Landlord and Tenant Act 1954–Questions as to determination of an interim rent under section 24A in a case where the demised premises were in a serious state of disrepair–Works required to eradicate extensive dry rot–Construction of section 24A–English Exporters (London) Ltd v Eldonwall Ltd preferred to Regis Property Co Ltd v Lewis & Peat Ltd, although no actual decision required on this construction point–Main issue effect of disrepair on interim rent–County court judge in error in holding that disrepair was not to be taken into account–Whether court has power under section 24A to fix a differential rent, eg a rent not to come into operation until works of repair are carried out, or to be increased on completion of works or otherwise takes account of state of repair–Held that court has such power, Goff LJ expressing doubt but not dissenting–No doubts in relation to determination of new rent under section 34–Some observations of importance to valuers in such cases–Appeal allowed
This was an
appeal from the determination of an interim rent under section 24A of the
Landlord and Tenant Act 1954 by Judge Corcoran at the West London County Court.
The appellant, Leslie A Fawke, a solicitor, had a tenancy of offices at 27
Sloane Square, London SW1. The respondent, Viscount Chelsea, was the
freeholder. The respondent applied under section 24A for the determination of
the interim rent following an application by the appellant for a new tenancy.
The judge determined an interim rent of £3,450 per annum and the appellant
appealed to the Court of Appeal. The judge had also fixed a rent of £3,950 for
the new lease and the appellant sought to challenge this determination likewise
in his notice of motion.
Patrick Ground
(instructed by Leslie A Fawke) appeared on behalf of the appellant; W Poulton
(instructed by Lee & Pembertons) represented the respondent.
Brandon LJ, a
member of the court who heard and decided the appeal, was absent when the
judgments were delivered.
Giving the
first judgment at the invitation of Stephenson LJ, GOFF LJ said: This is an
appeal from a judgment given on March 15 1978 by Judge Corcoran in the West
London County Court, whereby he determined an interim rent under section 24A of
the Landlord and Tenant Act 1954 and the rent and terms for a new lease of
offices on the first and second floors of 27 Sloane Square, London SW1.
The applicant
for a new tenancy under Part II of the Landlord and Tenant Act 1954 was the
tenant, a Mr Fawke, who is a solicitor and carries on his practice at the
demised premises. The respondent landlord, Viscount Chelsea, did not oppose the
grant of a new tenancy but objected to the terms proposed by the tenant and
applied to the court for an order determining the rent which it would be reasonable
for him to pay while his tenancy continued by virtue of section 24 of the
Act–what is called in the Rules of the Supreme Court, Order 97, rule 9A and in
the cases, though not in the Act itself or in the County Court Rules, ‘an
interim rent.’ The learned judge
determined an interim rent of £3,450 and a new rent of £3,950.
The appellant,
Mr Fawke, held the premises under a sub-underlease dated November 2 1970, which
I will call ‘the tenancy,’ from a company called Soletanche Ltd for a term of
two years certain and thereafter from year to year until May 30 1975 at a rent
of £2,750 per annum. The respondent acquired the freehold on June 24 1975, on
the falling in of the most superior head lease, subject only so far as the
demised premises are concerned to and with the benefit of the tenancy, all
other relevant under leases having determined.
There was a
dispute between the parties whether the respondent was subject to any covenant
to repair. The learned judge held that he was, and by a respondent’s notice the
respondent sought to reverse that finding. Briefly, the point is that in the
grant of the tenancy, Soletanche covenanted to perform the lessee’s covenants,
which included a full repairing covenant, contained in their underlease, being
that immediately superior to the tenancy, and the respondent contends that the
liability of Soletanche under that covenant ceased when the underlease to
Soletanche expired, as it did on June 7 1975. I need not develop this any
further because counsel for the respondent has conceded for the purpose of
these proceedings only that we shall proceed on the basis that under the terms
of the tenancy the landlord is subject to a full repairing covenant concerning
the structure of the whole building including the demised premises. On the
other hand, under the tenancy, the appellant covenanted to keep the interior of
the demised premises (but excluding all load-bearing walls, roofs and floor
joists) and the sewers, drains and walls thereof in good and tenantable repair
and condition.
