Landlord and Tenant Act 1954, section 37 — Court precluded from ordering a new tenancy by reason of the ground specified in section 30(1)(f) of the Act — Entitlement to compensation — Whether amount of compensation at the higher rate of six times the rateable value or at the lower rate of three times — Whether the condition required for the higher rate was satisfied, namely, that during the whole of the 14 years immediately preceding the termination of the tenancy the premises had been occupied for the purpose of a business carried on by the occupier — Department of the Environment were the tenants and the tenancy terminated on August 23 1985 — As a physical fact the department’s occupation of the subject premises did not begin until August 25 1971, although the department’s lease was for a term of 14 years from August 23 1971 — It was submitted on behalf of the department that
The following
cases are referred to in this report.
Caplan
(I&H) Ltd v Caplan (No 2) [1963] 1 WLR
1247; [1963] 2 All ER 930
Cardshops
Ltd v John Lewis Properties Ltd [1983] QB
161; [1982] 3 WLR 803; [1982] 3 All ER 746; (1982) 45 P&CR 197; [1982] EGD
305; 263 EG 791, [1982] 2 EGLR 53, CA
Edicron
Ltd v William Whiteley Ltd [1984] 1 WLR 59;
[1984] 1 All ER 219; (1983) 47 P&CR 625; [1983] EGD 273; 268 EG 1035,
[1983] 2 EGLR 81, CA
Lee-Verhulst
(Investments) Ltd v Harwood Trust [1973] QB
204; [1972] 3 WLR 772; [1972] 3 All ER 619; (1972) 24 P&CR 346; [1973] EGD
467; 225 EG 793, CA
Morrisons
Holdings Ltd v Manders Property (Wolverhampton)
Ltd [1976] 1 WLR 533; [1976] 2 All ER 205; (1975) 32 P&CR 218; 238 EG
715, [1976] 1 EGLR 70, CA
This was an application
by the defendants, Royal Insurance plc, in proceedings which had commenced by
an originating summons by the plaintiffs, the Department of the Environment,
seeking an order for the grant of a new tenancy of premises consisting of the
first floor and part of the ground floor of 5-7 Chancery Lane, London WC2.
There had also been a summons by the defendant landlords for the determination
of an interim rent. The main proceedings had, however, ended in a consent order
whereby the applications for a new tenancy and for determination of an interim
rent were withdrawn. Under this order the parties were at liberty, failing
agreement, to apply for directions as to the amount of statutory compensation
under section 37 of the Landlord and Tenant Act 1954; hence the present
application by the defendant landlords.
J F Mummery
(instructed by the Treasury Solicitor) appeared on behalf of the plaintiffs;
David Neuberger (instructed by Linklaters & Paines) represented the
defendants.
Giving
judgment, FALCONER J said: In this matter I am asked to determine on an
application of the defendants, Royal Insurance plc, who were the landlords of
the premises in question, the amount of compensation payable to the former
tenants, the Department of the Environment, under section 37 of the Landlord
and Tenant Act 1954 in respect of the premises known as the first floor and
part of the ground floor of 5-7 Chancery Lane, London WC2. Those premises were
at one time occupied by the Industrial Relations Court and subsequently, I
think, by the Lands Tribunal.
It is not in
dispute that compensation is payable under the provisions of section 37, but
the question is whether it is payable at the higher rate under the provisions
of section 37(2)(a) or at the lower rate under section 37(2)(b). The
defendants, Royal Insurance plc, the landlords, of course contend that it is to
be payable at the lower rate and that would be a sum of £161,665. It is common
ground that that has been paid and accepted. That is a sum of three times the
rateable value, three being the multiplier to which I will refer in a moment;
that is the sum which is payable if compensation is payable under para (b) of
section 37(2). I will come to the provisions in a moment. If the Department of
the Environment are right, as they contend, then it would be payable at the
higher rate under para (a), which will be three times two, that is six times
the rateable value, which would be a sum of £333,330. There is no dispute, as I
understand it, about the arithmetic at all. The matter really turns on the
construction of section 37 and in particular section 37(3)(a) as applicable to
the facts of this case.
As to the
facts, there is really no dispute as I understand it. The matter arises in this
way: there were negotiations between the department and Royal Insurance in
1971, which resulted in an offer being made by letter dated August 16 1971 by
the Royal Insurance to let to the department the premises in question. As I
have indicated, they comprised part of the ground floor and the first floor of
5-7 Chancery Lane. That offer is evidenced by a letter to be found in exhibit
WJP1 to the affidavit of Mr Purdie on behalf of the department. In that letter
the last paragraph is of some relevance. The agents acting for the insurance
company said that their clients, that is the Royal Insurance:
. . . are
prepared to allow your building works to commence immediately, upon receipt of
a satisfactory undertaking from the Department, stating that the Department
will be prepared to complete the lease substantially in the form made available
to you on August 5, and subject to the Royal’s approval of the works which you
wish to undertake.
