Landlord and tenant — Breach of repairing covenant — Failure to yield up in repair — Landlord incurring costs of repair — Subtenants granted new tenancies under Part II of the Landlord and Tenant Act 1954 — Rents determined on assumption that premises in repair — Whether landlord entitled to recover damages for breach of repairing covenant — Whether Family Management v Gray distinguishable — Held, subject to proof at trial of damage to reversion by reason of non-correspondence between covenants of headlease and sublease — Landlord’s claim for damages extinguished by section 18 of the Landlord and Tenant Act 1927
plaintiffs are the owners of 36 St James’s Street, London SW1, a building
consisting of a basement, ground and six upper floors — The defendant, Town
Investments Ltd, acquired the term of the headlease of the whole premises, this
lease expiring on April 5 1985 — The whole of the property above the first
floor (together with a half-room on the first floor and certain common parts)
was demised by an underlease dated April 27 1961 for a term expiring on April 1
1985 (‘the first underlease’) — The term of the first underlease was severed
and National Westminster Bank plc (‘the third party’) took by assignment the
severed term in respect of the second floor and half the rooms on the first
floor — The remaining part of the severed term in respect of the third to sixth
floors (and some of the common parts to the lower floors) was assigned to Maris
Oil Studies Ltd on April 6 1984 — By a subunderlease dated January 4 1985 Maris
Oil subunderlet the third floor to Market Rule Ltd for a term expiring on March
25 1985 — By an underlease (‘the second underlease’) dated January 23 1976 the
defendant sublet the basement, ground and part of the first floor to the third
party for a term expiring on April 1 1985
notice served under section 26 of the Landlord and Tenant Act 1954 the
plaintiffs granted the third party a term of the premises, previously occupied
by the third party under the first and second underleases, of 25 years from
April 1985 at a rent fixed by agreement having regard to the provisions of
section 34 of the Act — Following a notice under section 25 of the 1954 Act,
the plaintiffs granted Market Rule Ltd a new tenancy of the third floor of the
premises for a term of 15 years from April 5 1985 at a rent fixed by
negotiation
held by the defendant contained a covenant to repair both the exterior and the
interior of the premises — The first underlease contained a covenant to repair
the the interior only — The second underlease contained a covenant to repair
both the exterior and interior — The subunderlease held by Market Rule Ltd
contained a covenant to repair the interior of the premises only though there
was a liability to pay a service charge in respect of the landlords’ repairs to
the exterior
plaintiffs carried out repairs to the premises following the expiration of the
headlease for a sum assumed for the purposes of the determination of a
preliminary question to be £250,000 — The preliminary issue for the
determination of the court was whether the defendant had a defence to the claim
for dilapidations by reason of the fact that it left in possession subtenants
with rights to new tenancies under the 1954 Act,
on the facts — The plaintiffs contended that that case could be distinguished
on the grounds that the landlords had, here, paid for the repairs, the
repairing covenants in the new tenancies did not enable the landlord to obtain
damages equal to the cost of repairs, there was a lack of correspondence
between the repairing covenants in the old headlease and those in the old
underleases and part of the premises were unoccupied at the expiry of the
headlease
show diminution in the value of the reversion (a) based upon the
non-correspondence of the repairs obligations in the old headlease and
underleases and (b) by reason of the existence of any disrepair in the
unoccupied portions of the premises (‘the non-correspondence claims’) — The
plaintiffs’ landlords cannot bring any evidence to show that their common law
damages are not extinguished by section 18 of the 1927 Act over and above the
non-correspondence claims — In respect of the third-floor premises of which
Market Rule Ltd were granted a new tenancy, the burden of proof is upon the
plaintiffs to assert that the new rent was not referable to the terms of the
Act and they had not proved that fact
The following
cases are referred to in this report.
