Landlord and tenant — Arbitration Act 1979, section 2(1) — Questions of law arising in the course of a reference — Arbitration in regard to the rack rental value for the purpose of a rent-review clause of a property used for some years as a gaming club or casino — Rent-review clause provided that the rack rental value should be the highest rent at which the premises might be let at the material date with vacant possession for the residue of the term on the terms and
conditions of the lease, disregarding certain matters which might otherwise have added to the letting value — The envisaged letting involved a hypothesis, but some of the arguments advanced for the parties ‘touched on the metaphysical’, one of them involving the assumption that complex steps had been taken ‘in a dateless continuum of time immediately before the letting’ — The central issue between the parties was whether the hypothetical letting was on the footing that the lessee was able to use the premises lawfully for the purposes of a casino from the rent-review date, with the implication that the lessee must be assumed to have a certificate of consent from the Gaming Board and a gaming licence from the local magistrates in respect of the premises by that date — Landlord’s submission to this effect rejected — No authority binding the judge to hold that a rent-review clause such as that in the present case required the assumption that the rent was to be ascertained on the basis that the actual permitted user was lawful — Bovis Group Pension Fund Ltd v G C Flooring & Furnishing Ltd distinguished — This did not mean that the arbitration was prevented from taking into account evidence showing the existence in the market of persons who might stand a good chance of obtaining a certificate of consent and a gaming licence if they acquired an interest in the premises — Specific questions in the notice of motion answered
This was an
application made by the plaintiff, Daejan Investments Ltd, with the consent of the
defendants, Cornwall Coast Country Club Ltd, landlord and tenant respectively,
pursuant to section 2(1) of the Arbitration Act 1979. The questions of law had
arisen at the outset of a reference to the arbitrator, Mr J G Powell FRICS,
concerning the rent-review clause in a lease of premises at 30 Curzon Street,
London W1.
Derek Wood QC
and David Neuberger (instructed by Herbert Smith & Co) appeared on behalf
of the plaintiff. John S Colyer QC, J Cherryman QC and Ian Glick (instructed by
Stilgoes) represented the defendant.
Giving
judgment, PETER GIBSON J said: This is an application by the plaintiff, Daejan
Investments Ltd (‘Daejan’), with the consent of the defendant, Cornwall Coast
Country Club Ltd (‘Cornwall’), for the determination, pursuant to section 2(1)
of the Arbitration Act 1979, of certain questions of law that have arisen at
the very outset of a reference to an arbitrator. What has been referred to
arbitration is the ascertainment of the rack-rental value of property known as
30 Curzon Street, London W1 (‘the premises’) under a rent-review clause in a
lease of that property. The property has for some years been used as a casino.
By the lease
dated January 27 1978 and made between Daejan of the first part, Ladbroke
(Rentals) Ltd (‘Rentals’) of the second part, and Ladbroke Group Ltd
(‘Ladbroke’), as guarantor of the performance by its subsidiary, Rentals, of
the obligations under the lease, of the third part, Daejan let the premises to
Rentals for a term of 26 years from December 8 1977 at an annual rent of
£130,000 from December 8 1978 subject to review as provided by clause 6 of the
lease. The first review date was December 8 1983 and there were to be rent
reviews every five years thereafter. In the lease the term ‘the tenant’ is
defined as Rentals and (where the context so admits) its successors in title
and assigns. The tenant’s covenants include, so far as material, in clause 2(2)
an obligation at its own cost and within 12 months to carry out such
alterations and other works as might be necessary to equip the premises for all
or any of the purposes permitted by the user clause in accordance with plans
and specifications to be submitted to and approved by Daejan; in clause 2(13) a
covenant against assigning, underletting or parting with possession of the
property without the written consent of Daejan, save to an associated or
subsidiary company of the tenant or Ladbroke; and in clause 2(18) a covenant in
the following form:
Not without
the previous written consent of the Landlord such consent not to be
unreasonably withheld to use or permit the demised premises to be used (save
where otherwise stated) in whole or in part for other than any of the following
purposes:
(a) as a non-residential gaming club or casino licensed as such
under Part 2 of the Gaming Act 1958 or any amending or substituted legislation;
(b) as a
non-residential club of other description;
(c) as
offices;
(d) as
restaurant;
(e) as
licensed bars;
(f) as staff
rooms;
(g) as
showrooms;
(h) as
residential (but only as to the fourth floor) and
(i) otherwise generally for such ancillary purposes as will be
reasonably consistent with the standing of the property and not serve to
depreciate or prejudice the value and the rental value and dignity thereof of
the amenities of the neighbourhood thereto . . .