The offer, of
course, was subject to contract. There was to be a lease and the lease was to
commence on August 23 1971 according to the letter, and it was to be for a
14-year period. There was a reply on August 19 1971 in which, on behalf of the
Secretary of State, the senior estate surveyor dealing with the matter said he
accepted the offer to let to the Secretary of State the whole of the first
floor and part of the ground floor of the premises on the terms and conditions
specified in the offer. He went on to state that two sets of drawings had been
handed over as to some of the alterations and adaptations the department wished
to make. The final paragraph of the letter stated:
As you know,
we wish to start our adaption (sic) work on August 25 next and I shall be
obliged if you will kindly let me have by return your approval of the works and
consent to their being put in hand at that date.
In fact, on
August 25 the works of adaptation started on the first floor, in the sense that
the contractors went in to start work, or to survey and see what was to be
done. There is no dispute that they went in, so far as the first floor was concerned,
on August 25.
It is
convenient to say at this point that Mr Neuberger for the defendants, the Royal
Insurance, takes no point that at that stage, so far as occupancy is concerned,
the part of the ground floor which was to be taken over was not immediately
available. No point is taken about that. On the evidence, Mr Mummery frankly
pointed out that it is not really absolutely clear when the plaintiffs went
into the ground floor, but as I say, because of that concession, the point is
immaterial.
The actual
lease made pursuant to the agreement was executed on June 21 1972 for a term of
14 years and whereas the letter of the 16th offered a lease to commence on
August 23 1971 in fact in the lease the expression used is that the term is to
start from August 23 1971. It is common ground that so far as the term under
the lease is concerned, that commenced as it were immediately after midnight on
the night of the 23rd/24th.
On September
11 1984 the defendants, that is to say the Royal Insurance, served the
department with a notice under section 25 of the Landlord and Tenant Act 1954.
The notice was dated September 11 1984, stating that they proposed to terminate
the tenancy on August 23 1985, which it will be remembered is the termination
date according to the lease. I need not go to the lease for present purposes.
As a result of that notice the short point is whether the period of occupation
was such as to entitle the department to compensation at the higher rate in
para (a) of section 37(2) or, as the landlords, the Royal Insurance, say, at
the lower rate of para (b).
The notice to
terminate having been given, the department made an application for a new
tenancy and the landlords, Royal Insurance, indicated that they would oppose
the grant of a new tenancy and that they would do so under ground (f) in
section 30(1)(a), ground (f) being:
That on the
termination of the current tenancy the landlord intends to demolish or
reconstruct the premises comprised in the holding or a substantial part of
those premises or to carry out substantial work of construction on the holding
or part thereof and that he could not reasonably do so without obtaining
possession of the holding.
I do not think
I gave a date for the counternotice by the department that they were unwilling
to give up possession. That was actually September 21 1984. The originating
summons seeking an order for the grant of a new tenancy was dated December 4
1984.
On December 12
1984 there was a summons by the landlords that there should be determination of
interim rent and at some stage thereafter the department realised that they
were not going to get a new tenancy, and so a consent order was made on October
1 1985 whereby the department, the plaintiffs, withdrew their application for a
new tenancy; the Royal Insurance withdrew its application for the determination
of an interim rent; it was agreed that the department, the plaintiffs, would
deliver up vacant possession on October 6 1985; it was agreed that following
delivery up of vacant possession statutory compensation pursuant to Part II of
the 1954 Act should be payable by the defendants to the plaintiffs; there was a
provision in that consent order as to a sum by way of interim rent — it is not
material for present purposes; finally, under the order, after the provision as
to access for purposes of carrying out inspections there was a provision that
the parties were to be at liberty to apply for directions to determine the
amount of the said compensation in case agreement could not be achieved.
Although there
was continuing correspondence about the amount, there was no agreement and so
there was an application on the part of the defendants, Royal Insurance, that
the court should determine the amount of compensation due to the defendants
under section 37 of the Landlord and Tenant Act in respect of the premises
which I have mentioned. The master gave directions for evidence and that the
application should come in the list, as it has done before me, as a non-witness
matter, subject to the right to cross-examination. Neither side has sought to
cross-examine — I have read an affidavit on each side.