Cunliffe v Goodman [1950] 2 KB 237; [1950] 1 All ER 720, CA
Family
Management v Gray [1980] EGD 77; (1979) 253
EG 369, [1980] 1 EGLR 46
Fawke v Viscount Chelsea [1980] QB 441; [1979] 3 WLR 508; [1979] 3
All ER 568; (1979) 38 P&CR 504; [1979] EGD 146; 250 EG 855, [1979] 1 EGLR
89, CA
Hanson v Newman [1934] Ch 298
Jones v Herxheimer [1950] 2 KB 106; [1950] 1 All ER 323, CA
Joyner v Weeks [1891] 2 QB 31
Keats v Graham [1960] 1 WLR 30; [1959] 3 All ER 919, CA
Salisbury
(Marquess of) v Gilmore [1942] 2 KB 38
Smiley v Townshend [1950] 2 KB 311; [1950] 1 All ER 530; [1950] EGD
139; (1950) 155 EG 110, CA
This was an
application to seek determination of certain preliminary questions in
proceedings by the plaintiffs, the Crown Estate Commissioners, seeking damages
against the defendant, Town Investments Ltd, the tenant of 36 St James’s
Street, London SW1, under a lease which expired on April 5 1985. National
Westminster Bank plc, who had occupied part of the premises under two
underleases, were made first third party by the defendant.
Anthony
Connerty (instructed by Radcliffes & Co) appeared for the plaintiffs; Edwin
Johnson (instructed by Clifford Chance) represented the defendant; and James
Barker (instructed by Edwin Coe) represented the first third party.
Giving
judgment, Mr Recorder BARRY GREEN QC said: The plaintiffs are landlords
of premises at 36 St James’s Street, London SW1. The defendant was tenant of
the premises under a lease which expired on April 5 1985. At that date the
major part of the premises (basement, ground, first and second floors) was
occupied by National Westminster Bank plc (‘the bank’), the third floor by
Market Rule Ltd and the remainder (fourth, fifth and sixth floors) was empty.
The bank and Market Rule were respectively underlessees and subunderlessees but
can be described loosely as subtenants for the purposes of this judgment. At
the expiry of the defendant’s lease the premises were in disrepair.
Subsequently the plaintiffs carried out those repairs for a sum of the order of
£250,000. This preliminary issue proceeds upon the assumption, though
not the admission, that that sum was so expended. The sum remains to be agreed
by the parties or determined if necessary at a later hearing. This case is a
preliminary issue to determine upon agreed facts whether the defendant has a
defence to the claim for dilapidations by reason of the fact that it left in
possession subtenants with rights to new tenancies under Part II of the
Landlord and Tenant Act 1954. The bank seek to establish a similar defence
against the defendant in the third party proceedings. Some time before the
expiry of the defendant’s headlease the requisite notices had been served under
the 1954 Act so that new leases would be granted without opposition by the
court. In fact, those leases were granted by negotiation without recourse to
the court on terms referable to the provisions of the Act.
In summary the
dispute is this. In Family Management v Gray (1979) 253 EG 369,
[1980] 1 EGLR 46 it was decided in broadly similar circumstances that a
landlord had suffered no damage to his reversion because of the operation of
section 18 of the Landlord and Tenant Act 1927. The dispute is as to whether
that case is distinguishable here on the facts.
Conveyancing
history
I said above
that the bank and Market Rule can be regarded loosely for the purposes of this
judgment as subtenants. But the precise facts, though nothing turns upon the
detail, are complicated as follows. On September 29 1905 the Crown Estate
Commissioners let the whole premises for a term, expiring on April 5 1985 to
tenants who subsequently assigned their interest to Town Investments Ltd, the
defendant. By an underlease dated April 27 1961 (‘the first underlease’) the
defendant sublet to Spark Holdings Ltd the whole of the property above the
first floor together with a half-room on the first floor and the common parts on
the ground floor and basement for a term expiring on April 1 1985. By an
assignment dated June 25 1973 Spark Holdings assigned the whole of its interest
under the first underlease to a Mr Lawson and a Mr Graham as joint tenants. Mr
Lawson died on February 28 1974 and I believe that his interest passed to Mr
Graham by survivorship. By an assignment dated June 26 1974 Mr Graham assigned
his interest in the second floor and half-room in the first floor to the bank.
