Leasehold Reform Act 1967 — Tenants’ rights to enfranchisement — Appeals by landlords from county court decision in favour of tenants’ claims — Common ground that tenants in each of the four cases possessed all the necessary qualifications for enfranchisement subject to the determination of one disputed question: were the tenancies ‘at a low rent’ within the meaning of section 4(1) of the 1967 Act? — Tenancies had been granted in 1948, so that the proviso to section 4(1) became applicable, making it necessary to decide whether at the commencement of the tenancies the rents exceeded two-thirds of the ‘letting value’ of the properties — If the landlords could establish this point (and the onus was on them) the tenants’ claims to enfranchisement would fail — The facts were that the four properties concerned in these proceedings had each been let at an annual rent of £200, with premiums in two cases of £1,500 and in the other two of £1,250 — Expert evidence accepted by the county court judge was that it would have been difficult to let the subject premises at rents substantially over £200 per annum and that no one would have been prepared to pay a rent of £300 — A rent tribunal in 1949 had in fact determined rents of less than £200, except in one case where the reasonable rent fixed was £220, and had in effect ordered repayment of the premiums by instalments — Tenants’ submission, in reliance on the Court of Appeal decision in Manson v Duke of Westminster, was that the ‘letting value’ included both the actual rent and the decapitalised value of the premium — Landlords submitted that the Manson case could be distinguished, mainly on the ground that it was only in cases where (unlike the present cases) the whole of the premium represents the capitalised difference between the actual rent and the best rent that the rental equivalent of the premium can properly be added in toto to the rent — The majority of the Court of Appeal rejected this submission and also a subsidiary one that the premiums should be decapitalised at 7% instead of 8% — Sir George Waller, dissenting, would have held that the letting value should be the 1948 market rent as determined by the county court judge at less than £300 per annum — Appeal dismissed but leave given to appeal to the House of Lords on terms as to costs
These were
appeals by the landlords, the trustees of the estate of the late second Duke of
Westminster, from decisions of Judge Parker QC at the West London County Court,
in favour of tenants of houses in Burton Mews, Belgravia, London, part of the
Grosvenor Estate. Judge Parker declared that the respondents, Sir Charles
Collier Johnston, Margaret Voggenauer, Alec Elijah Malnick and John Williams,
were entitled under Part I of the Leasehold Reform Act 1967 to acquire the
freeholds of the houses of which they were tenants.
David
Neuberger (instructed by Boodle, Hatfield & Co) appeared on behalf of the
appellants; Kenneth Farrow represented all the respondents (instructed by
Theodore Goddard & Co on behalf of Sir Charles Johnson; by Macfarlanes on
behalf of Margaret Voggenauer and A E Malnick; and by Compton Carr on behalf of
J Williams).
Giving
judgment, ACKNER LJ said: In each of these four appeals the appellants,
referred to hereafter as ‘the landlords’, are the trustees of the will of the
late second Duke of Westminster. The respondents, referred to hereafter as ‘the
tenants’, are tenants of houses in Burton Mews, Belgravia, London. On October
25 1984, at the West London County Court, His Honour Judge Parker QC declared
that the respondents were entitled by virtue of Part I of the Leasehold Reform
Act 1967 to acquire the freehold of the houses the subject-matter of their
underleases.
The issue
raised by these four appeals, which have been admirably argued on both sides,
is a short one. In each case it was common ground that the tenant satisfied all
the requirements of the 1967 Act entitling him to the freehold of his premises,
with but one exception — were the tenancies and each of them at a low rent?