It is material
at this stage just to look at the relevant provisions of the Landlord and
Tenant Act 1954. Some point arises on the wording of section 23, the first
section in Part II of the Act. Subsection (1):
Subject to
the provisions of this Act, this Part of this Act applies to any tenancy where
the property comprised in the tenancy is or includes premises which are
occupied by the tenant and are so occupied for the purposes of a business
carried on by him or for those and other purposes.
The interest is
in the words ‘occupied for the purposes of a business’ and so on.
I need not
read subsection (2), which deals with the meaning of ‘business’. It is common
ground that this is a tenancy under Part II falling within subsection (1) of section
23 by reason of the special provisions dealing with Crown departments to be
found in section 56(3).
Section 24
provides for the continuation of existing tenancies to which Part II applies
and to the grant of new tenancies. I do not think I need read anything from
that for present purposes. Section 25 provides for the way in which the
landlord may terminate a tenancy to which this Part of the Act applies by
giving an appropriate notice in a prescribed form, and times and so on are
provided for. As I have indicated, the Royal Insurance has given appropriate
notice to terminate under that provision, the termination to be on August 23
1985.
Section 26
deals with a tenant’s request for a new tenancy. I need not read the provisions
of that. There was such an application, as I have mentioned, on the part of the
department. Subsection (6) of section 26 provides for the landlord, in the
event of a tenant’s request for a new tenancy, being able to give notice that
he would oppose and he has to state on which ground or grounds under section 30
of the Act he will oppose the application.
That takes me
to section 30(1), where the grounds are set out, and I have indicated that the
ground relied upon was ground (f) and I have already read that.
Coming now to
the material section for present purposes, section 37(1), the tenant quitting
the premises under the provisions of an appropriate notice by the landlord is
entitled to compensation on quitting if he has to quit on certain grounds under
section 30(1). I ought perhaps to read subsection (1):
Where on the
making of an application under section 24 of this Act the court is precluded
(whether by subsection (1) or subsection (2) of section 31 of this Act) from
making an order for the grant of a new tenancy by reason of any of the grounds
specified in paragraphs (e), (f) and (g) of subsection (1) of section 30 of
this Act and not of any grounds specified in any other paragraph of that
subsection, or where no other ground is specified in the landlord’s notice
under section 25 of this Act or, as the case may be, under section 26(6)
thereof, than those specified in the said paragraphs (e), (f) and (g) and
either no application under the said section 24 is made or such an application
is withdrawn, then, subject to the provisions of this Act, the tenant shall be
entitled on quitting the holding to recover from the landlord by way of
compensation an amount determined in accordance with the following provisions
of this section.
Subsection (2)
deals with the rate of compensation and provides:
The said
amount shall be as follows, that is to say — (a) where the conditions specified
in the next following subsection are satisfied it shall be . . .
And then,
following the amendment by the Local Government, Planning and Land Act 1980,
Schedule 33 para 4, the words are inserted: ‘the product of the appropriate
multiplier and’, so the paragraph should now read:
where the
conditions specified in the next following subsection are satisfied it shall be
the product of the appropriate multiplier and twice the rateable value of the
holding,
(b) In any other case it shall be the product of
the appropriate multiplier and the rateable value of the holding.
Just pausing
there, it is common ground that the appropriate multiplier in this case from
the appropriate statutory instrument now presently in force* is three, so that
the compensation if it is payable under (a) would be six times the rateable
value, if under (b) it would be three times the rateable value. That is how the
arithmetic which I dealt with earlier is arrived at. As I say, the department,
the plaintiffs, say they come under (a) and the defendants say the plaintiffs
come under (b) and they have already paid the appropriate sum under (b) over to
the plaintiffs.
*Editor’s
note: Landlord and Tenant Act 1954 (Appropriate Multiplier) Order 1984 (SI 1984
No 1932).
That brings
me, of course, to subsection (3), where the conditions are set out in order to
fall into para (a) of subsection (2). The said conditions are (a) and (b):
(a) that, during the whole of the 14 years
immediately preceding the termination of the current tenancy, premises being or
comprised in the holding have been occupied for the purposes of a business
carried on by the occupier or for those and other purposes.
The similarity
of the language used there to that which I quoted from section 23(1) will be
observed. I ought to read para (b), I think, for completeness, although it is
not really material for present purposes. I merely read it because it was a
material provision in one of the cases cited by Mr Mummery.
(b) that, if during those fourteen years there
was a change in the occupier of the premises, the person who was the occupier
immediately after the change was the successor to the business carried on by
the person who was the occupier immediately before the change.
That is taking
care of a transfer of the business, the business having been carried on in the
same premises; so that the current tenant would have the benefit of his
predecessor in business so far as occupancy went.
