Landlord and Tenant Act 1927, Part I — Compensation for Improvements — Appeal from decision of Peter Gibson J on preliminary questions arising out of business tenants’ claim against livery company landlords — Conditions for compensation claim under 1927 Act — Requirement of section 3(1) that tenant must serve on landlord a notice of his intention to make improvements, together with specifications and plans — Question as to whether a letter by tenants’ solicitors constituted a proper notice under section 3(1) served within time laid down — Plans sent with letter were outline plans, but these were followed by more detailed plans — Various criticisms made of letter as a notification of intention considered and rejected — Letter held to be a valid notice of intention to make improvements — Judge held to have had jurisdiction under the 1927 Act to certify that improvement works had been duly executed — Appeal dismissed
This was an
appeal from a decision of Peter Gibson J on an originating summons issued by
tenants, Deerfield Travel Services Ltd, of business premises at 33-35 St Mary
Axe in the City of London, seeking declarations as to the tenants’ entitlement
against the landlords, the Leathersellers’ Company, to compensation under Part
I of the Landlord and Tenant Act 1927 for improvements to the premises. The
decision was on preliminary issues, not all of which were raised on the appeal.
Michael Barnes
QC and J Male (instructed by Stones, Porter & Co) appeared on behalf of the
appellants; J Sher QC and Martin Mann (instructed by McHale & Co)
represented the respondent tenants.
Giving
judgment, LAWTON LJ said: This is an appeal by the defendants, the Wardens and
Society of the Mistery or Art of the Leathersellers of the City of London,
against an order of Peter Gibson J of July 13 1981, whereby he made various
declarations in favour of the plaintiffs, Deerfield Travel Services Ltd. The
declarations related to some improvements which the plaintiffs had made to the
premises they were leasing from the defendants and in particular to the
application to such improvements of the provisions of the Landlord and Tenant
Act 1927. The defendants have appealed to this court broadly on the ground that
the plaintiffs never gave the form of notice of intention to make improvements
which is called for by that Act. In the course of counsel’s submissions a
number of subsidiary points have been taken, but in my judgment the case turns
upon the proper construction of one letter written by the plaintiffs’
solicitors to the defendants’ solicitors and dated June 23 1978.
The background
of fact has never been in issue between the parties. The defendants are the
freeholders of some business premises at 33-35 St Mary Axe in the City of
London. They let these premises under a lease made on February 2 1976 to a
company called SLA Ltd. Subsequently that lease was assigned by SLA Ltd to the
plaintiffs, who are a subsidiary of a substantial limited liability company in
the shipping world. The plaintiffs intended to sublet part of the premises so
assigned to them to other members of the same group of companies. It followed
that they would have to get the defendants’ consent to such subletting. They
got it. The plaintiffs were also minded to have substantial alterations made to
the leased premises. The alterations were partly alterations of layout; partly
repairs to the premises as they found them when they went into possession; and
they were (so it is said) partly improvements which came within the terms of
the Landlord and Tenant Act 1927. In so far as they were repairs, the
plaintiffs were bound to do them under the terms of clause 2(1) of the lease.
In so far as they were improvements, they were entitled to do them pursuant to
the 1927 Act, but they could only claim compensation on the termination of the
tenancy and on quitting the premises if they had complied with the provisions
of the 1927 Act.
The relevant
provisions are as follows. Section 1 of the Act says:
a tenant of a
holding to which this Part of this Act applies shall, if a claim for the
purpose is made in the prescribed manner
then by a
subsequent amendment
[and within
the time limited by section 47 of the Landlord and Tenant Act 1954] be
entitled, at the termination of the tenancy, on quitting his holding, to be
paid by his landlord compensation in respect of any improvement (including the
erection of any building) on his holding made by him or his predecessors in
title, not being a trade or other fixture which the tenant is by law entitled
to remove, which at the termination of the tenancy adds to the letting value of
the holding.