The bank’s immediate landlord in respect of this part of the premises was
accordingly the defendant and the bank’s interest was due to expire on April 1
1985. There was a four-day fag end between the term date of the bank’s interest
and the expiry of the headlease on April 5 1985. Mr Graham retained his
interest in the remainder of that part of the premises which had been the
subject of the first underlease until April 6 1984. On that date he assigned
his interest in that remaining part (the third, fourth, fifth and sixth floors
and the common parts of the lower floors) to Maris Oil Studies Ltd.
By a
subunderlease dated January 4 1985 Maris Oil subunderlet the third floor to
Market Rule for a term expiring on March 25 1985. Market Rule’s immediate
landlord was accordingly Maris Oil. There was a seven-day fag end between the
term date of Market Rule’s interest under the subunderlease and the expiry of
Maris Oil’s interest under the first underlease on April 1 1985. On the expiry
of the first underlease there was then the defendant’s four-day reversion until
the headlease fell in on April 5 1985.
The only part
of the premises originally let to the defendant under the headlease which did
not form part of the first underlease was the basement, ground and first floors
excluding the half-room. By an underlease dated January 23 1976 (‘the second
underlease’) the defendant sublet this part of the premises to the bank. The
expiry date of the second underlease was April 1 1985 and the legal position
was as described above in relation to the bank’s interest in the first
underlease.
The new
leases
Although the
details in relation to the new leases are set out in the agreed statement of
facts it is convenient that I repeat them in this judgment as follows:
1. The
bank
A notice under
section 26 of the 1954 Act dated May 21 1984 was served by the bank on the
plaintiffs on May 24 1984 and an originating summons requesting the grant of a
new tenancy issued on September 14 1984. The bank (the first third party) were
subsequently granted by the plaintiffs a lease of the basement, ground, first
and second floors. These were the same premises as the bank had previously
occupied under the underlease dated April 27 1961 and the underlease dated
January 23 1976. That lease is dated April 3 1989 and is for a term of 25 years
from April 5 1985. The rent was fixed by agreement between the parties and with
reference to the provisions of section 34 of the Act.
2. Market
Rule Ltd
A notice under
section 25 of the Act dated August 23 1984 was served by the plaintiffs on
Market Rule on August 24 1984. A counternotice was served by Market Rule by a
letter dated September 10 1984 stating that they were unwilling to give up
possession, and on December 19 1984 an originating application requesting the
grant of a new tenancy was filed. Market Rule was subsequently granted by the
plaintiffs a lease of the third floor of the premises. That lease is dated
March 1 1990 and is for a term of 15 years from April 5 1985.
It is to be
observed that in the case of Market Rule the agreed facts contain no statement
corresponding to that relating to the bank as to the basis upon which the rent
was fixed by negotiation. That is to say
the Act. That omission does not alter my decision below but somewhat
complicates my reasoning. I can foreshadow this in summary as follows. As at
the date of expiry the authorities show that the parties were entitled to
expect (on the facts in this case) that both the bank’s new lease and Market
Rule’s new lease would contain rents fixed either by the court or by
negotiation in a sum referable to the provisions of the Act.
The
repairs covenants
It is
unnecessary to do more than to describe in general terms the relevant
covenants, which are as follows:
1. The 1905
headlease contained a covenant to repair both the exterior and interior of the
premises.
2. The Spark
Holdings lease (later acquired by the bank) contained a covenant to repair the
interior only.
3. The bank’s
direct underlease contained a covenant to repair both the exterior and the
interior.
4. Market
Rule’s subunderlease contained a covenant to repair the interior of the
premises only, though there was a liability to pay, via a service charge, some
small part of the landlords’ costs, inter alia, of repairing the
exterior. For the purposes of this judgment this small charge can, I think, be
ignored.
5. There were
also covenants to paint and similar obligations, which I shall not describe in
detail because they do not affect the principles with which this judgment is
concerned.