The facts were
undisputed. Burton Mews forms part of the Grosvenor Estate and during the
second world war the premises suffered considerable neglect and war damage. On
July 14 1947 the second Duke of Westminster granted leases of all four
properties to a company called Hedgehope Estates Ltd for terms of 37 1/4 years
from Michaelmas 1946 at very low rents, Hedgehope undertaking to reconstruct,
repair and decorate. About one year later, that is between June and November
1948, Hedgehope having carried out certain work on the premises granted
underleases to the four properties to separate tenants, for terms varying
between 35 1/4 and 35 1/4 years, less three days, each at an annual rent of
£200, and in the case of 8 and 8a Burton Mews with premiums of £1,500. In the
case of 5a and 9 Burton Mews the premiums were £1,250. Only one of the original
underlessees, namely Mr John Williams, is still in occupation and he is the
applicant in respect of 9 Burton Mews.
In December
1949, pursuant to the Landlord and Tenant (Rent Control) Act 1949, the Chelsea,
Holborn and Westminster rent tribunal assessed the ‘reasonable rent’ for all
four properties — £185 per annum in the case of 5a, £195 per annum in respect
of both 8 and 8a, and £220 per annum in respect of 9 Burton Mews. The tribunal,
in further pursuance of the terms of that Act, decapitalised the premiums and
in effect ordered that they be repaid over the remainder of the term by
instalments, thereby further reducing the rent to be paid by the tenants. Some
time in the 1960s Hedgehope surrendered their leases. It is common ground that
as at the commencement of each of the underleases, that is in 1948, Hedgehope
were entitled to charge the rents reserved in the underleases and to receive
the premiums which they obtained. That entitlement was, however, shortlived,
having regard to the terms of the 1949 Act.
On varying
dates in 1981 notices under the 1967 Act were served on the landlords by the
four tenants and replies were served denying in each case that the tenants were
entitled to acquire their freehold on the grounds that each tenancy was not a
tenancy ‘at a low rent’.
The definition
of ‘low rent’ is to be found in section 4(1) of the 1967 Act. It provides as
follows:
For the
purposes of this Part of this Act a tenancy of any property is a tenancy at a
low rent at any time when rent is not payable under the tenancy in repect of
the property at a yearly rate equal to or more than two-thirds of the rateable
value of the property on the appropriate date or, if later, the first day of
the term. Provided that a tenancy granted between the end of August 1939 and
the beginning of April 1963, otherwise than by a building lease . . . shall not
be regarded as a tenancy at a low rent if at the commencement of the tenancy
the rent payable under the tenancy exceeded two-thirds of the letting value of
the property (on the same terms).
It is the
landlords’ contention that in each of these applications the rent payable under
the tenancy at its commencement (£200) exceeded two-thirds of the letting
value, ie the letting value of each property in 1948 was less than £300. It is
common ground that it is for the landlords to establish that, for by section
4(5) the proviso in section 4(1) does not apply until the contrary is shown.
With
characteristic lucidity Lord Denning MR, in the case of Gidlow-Jackson v
Middlegate Properties Ltd [1974] QB 361 at 370B explained the reason for
the proviso to section 4(1) of the 1967 Act. He said:
Before the
war [rating] valuation lists were made every five years. The latest list
prepared for London was for the year 1935. In 1939 the war came and more urgent
matters needed attention. No new valuation lists were made for the 21 years
from 1935 to 1956. In 1956 new lists were made but these were based, not on
1956 values but on 1939 values. In 1963 there were new lists based on current
values, and these came into force on April 1 1963. These new lists reflected
the tremendous increase in rents since 1935, and particularly since the war.
He then
referred to the premises which were the subject matter of the appeal. Their
rateable value was £66 in the 1935 list and remained at £66 until the 1963 list
came into force on April 1 1963. The rateable value was then increased to £182,
which was the rateable value on March 23 1965 — the appropriate day for the
purposes of section 4(1) — apart from the proviso. He continued:
Now
two-thirds of £182 is £121. Apart from the proviso, therefore, every long lease
— granted 30 or 40 years ago — which reserved a rent below £121 would be a ‘low
rent’ and entitled the tenant to buy the freehold. That would be most unfair to
the landlord. Inflation had caused rents to rise rapidly over the last 30 or 40
years. Take this very case. In 1950 the rack rent of number 82 Hereford Road
was £90 per year. That was not at that time a low rent or a ground rent. It was
a rack rent. The legislature never intended to grant rights to lessees at rack
rents, but only to lessees at ground rents. The Act proceeded on the principle
that, when a lease is granted at a ground rent ‘the land belongs in equity to
the landowners and the house belongs in equity to the occupying leaseholder’:
see Leasehold Reform in England and Wales (1966) (Cmnd 2916) p4 para 4.