Section 3 says
what the tenant is to do and gives the landlord an opportunity of objecting to
the tenant’s proposal. Subsection (1) is in these terms:
Where a tenant
of a holding to which this Part of this Act applies proposes to make an
improvement on his holding, he shall serve on his landlord notice of his
intention to make such improvement, together with a specification and plan
showing the proposed improvement and the part of the existing premises affected
thereby, and if the landlord within three months after the service of the
notice, serves on the tenant notice of objection, the tenant may, in the
prescribed manner, apply to the tribunal, and the tribunal may, after
ascertaining that notice of such intention has been served upon any superior
landlords interested and after giving such persons an opportunity of being
heard, if satisfied that the improvement —
(a) is of such a nature as to be calculated to
add to the letting value of the holding at the termination of the tenancy; and
(b) is reasonable and suitable to the character
thereof; and
(c) will not diminish the value of any other
property belonging to the same landlord, or to any superior landlord from whom
the immediate landlord of the tenant directly or indirectly holds;
and after
making such modifications (if any) in the specification or plan as the tribunal
thinks fit, or imposing such other conditions as the tribunal may think
reasonable, certify in the prescribed manner that the improvement is a proper
improvement: Provided that, if the landlord proves that he has offered to
execute the improvement himself in consideration of a reasonable increase of
rent, or of such increase of rent as the tribunal may determine, the tribunal
shall not give a certificate under this section unless it is subsequently shown
to the satisfaction of the tribunal that the landlord has failed to carry out
his undertaking.
There are
provisions in the Act relating to the service of notices and what a notice has
to be. It has to be in writing but there is no prescribed form in which the
tenant should indicate his intention to make improvements. I do not consider
for the purposes of this judgment that I need go into detail about any other
provisions of this
gave notice of intention within section 3(1).
The tenants
intended to spend a considerable amount of money on refurbishing the leased
premises and the defendants knew that they so intended. Then on June 23 1978
the plaintiffs’ solicitors wrote to the defendants’ solicitors a letter which
is said to be the notice. They started by referring to an earlier letter and to
the way in which they proposed to sublet the premises and to whom. Then they
went on as follows:
We are also
instructed in respect of various modernisations and improvements which, it is
proposed, be carried out at the building with particular regard to the fire
precautions. We enclose a set of plans prepared by the architects to the
lessees and no doubt the Leathersellers’ surveyors will note the proposed
alterations. It is intended that a considerable amount of money be spent on
these improvements and alterations and therefore in addition to advising that
consent to the alterations being made is, in principle, available, we would be
pleased to know what proportion of the monies spent the Leathersellers will be
prepared to reimburse on termination of the tenancy.
That letter
was duly forwarded by the defendants’ solicitors to the Clerk to the
Leathersellers Company and he in turn got in touch with their surveyors, the
well-known firm of Savills. There was some delay before any action was taken by
either side with regard to the letter of June 23 1978. The reason for that was
that the Leathersellers owned adjoining property in St Mary Axe which was
leased to the National Westminster Bank and there had been negotiations between
the National Westminster Bank and the defendants about the possible
redevelopment of the whole site at some future time. It was not until early in
August that it became clear that the National Westminster Bank did not want to
take part in any redevelopment. They were content to remain in possession on
the terms of the lease which the defendants had granted to them.
In those
circumstances the defendants were then ready to start negotiations with the
plaintiffs. The matter was handed over to the defendants’ surveyors. The defendants’
solicitors, by letter dated August 11 1978, wrote to the plaintiffs’ solicitors
in these terms:
Further to
our letter of June 26, our clients’ surveyors have requested that Deerfield
Travel Services Ltd should contact them in order to discuss the proposed
alterations to the premises. The surveyors are Messrs Savills, 20 Grosvenor
Hill, Berkeley Square, London
and they give
the telephone number
and the
gentleman dealing with the matter is Mr A H Salisbury.
Thereafter
Savills communicated from time to time with the plaintiffs’ architect on
notepaper which carried their name in big letters and underneath came the words
‘The Leathersellers Company’. In my judgment, as from August 11 1978 the
defendants were holding out Savills as their agents to negotiate as regards the
proposed improvements and thereby they impliedly authorised Savills to deal
with any matters which came up. Savills, in the ordinary course of their
professional work, would, of course, communicate with, advise and take
instructions from the defendants, but so far as the plaintiffs were concerned,
in my judgment, Savills were acting, and were authorised to act, on behalf of
the defendants in respect of the proposed improvements.
The plans
which had been sent with the letter of June 23 1978 were architect’s plans but
they were clearly outline plans. It would have been obvious to anybody
concerned with surveying and building work that more detailed plans would have
to be provided at a later date. As soon as Mr Salisbury of Messrs Savills met Mr
Levy, the plaintiffs’ architect, he asked for more detailed plans and by letter
dated August 29 1978 Mr Levy sent Messrs Savills more detailed plans. We have
looked at those plans and, in my judgment, they provided all the necessary
information to apprise Savills, as authorised agents for the defendants, of
what was proposed by way of repairs, alterations and decorations. It is
accepted now that, so far as alterations were concerned, Messrs Savills did
have all the requisite information. It has to be accepted by the defendants, in
my judgment, that they were told what was to be done by way of improvements and
alterations.