The tenancy
continued, of course, after the contractual expiry date, May 30 1975, by virtue
of section 24 of the Act, and on December 3 1975 the respondent served notice
to determine it on June 7 1976. On January 23 1976 the appellant served a
counternotice stating that he would not be willing to give up possession, and
on March 29 1976 he applied for a new tenancy, which he proposed should be for
14 years from June 7 1976 at the rent of £3,600 per annum, and on other terms
as stated in his notice. On April 7 1976 the respondent served notice objecting
to the proposed terms and asking the court to determine an interim rent under
section 24A.
The expert
witnesses for the two parties put forward competing figures, and the learned
judge made the assessments I have already mentioned. The major battle, however,
turned upon the fact that the building, including that part of it which
constituted the demised premises, became infested with dry rot due to many
years’ neglect of the exterior, so that it was necessary not only for extensive
external repairs to be carried out, but also very substantial internal work to
eradicate the rot and replace ruined woodwork. This, it was clear, would cause
great inconvenience to the appellant, and indeed while work was being carried
out within the demised premises he might not be able to use them at all except
for storage. There had been two serious floodings in September 1975, owing to a
blocked drainpipe, but having regard to the lapse of time these had probably
not caused or resulted in dry rot.
E St John
FSVA, who gave evidence for the appellant, and T D Fraser-Mitchell FRICS for
the respondent, met at the premises in June 1976 and endeavoured to agree
figures. Mr St John proposed £3,000 per annum for the interim rent, and Mr
Fraser Mitchell £4,350. Mr St John made a report at that time which shows that
he had not made or had the benefit of any survey, but that because of the damp
in the premises he took account of the possibility of dry rot, although as far
as can be seen he did not know whether or not it then in fact existed.
I read the
following passages from his report. Paragraph 7:
We were not
instructed to make a structural or other survey of the building and we did not
do so. In view of the water and damp penetration which has occurred and is
occurring (to which we shall presently refer again) and the age of the
building, the landlord would be well advised to check on the possibility of rot
and to take remedial steps to prevent further damage to the structure.
Then I pass to
part of paragraph 10:
We observed
that rainwater from the roof discharges into the main sewer and if the downpipe
is blocked, flooding is caused into the rear room on the second floor and
telephone room on the first floor. Also, the cladding tiles to the exterior
cause stoppage in downpipe backflow of water into the third floor, and this
backflow of water pours through the ceiling into the rear rooms second and
first floors.
Then paragraph
11 says: ‘At the time of our inspection, the skylight at the top of the
building was open to the sky and water was coming in therefrom.’
The learned
judge himself viewed the demised premises as he said in his judgment:
On Tuesday
the 21st February, 1977 at the request of both counsel I had a view of the
premises at 27 Sloane Square. I am entitled to take into account my own
impression on a view of the premises as it is a part of the evidence in the
case on which I can rely. Of course, when considering my impressions I take
full account of all the oral evidence I have heard and particularly the
evidence given by the expert witnesses.
The learned
judge also found, and here I am reading from p 4 of his judgment:
After the inconvenience
and disturbance to the two rear rooms caused by the flooding, the applicant
carried on his solicitor’s practice over this period without complaint and had
full use of all the rooms. The interior decorations were damaged to the extent
already indicated. I saw the premises and, discounting the exploratory work
done in January 1978 to assess the extent of the dry rot discovered shortly
before and some damage to the decorations caused by comparatively recent
penetration of water, the applicant’s premises were in a reasonable state.
In November
1977 dry rot was found in areas around the central light well extending from
the fourth floor down to sill level of the windows to the well on the first
floor which was due, as the learned judge found, to seepage of water for a long
period from a defective gutter. Notwithstanding the exploratory work done in
January 1978, it appears that some further dry rot may still be discovered,
because Mr Keen, an expert in the eradication of dry rot and the cure of all forms
of dampness in buildings whose evidence the learned judge accepted, said: ‘the
damp areas are areas of potential dry rot as they dry out. After an area
affected by damp begins to dry out it takes from six to 12 months before it can
be ascertained whether or not dry rot is present.’