I need not read
further from that clause.
There were
also the usual covenants to comply with the planning and public health and
offices legislation.
Clause 6
contains the rent-review provisions. It provides for the review to be initiated
by a notice served by Daejan on the tenant and, if there be a failure to agree
the rack rental value, for a reference to an arbitrator. ‘Rack rental value’
was defined in clause 6(5) as follows:
In this
clause ‘rack rental value’ shall mean the highest rent at which
and I
interpose (as is common ground) two words ‘as at’ there omitted
the
rent-review date the premises might reasonably be expected to be let in the
open market by a willing lessor with vacant possession for the residue of the
term hereby granted and upon the terms and conditions (including provision for
rent review) of this lease, it being assumed that the demised premises have
been put into a state of repair and condition consistent with full performance
of the obligations of the Tenant under this lease but there being disregarded:
(a) any effect on rent of the fact that the Tenant or his
predecessor in title or some associate of the Tenant has been in occupation of
the holding;
(b) any goodwill attached to the holding by reason of the carrying
on thereat of the business of the Tenant or some associate of the Tenant
(whether by him or by a predecessor of his) in that business;
(c) any effect on rent of any improvement carried out by the Tenant;
(d) any addition to the value of the demised premises attributable
to the Gaming or Justices’ Licence which may be held in respect of such
premises if it appears that having regard to the terms of the current tenancy and
any other relevant circumstances the benefit of the Licences belongs to the
Tenant or some associate of the Tenant:
provided that
in this context ‘associate’ means any other company being at the time a
subsidiary of the Guarantor [Ladbroke] as defined by section 154 of the
Companies Act 1948.
Clause 6(6)
provides for a minimum rent from the first review date of £170,000.
By a sublease
dated October 9 1980, Rentals underlet the premises to Ladup Ltd (‘Ladup’),
another subsidiary of Ladbroke, for a term of 26 years less three days from
December 8 1977.
Rentals
complied with its obligation under clause 2(2) of the lease as Daejan
acknowledged by a deed (misnamed a licence) dated January 12 1981. By it,
Daejan acknowledged that Rentals had completed the alterations and works
referred to in clause 2(2) in a manner satisfactory to Daejan. It also declared
that ‘all the Tenant’s covenants and conditions contained in the Lease which
are now applicable to the said premises shall continue to be applicable to the
same and shall extend to all additions made thereto in the course of such
alterations’.
By an
agreement dated October 29 1981 Ladup agreed to sell and assign the premises to
Cardgrange Ltd (‘Cardgrange’), a company in the Lonrho group, for all the
residue of the term granted by the sublease. That agreement was conditional
upon Cardgrange or its nominee being granted a gaming licence to operate a
casino at the premises. Such a licence was granted to Cardgrange’s nominee,
Crockfords Club Ltd (‘Crockfords’), another company in the Lonrho group, on
June 29 1982. On November 3 1982 Ladup completed the assignment. Cardgrange
went into possession and has remained in possession of the premises, Crockfords
operating the casino at the premises under its gaming licence. Since about
February 1983 a justices’ liquor licence has been held continuously in respect
of the premises.
By a transfer
dated August 26 1983, Rentals transferred the premises to Cornwall for the
residue of the term of the lease. Accordingly Cornwall is now the tenant for
the purpose of the lease.
Daejan set in
motion the procedures for the rent review as at December 8 1983, but as it
could not agree with Cornwall on the rack rental value the reference to an
arbitrator was made. The arbitrator is Mr J G Powell FRICS. The parties are
agreed that it is desirable that certain questions of law should be determined
by the court to guide the arbitrator: hence the application now before me which
has been transferred to this division by the Commercial Court.
It is convenient
at this stage to say a little about the holding of
now amended by the Gaming (Amendment) Act 1982. To operate a casino it is
necessary for an individual resident in the United Kingdom or a company
incorporated in the United Kingdom to obtain a certificate of consent from the
Gaming Board, which has a discretion whether to grant such certificate. The
Gaming Board is required in exercising that discretion to have regard to
certain specified matters relating to the ability of the applicant to conduct
the casino in a proper manner.