The only other
provision I think I should look at in this section is subsection (7), which
provides that:
In this
section the reference to the termination of the current tenancy is a reference
to the date of termination specified in the landlord’s notice under section 25
. . .
So that for the
purposes of para (a) of subsection (3) in section 37 the termination is August
23 1985.
It is common
ground that the period between then and when they actually quitted, October 6
1985, is not material for present purposes and I need not consider that
further.
On the
evidence, which I need not read, it is common ground, I think, that the
department’s tenancy was protected by the Act. It is common ground that the
department occupied the premises for the purposes of a government department so
as to bring it within Part II of the Act; that the tenancy was terminated on
August 23 1985 by the section 30 notice on the ground of para (f). It is common
ground on the evidence that the department sent in contractors on August 25
1971 for adaptation work. I think it is common ground that under the lease the
department had a tenancy of the premises for a term of 14 years from August 23
1971. As I have already mentioned, but I say it again for completeness, it is
common ground that although it is not clear when the department actually went
into occupation of the ground-floor part of the holding their going into the
first-floor part of the holding on the 25th is regarded as going into the
premises. There is no dispute on that aspect of the matter.
Mr Mummery’s
first submission really is directed to this: that if one goes from August 25
1971 to August 23 1985 inclusive there are not 14 complete years. If one starts
from the first instant of August 24 1971 there is one day short; if it is from
August 23 1971 there are two days short. The argument in the course of the
hearing really went
day short of the 14 years that I have to consider.
Mr Mummery’s
first submission was that, although there are no helpful decisions on this
point in issue here, there are cases showing, he submits, that this type of
provision, particularly in this Act, is not to be interpreted too literally but
is to be a question of fact and degree; a court will look at the substance of
the matter and attempt a commonsense conclusion, construing the word ‘occupy’
in its normal and ordinary sense.
I have pointed
out, as he did, the similarity in language in subsection (3), condition (a) of
section 37, which mirrors the language of subsection (1) of section 23. He
pointed out and indeed took me to a case on section 23(1) as to what is meant
by the words ‘occupied by the tenant and are so occupied for the purposes of a
business’ and so on. He submitted that the approach there should be applied to
the construction of subsection (3) of section 37.
I do not think
that it is in dispute, I think it was accepted by Mr Neuberger, that the way
that the wording in subsection (1) of section 23 is to be construed should be
the construction applied to the similar wording to be found in condition (a) of
subsection (3) of section 37.
As to the
authority to which I have referred, which is Lee-Verhulst (Investments) Ltd
v Harwood Trust [1973] QB 204, that was a case where the tenant carried
on in a house the business of letting furnished rooms and services. I need not
go into very much of the detail of the case. The tenant at the appropriate time
applied under Part II of the Landlord and Tenant Act 1954 for a new tenancy on
the expiration of the existing lease. There was a preliminary issue which came
before the county court judge, the preliminary issue being whether the house
was occupied by the tenant for the purposes of business within section 23 of
the Act. The county court judge held that it was and on appeal to the Court of
Appeal he was upheld.
In the leading
judgment of Sachs LJ the passages relied upon by Mr Mummery are to be found on
p 212. After looking at the facts, which were not in dispute, at G on p 212
Sachs LJ said:
It happens
that the authorities cited to us on the meaning of the word ‘occupy’ were
largely decisions under provisions of the Rent Acts (particularly Part II of
the Rent Act 1968) and Rating Acts. It is thus as well at this stage to state
plainly that the meaning of this word can vary according to the subject-matter
of the statute, as was indeed said by Lord Denning in Wheat v E Lacon
& Co Ltd [1966] AC 577 (a case concerning the Occupiers’ Liability Act
1957). In particular, ‘occupy’ and ‘occupation’ in the Rent Act 1968 (eg
sections 70, 101 and 102) have not necessarily the same meaning as those words
have in the provisions of the Act of 1954. In the latter Act . . .
That is to say
the 1954 Act
. . . the
word ‘occupy’ has in my judgment a broader and less technical meaning than it
has in contexts where it may be necessary to differentiate possession from
occupation, to distinguish exclusive from shared occupation, to consider the
subtleties of whether a chambermaid enters by right or by courtesy, or to have
regard to niceties as between a maid coming in to make and light a fire and a
man tending an outside boiler for central heating.
Then, after
two paragraphs referring to the particular facts of this case, on p 213 at E,
the learned lord justice says:
Is there
anything in the Act of 1954 which precludes the court from giving to the word
‘occupied’ in section 23 its natural and ordinary meaning in the context of the
subject matter of that Act — a meaning which would in the set of circumstances
above described clearly lead to it being held that the tenant did occupy the
premises for the purpose of the business?