Mr Barnes has
taken the point that, although Savills were told what was going to be done in
sufficient detail for them to decide whether or not what was proposed did
amount to an improvement, they were not given enough information as to the
quality of the workmanship. In my judgment, there is no substance in that point
whatsoever, because Savills would assume, and properly assume, that the architect
was going to advise that the work should be done in the ordinary way in which
work of this kind is done and with the proper materials and proper workmanship.
In those circumstances, Savills were in a position to advise the defendants on
all the matters which the defendants were entitled to be advised upon for the
purposes of section 3(1) of the 1927 Act.
Savills did
advise the defendants. They pointed out to them that, in their opinion, most of
the work was repair work anyway and, therefore, had to be done by the
plaintiffs under the terms of their lease. They accepted that some of the work
was improvements and they said in terms to the defendants that they had
sufficient information from the plans to be able to identify that which was
alleged to be improvements. They went on to advise the defendants that, in
their opinion, no compensation of any kind should be paid to the plaintiffs for
the work of improvements which they were proposing to do.
There was some
delay before the work was started, but as soon as Savills intimated to Mr Levy
that there was no objection to the work being done he gave the necessary
instructions for the work to be started. It is clear from a progress report
dated October 28 1978 that by then the contractors had moved into the leased
premises, had done a lot of clearing work and had actually started in a small
way some of the work which the plaintiffs were saying amounted to improvements.
By this time
it had become clear, in the course of negotiations between Mr Salisbury and Mr
Levy and between the plaintiffs’ solicitors and the defendants’ solicitors,
that the defendants were not willing to make any contribution towards the cost
of the improvements. As a result, on October 30 1978, the plaintiffs’
solicitors thought it prudent to record in writing in more detail than they had
in the letter of June 23 1978 what it was their clients were demanding. In this
letter they included a paragraph in the following terms:
We have
advised our clients on their rights pursuant to the Landlord and Tenant Act
1927 Part I and the Landlord and Tenant Act 1954 Part III. Our clients’
instructions are that if a sensible settlement in this respect cannot be
reached, then we are to proceed by making the necessary court application. We
trust, however, that this course can be avoided.
Later in that
letter they said:
We would
point out that some works have already been commenced under the sanction of
your clients’ managing agents, but that the works which are in hand are merely
redecoration which would not be included in the claim under the Landlord and
Tenant Acts.
In that respect
they were mistaken, because the progress report which has been disclosed does
reveal that more than redecoration work had been done.
The matter
then proceeded by way of correspondence, each side putting forward their
various contentions in regard to this matter. The relevant correspondence ends
with the letter from the defendants’ solicitors to the plaintiffs’ solicitors
dated December 6 1978. The relevant part of the letter is in these terms:
We understand
that the works to which you refer and for which details have been provided are
in effect items of repair and decoration such as are covered in your clients’
repairing covenant for the building. Should your clients dispute this fact,
perhaps they will contact Messrs Savills to discuss it further. We understand
that Messrs Savills did in fact offer to discuss this matter with Mr Levy, your
clients’ architect, back in September but they have heard no more from him.
There being a
dispute as to whether or not the plaintiffs were entitled to make a claim for
improvements pursuant to the 1927 Act, an originating summons was in due course
issued by the plaintiffs asking for declarations in various terms. After the
issue of that originating summons the parties decided that, in some respects at
least but certainly not in all, it might be helpful to the parties and to the
court if preliminary issues were dealt with first and there was an agreement as
to what the preliminary issues should be. It is in respect of the preliminary
issues which were dealt with by Peter Gibson J
aspects of this dispute, such as whether the works were improvements at all.
The four
preliminary issues were as follows: ‘(1) Whether the following documents, or
any of them, constitute a notice of intention to make improvements served by
the plaintiffs on the defendants under section 3(1) of the Landlord and Tenant
Act 1927: (a) a letter dated June 23 1978 sent by the plaintiffs’ solicitors to
the defendants’ solicitors’. I will leave out two other letters because they
have not been considered in this court because the plaintiffs do not now say
that they constituted notice. The final letter was described as follows, ‘a
letter dated October 30 1978 sent by the plaintiffs’ solicitors to the
defendants’ solicitors’. The second preliminary issue was: ‘Alternatively,
whether or not in the events which have transpired the plaintiffs have served a
notice on the defendants pursuant to section 3(1) Landlord and Tenant Act 1927.
(3) If the plaintiffs have served a notice of intention as aforesaid, whether
the defendants have served on the plaintiffs notice of objection within three
months of the plaintiffs’ said notice. (4) Whether this Court has jurisdiction
under the Landlord and Tenant Act 1927 (a) to certify that the works executed
by the plaintiffs are proper improvements or (b) to certify that the said works
have been duly executed’.