The learned
judge said this:
He (the
witness) said that he would not be able to commence the job having regard to
present commitments until the end of April 1978; it would take 2/3 months to
complete the work of eradication; then before redecoration could commence one
month would have to elapse for the plastering to dry out. That would mean that
redecoration could not commence at the earliest before the end of August 1978,
and that is on the basis that no further extensive areas of dry rot were
discovered during the remedial work. At the expiration of six months from now
further ex-exploratory work could begin to ascertain whether there was dry rot
in those damp areas already referred to conducive to dry rot. Those areas are not
extensive and if dry rot was not found they would be replastered and could be
redecorated four weeks later. If dry rot was found, the work of eradication
would not take very long. It would be early December 1978 before the applicant
could expect to have his premises fully redecorated. The exterior work
necessary to be done would be completed in the main before Mr Keen commenced
work.
Work did not
commence as early as anticipated and we understand that much remains to be
done. The parties sought leave to adduce further evidence about this, but we
did not think it necessary to go into precise details. It was common ground
that it would seem likely to be completed before the new lease will commence.
At the trial
Mr St John resiled from his figure of £3,000 for the interim rent. He went so
far as to say that the premises were unlettable, and he proposed an interim
rent of £1,000 per annum, and further that the rent should remain payable at
that rate under the new lease until completion of the necessary works of repair
and restoration. At that time it was apprehended that the new lease would
commence before then. The learned judge rejected this contention and he
determined an interim rent of £3,450 per annum and a rent for the new lease of
£3,950 with no period of reduced rent while agreed works of rot eradication and
reinstatement were carried out.
Mr Fawke now
appeals, asking for an order substituting an interim rent of £1,000 per annum
or such other figure as the court should think fit for the period of the tenancy
covered by the said section 24A and used for the carrying out of the said
remedial and reinstatement work. Included, or intended to be included, in this
notice of motion is a challenge to the new rent also.
I must now
read section 24A and the material parts of section 34 of the Act. Section 24A
says:
(1) The landlord of a tenancy to which this Part
of this Act applies may, (a) if he has given notice under section 25 of this
Act to terminate the tenancy; or (b) If the tenant has made a request for a new
tenancy in accordance with section 26 of this Act, apply to the court to
determine a rent which it would be reasonable for the tenant to pay while the
tenancy continues by virtue of section 24 of this Act, and the court may
determine a rent accordingly. (2) A rent determined in proceedings under this
section shall be deemed to be the rent payable under the tenancy from the date
on which the proceedings were commenced or the date specified in the landlord’s
notice or the tenant’s request, whichever is the later. (3) In determining a
rent under this section the court shall have regard to the rent payable under
the terms of the tenancy, but otherwise subsections (1) and (2) of section 34
of this Act shall apply to the determination as they would apply to the determination
of a rent under that section if a new tenancy from year to year of the whole of
the property comprised in the tenancy were granted to the tenant by order of
the court.
Then section
34 says:
(1) The rent payable under a tenancy granted by
order of the court under this Part of this Act shall be such as may be agreed
between the landlord and the tenant or as, in default of such agreement, may be
determined by the court to be that at which, having regard to the terms of the
tenancy (other than those relating to rent), the holding might reasonably be
expected to be let in the open market by a willing lessor, there being
disregarded–(a) any effect on rent of the fact that the tenant has or his
predecessors in title have been in occupation of the holding; (b) any goodwill
attached to the holding by reason of the carrying on thereat of the business of
the tenant (whether by him or by a predecessor of his in that business) . . .
Subsection (3)
says:
Where the
rent is determined by the court, the court may, if it thinks fit, further
determine that the terms of the tenancy shall include such provision for
varying the rent as may be specified in the determination.
Section 24A of
the Landlord and Tenant Act 1954 (as inserted by section 3(1) of the Law of Property
Act 1969) is, as has been stated in Regis Property Co Ltd v Lewis
& Peat Ltd [1970] Ch 695 by Stamp J, as he then was, and by Megarry J,
as he then was, in English Exporters (London) Ltd v Eldonwall Ltd
[1973] Ch 415, extremely difficult to construe and apply because it is not easy
to reconcile subsection (1) with subsection (3) or to see the true relationship
between the opening words of subsection (3), requiring regard to be had to the
rent payable under the tenancy, with the later part of the section,
incorporating subsections (1) and (2) of section 34 by reference; because the
very general expression ‘shall have regard to’ necessarily imports a large
degree of uncertainty; and finally because as Megarry J said in English
Exporters (London) Ltd v Eldonwall Ltd supra at p 430 E:
‘I would only
add that the process of applying section 34 to a hypothetical yearly tenancy is
one that, at least under present conditions, may often have an air of unreality
about it that would puzzle the most expert of valuers.’