The
certificate of consent, if granted, evidences the Gaming Board’s consent to the
applicant’s applying for the grant of a gaming licence in respect of specified
premises; and it is common ground that when an applicant is not the freehold or
leasehold owner of the premises it must be shown that he will be able to occupy
the premises for gaming purposes. In effect, that means that the co-operation of
the person able to allow such occupation must be obtained in advance. I am told
that prior to the lease, Rentals itself entered into an agreement for the lease
conditional on obtaining a gaming licence, just as Cardgrange by the agreement
of October 29 1981 purchased its leasehold interest conditionally on obtaining
a gaming licence. That, no doubt, is what is commonly done in such
circumstances. It is impossible for more than one person at the same time, and
in relation to precisely the same property, to hold a certificate of consent
and a gaming licence. Accordingly, in effect, the lessor or other person able
to allow the applicant into occupation commits himself well in advance of the
actual unconditional letting or licence to a particular applicant. The
applicant to the Gaming Board in respect of premises available to be used as a
casino on December 8 1983, if to be used as a casino on and from that date,
would in the real world have to apply to the Gaming Board before the end of
October 1982, and the applicant would then have to apply to the Gaming
Licensing Committee of the local magistrates’ court in the area in which the
premises were situated. That committee sits to consider such applications in
January, April, July and October each year (though at the date of the lease,
the justices sat at times which made the applicant have to apply in January or
February of a year, and the case would be heard in May). Thus, at the time of
the lease it would be envisaged that a successful applicant would have held a
gaming licence from about May 1983 if he were to obtain the premises on
December 8 1983 and occupy the same immediately as a casino. A gaming licence,
being limited in time, may be renewed on application, though such application
enables the justices to review the position and to refuse the renewal on
specified grounds. The justices have the power to cancel a licence. The Gaming
Board has the power to revoke its certificate of consent. The holder of a
licence may also transfer the licence with the consent of the Gaming Board and
if the justices agree. The conditions governing such transfer are specified in
paras 55 to 61 of Schedule 2 to the Gaming Act 1968.
Before I turn
to the specific questions raised in the notice of motion, I shall follow the
example set by both Mr Wood (appearing for Daejan) and Mr Colyer (appearing for
Cornwall) in considering generally the basis of the rent-review provided for in
clause 6(5). The parties agreed that the rent payable from December 8 1983
should be whichever was the greater of £170,000 and a rent ascertained on a
hypothetical basis. The hypothesis involved is of a letting of the premises in
the open market by a willing lessor, the rent to be the highest rent at which
at that date such premises might be let with vacant possession and in good
repair. The term of the letting is the residue of the term of the lease, and
the terms and conditions of the letting are the terms and conditions of the
lease, including the provisions for rent reviews and user. Four specific matters
which might otherwise have added to the letting value are to be disregarded, so
that in effect the landlord cannot have the benefit of any increase in that
letting value attributable to the tenant or an associate (to which the tenant
was free to assign or sublet the premises). It is also common ground that the
landlord cannot have the benefit of any increase in the letting value
attributable to tenant’s fixtures and fittings. These, then, are the only
matters specified in the lease to guide the ascertainment of the rack rental
value.
The envisaged
letting involves a hypothesis, and in the light of some of the arguments
advanced I am reminded of the language of Danckwerts J in Re Holt (dec’d)
[1953] 1 WLR 1488 (a case concerned with a share valuation for estate duty
purposes) at p 1492, where he said that he had to ‘enter into a dim world
peopled by the indeterminate spirits of fictitious or unborn sales’. Marrying
the hypothesis to the real world (in which the hypothesis must of course be
set) may involve difficulties, depending on the subject-matter. But the concept
of such a hypothetical transaction is one that is now familiar in a number of
contexts apart from rent reviews — for example, estate duty, capital gains tax
and compulsory purchase — and there is a good deal of helpful guidance to be
obtained from the authorities. It is clear that the matter must be treated as a
valuation exercise in which one postulates a hypothetical lessor and a
hypothetical lessee who in neither case has the attributes of the actual lessor
or the actual lessee. The lessor is to be treated as being in a position to
grant a lease of the relevant term and to be a willing lessor, that is to say
that he is prepared to let the premises for whatever is the highest rent that
he can obtain without a premium. He cannot refuse to let the premises or defer
the letting of the premises on the ground of some supposed under-value,
provided that the rent is the highest rent reasonably obtainable in the open
market. Because the letting is with vacant possession, any existing tenancy or
right to occupation must be assumed to have ended before the hypothetical
letting. Although nothing is expressly stated in clause 6(5) about the
hypothetical lessee, he must, I think, be taken to be a willing lessee; and he,
too, cannot refuse to take the letting because he might think that the rent is
too high.