Thus, in
summary, the headlease contained covenants which required the defendant to
repair the exterior and interior, but the obligations of the bank and Market
Rule, under their interests which expired on or shortly before April 5 1985,
did not entirely correspond with those obligations in that between them they
were not required to repair the whole of the exterior. It is this lack of
correspondence upon which the plaintiffs rely, inter alia, as described
below.
The law
In Family
Management v Gray the facts were these. The plaintiffs had acquired
the reversions in respect of two properties on two leases granted in January
1887 for terms ending in December 1974. The residue of the terms under the
leases was vested in Mr Gray. The premises consisted of shops with living
accommodation above, the shops being the subject of subleases to a dry cleaner
and a grocer respectively. Those subleases expired in December 1974. There were
full repairing covenants in both the headleases and subleases. When the leases
expired the shops were in disrepair. Six months before expiry the landlord
served notices under the 1954 Act upon the subtenants indicating that he would
not oppose the grant of new leases. Subsequently the new leases were granted following
negotiations. The landlord brought proceedings against Mr Gray for
dilapidations. The common law measure of damages was £6,000 (ie the cost of
repairs). The trial judge found that if the premises had not been in disrepair
the rents of the new leases would have been higher and so there was damage to
the reversion consisting of a multiplier of the lost rents. The Court of Appeal
reversed the decision. It held that the Act required the new rents to be
granted upon the assumption that the premises were in repair, for otherwise the
subtenants would obtain an advantage from their own wrong. Accordingly, the
landlord had suffered no loss of rent and so no damage to his reversion. The
common law damages were therefore irrecoverable because of the limit set by section
18.
In the case
before me the plaintiffs accept that the principles found in the Family
Management case apply to the facts of this case but seek to distinguish it
upon four grounds:
1. The
plaintiffs here have actually paid for the repairs.
2. The repairing
obligations in the old underleases do not correspond (as they seem to have done
in Family Management) with those in the headlease.
3. The
plaintiffs contend that they will be unable to sue the bank and Market Rule
under their new leases for the cost of these repairs as could have been done in
Family Management.
4. In Family
Management no question arose as to the residential portion of the premises.
But here it is common ground that on the assumption that the unoccupied part of
the premises was in disrepair the defendant has no defence to that part of the
claim.
The
defendant’s case is that the payment by the plaintiffs for the repairs is
irrelevant to the operation of section 18. If, which it denies, the plaintiffs
have suffered any injustice, their remedy may be to bring an action for unjust
enrichment. But that has not been pleaded or argued and is not before me. In
any event, I am concerned with the law and not the merits, whatever they might
be.
Before
considering Family Management in more detail I observe that certain
propositions of law are clearly established on the authorities as to the
operation of section 18 as follows.
1. At common
law the measure of damages for breach of covenants to repair at the end of a
lease was established to be the cost of complying with the covenants together
with any consequential loss of rent: Joyner v Weeks [1891] 2 QB
31. In this case no loss of rent is claimed. It is common ground that subject
to liability the plaintiffs are entitled to include in that cost their
professional fees and VAT.
2. Section 18
imposes a limit on the common law measure but does not alter the method of its
assessment: Hanson v Newman [1934] Ch 298.
3. The common
law measure of damages is generally prima facie evidence of the damage
to the reversion, but it is not conclusive evidence thereof: Jones v Herxheimer
[1950] 2 KB 106 and Smiley v Townshend [1950] 2 KB 311. It will
frequently be the case that unless there are special circumstances the court
can coalesce the two stages of ascertaining the common law measure and
considering whether that is capped by section 18 in one single process. Whether
it can do so must be a question of fact in each case.
4. Events
subsequent to the expiry of the lease are in general irrelevant to the inquiry
under section 18 and are indeed of doubtful admissibility: Marquess of
Salisbury v Gilmore [1942] 2 KB 38, Smiley v Townshend
[1950] 2 KB 311 and Keats v Graham [1959] 3 All ER 919.