In the Regis
Property Company case Stamp J construed the words ‘shall have regard to the
rent payable under the terms of the tenancy’ as merely amending section 34(1),
as applied to the determination of an interim rent under section 24A, by in
effect striking out the words ‘other than those relating to rent’ and
substituting ‘including those relating to rent.’ So he held there was only one operation to be
performed under subsection (3), that is to say the assessment of the rent as a
matter of market value in accordance with section 34 as so, in effect, amended,
and, of course, on the basis of a yearly tenancy. He held that one could have
regard to the rent under the existing tenancy if, but only if, it had
evidential value for the purposes of ascertaining the market value, and he
considered that but for the opening words of subsection (3) it could not have
been regarded at all, because of the words of exclusion in that subsection.
Once the
valuation exercise has been performed, however, in his view the matter is at an
end and the figure arrived at cannot be modified either by the provision in
subsection (1) that the landlord may ‘apply to the court to determine a rent
which it would be reasonable for the tenant to pay’ or by the direction in
subsection (3) to have regard to the rent. That is to say he rejected what was
described as the cushion argument.
Megarry J,
taking a different view, accepted that argument. According to him the direction
to have regard to the rent, and the reference to section 34 are two separate
things, so that one must first provisionally determine the interim rent in
accordance with the terms of section 34 but, of course, as if the court were
ordering, not a term of years, but a yearly tenancy, and then review that
against the actual rent payable under the current tenancy in the light of the
direction in subsection (1) that the rent is to be reasonable. Megarry J
considered that Stamp J was wrong in thinking that unless his construction were
adopted one could not refer to the existing rent even in the examples given by
him where it would have evidentiary value. In the result, therefore, both
agreed, though for different reasons, that the court and the expert witnesses
appearing before it may, and should, have regard to the existing rent if it has
evidentiary value, but the difference between them lies in Stamp J’s view that,
apart from that, it is irrelevant and the matter ends with the valuation,
whereas in Megarry J’s view it then has in any event to be considered in order
to determine whether it is reasonable to adopt the valuation without
modification.
Unfortunately
no argument was addressed to us as to which of these views we should accept, or
whether, indeed, neither affords the correct solution to the problems posed by
section 24A, as both parties were prepared to accept Megarry J’s decision. We
must, therefore, proceed on that basis, and this case cannot be regarded as a
binding decision on this particular question of construction, but I must say
that, as at present advised, I prefer the reasoning and decision of Megarry J.
With all respect to Stamp J I think he fell into error, because he overlooked
the fact that there are two tenancies and two rents involved, not one. The rent
to which the court is directed to have regard under subsection (3) is the rent
payable under the contractual tenancy, which is continuing by virtue of the
Act, but when one applies section 34 to the determination of an interim rent,
as directed by section 24, subsection (3), one is considering a new hypothetical
yearly tenancy, and one can no more consider the rent appropriate to such a
tenancy when determining that rent than one can consider the rent under a new
tenancy when determining that rent.
I should also
make some observations about the question of time, Megarry J’s fourth point, p
431. It is possible to argue, as Mr Ibbotson [counsel for the landlords in English
Exporters case] did, that the valuation for the purposes of section 24A
must be made as at the date of the hearing, or at least of the application to
determine an interim rent, because the section applies section 34 as if the
court were granting a new tenancy, albeit a yearly one, and, of course, when
finally determining the matter by ordering a new lease under section 34 the
court must of necessity consider the position at the date of the hearing, or at
all events the latest date at which evidence is available. However, the reasons
given by Megarry J appear to me to be compelling, and I agree that the values
to be applied should be those existing when the interim period begins to run,
which having regard to section 34A(2), is not necessarily the same date as that
on which the contractual tenancy expires.