In order to protect the landlord, therefore, the legislature inserted the
proviso to section 4(1). Instead of taking the rateable value at March 23 1965,
ie in this case £182, you had to take the ‘letting value’ at the commencement
of the tenancy, ie in this case at August 5 1953. If the rent payable under the
tenancy was less than two-thirds of the ‘letting value’ at that time, then it
was a ‘low rent’ and not otherwise.
The tenants’
cases were simple. It is well established that the payment of a premium is not
one of the ‘terms’ of the lease, but the consideration for the grant of the
lease: See Hill v Booth [1930] 1 KB 381. It is common ground that
the ‘letting value’ of a property is its value to the landlord. Further, to
effect the comparison required by the proviso, this value has to be expressed
in annual terms. Its value to a landlord is what he is paid for it by his
tenant, and all that he is paid. It thus includes not only the rent, but any
other consideration — certainly any other consideration in cash — which the
landlord would get for the letting. In so submitting, the tenants were relying
on the judgment of this court in Manson v Duke of Westminster
[1981] QB 323, and in particular on the language of Stephenson LJ at pp 328C-D
and 327E. If the premiums are decapitalised, that is converted by the
appropriate calculations into annual equivalents spread over the term, then the
resultant sum when added to the rent equals, or exceeds, in each case £300.
The landlords
called expert evidence as to the rent at which the premises could have been let
in 1948. Their expert produced a report in which he stated:
It would have
been difficult and imprudent to let the subject premises in 1948 at a rent
substantially over £200 per annum, as this in my view would have been insecure.
By ‘insecure’
he meant that there would be a real risk of default in payment of the rent if
the rent were fixed at too high a figure. This view was disputed by the
tenants’ expert. However, the learned judge accepted the landlords’ expert’s
evidence and in particular the opinion which he expressed in re-examination
that no one would have been prepared to pay a rent of £300 per annum in Burton
Mews in 1948.*
*Editor’s
note: The landlords’ expert was Mr A F Crane FRICS, a partner of Cluttons. The
tenants’ expert was Mr C S R Marr-Johnson FRICS, senior partner of Marr-Johnson
& Stevens.
Although I am
bound to confess that I find the learned judge’s acceptance of the landlords’
expert’s evidence somewhat puzzling, in view of the terms of the underleases
actually entered into in 1948 and the size of the premiums actually paid in
respect of all these four properties, there is no cross-appeal. It is
essentially this feature of the evidence which has in effect given rise to the
issues of law raised in these appeals. The learned judge in his careful
judgment said that if he had had to answer the question, ‘Were these tenancies,
or any part of them, tenancies which at their commencement were let on terms
and at a rent which exceeded two-thirds of the market rent for a form of
tenancy on the same terms?’, the answer would be ‘Yes’. He concluded, however,
that that was not the question he had to answer. The words are not market rent,
rack rent or reasonable rent. The words are ‘letting value of the property’ and
that has to be considered to the commencement of the tenancy. Moreover, it is
the letting value to the landlord that is all important. He referred to the
judgment of Stephenson LJ in Manson’s case, and considered that in the
circumstances he had no alternative but to decapitalise the premiums, thus
achieving the result that in each case the applicants were entitled to acquire
their freeholds.