Family
Management v Gray
It seems to me
that this case is authority for four propositions, namely that in valuing a
reversion which is not in possession but is subject to continuation tenancies
under the 1954 Act:
1. The court
must take that fact into account as a reality and not treat the reversion as if
it were in possession.
2. The court
must take into account all relevant matters relating to these continuation
tenancies which may affect the value of the reversion.
3. The court
has limited power to admit evidence of matters which arise after the expiry
date of the contractual head tenancy.
4. The court
must assume that the rent will be fixed under the 1954 Act on the basis that
the premises are in repair, for otherwise the tenant would be taking advantage
of his own wrong. The same principle would apply if the landlord’s contractual
tenancy imposed the repairs burden upon him alone. He could expect a rent under
the Act upon an unrepaired basis only, for otherwise it would be he who
would gain an advantage from his own wrong: see on this point Fawke v Viscount
Chelsea [1980] QB 441*.
*Editor’s
note: Also reported at (1979) 250 EG 855, [1979] 1 EGLR 89.
The
plaintiffs’ case under Family Management v Gray
As I said
above, the plaintiffs’ counsel accepts that the principles decided by this
authority apply here but says that it is distinguishable on four grounds.
1. The
landlords have paid for the repairs.
2. The repairs
covenants in the new leases do not enable the landlords to obtain damages equal
to the cost of these repairs because of the particular machinery of the
service-charge clauses.
3. There is a
lack of correspondence between the repairs covenants in the defendant’s old
headlease and those in the old underleases. Accordingly, it is open to the
plaintiffs to call evidence at full trial (if such can be obtained) that the
reversion has been damaged on that account. This argument was drawn to my attention,
with the greatest propriety, by Mr Johnson, the defendant’s counsel.
4. It is
common ground that part of the premises was unoccupied at the expiry of the
lease and if it was in disrepair the Family Management defence cannot
relate to that portion of the premises.
I find
straight away that the third submission is correct and, as I said, the fourth
submission is common ground. So the landlords are at liberty at full trial to
seek to prove damage to their reversion based upon the non-correspondence of
repairing obligations and based upon damage, if any, to the unoccupied part of
the reversion. I suspect that the sums involved are comparatively small.
1. The
plaintiffs’ distinction based upon payment for the repairs.
There is a
major flaw in the landlords’ submission as follows. For the court to admit
evidence of the payment for repairs after expiry of
valued as at that expiry date. The payment for repairs does not come within
Shaw LJ’s description in Family Management v Gray of the
exceptions to that rule. He said at p 372: ‘So events which follow upon the
determination of the lease but which are independent of any fact or
consideration which was either operative or potential at the date when the
lease expired cannot affect the determination of the loss to the value of the
reversion.’ In Smiley v Townshend
Denning LJ said these words to similar effect at p 321 (though under the second
limb of section 18(1)): ‘. . . the subsequent event, when it happens, is not in
itself sufficient to extinguish the damages. It is only evidence, in
retrospect, of the future as it appeared at the end of the lease’. The payment
for the repairs was a future event. It took place after expiry of the lease and
there is nothing in the agreed statement of facts to indicate that it was
either ‘operative or potential’ at the expiry of the lease. An example of a
future event which might be admissible would be this. Suppose that in Family
Management there had been firm evidence that one of the shop tenants was in
financial difficulty as at the date of expiry and might well not be able to
take up a new lease. If by the date of trial that potentiality had become an
actuality and he had not taken up the new lease then that subsequent event
would be admissible as corroboration of the evidence of what had previously
been only a potentiality.
To vary the
example: suppose that there was no such evidence of financial trouble as at the
date of expiry of the lease but that by the date of trial the tenant had become
insolvent. It seems to me that evidence of the insolvency would be inadmissible
because it was not ‘operative or potential’ at the expiry of the lease upon
the evidence as at that date. The fact that the seeds of the insolvency
very probably existed as at the date of expiry is irrelevant unless there was
evidence that as at that date those seeds then existed.
The
plaintiffs’ counsel here puts a further example in support of this submission.