In my judgment
the valuation should be made not, as was argued by the appellants, upon what
knowledge of the state of the premises at the commencement of the interim
period a reasonable prospective tenant properly advised and having such survey,
if any, as might be reasonable would or should have acquired, for that imports
a large measure of uncertainty, nor yet upon the actual knowledge of the actual
parties (for that is subjective, while the test ought to be objective) but upon
all that is known at the date of the hearing as to the condition that the
premises were actually in at the commencement of that interim period. I do not
see anything in section 24A which requires the court, in determining what rent
it is reasonable for the tenant to pay, albeit by reference to a hypothetical
letting, to shut its eyes to known facts.
Before
considering the evidence in this case and the learned judge’s findings, there
are certain other questions of construction to be decided. First, has the court
jurisdiction under section 24A to award a rent which is not to come into
operation until repairs have been effected or is to be increased when they are,
or which commences at once but is later to become subject to a moratorium or
reduction for a certain period?
I have had the
advantage of reading the judgment which Brandon LJ proposes to deliver, and
with which I understand Stephenson LJ agrees, and they take the view that it
has. The question is I think a very difficult one, and I confess with all
respect to them that I have some hesitation in accepting their views on this
point, notwithstanding the referential incorporation of section 34, subsections
(1) and (2) in section 24A. It seems to me that the words ‘a rent which it
would be reasonable for the tenant to pay while the tenancy continues by virtue
of section 24 of this Act’ in subsection (1), and the words in subsection (2)
‘shall be deemed to be the rent payable under the tenancy from the date’ etc
may well be too strong to admit of such a construction, especially so when one
remembers that section 24A is conferring a power to substitute an interim rent
for the contractual rent, which otherwise would continue uninterruptedly until
a new lease be ordered or refused, and that in the absence of a provision in
that behalf in the contractual tenancy the tenant holding over under sections
24 and 64 would not be entitled to any reduction or suspension of rent during
repairs. I am, however, not prepared to dissent on this point and content
myself with expressing my doubts.
The next
question of construction which was argued, although in the events which have
happened it is probably now academic, is whether the court has any such power
when determining a rent under section 34 for a new tenancy. Here in my view the
answer is free from doubt. I am satisfied that section 34 (3) authorises
nothing more than the inclusion of a rent review clause, but what of subsection
(1)? The learned judge thought that he
could not make any such order because this would be ‘not a variation of the
determined rent for the new tenancy, but the determination of two rents.’ With all respect I do not agree. If supported
by evidence that this would be the manner in which ‘the holding might
reasonably be expected to be let in the open market by a willing lessor’ I see
no reason why the court should not determine a rent increasing by fixed amounts
at specified times. By the same token the court has, in my judgment, power to
provide that the rent shall not commence, or shall be at a less rate, until
repairs are effected, or shall cease to be payable or be reduced as from the
time, albeit later than the commencement of the new lease when they are in fact
started and until completed. This does not in any way conflict with subsection
(3) or render that subsection otiose, because under a rent review clause the
court would not itself be determining the rent delegating that function.
The next
question is how the valuers should regard want of repair and breaches of
covenant, when assessing an interim rent, and it seems to me they should
consider what would be a reasonable rent for the tenant to pay from the date for
commencement of that rent as a yearly tenant, having regard to the actual
condition and state of the premises at that date, and having regard to the
terms of the contractual tenancy so far as applicable to a yearly tenancy. This
will mean that the hypothetical tenant will have the benefit of any covenant to
repair on the part of the landlord and the burden of any on the part of the
tenant, or there may be no covenant to repair on either side.
The learned
judge said in his judgment:
‘a term of
the hypothetical yearly tenancy obliged the landlord to well and substantially
repair, maintain and keep the premises in good and substantial repair and
condition. In determining the interim rent the court must have regard (inter
alia) to that term. Likewise the court must have regard to the tenant’s
covenant to decorate the premises. When the state or condition of the premises
is regulated by such terms, in my judgment, lack of repair or want of
decoration albeit a lack of repair, is not an element which the court should
take into account in assessing interim rent because the landlord by the term of
the tenancy is under an obligation to effect necessary repairs and if he does
not the tenant has the right to enforce the covenant to repair against the
landlord and claim damages. This is the correct procedure for dealing with lack
of repair to the premises and consequential damage suffered by the tenant.’