Being unable to find anything in the Act which so precludes the court, I
have come to the conclusion that this tenant did so occupy the whole of the
premises.
For reaching
that conclusion it is neither necessary nor desirable to provide a definition
of that word which would deal with all the greatly varying sets of
circumstances that can exist. As a number of elements have been taken into
account, each of a physical nature and each involving a degree of presence on
the part of the tenant personally or by goods under his ownership, it is
however as well to observe that it could be proper in some other case to reach
the same conclusion even if one or more of those elements were subtracted. For
instance if the furniture was that of the occupants or if some of the services
were not rendered or if the occupancies were not so much controlled, there
could still be an occupation by the tenant of the premises as a whole. Much
depends on questions of degree. In the end it is necessary to look at the
substance of the position as a whole and to seek to apply that common sense to
which Roxburgh J in Narcissi v Wolfe [1960] Ch 10 referred after
saying, at p 16: ‘There is a lot of law about the word ‘occupied’ but that does
not appear to me to be applicable to this Act.’
The only other
passage I think which Mr Mummery referred to, and I think rightly, is on p 215,
the penultimate paragraph in the learned lord justice’s judgment, where he is
really stating that he is applying the principles which he has been expounding in
the passages which I have read. He said:
It is however
on the previously stated basis that the court must look at the substance of the
position as a whole, take into account the various elements which have been
discussed and then come to a common sense conclusion as to whether the tenant
‘occupies’ the premises for the purpose of his business that this case should
in my judgment be determined.
Mr Mummery
also referred to the judgment of Stamp LJ at p 218:
It is no
doubt correct that if you find the same word appearing in two places in a
statute, or in several statutes covering the same subject-matter, it ought in
the absence of a controlling context to be given the same meaning.
Mr Mummery
relied on that approach which he summarised as follows: he said there are three
elements; you have to give the word its ordinary and natural meaning; second,
you have to look as a matter of substance, taking all the circumstances into
account, whether there was an occupation. I think that is a reference to the
actual physical aspect of it. In one part of the passage I read, Sachs LJ
referred to the presence on the part of the tenant personally or by goods under
his ownership. That is the physical aspect of it. Third, you have to come to a
commonsense conclusion taking all the matters into account.
Taking it a
stage further before I come to Mr Mummery’s application of that approach, he
submitted on a second authority that the intention of the party was also a
relevant matter and it was not just a matter of a physical presence either of
the tenant or his personnel or his goods, but there was a question of intention
too. For that purpose he cited the case of Morrisons Holdings Ltd v Manders
Property (Wolverhampton) Ltd [1976] 1 WLR 533. That was a case, as appears
from the headnote, where the tenants held the ground-floor shop and basement of
certain premises in Wolverhampton under an underlease, the premises forming
part of a larger structure, the Central Arcade. There was a fire, a devastating
fire according to the headnote, which occurred in the arcade and burnt it down.
It did not, in fact, wholly destroy the premises in question but made them,
certainly for the time being, unable to be used. The headnote points out that
the day after the fire the tenants wrote to the landlords suggesting that the
premises be made weatherproof and suitable for their occupation and generally
expressing their desire to resume trading there. They subsequently reasserted
their claim to occupation; they never gave up possession of the keys to the
premises and they left some fixtures and fittings on the premises after salvaging
their stock. Then the landlords purported to determine the tenancy under a
clause of the underlease. On a subsequent date the landlords gave notice to
terminate under section 25 of the Act, but the tenants applied for a new
tenancy under Part II of the Act of 1954. The landlords opposed the application
on the ground that they intended to demolish and reconstruct the premises.
There was a preliminary issue as to whether the tenants had locus standi
to apply for a new tenancy, since prior to their application they had ceased to
occupy the premises for the purposes of their business in accordance with
section 23(1) of the Act. The judge held that they had no locus standi
to make the application, since the devastating nature of the fire at the
premises justified the inference that the tenants’ absence from the premises
was permanent. On appeal the appeal was allowed, it being held:
. . . the
tenants had to show either that they were in physical occupation of the
premises for the purposes of a business carried on by them or, if events beyond
their control had led to their absence from the premises, that they continued
to assert their right to occupancy; . . .
In the leading
judgment of Scarman LJ at the bottom of p 539, he quoted from a decision of
Cross J, as he then was, in Caplan (I & H) Ltd v Caplan (No 2)
[1963] 1 WLR 1247, where the learned judge said:
I think it is
quite clear that a tenant does not lose the protection of this Act simply by
ceasing physically to occupy the premises. They may well continue to be
occupied for the purposes of the business although they are de facto empty for
some period of time. One rather obvious example would be if there was a need
for urgent structural repairs and the tenant had to go out of physical
occupation in order to enable them to be effected.