Mr Neuberger,
in an admirable argument for the landlords, has sought to distinguish Manson’s
case. It is therefore important to see what were the issues in that case and
how it was decided. By a lease dated July 12 1945 the landlords granted the
tenant’s predecessor in title a term of 40 1/2 years from September 29 1945 at
an annual rent of £100. The rent of £100 was the standard rent and was
accordingly the maximum which the landlords were permitted to charge. They
were, however, entitled when they granted the lease to take a premium, since
they were granting a lease for more than 14 years. They accordingly required,
in addition to an undertaking to carry out tenant’s repairs, a ‘cash payment
(representing part of the annual value capitalised)’. It was agreed that the
tenant would have signed an acceptance of their offer of the 1945 lease in
those terms. The landlords did not challenge, and the judge accepted, the
evidence of an experienced valuer and chartered surveyor called by the tenant,
that 7% was the equivalent percentage to apply to a premium in order to obtain
its annual equivalent by decapitalisation, and that to produce by this means
the £50 per year necessary to keep the £100 per year rent down to two-thirds of
the sum of these two amounts, the minimum amount required as capital premium
was £581. It was further conceded by the landlords ‘that they could not call
evidence to discharge the burden imposed on them by section 4(5) of proving
that less than £581 could be lawfully exacted from a tenant on the open market
on September 29 1945’ (p 327).
The court was
bound by an earlier decision of the Court of Appeal — Gidlow-Jackson v Middlegate
Properties Ltd [1974] QB 361. In that case it was held that the ‘letting
value of the property’ for the purpose of the proviso could not exceed the
amount of rent lawfully exigible by the landlords under the Rent Act. The lease
there concerned had been granted in 1952, at which time it would have been
lawful for a landlord to require the payment of a premium on a lease of
whatever length. Thus, the court was not concerned with, and did not have
present to its mind, the complications arising from a premium having been paid
by the tenant on the grant of the lease concerned, or of the landlords, though
constrained by the Rent Acts with regard to the maximum amount of rent exigible
by them, being lawfully entitled to require the payment of a premium on the
grant of a long lease of the property.
The landlords’
contention in the Manson case was that the rent of £100 per year payable
under the lease was in fact the maximum rent which could have lawfully been
obtained; accordingly, on the authority of the Gidlow-Jackson case the
premises were not let at a low rent. The tenant’s case was that the letting
value means the whole consideration for which the landlords could
have let the property on the open market, including a premium in addition
to the rent. Accordingly, by adding to the rent of £100 the decapitalisation obtainable
premium, the total obtainable consideration exceeded the minimum amount
required to prevent the £100 exceeding two-thirds of that consideration. Thus
the tenant’s right to acquire the freehold rested on the single question,
whether the court could take into account a premium in assessing ‘the letting
value of the property’. Stephenson LJ, at p 327E, said:
My first
impression was that the court can and should take it [the premium] into
account, as the judge did, because the natural and ordinary meaning of the
words would not be limited to the rent but would include any other
consideration — certainly any other consideration in cash — which the landlords
would get for letting the house.
The
expression is not defined in the Act. The industry of counsel has not found it
in any other statute. The expression ‘the lettable value in relation to any
premises’ occurs in section 28(1) of the Liabilities (War-Time Adjustment) Act
1941, as substituted by section 6(2) of the Liabilities (War-Time Adjustment)
Act 1944, where it was defined as —
‘. . . . the
rent at which in the opinion of the court the premises might reasonably be
expected to let, or, as the case may be, might reasonably have been expected to
let, under a tenancy for one year granted upon the same terms and conditions
(so far as applicable) as those upon which the debtor is holding the
premises.’ See In re Davey [1947]