He was, of
course, right to take into account the landlord’s and tenant’s covenants to
repair, but, with respect, in my judgment he was not right to treat the lack of
repair as an element not to be taken into account in assessing interim rent, on
the ground that the tenant will have an action for damages or indeed for any
other reason. The valuation being on the basis of a new yearly tenancy it must
in my view be assumed that these covenants will be duly performed. There can at
this stage be no question of breach.
The fixing of
an interim rent will not, however, affect the right of either party to sue the
other for any breach of the repairing covenants in the contractual tenancy,
which may have already occured or may subsequently occur save that, in
assessing damages for diminution in value with respect to any period after the
determination of the contractual tenancy, credit must be given for the amount
by which the interim rent was reduced on account of the want of repair from
what it would have been if the premises had been in the state of repair
required by the covenants. This may be considerably less than the actual
diminution in value during the period of breach, since the valuation postulates
prompt repair. The fixing of an interim rent would also not affect a claim by
the tenant for damages for extra disturbance on the ground that the landlord’s failure
to repair after notice had made more extensive repairs necessary.
In cases where
the interim rent so determined is less than the contractual rent the court must
then consider whether, in the light of its duty to have regard to the rent
payable under the terms of the existing tenancy, it should increase the interim
rent up or near to that rent, or should in the exercise of its discretion
refuse to determine an interim rent at all, which would leave the contractual
rent payable. In determining these matters the court will, of course, bear in
mind that section 24A is a section obviously designed by Parliament to
improve the landlord’s position, as is shown, if in no other way, by the fact
that he alone can apply under it; and certainly where the low valuation is due
to breaches by the landlord of his repairing covenants it would I think have to
be a very special case in which the court would determine an interim rent less
than the contractual rent. Different considerations will apply if the low
valuation is due to a fall in property values.
With these
principles in mind I turn to consider the facts of this particular case. The
basic rent determined for the new lease is not challenged in the notice of
appeal but, as I have said, it was argued below and before us that the low
figure of £1,000 should be continued for the new lease until all necessary
repairs have been effected, and as I have already indicated in my judgment, the
learned judge was wrong in holding that he had no jurisdiction to order that.
This point has, however, been overtaken by events, since this appeal has
postponed the date when the new lease will come into force, so that as far as
can be seen, I gather, the repairs will all be finished before then. Thus the
question now affects the interim rent only. It is, therefore, strictly
unnecessary to say anything more about the rent for the new lease. I will just
add this, however; Mr Fraser-Mitchell gave evidence in cross-examination as
follows: ‘If repairs are necessary, estate company’s policy is to allow
rent-free period for tenant to do the repair. Having regard to the evidence
heard it would be a period of 3 or 4 months–3 months fair.’ There seems to be some confusion here, since
in the present case it would be for the landlord to do the repairs, but
overlooking that point, this passage affords some evidence which might have
supported a postponement of the rent under the new lease, although the
company’s policy is subjective and does not necessarily reflect objectively
what a willing lessor might be expected to do.
However, the
learned judge did make an allowance for the want of repair in a different way,
for he said ‘In my judgment, having regard to all the circumstances and
background and to the fact that it will be many months yet before the applicant
tenant can settle down to quiet enjoyment of his holding owing to the works of
reparation and redecoration which must be carried out, I consider that it will
be right for rent review to take place at the expiration of seven years.’ I would, therefore, not interfere with the
rent determined by the learned judge for the new lease even if it is open to
the appellants to challenge this upon their notice of motion, and I turn to
consider the problem in relation to the interim rent.
As I have
said, the evidence of Mr Fraser-Mitchell is some, but by itself quite
insufficient, evidence to justify a differential rent and in any case the
evidence does not show what the actual state of affairs was in June 1976. Dr
Norman Hickin [a consultant in wood decay and wood preservation] in his report
dated December 16 1977 says: ‘Dry rot is a dangerous fungus and grows
swiftly–the quicker work is done the less likelihood there is of any additional
work being necessary,’ so that the position may well have worsened substantially
between June 1976 and November 1977, and still more so by January 1978. If a
differential provision pending or during repairs is to be ordered it will be
necessary to have further evidence on the lines which will be indicated by
Brandon LJ to establish clearly that on the actual facts in June 1976 this
would have been the only, or at least a probable, basis for a yearly letting.