As I have
already indicated, everything turns on the letter of June 23 1978. Mr Sher, on
behalf of the plaintiffs, said that the letter did give notice to the
defendants that the plaintiffs intended to make improvements together with a
specification and plan showing the proposed improvements and the part of the
existing premises affected thereby. In those circumstances, the essential step
which a tenant has to take before he can hope to get any compensation for
improvements on quitting the tenancy was in fact taken.
Mr Barnes, on
behalf of the defendants, said that was not so; that the letter, when read by a
reasonably sensible business man who was a landlord, would not have conveyed to
him, and did not in fact convey to the defendants, that the plaintiffs were
intending to make a claim under the provisions of the 1927 Act. Further and
alternatively, he submitted that, even if it was a notice which did intimate an
intention to make improvements, it was an inadequate notice, because the
outline plans which went with that notice did not constitute a specification. A
specification, he submitted, should be a document which sets out in detail what
work is to be done and what materials are to be used for the purposes of that
work. Undoubtedly the plans which went with the letter dated June 23 1978 did
not constitute a specification of the kind which Mr Barnes submitted was
essential. But it was, as I have already recounted, an outline plan. To Savills
it would have been obvious that it was an outline plan which was likely to be
supplemented by detailed drawings at a later date. Indeed, they asked Mr Levy
for more detailed drawings and they got them. In my judgment, that which they
got on or about August 30 1978 constituted plans and a specification for the
purposes of this Act. Mr Barnes accepted that, for the purposes of section 3,
there need not be a contemporaneous sending of plans and specifications with
the notice, because, as a matter of common sense, very often in these cases the
tenant is able to give notice of intention to make improvements but he may have
to wait some time for detailed plans and specifications to be drawn up. Mr
Barnes accepted that section 3(1) should be construed so as to allow for that
kind of situation; but he submitted that, because of the time lag and the inadequacy
of the original plans, there was no proper connection or linkage (as he put it)
between the outline plan and the detailed drawings which came on or about
August 30 1978.
In my
judgment, the linkage is provided by the nature of the outline plans, the
inevitable expectation that there would be further detailed plans and the
request by the defendants’ agents for them. In those circumstances, I find that
there is nothing in the point that there is no linkage between the notice of
intention and the detailed drawings which came later.
The next
problem is whether the letter of June 23 1978 was sufficiently clear. I do not
find it necessary to decide the point which was taken by Mr Sher on behalf of
the plaintiffs, that, for the purposes of section 3, all a tenant need do is to
say that he intends to make improvements, without saying whether or not he is
doing so for the purposes of staking his claim for compensation under the 1927
Act. Mr Barnes, for his part, submitted that that is what a tenant has to do.
Whether he has to do it or not, the problem in this case is, did he do it? In my judgment, on the proper construction of
the letter of June 23 1978, the plaintiffs, by implication, made plain to the
defendants that they were making a claim under the 1927 Act. The last paragraph
of that letter seems to me to be bringing two matters to the attention of the
defendants’ solicitors: first, that they wanted consent to be given to the
making of alterations — that consent was necessary before the work could start,
having regard to the provisions of clause 2(1) of the lease; and secondly, they
were making it clear that they looked to the landlords for compensation at the
termination of the tenancy. They were not saying ‘We are going to spend a lot
of money on modernising these leasehold premises and therefore we would ask you
to make a contribution to the cost’; they were expecting, not hoping for, a
contribution to be paid at the end of the tenancy. That expectation could only
arise under the 1927 Act.
In my judgment,
the defendants’ solicitors, on receiving that letter, would have been put on
notice that the claim was in a form which complied broadly with the provisions
of section 1 of the Act. The only way it did not comply completely with section
1 of the Act was that the plaintiffs’ solicitors had omitted any reference to
the compensation being payable only on quitting the premises. In my judgment, a
reading of this letter by a reasonably sensible business man would have alerted
him to some sort of claim which was going to be made at the end of the tenancy.
A business man must be taken to know what his rights are and in any event a
sensible business man, on getting a letter of this kind, would take advice.
Advice was readily available to the defendants, because the claim was made to
their solicitors. In my judgment, the solicitors were in a position to advise
the defendants forthwith that they could expect that at the end of the tenancy
a claim would be presented in the prescribed form for compensation for improvements.