1 All ER 90.
But ‘the
letting value’ is not an expression of legal art as Stamp LJ said in Gidlow-Jackson
v Middlegate Properties Ltd [1974] 1 QB 361, 376: and though he went on
to use ‘letting value’ and ‘lettable value’ as apparently convertible terms, I
derive no more help from the definition in the Act of 1944 than from the
absence of any definition in the Act of 1967. In that case, this court held
that the letting value of the property could not exceed the amount of rent at
which the property could lawfully be let and the standard rent was the letting
value. But there was no premium for the lease granted in that case and no
possibility of lawfully exacting it and so no question whether a premium could
be included in that value was raised or considered, let alone decided. Unhelped
and unhampered by any statutory definition or judicial authority I would have
thought a landlord who had been paid a good-sized premium by the tenant of his
property would be astonished if he were told by an estate agent or his legal
adviser, or by a judge, that the letting value of the property was confined to
the rent. That value is what the property would be worth to him if he let it:
and I agree with Mr Farrow for the tenant that if the landlord had asked an
estate agent what it would be worth to him if he let it, the estate agent would
surely reply: ‘You can get a rent of no more than £100 a year, but you can
charge a premium if you are prepared to give up possession of it for 14
years.’ The letting value of a property
is its value to the landlord in annual or perhaps other periodic terms. Its
value to him as a landlord is what he is paid for it by his tenant, and all
that he is paid. . . .
Towards the
end of his judgment, having dealt at some length with the detailed submissions
made on behalf of the landlords, he said:
I return
therefore to Lord Wensleydale’s golden rule cited by Lord Blackburn in River
Wear Commissioners v Adamson (1877) 2 App Cas 743, 764:
‘. . . that
we are to take the whole statute together, and construe it all together, giving
the words their ordinary signification, unless when so applied they produce an
inconsistency, or an absurdity or inconvenience so great as to convince the
court that the intention could not have been to use them in their ordinary
signification, and to justify the court in putting on them some other
signification, which, though less proper, is one which the court thinks the
words will bear.’
It may be
that in inserting the proviso to section 4(1) and replacing the value to the
tenant (rateable value) by the value to the landlord (letting value) as the
basis of distinction between high and low rents Parliament gave inadequate
consideration to that alternative basis and to an important class of tenancies
within which this tenancy and (we are told) a number of others granted by these
landlords fall, and, like this court in Gidlow-Jackson v Middlegate
Properties Ltd [1974] 1 QB 361, did not have premiums in mind. In doubt
whether it did or did not, the right course for the courts is to apply the
golden rule. Its application leads to no inconsistency or absurdity or
inconvenience so great as to be contrary to Parliament’s intention. Not to
apply it would have the absurd result of making a property which could be let
at £100 a year with a premium of £2,000 of equal letting value to another
similar property which could be let at £100 a year with no premium. Either
construction may give rise to anomalies but to none greater than that. Balancing
them as best I can I conclude that the judge was right to come down in favour
of what I agree is the natural meaning of the proviso. I would accordingly
dismiss the appeal.
Thus it seems
abundantly clear that Stephenson LJ was deciding that his first impression was
the correct impression and that the natural and ordinary meaning of the words
‘the letting value of the property’ is not limited to the rent, but includes
any other consideration in cash which the landlords get for letting the house. Sir
David Cairns agreed that the appeal should be dismissed for the reasons given
by Stephenson LJ.
Mr Neuberger
seeks to persuade us that the natural and ordinary meaning of the words as
decided in Manson’s case is not binding upon us where the rent restriction
legislation had, as in these appeals, no incidence at all. In such a case, the
letting value is the market rental value and accordingly, on his expert’s
evidence, as accepted by the learned judge, he succeeds. I do not follow how
the natural and ordinary meaning of the relevant words can be affected by the
fact that at the time when the lease was granted a ceiling had then been placed
upon the rent by statute. I entirely follow that Brandon LJ in the Manson
case, while accepting that he was bound by the Gidlow-Jackson decision,
doubted its correctness. He expressed the view that but for that decision he
would have construed ‘letting value of the property’ as being the annual rent
obtainable in the open market, irrespective of any limit imposed in the form of
a standard rent or otherwise by the Rent Acts. However, on the footing that the
court was precluded from adopting that meaning, he agreed with the view
expressed by Stephenson LJ that ‘the letting value of the property’ means the
annual rent obtainable in the open market having regard to any limit imposed by
the Rent Acts, but with an addition for the capitalised value of any premium
lawfully obtainable.