Apart from
this, the question is whether the learned judge was correct in fixing a rent of
£3,450 against Mr St John’s figure of £3,000 and Mr Fraser-Mitchell’s figure of
£4,350 when they met in June 1976. The figure of £1,000 which Mr St John put
forward at the trial was based mainly at any rate upon the fact that dry rot
was discovered in November 1977 and the learned judge quoted from Mr St John’s
evidence and commented thereon as follows: ‘He further said: ‘I have considered
the interim rent pursuant to section 24A’ and ‘in the period from June 7 1976
with the knowledge I have now (a) The premises are not lettable, (b) In June
1976 the premises were not readily lettable, (c) The landlord would be lucky to
let them at £1,000 per annum, (d) Had I been advising a prospective tenant I
would have advised him not to touch the premises having regard to the
possibility of rot.” The learned judge
went on to say: ‘I think it is important to note in this connection that he
also says that while the work of reparation is being carried out the
applicant’s premises will not be usable by the applicant for office purposes,
but only as storage and his valuation of the premises for storage only is
£1,000 per annum, ie the same figure he now gives for interim rent over a
period when the applicant was using the premises for carrying on his practice
without complaint and in premises, which, on the evidence, I have found were in
a reasonable state.’
I do not think
the learned judge was entitled to take into account the fact that in the events
which happened the appellant was in fact able to carry on his practice in
reasonable comfort, since that became known only after the relevant date, as at
which the valuation has to be made, but he was entitled and bound to take into
account the condition in which, assisted by a view, he found the premises to
have been at the commencement of the interim period.
I think also,
in the paragraph (d) quoted from Mr St John’s evidence, he (namely the witness)
was purporting to consider the position as it appeared in June 1976 and not
relying on subsequent facts, because he speaks of ‘the possibility of rot,’ but
the learned judge was quite right in taking a general view that his evidence
was coloured by the information obtained in November 1977 that there was not
merely a possibility of dry rot but actual dry rot.
With respect,
the learned judge also erred, as I have said, in disregarding the state of
repair when determining the interim rent. Mr Fraser-Mitchell committed the same
error, as he, too, made no allowance for the state of repair of the premises
and the tenant’s decorations.
In the
circumstances, for my part, I cannot regard the judge’s determination of an
interim rent as entirely satisfactory. It may be, in view of what counsel told
us during the hearing, that the questions of principle having been resolved
they will be able to agree to accept or modify the learned judge’s
determination of £3,450, with or without a differential provision pending or
during repairs, in which case we could, by consent, order accordingly, but
failing that I would, for my part, refer this part of the case back to him for
rehearing with liberty to either party to adduce further evidence.
BRANDON LJ, in
a judgment read by Stephenson LJ, said: I agree in general with the judgment of
Goff LJ. There is, however, one question in respect of which he has expressed
doubts. That question is whether the court has power, not only when determining
the rent of a new tenancy under section 34(1) of the Act of 1954, but also when
determining an interim rent under section 24A, to determine what I shall for
convenience call a differential rent, by which I mean a rent which varies from
time to time during the period of the tenancy according to the situation with
regard to the state of repair of the premises. Although I have found the
question a difficult one, I do not in the end share the doubts which Goff LJ
has expressed, and I shall accordingly set out my views on the matter and the
reasons on which they are based.
I consider,
first, the power of the court when determining under section 34(1) the rent
payable under a new tenancy. The rent to be determined is the rent at which,
having regard to the terms of the new tenancy other than those relating to the
rent, the holding might reasonably be expected to be let in the open market by
a willing lessor, in other words the market rent. It is clear that the market
rent of premises may in general be affected not only by the terms of the
tenancy concerning the obligations of the lessor and lessee in relation to
repair, but also by the actual state of repair of the premises at the
commencement of the tenancy.
To take an
extreme example, let it be supposed, firstly,
the premises into repair; secondly, that the premises are, at the commencement
of the tenancy, so seriously out of repair, by reason of previous fire or
flood, that they are of only partial use to the lessee; thirdly, that an
appreciable period must necessarily elapse before the lessor can begin to
perform his obligation of putting the premises into repair; and, fourthly, that,
while the lessor is performing that obligation, the disturbance will be such
that the premises will be virtually of no use to the lessee at all. In those
circumstances it may well be that the market rent of the premises, which would
be appropriate after they had been put into repair, would be appreciably
reduced during the period which would necessarily elapse before the work of
putting them into repair was begun, and even more reduced during the further
period while such work was being carried out.