The open
market is one that includes all possible lessees each of whom has had an equal
opportunity of bidding to become the lessee on the letting. It must also be
assumed that the lessor has taken all necessary steps to obtain the best rent
on the open market for the premises in their actual condition, subject to the
expressed assumptions and directions in clause 6(5) and any necessary
consequences thereof. Thus one must assume that adequate publicity has been
given to the prospective letting. However, even if established in evidence that
a particular description of property is, in the real world, actually sold or
let in a particular way, it does not follow therefrom that such a sale or
letting satisfies the hypothesis of an open market sale or letting on a
particular day. In Lynall v Inland Revenue Commissioners [1972]
AC 680 the question was the value for estate duty purposes of a substantial
holding of shares in a private company. Section 7(5) of the Finance Act 1894
provided that the value was the price that would be obtained on a sale in the
open market. The Crown adduced evidence that in the real world such blocks of
shares would be sold on the basis of information supplied in confidence to an
approved purchaser. That evidence was held to be irrelevant. Lord Reid said
this (at p 695):
The Act of
1894 could have provided — but it did not — that the value should be the
highest price that could reasonably have been expected to be realised on a sale
of the property at the time of the death. If that had been the test then the
respondents would succeed, subject to one matter which I need not stop to
consider. But the framers of the Act limited the inquiry to one type of sale —
sale in the open market — and we are not entitled to rewrite the Act. It is
quite easily workable as it stands.
No doubt,
sale in the open market may take many forms. But it appears to me that the idea
behind this provision is the classical theory that the best way to determine
the value in exchange of any property is to let the price be determined by
economic forces — by throwing the sale open to competition when the highest
price will be the highest that anyone offers. That implies that there has been
adequate publicity or advertisement before the sale, and the nature of the
property must determine what is adequate publicity.
So mutatis
mutandis, in my judgment, with a letting.
The matter has
been argued before me on the footing that the highest rent that is likely to be
obtainable is from a lessee wanting to use the premises as a casino. The
central issue between the parties is whether the hypothetical letting is on the
footing that the lessee is able to use the premises lawfully for the purpose of
a casino from the rent review date, with the implication that the lessee must
be assumed to have a certificate of consent and a gaming licence in respect of
the premises by that date. Mr Wood submits that the assumption must be made to
make the rent-review clause workable. He submits that it is wrong to postulate
a speculator as the lessee, not knowing what use he can lawfully make of the
premises. He says that it must be assumed that the lessee will have taken all
the necessary steps to obtain the certificate of consent and a gaming licence
before the rent review date and for that purpose have entered into a
conditional contract with the lessor which became unconditional on the rent
review date. Mr Colyer submits that the hypothesis in clause 6(5) does not
permit of any such assumption. He says that the only contract the hypothesis
permits is a letting on the rent-review date itself, and that an unconditional
one; and that it is not a letting on the open market on that date when the
terms have been conditionally agreed between the lessor and a favoured lessee
long before that date.
In some
respects the arguments between the parties, particularly in the pleadings,
touched on the metaphysical, disputing as they were how to reconcile the
hypothesis with dates in the real world. To my mind, much of such disputation
misses the point. If the hypothesis requires one to assume that the casino user
is lawful, then it is necessary to assume that all preliminary steps, however
complex, enabling such lawful user to be made will have been taken in a
dateless continuum of time immediately before the letting. To this extent I
agree with Mr Wood. But the more uncomfortably Procrustean the task of fitting
the suggested assumption to the real world, the more one is entitled to expect
the assumption to have been made explicit. In the case of a casino user there
are undoubtedly (as Mr Colyer pointed out) difficulties in fitting that
assumption. The long preliminaries to the letting, and the determination at an
early stage of a conditional contract of what person (albeit chosen out of the
rival bidders in the open market) should be the lessee, and what rent should be
paid, are markedly different from any ordinary operation of the open market
hypothesis.
It is obvious
that there is no such assumption expressly contained in clause 6(5). Mr Wood,
however, submits that the assumption is required by the words ‘the highest
rent’ at which the premises might reasonably be expected to be let. He says
that if a lessee would pay the highest rent for a casino user, it must be
inferred that that user is a lawful user for the lessee on taking possession on
the letting. I cannot accept that the words have the significance for which Mr
Wood contends. Even without the word ‘highest’, the rent at which the premises
might reasonably be expected to be let in the open market by a willing lessor
is the highest rent obtainable, just as the price which shares would fetch on a
sale in the open market is, for estate duty purposes, the highest price; and I
have already quoted the words of Lord Reid on that. The word ‘highest’ adds no
more than emphasis.