Mr Neuberger
had, however, a second ground for distinguishing Manson’s case. At p
329H Stephenson LJ said:
It is,
however, in my judgment, fallacious to conclude that the value to be compared
cannot include a lump sum capable of being decapitalised, or ‘rentalised’ (to
use Mr Nugee’s alternative). A premium is the capital value of the difference
between the actual rent and the best rent that might otherwise be obtained: King
v Earl Cadogan [1915] 3 KB 485 at p 492.
Mr Neuberger
contends that in these cases it cannot be said that the whole of the premiums
are the capital values of the differences between the actual rent and the best
rent that might otherwise be obtained, having regard to the evidence of the
landlords’ expert. He accordingly contends that it is only in the case where
the whole of the premium represents the capital value of the difference between
the actual rent and the best rent that might otherwise be obtained that it can
be added in toto to the rent in order to decide what is ‘the letting
value of the property’.
I cannot
accept this submission. Stephenson LJ in his reference to King v Earl
Cadogan (which was not a complete reference) was doing no more than
expressing the general proposition. If there are exceptional cases where a
tenant is prepared to pay a premium but is not prepared to pay by way of annual
rent the decapitalised premium in addition to the actual rent, the value to the
landlord is still the actual rent paid and the premium so long as it is paid
for the letting of the house. If any part of the premium was not paid for the
letting of the house it would be for the landlord to establish this fact. The
learned judge held that there was no evidence ‘that any part of the premium
went on decorations or fixtures’. In so far as the landlords’ expert attributed
a part of the premium to ‘the security provided by the long lease’, or the
‘assessment of long-term capital growth’, those were clearly payments for the
particular letting. I have throughout failed, and continue to fail, to
understand why any part of the premium (described as ‘key money’), which was
paid because of the scarcity value at the material time of lettings of this
sort of property at the rents offered, is not to be taken into account as part
of the letting value of the property. To my mind, it is an inherent part, and a
very important part, of the letting value. Indeed, Mr Neuberger accepted that
the whole of the premiums represented cash considerations which the landlords
obtained for the letting of the houses.
Accordingly,
in my judgment, neither the fact that in these appeals the rents at the
material time were not restricted by the Rent Restriction Acts nor the evidence
which was accepted by the learned judge that the annual market rent was less
than £300 entitles us to depart from the natural and ordinary meaning of the
relevant words as decided in the Manson case.
So much for
the major ground of appeal. There is also a subsidiary ground. Given that it
was appropriate to decapitalise each of the premiums, this then left as the
final question the formula to be adopted for the decapitalising process. It is
common ground that this involved expert evidence. As to the remunerative rate,
or rate of interest, the learned judge preferred the evidence of Mr Crane that
this should be 5%. However, both experts accepted that to that figure there had
to be added a further 2% in respect of a sinking fund and a further 1%, because
the lease was being granted by a mesne landlord and not by a freeholder.
Apparently the explanation for this is that a mesne landlord would expect a
higher rate of return to compensate him against the risk of not being able to
pass on to the undertenant his, the mesne landlord’s, liability on his
covenants to the freeholder. Mr Neuberger resists the addition of this 1% and
does so for a good mathematical reason. If the total rate was 7% (5% + 2%) and
not 8% (5% + 2% + 1%) the landlords’ appeal in 5a and 9 Burton Mews would
succeed because the premiums were in each case £1,250. However, their appeals
in the case of 8 and 8a Burton Mews would fail because the premiums in those
cases were £1,500. He contends that it was inappropriate to decapitalise the
premiums at a rate suitable for underleases, although he accepted that the
tenancies in question were underleases. He maintained that the concept of
‘letting value’ was a hypothetical one and should not be determined by
reference to the precise relationship in the instant case between the
landlord and the tenant. I accept Mr Farrow’s submission that the exercise
required to be undertaken by the proviso to section 4(1) involves a comparison,
and if the actual tenancy is an underlease, the appellants’ contention does not
permit a true comparison of like with like. On the expert evidence it is
agreed, however much we may find the formula open to question, that the proper
method of transferring the capital sum to an annual sum in this case is to add
a total of 3% to the appropriate interest rate, which the learned judge found
on the evidence to be 5%. Given therefore that the right process was to
capitalise the premiums, then in the light of the agreed expert evidence I do
not think it is open to us to interfere.