Scarman LJ, as
he then was, went on to say:
I
respectfully agree with the view of the law expressed by Cross J in the two
passages to which I have referred. I would put it in my own words as follows:
in order to apply for a new tenancy under the Act a tenant must show either
that he is continuing in occupation of the premises for the purposes of a
business carried on by him, or, if events over which he has no control have led
him to absent himself from the premises, if he continues to exert and claim his
right to occupancy.
He referred
again to Caplan and said:
The temporary
absence in Caplan (I & H) Ltd v Caplan (No 2) which did not
destroy the continuity of occupation was absence at the volition of the tenant.
In the present case the absenting by the tenants of themselves from the
premises after the devastating fire was not their choice, but was brought about
by the state of the premises created by the fire, which was none of the
tenants’ making. Nevertheless, they exhibited immediately after the fire, and
continued to exhibit, an intention to retain and to claim their right of
occupancy, and reminded the landlords from time to time . . .
Then a little
lower down on p 540 the learned lord justice said:
It seems to
me that, when events such as I have detailed arise and a tenant is faced with
the difficulties of occupation that these tenants were, it must be a question
of fact to determine whether the tenant intended to cease occupation or whether
he was not only, as the judge found these tenants were, cherishing the hope of
return, but also making quite clear that he intended to maintain his right of
occupancy and to resume physical occupation as soon as the landlords
reinstated.
In the third
judgment, that of Sir Gordon Willmer, on p 542 he said:
So far as the
law is concerned, I think it can be taken as axiomatic that in order to be in
occupation one does not have to be physically present every second of every
minute of every hour of every day. All of us remain in occupation, for instance,
of our houses even while we are away doing our day’s work. It follows,
therefore, that occupation necessarily must include an element of intention as
well as a physical element.
He then went
on to give some examples and a little lower down on the same page, between E
and F, he said:
It seems to
me that the tenants, who had been in continuous occupation up to the fire and
immediately after the fire, and who retained the intention to occupy, remained
both in fact and in law the occupiers of the premises at the relevant time.
From that
authority, and rightly so, Mr Mummery submitted that the intention of the
parties, particularly the tenants I suppose but certainly the parties, was a
real matter to consider when one is considering whether or not a certain state
amounts to occupation for the purposes of either section 23(1) or, as in this
particular case, section 37(3) para (a).
Looking first
of all to the first aspect, what I might call the physical aspect, in the
individual circumstances of this case: it is accepted and common ground that
there was physical presence on the premises from August 25 1971 until the
termination date August 23 1985. What happened thereafter is common ground and
is not material. What is said by the defendants, Royal Insurance, is that that
did not amount to a period of 14 years.
I do not think
there can be any question that as a fact the department were not in occupation
and physical occupation for the complete period of 14 years; assuming that the
14 years in question starts at the beginning of the first instant of the 24th,
there was a whole day on the 24th when there was no physical occupation. Mr
Mummery submitted on the authorities, and I do not think that this was
disputed, that occupying premises does not require there to be physical
presence every day of the period. He referred to some of the examples which
have been referred to in the two authorities which I have looked at and which
he cited, such as when a tenant moves out for structural work to be carried out
or where a tenant is prevented from continuing immediate and physical
occupation because the place has been burned down, as in the Morrisons
case, or where, as suggested by Sir Gordon Willmer, a tenant goes away on
holiday or where the tenancy may be occupied for seasonal periods because there
is a seasonal business.
It seems to me
that all those sorts of cases are different from the present case in that they
were all examples of cases where there had been physical occupation prior to
the gap or break which occurred and the real question to be determined every
time by the courts was: had the absence for that period, for whatever reason,
affected a cesser of the occupation which had already been in existence? In the present case, as I say, it is common
ground that as a physical fact the initiation of the occupation by the
contractors going in did not commence until August 25.