Mr Wood
accepted in opening that without the reference to the highest rent, the review
valuation might be expected to reflect the full range of possible uses for the
premises. I agree. Of course, the valuation will reflect the fact (if it be
such) that a would-be lessee wanting the premises for a casino user to which he
knows that the lessor does not object would pay more than a lessee wanting the
premises for some other (less profitable) use. But it does not follow that the
parties intended any assumption that the valuation was to be on the basis that
casino user was a lawful user.
There are to
my mind several indications to the contrary. First, it is trite law that the
letting of premises for a particular purpose does not give rise to any
implication, or any warranty on the part of the lessor, that the premises can
lawfully be used for that purpose: see Hill v Harris [1965] 2 QB
601. Indeed, it is common to provide in leases a covenant on the part of the
tenant to the effect that he will obtain planning permission and otherwise
comply with legislation (as the present lease does). I cannot see any
sufficient justification, in the absence of words in the rent-review clause
requiring such assumption, why the hypothetical letting on the terms and
conditions of the lease (including the user clause) should put the hypothetical
lessor and lessee in a position different from an actual lessor and lessee.
Second, there
is a clear indication from clause 6(5)(d) that the parties realised that there
might be no current gaming licence at the time of the rent review. So, too, in
clause 2(2) it was envisaged that the works to be carried out by the tenant might
be for any of the purposes permitted by the user clause. If it be a fact that a
rent for a casino user is higher than the rent for some other user, then, in
view of the somewhat precarious nature of a gaming licence, in my judgment,
viewing the matter objectively, it seems unlikely that the parties would,
without any express words requiring the assumption, have intended that the
tenant be bound to pay a rent based on a user which he may not enjoy, the more
so in a lease with 20 years to run and including three further rent reviews.
The third
indication is in clause 6(5)(d), requiring, as it does, the valuer to ignore
the gaming licence only if the benefit of it belongs to the tenant or some
associate (as defined) of the tenant. Mr Colyer has advanced an argument in
relation to question 4 of the amended notice of motion giving a wider meaning
to those words than their defined terms would allow. For reasons that I shall
explain later, I reject that argument, and I accept what Mr Wood himself
submitted by way of an alternative argument, that the gaming licence which
someone other than the tenant or some associate of the tenant in fact holds is
not to be disregarded in assessing the rent. The parties therefore must be
taken to have envisaged the possibility that there would be an actual gaming
licence holder at the time of the rent review whose licence could be taken into
account. That means that no one else would be assumed to have such a licence at
the same time. It follows that unless it is permissible to treat the actual
gaming licence holder as the hypothetical lessee, it must have been envisaged
that the hypothetical lessee might not be the holder of a gaming licence. In my
judgment it would be wrong to treat the actual licence holder as the hypothetical
lessee. Indeed, I did not understand Mr Wood so to submit. He submitted, in my
view rightly, that the actual licence holder (in this case Crockfords) would be
a special purchaser in the sense of a person who had a special interest over
and above any other bidder to obtain the letting. Any other bidder would have
to outbid the special purchaser. If authority were needed for the proposition
that the hypothetical lessee is not to be treated as having the attributes of
an actual lessee or occupier, it can be found in F R Evans (Leeds) Ltd v
English Electric Co Ltd, an unreported decision dated November 11 1977
of the Court of Appeal,* at p 21 of the judgment of Browne LJ.
*Editor’s
note: This case was reported at first instance (before Donaldson J) at (1977)
245 EG 657, [1978] 1 EGLR 93. The decision of the Court of Appeal, who approved
Donaldson J’s decision, was noted at p 662 but was not reported.
Mr Wood
submitted that there was Court of Appeal authority which requires me to hold
that a rent-review clause such as that in the present case requires the
assumption that the rental value is to be ascertained on the basis that the
permitted user is lawful. If there is such authority which cannot be distinguished,
then of course I must loyally follow it. The case relied on by Mr Wood is Bovis
Group Pension Fund Ltd v GC Flooring & Furnishing Ltd (1984) 269
ESTATES GAZETTE 1252. In that case, premises in multiple occupation had been
let with a user clause permitting use only as ‘professional offices’. The
rent-review clause required the ascertainment of the rack rental value, which
was defined to mean (so far as material) ‘the rent at which having regard to
the terms hereof (other than as to rent and user) the demised premises might
reasonably be expected to be let for office purposes’. Thus the valuation was
to be on the basis of a hypothetical user not in accordance with the actual
user clause, or for that matter with the actual user at the time of the lease.