I accordingly
would dismiss the appeal.
Agreeing, SIR
NICOLAS BROWNE-WILKINSON said: In these appeals the main difficulty arises from
the expert evidence given to the judge and accepted by him. The evidence (which
I find surprising) was to the effect that, where a lease is granted at a
premium, part of the premium may not represent the capitalised value of an
increased annual rent. Thus, in the present case, if the premiums are
decapitalised according to the formula agreed by the expert witnesses and the
annual sum thereby obtained is added to the rent of £200 reserved by each of
the leases, each of the properties has an annual value of over £300 per annum.
Yet Mr Crane’s evidence (accepted by the judge) was that none of the properties
could have been let at a rent of £300 per annum, even if no premium had been
charged. The question therefore is whether for the purposes of the proviso to
section 4(1) of the 1967 Act ‘the letting value’ includes the whole of the
premium which could have been obtained or only so much of it as truly
represents capitalised rent.
In the light
of the experience which has been gained over the years, were the matter free
from authority, I would hold that the words ‘letting value of the property’ are
to be construed as follows:
(1) The letting value is the open market annual
rent obtainable for the property at the date of the lease; (2) to the extent
that the Rent Acts precluded the landlord from obtaining such open market rent
(whether by way of annual rent or by way of premium) the letting value is
restricted to the maximum annual sum which could have been obtained either by
way of rent or by way of premium representing capitalised rent; (3)
accordingly, in a case such as the present, where the Rent Acts did not apply
at the date of the lease, the letting value does not include any part of a
premium which could have been obtained but which did not represent capitalised
rent.
Shortly
stated, my main reasons for favouring that construction are as follows:
(A) The comparison in the main part of section
4(1) is between two rental values, the rent actually reserved and the net
annual value for rating. It would to my mind be surprising if the basis of
comparison under the proviso was to be quite different so as to require a
comparison between the rent actually reserved and (in part) a decapitalised sum
of which part at least does not represent an annual rent; (B) the words ‘the
letting value’ are also used in section 15(2) of the 1967 Act as the measure of
the rent to be reserved on the grant of an extended lease. In section 15(2) the
words ‘the letting value’ plainly refer only to rent in the strict sense as an
annual sum and cannot include any value not expressible in terms of an annual
rent.
I am satisfied
that there is binding authority which precludes me from relying on either of
those reasons. As to reason (A), both the judgment of Stamp LJ in Gidlow-Jackson
v Middlegate Properties Ltd [1974] QB 361 at p 375 and the decision of
this court in Manson v Duke of Westminster [1981] QB 323 show
that ‘the letting value’ does not fall to be assessed on the same basis as the
rateable value. Moreover, as the judgment of Ackner LJ demonstrates, in the Manson
case the whole court (although Brandon LJ only because he felt bound so to do)
held that the natural and ordinary meaning of the words ‘letting value’
included not only rent but any other consideration which the landlords could
get for the letting of the house. If that is the natural and ordinary meaning
of the words in the statute, they cannot have a different natural and ordinary
meaning dependent upon whether the property was or was not subject to the Rent
Acts at the time of the lease.
As to reason
(B), in the Manson case Stephenson LJ (at p 330) considered the use of
the words ‘the letting value’ in section 15(2) but held that there was nothing
in that subsection to restrict the meaning of those words in section 4(1).
Accordingly, I feel bound by authority to reach the same conclusion as Ackner
LJ on the main point argued on the appeal.
As to the
subsidiary point related to the decapitalisation of the premium, I agree with
the judgment of Ackner LJ.