It is at this
stage, I think, that Mr Mummery, as I understood his argument, prays in aid the
intention of the parties as a relevant matter. Of course, from the last
authority to which I referred one sees how the courts have regarded intention
as important and a relevant consideration where the question is whether, after
a period of occupation, there is a period of absence, say on holiday or because
of structural change or, as in the Morrisons case, of a fire destroying
the premises. Whether there is an intention to retain the occupancy or return
to the occupancy would be a factor to be taken into account. But what Mr
Mummery submits here, as I understand him, is this: he submitted that the
intention of the parties, as to be gathered from the two letters initiating the
relationship of August 16 and August 19 1971, was such as to be totally
consistent with occupation by the department for the whole of the 14 years; the
14 years meaning thereby 14 years preceding the determination, that is to say
from immediately after midnight on the 23rd, starting at the beginning of
August 24 1971. He argued that the landlords were prepared to allow the
building works to commence immediately and therefore there was no intention on
the part of the landlords to retain occupation themselves after August 23. He
pointed, in support of that view, of course, to the subsequent execution of the
lease when the term under the lease provided for the tenancy to begin from
August 23 1971 and that on that date, according to the terms of the lease, the
department were entitled to exclusive possession. He submitted that the
landlord might be estopped from denying that. That seems to me to be a
different point, as to whether there was in fact occupancy from August 23. He
went on to submit that it was a common intention of both the Royal Insurance
and the department, from that correspondence, that there should be occupation
on the 23rd, but I do not accept that on my view of the correspondence. I
cannot spell out of that correspondence, and I have looked at the relevant
parts of the letters, or really on the terms of the lease which was ultimately
executed which provides for a term on August 23 1971, any intention that the
department should enter into occupation on August 24 1971. With no actual
physical occupation, as I have said, until the 25th and, as I see it, nothing
to show there was an intention of either party that the occupation should start
on the 24th as distinct from the 25th, it seems to me that Mr Mummery does not
get over the hurdle that at best the period of occupation was 13 years 364
days; that is to say August 24 1971 was a date when the department were not in
occupation.
That view was
reinforced by a submission of Mr Neuberger as follows. He pointed out that the
effect of the correspondence, the two letters in question, was that there was
‘an arrangement’ between the parties that there would be an agreement subject
to contract for a lease and an understanding that subject to the contract the
department would come into the premises — the workmen would anyhow — on August
25, but the work that was undertaken at that time was still subject to the
approval of the landlord. He submitted on the proper construction of that
position that at that time, on the exchange of those letters, there was no
binding agreement between the parties for a lease and that there was no binding
agreement under which the workmen went in. He said the situation did not really
change until August 25 when the workmen went in. He conceded that after the
workmen went in, by consent on the 25th, either side might be estopped from
saying that there was not an agreement to grant a lease on the terms in the
letter, but the powerful part of the submission was that at least until that
happened the landlords were in the position to withdraw if they received a
better offer and let the premises to another tenant. Indeed Mr Neuberger
pointed out that that position was true both ways. Either side could have
withdrawn at that stage.
That
submission seems to me to have considerable force and I regard it as supporting
the view I have already indicated, that on his first argument Mr Mummery does
not get over the hurdle that at best the period of occupation was one day short
of the 14 years required by condition (a) of subsection (3).
To get over
the difficulty of the shortness of the period of occupation because there was
no actual physical occupation on August 24, and, as I hold, no intention of the
parties that the defendants should enter into occupation before the 25th, Mr
Mummery put forward a second argument. This was a de minimis argument.
He pointed out that 14 years (and I accept his arithmetic without having
checked the figure) is 5,106 days, and if one regards one day or two days as
the time when there was no occupation, that is to say the 23rd and 24th, or
just August 24, that is only one or two in five thousand odd when in
occupation. He submits that the court should apply a de minimis rule to
say that in substance that period of time, that is to say 13 years 364 days,
was 14 years.
On this aspect
of the case, which was really his second main submission, Mr Mummery submitted
that there must be a presumption that Parliament intended to produce a
reasonable
He submitted that it would be unreasonable to deprive the department of 14
years’ compensation on the grounds that they were not in occupation for one or
two days as the case may be. The intention of Parliament, he submitted, was
that the longer period qualified for, if it were qualified for, should get the
larger compensation.
He referred me
to two cases in support of his view that the courts dealing with this question
of compensation for a termination of a business tenancy under the 1954 Act have
adopted, and should adopt, a favourable approach to the tenant in dealing with
cases that arise under the provisions of section 37. The first one was that of Cardshops
Ltd v John Lewis Properties Ltd [1983] QB 161. That was a case,
however, in which the construction to be given to the concluding words of
subsection (1) of section 37 was in issue. Put shortly what had happened was
that there had been a termination pursuant to the Act of a business tenancy.
Between the date of termination and the date when the tenant actually quitted
the premises there had been a change in the extent of the value of the
multiplier so there was a difference in value between what the tenant would be
entitled to as compensation if it was to be determined as at the date of the
termination of the tenancy, or at the time at the date of actually quitting.
The majority view decision of the Court of Appeal was that the relevant date
was the date when the tenant actually quitted, so the tenant had the benefit,
as it turned out, of a higher rate of compensation, the relevant multiplier
being a larger one at that date than at the date of the termination.