He points out that under section 36(2) of the 1954 Act the tenant has the
right, if he does not like the rent or other terms granted by the court, to
back out of accepting a new tenancy. The plaintiffs say that if the subtenants had
operated section 36(2) I could have received evidence of that fact. So, by the
same token, I can receive evidence of the payment for repairs. The fallacy in
the argument is this. If there had been evidence in Family Management
that a shop tenant at the date of expiry of the lease was in two minds whether
to take a new lease and in the event decided not to do so pursuant to section
36(2) then that decision would be admissible because it was a potentiality on
the evidence as at the date of expiry. But both in Family Management
and in the instant case there is no evidence other than that the subtenants
showed every indication of desiring to take a new lease. For in both cases the
machinery under the Act was in train and there was no suggestion that it would
not arrive at its destination, namely the grant of new tenancies.
2. The
plaintiffs’ distinction based on the machinery of the service charges.
The landlords
contend that in Family Management the repairing obligations in the new
leases could be expected to correspond with those in the old subleases, so that
if the premises were left in disrepair the landlord could sue the old
subtenants under their new leases. But they argue that in the instant new
leases the machinery of the service-charge clauses prevents the landlords from
recovering their dilapidations claim. I should emphasise that this is a
different submission from that upon which I ruled in favour of the landlords
above. There was there a lack of correspondence between the repairing
obligations of the old headleases and the old subleases. The
submission here, however, contrasts the covenants in the old subleases
with those in the new direct leases.
It is
unnecessary for me to set out in detail the alleged deficiencies in the
service-charge machinery. Assuming that these defects exist and assuming that
the landlords cannot recover their claim for disrepair under the covenants of
the new leases, their submissions are still flawed for the following reasons.
The defendant submits that, in valuing the reversion at the expiry of the
lease, the court does not need to look at the terms of the lease other than the
rent. Rent equals value, they say. I do not consider that that is entirely
correct. For a valuer would take into account the rent, the length of the lease,
the terms and frequency of the rent review clauses if any, the nature of the
repairing covenants, the clauses against alienation and other relevant terms.
For commercially a lease is a ‘package deal’. A lower rent may be compensated
by more onerous repair obligations upon the tenant, and so on and so forth. It
is true that in Family Management the court referred to the fact that
the new leases would contain repair covenants as had the old. But I do not
consider that that consideration was part of the ratio of the judgments. The
ratio was that the landlord was entitled to expect new leases upon the terms of
the 1954 Act, that is to say, new leases which were more or less of the same
commercial value as the old, unless there are unusual considerations to the
contrary. It is true to say that the Act nowhere expressly says so. But it is
quite clearly implied, in an Act which cuts down the landlord’s common law
rights, that it does so to no greater extent than it expressly provides. The
court and practitioners have, in my experience, always approached the machinery
of the Act in that manner.
So the answer
to the landlords’ submission is this. It is an agreed fact that the new rent in
the bank’s lease is referable to the Act. Though that is not also an agreed fact
in the case of Market Rule’s new lease, Family Management is authority
for the proposition that that rent must also have been expected to be fixed on
terms referable to the Act. If the negotiations here have in some way failed to
achieve that situation it was perhaps open to the landlords to seek agreement
of that fact in the statement of facts. They have not done so and I cannot have
regard to it. For reasons which will appear clear below, it would have been
irrelevant and inadmissible even if that fact had been agreed. To put the
matter another way, I consider that the inclusion in the new leases of
defective service-charge machinery is not an event which was ‘operative or
potential’ at the date of expiry of the lease. Suppose that in Family
Management the new leases contained repairing covenants which required the
tenants to repair the interior only whereas under their old lease they had to
repair both interior and exterior. I consider that that fact would have arisen
independently, to adopt Shaw LJ’s phrase, and so would be irrelevant to the
assessment of the diminution. By the same token, if the new leases had been
granted by the court, a landlord could not be heard to say in this court that a
previous court had got the matter wrong.