Dissenting,
SIR GEORGE WALLER said: The principal difficulty which arises in this case is
to reconcile the acceptance of Mr Crane’s evidence by the judge that it would
be difficult and imprudent to let the subject premises in 1948 at a rent
substantially over £200, and that nobody in 1948 would pay £300, with the
judge’s finding that the whole premium should be decapitalised using the table
which both surveyors agreed was the correct one, thus making the letting value
£300. If the former proposition was correct the landlords should have
succeeded, but if the latter was correct then the tenant succeeded.
The decision
depends on the meaning of the phrase ‘letting value’ in the proviso to section
4(1) of the 1967 Act. The phrase ‘letting value’ is to be contrasted with
‘rateable value’ in the earlier part of the section. As Lord Denning explained
in Gidlow-Jackson v Middlegate Properties Ltd at p 370, letting
value was to take the place of rateable value in the test, because rating
valuation lists were out of date in the years following the war. In Gidlow-Jackson’s
case (at p 375) Stamp LJ said: ‘I think it [letting value] means quite simply
the rent which a landlord could have obtained in the market if he had offered
the property for letting on the terms of the lease.’ Megaw LJ, in an unreported case [Church
Commissioners for England v Woods, June 2 1970], said [at p 8 of the
transcript]: ‘The letting value, . . . has to be taken as the rent which would
have been obtainable at the relevant time in the open market between a willing
potential landlord and a willing potential tenant.’ In the Gidlow-Jackson case both Lord
Denning and Roskill LJ equated letting value with rent. Brandon LJ in Manson’s
case would have taken a similar view if he had felt free to do so.
If Mr Crane is
right about the market rent, it must follow that any decapitalisation which
reaches a different result cannot be right. There cannot be any change in the
interest rate because both surveyors agree the appropriate rate. The only other
way to reconcile would be to decapitalise only part of the premium, ie a
substantial part of the premium was paid which both parties intended should
lead to a reduction in rent and that there was a balance paid not for fixtures
and fittings but for initial possession. If, for example, the rent of the
property had been £275, it would have been difficult to argue that a premium of
£300 should be decapitalised. The effect of Mr Crane’s evidence was that some
consideration could be given to premiums if they were attributable to rent, but
not otherwise. In his view not in this case.
In the case of
Manson v Duke of Westminster this court took into account the
whole of the premium. The facts were that the house was let at a rent of £100
per year plus a premium of £500 ‘representing part of the annual value
capitalised’. There was no evidence of what the market rent would be.
Stephenson LJ, early in his judgment, said: ‘My first impression was that the
court can and should take (the premium) into account, as the judge did, because
the natural and ordinary meaning of the words would not be limited to the rent
but would include any other consideration — certainly any other consideration
in cash — which the landlords would get for letting the house.’ And later on he said: ‘Counsel’s argument has
not altered my first impression. . . .’
On the facts of that case, where it had been specifically stated in the
contract that the premium represented the capitalisation of part of the annual
value, it must follow when ascertaining the letting value that that part of the
annual value should be added to the rent actually paid. If anything is to be
decapitalised it must include that which was capitalised. Stephenson LJ’s words
as recorded applied to all premiums, but the facts in that case did not raise
the possibility of a premium that was not wholly or in part capitalisation of
the annual value. Nor did the court have to consider evidence which had been
accepted that nobody would pay £300 a year for the house.
In the Manson
case Sir David Cairns agreed with the judgment of Stephenson LJ. Is this court
bound by the decision on the facts of this case? The judge having accepted the evidence that
nobody would pay £300 per year for this house in 1948, I would be prepared to
hold that in so far as the words of Stephenson LJ went further than was
necessary for the decision in that case, they are not binding. I would hold
that, having regard to the evidence that the market rent in 1948 would be less
than £300, that market rent would be the letting value and accordingly this
appeal should be allowed. If I am wrong I agree with my Lords on the second
question raised.
The appeal
was dismissed with costs. Leave was given to appeal to the House of Lords on
terms that the orders for costs in the Court of Appeal and below should not be
disturbed.