This was
simply a case, in my judgment, of a question of the construction to be given to
the concluding words of subsection (1) of section 37:
. . . shall
be entitled on quitting the holding to recover from the landlord by way of
compensation an amount determined in accordance with the following provisions
of this section.
Waller LJ, who
gave the leading judgment, said, having found in favour of the tenant, allowing
the appeal:
In my
judgment the law to be applied in cases such as the present is the law at the
date at which the tenant is obliged to quit, in this case June 29. I might add
that I do not see any injustice to the landlord in such a conclusion. The
policy of the Landlord and Tenant Acts is to hold the balance between landlord
and tenant with an obligation on the landlord to pay compensation (and I assume
fair compensation) when the tenant is dispossessed. If the unamended law was
not achieving fairness I do not see that the landlord suffers injustice by
having to pay what Parliament views as proper compensation.
I was also
referred by Mr Mummery to the observations of Ackner LJ in the concluding part
of his judgment on p 179:
Moreover, if
the date specified in the landlord’s notice for the termination of the tenancy
is to be the appropriate date for the assessment of compensation, or the
earlier date of the notice itself, then it could properly be argued that cases
will occur where the apparent intention of the legislation would be frustrated
and hardship would be suffered by the tenant. Parliament intends that the
tenant should be properly compensated for the disturbance in having to vacate
the premises, and the clear inference is that Parliament considered that by the
beginning of 1981, if not earlier, the compensation which was then available
was far too low. Accordingly, if for example the tenant succeeded at first
instance in obtaining a new tenancy, but in a Court of Appeal it was
established that the court was precluded from granting that new tenancy on
ground (e), (f) or (g) of section 30(1), such a decision might well have only
been made a year or more after a new multiplier had come into force. When the
tenant is then obliged to quit, is his compensation to be on the out-of-date
scale?
A choice had
to be made by Parliament as to whether the tenant was to be entitled to the
tariff operating on the date when he lawfully quits (or should have quitted, if
he wrongfully stayed on), or whether the new tariff should not apply in cases
where the landlord’s section 25 notice had been previously served, or where the
date for the termination of the tenancy specified in that notice had passed.
Since Parliament could have, but did not make any special provision for
suspending the operation of the new tariff once it came into force I agree with
Slade J and Walton J . . .
that was a
reference to quotations from two judgments
. . . that
the tenant is entitled to the prevailing rate of compensation upon his quitting
the premises.
Mr Mummery,
after reading those passages to me, said that was a signpost as to how section
37(2) should be interpreted; that is to say, not absolutely literally. I do not
accept that submission on the basis of that case. In section 37(3)(a), as I
think I have already indicated, it seems to me that Parliament has made its
intention perfectly clear. It provides for a period of 14 years and not only
does it provide for a period of 14 years immediately preceding the termination
to be the qualifying period for the higher rate under para (a) of subsection
(2), it says: ‘during the whole of the fourteen years immediately preceding’,
emphasising in my mind that there must be a complete 14 years. Cases have
arisen, of course, where the occupancy had been broken in the ways I have
indicated; they give rise to the question of whether the break that occurs
causes a cesser of the occupation. But that question does not arise when the
occupation has not yet commenced.
I was also
referred, again in support of the submission that the courts adopt a favourable
approach to the tenants in dealing with these provisions of this Act, to the
case of Edicron Ltd v William Whiteley Ltd [1984] 1 WLR 59. I do
not propose to go over that case for present purposes. That was a case in which
again a question of construction arose, the question whether or not the word
‘premises’ in condition (b) of subsection (3) has the same meaning or was to be
read in the same way as ‘premises’ in condition (a). I did not find that I got
any assistance in the present case from that case.
In my
judgment, Parliament having made very clear, as I see it, in its language that
its intention was that to qualify for the higher rate of compensation under
para (a) of subsection (2) of section 37 a tenant must establish occupancy for
the purposes of a business for the whole period of the 14 years immediately
preceding the termination, it seems to me that it would not be right for a
court in those circumstances to apply, as Mr Mummery submitted that the court
should, if the court came to the conclusion that there was no occupancy on the
24th, the de minimis rule in a case such as this where there has, in
fact, not been physical occupation for the whole of the 14 years, and a case
incidentally where, as I have already held, there was nothing to indicate that
it was the intention of either party that there should be an occupation before
August 24.
In the result,
in my judgment the department, the plaintiffs, do not qualify for compensation
at the higher rate provided for in para (a) of section 37(2) because their
occupancy of the premises in question failed to meet condition (a) of
subsection (3) of section 37. Accordingly the compensation payable is £161,665,
a sum which has in fact already been paid, and is not £323,330 contended for by
the defendants and I so hold.
Judgment for
defendants with costs.