The burden
of proof
The burden of
proof is said to be of great importance in this case as follows. This
preliminary issue proceeds upon the assumption that the landlords are entitled
to damages at common law in that they have carried out repairs between the date
of expiry of the old leases and the grant of the new. Is it for the defendant
to prove that section 18 operates as a cap to extinguish or reduce common law
damages or is it for the landlords to prove that it does not? For the landlords to succeed they must prove
that they are entitled to common law damages and there must also be a finding
in their favour that section 18 does not operate as a cap to extinguish or
reduce them. So one starts with a presumption that the landlords must prove
both elements necessary to succeed. One then construes section 18(1) to see if
it displaces that presumption either expressly or by necessary implication.
Section 18(1) provides as follows under limb 1:
Provisions
as to covenants to repair
(1) Damages for a breach of a covenant or agreement
to keep or put premises in repair during the currency of a lease, or to leave
or put premises in repair at the termination of a lease, whether such covenant
or agreement is expressed or implied, and whether general or specific, shall in
no case exceed the amount (if any) by which the value of the reversion (whether
immediate or not) in the premises is diminished owing to the breach of such
covenant or agreement as aforesaid;
and then under
the second limb:
and in
particular no damage shall be recovered for a breach of any such covenant or
agreement to leave or put premises in repair at the termination of a lease, if
it is shown that the premises in whatever state of repair they might be, would
at or shortly after the termination of the tenancy have been or be pulled down
or such structural alterations made therein as would render valueless the
repairs covered by the covenant or agreement.
There are a
number of indications in the above subsection, some of which tend one way and
some the other, as to the burden of proof. They are these:
1. The
subsection cuts down a common law right. That is an indication that the party
who asserts that the common law right is cut down assumes the burden of so
proving.
2. Under limb
1 the matters of fact which enable the landlord to succeed are primarily within
his own knowledge and not the tenant’s.
3. There is
clear authority that under limb 2 the burden of proof is upon the tenant: see Marquess
of Salisbury v Gilmore [1942] 2 KB 38;
burden of proof was on the same party in both limbs.
4. Limb 2 is
introduced by the words ‘and in particular’. This suggests that limb 2
situations are a subspecies of those in limb 1 and so indicates that the burden
of proof is the same in both.
5. But in fact
limb 2 situations differ radically from those in limb 1. For limb 2 applies to
demolition or structural alteration so as to render the repairs valueless.
There is no clear authority, I believe, but it appears that limb 2 operates in
an all-or-nothing manner. It can extinguish damages but not reduce them. This
radical distinction (or possibly distinctions) makes more room for a different
burden of proof in the two limbs.
6. Limb 2
contains the phrase ‘if it is shown that’. This plainly suggests that it is the
tenant who must do the showing. The phrase is not mirrored in limb 1 and is
therefore an indication that there may be a difference in the burden of proof.
7. Jones
v Herxheimer shows that in certain circumstances it may be appropriate
for the landlord to coalesce the process of proving common law damages and
establishing that limb 1 does not cap them. That unified operation would hardly
be possible if the burden of proof differed in each of its constituent
elements.
Taking all
these indications one with another and construing the subsection as a whole, I
consider that the burden of proof under limb 1 is upon the landlords. I shall
deal later with the effect of this finding.
The
wording of the preliminary issue
At trial it became
clear that the issue which the parties had previously drafted and put to the
court for agreement at the summons for directions by consent was not wholly
appropriate. For example, there was no reference to the denial of liability in
para 6 of the amended defence. I invited counsel to amend the previous wording.
The plaintiffs’ counsel was unable to accept the version put forward by the
other two counsel and I ruled against his version. In doing so I was mindful of
the possible unfairness of ordering a new version of the issue after the
plaintiffs had already agreed the statement of facts. But I am sure that no
injustice has resulted and indeed the plaintiffs’ counsel did not argue as
much. The revised issue merely restates the intention behind the former version
in clearer language and also drops points which are no longer or never were in
dispute (the points as to insurance, professional fees and VAT).