Lloyd J held that the value should be assessed on the basis that the property
might lawfully be used for office purposes. Eveleigh LJ and Griffiths LJ
agreed; Kerr LJ dissented. Eveleigh LJ (at p 1253) said this:
Bearing in
mind in this case that these premises at the date of the lease — and that is an
important date to consider — were let for a variety of purposes to tenants
holding subunderleases, it seems to me that the intention which emerges is to
provide some yardstick that will lead to certainty when the day arrives in the
future for the rent revision clause to be applied, and the parties chose as
that yardstick something for which the premises were not in fact being used at
the date of the lease, namely office premises. They were choosing in effect an
agreed use, namely office use, as the basis for rent which was to be assessed
in ten years’ time, and they envisaged, as I see it, for that assessment
premises which would be in a state of being used as offices — and that must
mean lawfully used: in other words, premises which had the character of office
premises capable of being used as such — planning permission would be one
attribute of those premises. In that way it seems to me the parties strove to
achieve certainty. The clause indicates to me that the valuer has to assume
that there are these premises in use as offices. The clause uses the phrase
‘let for office purposes’. That, to my mind, is another way of describing the
premises as office premises. The object is to value the premises on the basis that
you are able to let them for office purposes. It seems to me that that is
saying that we are concerned to determine the value of these premises as office
premises. If estate agents were to advertise premises with an announcement,
‘These valuable premises are to be let for office purposes’ and stipulated a
rent, that would convey, to my mind, to any prospective purchaser a message
that he could lawfully use those premises for office purposes.
I pause to
comment that whether that last sentence can be reconciled with the principle of
Hill v Harris (which was not cited in the Bovis case) I
leave to a higher court to determine. Eveleigh LJ continued:
We are not
seeking here to value a lease with a user clause permitting office use when in
fact it may or may not have real office value, and the fact that a property can
be let with a permitted purpose that requires planning permission does not, to
my mind, show it is being let as such premises. It is a different case.
Griffiths LJ
agreed, stressing that the alternative argument would produce uncertainty which
the parties could not have intended. Kerr
argument there was a certain rent.
Mr Wood
submitted that Bovis was on all fours with the present case, the
differences between the cases being immaterial. If he is right, then Bovis
lays down a principle of general application, that wherever there is a
rent-review clause, and whether or not there is an express mention of the user
on which the valuation is to be based, the valuation must proceed on the
footing that every permitted user is a lawful one. I cannot agree. I do no more
than repeat that statements of high judicial authority emphasise over and over
again that each case must be looked at in the light of its own facts. In Bovis
the parties had gone out of their way to introduce an artificial assumption
into the rent-review clause as a basis for valuation, and it was because of the
emphasis of the parties on this point that the majority in the Court of Appeal
were able to find, as an attribute of the demised premises, that planning
permission was in effect attached to it. In the present case there is nothing
comparable. The gaming and justices’ licences attach to a person (albeit in
respect of premises), but in no way can they be said to be attributes of the
premises. Further, as I read Eveleigh LJ, he was specifically distinguishing
the case where property is let merely permitting a use, for example, as offices
as distinct from being let as offices. In my judgment, it is quite impossible
to say that the premises were let as a casino, as distinct from being let with
use as a casino as one of the permitted uses.
Despite the
deployment by Mr Wood of his very considerable powers of persuasion, I have no
doubt that clause 6(5) does not require or permit the arbitrator to assume that
the hypothetical lessee will take possession with a gaming licence already in
his possession. That does not, however, mean that the arbitrator cannot take
into account evidence tending to show the existence in the market of persons
who might stand a good chance of obtaining a certificate of consent and a
gaming licence if they obtained an interest in the premises. The arbitrator’s
valuation will no doubt reflect that fact, if established. He will also, no
doubt, take account of the uncertainty that attaches to any application for a
certificate of consent and a gaming licence.
After those
general comments I can proceed to the specific questions raised in the amended
notice of motion.
Question
1(1)
This question
proceeds from an agreed statement: ‘The premises are assumed to have been let
on the valuation date (December 8 1983)’. The question is framed as follows:
Does ‘let’
mean EITHER (as the Plaintiff says) that a Lease containing the terms specified
in Clause 6 of the Lease dated January 27 1978 was executed giving possession
on that day OR (as the Defendant says) that both the hypothetical landlord and
the hypothetical tenant entered into a binding and unconditional commitment on
that day for a term commencing on that day and with possession being given on
that day?