The letter of
June 23 1978, however, was incomplete. It was, in my judgment, made a complete
valid notice when Mr Levy, the architect, sent Savills the full detailed
drawings. It follows, in my judgment, that as from on or about August 30 1978
the three months’ period during which the defendants had an opportunity of
objecting began to run. For the purposes of clarity, I have assumed that the
letter of August 29 arrived in Savills’ office on August 30, so the three
months’ period ran from August 30 1978. During that period, which would have
ended on November 30 1978, the defendants did not object to the notice. The
defendants say that their letter of December 6 was a valid objection. The
plaintiffs say that it was not, because they did not object to the work being
done. All they objected to was the legal nature of the work, which was a matter
likely to be investigated when the claim came to be considered at the trial. In
my judgment, as the period for objecting ended on November 30 1978, it is not
necessary for me to come to any decision about the effect of the letter of
December 6 1978.
It follows,
therefore, that the answers to the preliminary issues which I would make are
that there should, first, be a declaration that the letter dated June 23 1978
was in fact a valid notice of intention to make improvements for the purposes
of section 3(1) of the Landlord and Tenant Act 1927; and secondly, that Peter
Gibson J had jurisdiction under the Landlord and Tenant Act 1927 to certify
that the said works had been duly executed.
For these
reasons, I would dismiss the appeal.
Agreeing,
TEMPLEMAN LJ said: Despite the persuasive and forceful submissions made by Mr
Barnes on behalf of the landlords, I, too, agree that the appeal must be
dismissed. My Lord has dealt with most of the submissions made by Mr Barnes and
I have little to add. As a result of the fact that preliminary issues were
dealt with, we were unable to deal with the argument that the letter of October
30 1978 from the tenants, which expressly mentioned the Landlord and Tenant
Act, was capable of being the last nail in the coffin so far as notice was
concerned. We are precluded because we are only faced with the preliminary
issues which my Lord has mentioned, but for my part, since the work had been
begun with the approval of the landlords and expressly on their authority, it
would not have lain in the mouth of the landlords to complain that the work had
been
they intended to put forward as early as June 23 1978.
One or two
other points were made by Mr Barnes in addition to those mentioned by my Lord.
He said that the notice which is to be compounded by the letters of June 23
1978 and August 29 1978 did not sufficiently distinguish between repairs and
improvements. In my judgment, that is a matter which can be dealt with at the
end of the day when the tenancy has been terminated and the tenant has quitted.
Then, if the tenant’s claim is still alive, it will be sufficient to see what
works he has carried out, which are improvements and which confer a financial
benefit on the landlord.
I am fortified
in the conclusions which my Lord has reached and the conclusions reached by the
learned judge by the fact that most of the points which Mr Barnes was driven to
take were technical points. In substance, here was a tenant conferring a
benefit on the landlords by effecting improvements which were expected to enure
to the benefit of the landlords after the termination of the tenancy and
claiming compensation for that benefit. It is clear that, even if, as Mr Barnes
submitted, the landlords consider they have been deprived of some opportunity
of objection, that deprivation is theoretical rather than practical, because
almost from the first breath the landlords welcomed these proposals and they
could not, in the face of the correspondence which has been exhibited, have put
forward any genuine objection under the Landlord and Tenant Act 1927.
Even if the
landlords have not been able to put forward a notice of objection, there will
be no harm because the tenants will only obtain, on the termination of the
tenancy, the value (if any) of such bonus as they leave behind for the
landlords to enjoy.
In these
circumstances, I agree without reluctance that the technical points taken on
this Act concerning landlord and tenant do not avail the landlords and that the
appeal must, therefore, be dismissed.
Also agreeing,
FOX LJ said: So far as the crucial letter of June 23 1978 is concerned, it
seems to me that it plainly discloses an intention upon the part of the tenant
to make improvements. Mr Sher says, in effect, that that is enough to satisfy
the provisions of section 3 of the Act and it is not necessary to go any
further. I do not need to examine that contention, because it seems to me that
the letter in fact goes very much further. It ends with the statement, ‘we
would be pleased to know what proportion of the moneys spent the Leathersellers
will be prepared to reimburse on termination of the tenancy’. Now that is not a
mere inquiry whether the Leathersellers would be prepared to make some payment.
The word ‘will’, it seems to me, assumes that the landlords will have to pay
something in respect of the improvements at the termination of the tenancy. It
is, I think, of importance that the only source of such an obligation could be
that under the Landlord and Tenant Act 1927 the landlord will have to pay, upon
the termination of the tenancy and upon the tenant’s quitting the holding, for
improvements which fall within the provisions of the Act.
It seems to
me, therefore, that, reading the letter as a whole, one’s attention is directed
to the existence of a liability under the Landlord and Tenant Act 1927 and
that, in the circumstances, the letter does constitute a sufficient notice for
the purposes of section 3.
The appeal
was dismissed with costs.