Answers to
the questions in the preliminary issue
I have already
stated that it is open to the landlords to call evidence at full trial to show
diminution in the value of the reversion (a) based upon non-correspondence of
the old repairs obligations in the headlease and underleases and (b) by reason
of the existence of any disrepair in the unoccupied portions of the premises. I
shall refer to these as the ‘non-correspondence claims’. I have to decide
whether there is any other class of evidence which they can call, for me to
make this decision is not to usurp the function of the trial judge. For it is
part of my task to decide whether the consequence of my findings is the
extinction or diminution of the plaintiffs’ claim (apart from the
non-correspondence claims). The question can be posed as follows. Can the
landlords bring any evidence to show that their common law damages are not
extinguished by section 18 (over and above the non-correspondence claims)? In my view, they cannot do so. Nor has it
been suggested that there is any such evidence which might be relevant. The
only realistic example which anyone could suggest was this. Suppose there was
evidence that at the date of expiry of the lease one of the subtenants was very
much in two minds whether to take up a new lease and might very well decide not
to do so. I have already said that that fact might be relevant to the
valuation of the reversion. But it is not a fact which is contained in the
agreed statement of facts and so cannot be introduced hereafter. The same goes
for any other such facts. It is now open to the landlords to seek a full trial
upon different facts from those contained in their agreed statement of facts in
this preliminary issue. It follows that the defendant has proved affirmatively
upon the agreed facts that section 18 operates to extinguish the claim (with
the exception of the non-correspondence claims).
That being so,
it seems to me that the defendant does not require my finding that the burden
of proof is upon the landlords in order to succeed in this part of the
preliminary issue.
I now deal
separately with the claim which relates to that part of the premises occupied
by Market Rule to show that it does not alter my conclusions above in any way.
I pointed out above that the agreed statement of facts lacked agreement that
the rent in the new Market Rule lease was referable to the terms of the Act.
Nevertheless the plaintiffs’ claim in relation to disrepair of the third floor
which was and is occupied by Market Rule still fails for the following reasons.
First, the burden of proof is upon the plaintiffs. If they wished to assert
that the new rent was not referable to the terms of the Act it was open
to them to seek agreement of that alleged fact. No doubt the defendant would
have refused agreement because it is not part of its case. But, for whatever
reasons, the plaintiffs have not proved that fact and so cannot rely upon it.
In order to satisfy the burden of proof which is upon them. If I am wrong about
that reason for my decision, I wish to put the matter in an alternative way as
follows. The actual terms of the new leases have arisen independently from the
facts as they were at the expiry of the lease as I pointed out in detail above.
On this basis the burden of proof is neither here nor there. Even if the
plaintiffs were able to prove this fact it would not assist them because it is
irrelevant. The defendant on this basis has affirmatively proved its case in
relation to the third floor (the part occupied by Market Rule).
The
third-party proceedings
The bank (the
first third party) succeeds entirely in defeating any claim by the defendant
against it. For in the third party proceedings there are no remaining issues
based upon noncorrespondence between covenants which remain to be quantified at
full trial. The defendant is potentially liable to the plaintiffs on this point
because its old lease gave the landlords wider covenants than were given by the
subtenants. But the bank cannot be similarly liable to the defendant. For ex
hypothesi the bank gave only the narrower covenants. So breach of these
covenants cannot be causative of the defendant’s liability to the plaintiffs.
The Family Management defence absolves the bank altogether from
liability.
The issue
between the plaintiffs and defendant
My answers to
the questions 1(a) to 2(b) inclusive of the preliminary issue are: the
liability of the defendant is extinguished save only that it is open to the
plaintiffs to seek to prove at trial that the reversion has been damaged by
reason of:
(i) the non-correspondence between the covenants
of the contractual headlease and the covenants in the subleases of the first
third party and Market Rule Ltd at the expiry of the headlease; and
(ii) breaches of repairs obligations in those part
of the premises which were not occupied either by the first third party or by
Market Rule Ltd as at April 5 1985.
The issue
between the defendant and the first third party
My answer to
question 1(a) is: the liability of the first third party is extinguished.