I cannot see
that this is a question material to anything which the arbitrator has to
decide. As the agreed formulation of the question shows, each side contemplates
that the letting involves an unconditional commitment on the valuation date
with possession being given on that date, and the only difference is that
Daejan contemplates a formal lease being executed while Cornwall does not. To
my mind the difference is quite irrelevant for valuation purposes. Clause 6(5)
simply refers to a letting that day and both formulations come within that
term.
Question
1(2)
Are the
premises assumed to have been let without the benefit of any tenant’s and trade
fixtures and fittings which have been installed by any occupier (including
Crockfords and Cardgrange) after January 27 1978?
It is common
ground that the answer to that is ‘Yes’.
Question
1(3)
Are the
premises assumed to have been let at a rent which disregards the effect on rent
of any improvements carried out by Ladbroke (Rentals) Ltd or the Defendant
since January 27 1978?
It is common
ground that the answer to that is ‘Yes’.
Question
1(4)(A)
Does the Deed
of Licence on its face estop the Plaintiff from denying that the works (or any
part) referred to in that Deed were for the purposes of Clause 6(5)(c) of the
Lease carried out by someone other than ‘the Tenant’ as defined in the Lease?
Cornwall
claims that the deed contains an acknowledgement by Daejan that Rentals had
carried out the works referred to in that deed and that Daejan is therefore
estopped as stated in the question. Daejan denies any such estoppel. Mr Wood
submits that all that was acknowledged was that Rentals had fulfilled its
obligations under clause 2(2) of the lease and that it did not direct itself to
the question whether for the purposes of clause 6(5)(c) Rentals or some other
person had carried out the work. Mr Colyer points out that the parties by the
deed went further than merely making the acknowledgement for the purposes of
clause 2(2). In clause 2 of the deed the intention of the parties appears to
have been to make clear that for all the purposes of the lease the additions to
the premises were to be treated as part of the premises. There is no reason to
think that the rent review provision was not included in the contemplation of
the parties. I agree with Mr Colyer. Looking at the language of clause 1 of the
deed, and having regard both to the tenant’s obligations to do works in clause
2(2) and to the reference to ‘improvements carried out by the Tenant’ in clause
6(5)(c), I see no reason why clause I should not be taken at its face value as
constituting an acknowledgement that the tenant, and no one else, did carry out
the works. Accordingly, if any of the works constitutes an improvement, I do
not think it open to Daejan to adduce evidence tending to show that it may have
been someone other than Rentals which carried out those works.
I therefore
answer the question ‘Yes’.
Question
1(4)(B)
If yes, are
the Plaintiffs entitled to impugn the Deed by adducing evidence that it was
entered into by reason of some common mistake or misrepresentation made by or
on behalf of Ladbroke (Rentals) Ltd?
It is common
ground that the answer to that is ‘Yes’, and Mr Wood has indicated that he will
give proper notice to Cornwall of his case on this point.
Question 2
Is the
arbitrator bound or entitled to assume that the hypothetical willing lessee
would have entered into an agreement for a lease (whether conditional or
unconditional) before the valuation date?
For the
reasons already given in my judgment, the answer to this question is ‘No’.
Question
3(1)
Is the
arbitrator entitled to assume that more than one person could on the valuation
date have held a Certificate of Consent from the Gaming Board and a Justices’
Licence permitting the premises to be used by him as a gaming club?
In my
judgment, the answer to this question is ‘No’. It is an agreed fact that in the
real world there cannot be more than one holder of a certificate of consent and
a gaming licence relating to the same premises, and there is nothing in the
hypothesis contained in clause 6(5) to require any such assumption.
Question
3(2)
Is the
arbitrator entitled to assume that the hypothetical willing lessee (if other
than Crockfords Club Ltd) would prior to the valuation date have been given by
the Lessor such practical assistance as would be necessary to enable him to
comply with all statutory and formal requirements for obtaining such Certificate
of Consent and Justices’ Licence and, if so, whether such practical assistance
should be assumed to be:
(a) such as would have been necessary at the
time the Lease was executed or
(b) such as would have been necessary at the
valuation date?
It is sufficient
to answer the first part of the question. For the reasons which I have already
given, the answer to that part of the question is ‘No’.
Question
3(3)
Is the
arbitrator entitled to assume that the hypothetical willing lessee (if other
than Crockfords Club Ltd) would on the valuation date hold a Certificate of
Consent from the Gaming Board and a Justices’ Licence permitting the premises
to be used by it as a gaming club?
