cannot build over gas
mains and their existence might interfere with the defendant’s use of the rest
of its estate. Furthermore, it would be unreasonable to increase the burden
imposed by the lessor’s covenant in clause 8(b) to supply and maintain the
Services.
In my judgment
the plaintiff’s construction is correct. First, this was a lease of very large
premises for a long term with a user clause which would have permitted a wide
variety of activities by the tenant or its subtenants or assignees. The
introduction of new technology or changes in the nature of the business might
result in additional gas requirements. The defendant’s construction would confine
the use of the premises to such activities as needed no more gas than could be
supplied through the first and second gas mains.
Second, there
is the contrast in the lease between the rights of way, sewage and drainage
which are limited to specified routes or channels and the generalised right to
receive the Services. It is true that there is also contrast with the
specificity of the rights reserved to the lessor, which include a right to lay
new pipes across the demised premises. But the reservations in a lease are
always construed strictly against the lessor and the grant in favour of the
lessee.
Third, the
route by which a customer will receive his gas is very much in the hands of the
supplier. If British Gas says that it can offer supply only from Bridle Road,
the plaintiff has no option but to take its supply from there. I asked Mr
Colyer what would have happened if British Gas had said that it would no longer
supply gas from Dunnings Bridge Road and that in future all supplies must be
taken from Bridle Road. Mr Colyer said that in such a case the analogy of
obstruction of a right-of-way would apply. The plaintiff would have the right
to deviate from the selected route. But this analogy seems to me remote and I
think that an easier solution is that in using the very general words ‘a right
to receive a supply of gas’ the parties intended that if it was no longer
possible or convenient to receive the necessary supplies by one route, there
should be a right to receive them by another.
Fourth, I do
not find the analogy of an undefined right-of-way compelling. Apart from the
physical differences between a right-of-way and the pipe easement here in
issue, this was not a case of nomination of a single route. At the time of the
grant there was one route already in existence, but the parties nevertheless
contemplated that the plaintiff would be entitled to select another. If there
was a right to a second route, why not a third?
Mr Colyer’s submission that there would be no limit to the plaintiff’s
pipelines is, I think, adequately answered by an implication that the gas
supply must be reasonably required by the tenant and the chosen route or routes
must be those reasonably needed to convey the supply. Such an implication to
qualify very general words is commonly made.
Fifth, the
defendant does not suggest that the plaintiff does not reasonably require the
additional gas or that the chosen route, which runs along the estate boundary
and then beneath a service road, is inconvenient. Mr McArdle says only in very
general terms that nothing could be built within a certain distance of the pipe
and that ‘this would significantly interfere with the redevelopment of the
site’. But the possibility of such redevelopment was presumably the reason why
the lessor reserved a right to ‘vary alter or substitute all or any of the
services or the access roads.’ The
laying of the new gas main cannot therefore prejudice redevelopment any more
than did the laying of the second gas main.
Sixth, I do
not think that the construction of the new gas main will increase the burden
imposed by the covenant in clause 8(b) to supply and maintain the services.
That covenant, read with the tenant’s covenant to pay for the gas consumed,
requires no more than that the lessor should enter into whatever contractual
arrangements are necessary to procure a gas supply from British Gas. In
practice, as I have said, British Gas bills the plaintiff and, therefore,
however much gas it uses, the defendant is not required by the covenant to do
anything at all. Mr Colyer submitted that if the tenant were right in saying
that the ‘Services’ included a right to whatever gas the tenant from time to
time required, it would be able to require the lessor under clause 8(b) to
construct the new gas main at its own expense. This was plainly never
contemplated by the parties: the plaintiff paid for the construction of the
second gas main. In my judgment, clause 8(b) does not have this effect: it uses
the term ‘Services’ in the sense of the actual supply of gas and not the easements
through which it is supplied. The easements granted by the demise are subject
to the ordinary rule that any improvements must be made at the expense of the
dominant owner. Consistently with this construction, clause 2(4)(a) places upon
the tenant the liability to repair ‘all pipes . . . solely serving the demised
premises’.
Both parties
relied upon a deed of variation and supplemental underlease executed on
February 12 1979, but in my judgment its provisions do not help either of them.
It recited that the lessor had agreed to grant a lease of some additional
parking space and that:
since certain
queries and disputes have arisen as to the interpretation of certain clauses
contained in the Lease the Lessor and Lessee have agreed to enter into this
Deed for the avoidance of doubt in manner hereinafter appearing
It then
demised to the plaintiff the additional parking space and, rather curiously,
the first gas main subject to certain rights reserved to the lessor. The tenant
in return covenanted to do works on the first gas main and to stop it off at a
certain point. The lessor also granted to the tenant (‘so far as the Lessor has
the right so to do which is not hereby admitted’) the right to use the second
gas main and
the right to
connect maintain clean empty repair and to replace renew relay the second gas
main the Lessee taking all reasonable steps possible to cause the minimum
amount of destruction or disturbance to the business of the Lessor and other
occupiers of the said (estate).
Mr Colyer says
that the deed of variation, by its demise of the first gas main and grant of a
specific easement in respect of the second, exhaustively defined the ‘right to
receive a supply of gas’ granted by the lease and must be taken to be in
substitution for the general words of that grant. If that was a ‘query or
dispute’ which the deed of variation was intended to resolve, it seems to me
singularly to have failed to do so. Nor do I think it was. Clause 5 of the
lease commences with the words ‘for the avoidance of doubt it is hereby agreed
and declared as follows’ followed by six subclauses, but the provisions about
the gas mains are in clauses 1, 2 and 4. In my judgment, the deed addressed in
some detail the question of the tenant’s rights and obligations in relation to
the two existing gas mains but said nothing about whether or not the tenant
would have a right to construct a new gas main under the general words of the
lease.
Mr Neuberger,
on the other hand, says that the right to ‘relay’ the second gas main gives the
plaintiff the right to construct the new gas main, at any rate if it is willing
to abandon the second gas main. In my
route and in its context I do not think that the word ‘relay’ would entitle the
dominant owner to substitute an altogether different route.
One is
therefore taken back to the construction of the general words ‘a right to
receive a supply of gas’ in the lease itself and on those words the plaintiff
is, in my judgment, entitled to succeed.