Again, for the
reasons that I have already given, the answer to that question is ‘No’.
Question 4
Upon any
review of rent pursuant to Clause 6 of the Lease should any account be taken of
any addition to the value of the premises attributable to any Gaming Licence
which may be held on the relevant valuation date in respect of the premises if
the benefit of such Licence does not belong to ‘the Tenant or some associate of
the Tenant’ within the meaning of that expression in sub-clause (5)(d) of that
Clause but belongs to some other person including:
(a) a sublessee, alternatively
(b) a licensee of a sublessee?
On this
question Mr Colyer advanced an argument which he himself characterised as
‘adventurous’. He submitted that notwithstanding the reference in clause
6(5)(d) to ‘the Tenant or some associate of the Tenant,’ the references to the
Tenant should be construed as though it had a small ‘t’ and comprehended any
sublessee or licensee of a sublessee. The reason, he submitted was this. The
precedent for the draftsman in drafting paragraphs (a), (b), (c) and (d) of
clause 6(5) was clearly section 34 of the Landlord and Tenant Act 1954, which
had been adapted in some respects by the draftsman of the lease. In paragraph
(d) the draftsman has chosen deliberately the phrase ‘the current tenancy’
rather than making a reference to the lease. He submits therefore that the
reference to ‘the Tenant’ should be construed as a reference to any sublessee
or licensee of a sublessee. Were it not so, he submits, the clause would leave
the arbitrator speculating about matters such as the licence and how effect
should be given to the paragraph. Indeed, he submitted that the whole of paras
(a), (b), (c) and (d) should be read in such a way that the references to ‘the
Tenant’ included reference to persons in the position of Cardgrange and
Crockfords as though their interests had never existed.
I am wholly
unable to agree with any of those submissions. I start with the obligation to
construe ‘the Tenant’ in the sense in which it is defined at the commencement
of the lease. That excludes Cardgrange and Cockfords. It is clear that the
first reference in clause 6(5) to ‘the Tenant’ means the Tenant in the defined
sense, because it refers to the obligations of the Tenant under this lease. In
paras (a), (b) and (d), ‘the Tenant’ is used in conjunction with ‘some associate
of the Tenant’. ‘Associate’, by the proviso to clause 6(5) itself, is defined
as any other company being at the time a subsidiary of Ladbroke (of which
Rentals itself was a subsidiary). It is therefore clear beyond argument that in
the reference to ‘some associate of the Tenant’ the draftsman was referring to
the Tenant in the defined sense. If that be its meaning there, it must be its
meaning in the immediately preceding words which refer to ‘the Tenant’. So,
too, in my judgment, it must be in para (c). That is sufficient to dispose of
Mr Colyer’s argument; though I would add that in any event I do not accept that
it leads to the impossibilities, to which Mr Colyer referred, in the valuation
exercise.
I therefore
answer that question ‘Yes’.
There is also
added as a further subquestion: ‘If yes, how and on what basis is it to be
taken into account?’ I decline to answer that further question, which seems to
me to be a matter purely for the arbitrator.
Question 5
Is the
arbitrator entitled or bound to take into account any goodwill attached to the
holding by reason of the carrying on thereat prior to the valuation date of the
business of a gaming club by Crockfords Club Ltd and/or Cardgrange Ltd?
For the
reasons already given, in my judgment the answer is ‘Yes’.
Question 6
Is the
arbitrator entitled or bound to take into account any effect on rent of the
occupation of the premises prior to the valuation date by Crockfords Club Ltd
and/or Cardgrange Ltd?
Again for the
reasons given in answer to Question 4, the answer is ‘Yes’.
Question 7
Would any
Certificate of Consent and/or Justices’ Licence as aforesaid which the
hypothetical willing lessee might hold on or after the valuation date be
personal to such hypothetical lessee?
I have
difficulty in seeing that the characterisation of this matter as ‘personal’, or
using some other adjective, will be of very much assistance to the arbitrator.
The arbitrator must be referred to the statutory provisions on which there has
been no dispute of construction. It is sufficient for me to refer to the agreed
statement and add one further point. The agreed statement of facts includes, in
para 10, that any licence which is granted has to be granted to a particular
applicant in respect of particular premises. Mr Wood asked me to add that the
arbitrator should be referred to the fact that in certain circumstances the
licence is transferable. I have already referred to the paragraphs in the
Gaming Act which govern such a transfer.
No order was
made as to costs.