Similar
considerations would, as it seems to me, apply if the premises were seriously
out of repair at the commencement of the tenancy, not by reason of previous
fire of flood, but by reason of the failure of the lessor or the lessee or both
to perform their previous obligations to repair. The cause or causes of the
premises being out of repair are not, for this purpose, significant; the fact
that they are out of repair, for whatever cause or causes, is so.
On the footing
that the market rent of premises in general may be affected by the situation
with regard to their state of repair in the manner which I have described, the
questions whether and how the market rent of the premises concerned in any
particular case are so affected must depend on the evidence in that case. If
the evidence showed that the market rent would be a rent which varied during
the period of the tenancy according to whether the premises (a) remained out of
repair, (b) were in the course of being put into repair and (c) had been put
into repair, then it seems to me that the court, applying the principle of
determination prescribed by section 34(1), would not only have power to
determine, but would be obliged to determine a differential rent accordingly.
If, on the other hand, the evidence showed that the market rent, though
affected in amount by the present and future situation with regard to state of
repair, would nevertheless be a normal fixed rent over the whole period of the
tenancy, then the court’s duty would be to determine a fixed rent in accordance
with that evidence.
I consider,
second, the power of the court when determining under section 24A an interim
rent payable during the continuation of a pre-existing tenancy. The rent which
the court has to determine in this case, subject always to its additional duty
to have regard to the rent payable under the pre-existing tenancy, is the rent
at which the holding might reasonably be let, having regard to the terms of
such tenancy other than those relating to rent, from year to year in the open
market by a willing lessor, in other words the market rent on a year to year
basis. Here again it seems to me, for the same reasons as those discussed above
in relation to section 34 (1), that the market rent may in general be affected
by the situation with regard to the state of repair of the premises at the date
when the interim rent is to commence, and that the questions whether and how
the market rent of the premises concerned in any particular case are so
affected must depend on the evidence in that case. So, if the evidence showed
that the market rent would be a differential rent in the sense in which I have
used that expression, then the court would have both the power and the duty to
determine a differential rent accordingly. On the other hand, if the evidence
showed that the market rent, though affected in amount by the present and
future situation with regard to state of repair, would nevertheless be a normal
fixed rent, the duty of the court would be to determine a fixed interim rent.
In what I have
said so far I have been considering whether the court has power to determine a
differential rent firstly under section 34(1) and secondly under section 24A,
and I have concluded that it has power to do so in either case if the evidence
warrants it. I should not, however, wish to encourage the view that this is a
power which the court should exercise at all frequently. The cases in which the
evidence may support a differential rent on the basis of the situation with
regard to state of repair are likely, in my view, to be limited to cases in
which the state of disrepair at the commencement of the new tenancy, or the
commencement of the period of interim rent, is of a very serious character. In
any other case it seems to me that the evidence will be very unlikely to do so.
A further
question could in theory arise as to whether, in a case where the situation
with regard to the state of repair was such that the premises would, in effect,
be worthless to a lessee for a certain period, the court would have power to
determine a nil rent for that period. That question does not, however, arise
for decision in the present case for, although the appellant’s valuer gave
evidence that the premises were, in their original state of disrepair,
incapable of being let at all, the learned judge did not accept that evidence.
In these circumstances, I should prefer to reserve this further question until
there is a case in which the facts found make a decision on it necessary.
There is one
other matter which I would mention. It might be thought that, because a rent
determined under section 24A is an interim rent, it can only be applicable for
a short time, and ought therefore to be in every case a fixed rent rather than
a differential one. In practice, however, the period for which such a rent may
be applicable, having regard to the provisions of section 25 (1) and section 64
(2), may well be of considerable length (by which I mean up to two or even
three years), either because of delay in the trial of the proceedings in the
county court, or because of prolongation of the proceedings by one or more
appeals, or both. It would be wrong, therefore, to approach the interpretation
of section 24A on the basis that the period for which a rent determined under
it will apply is bound to be short, and to construe the section as not giving
the court power to determine a differential rent in a proper case on that
account.
STEPHENSON LJ
said: I have had the advantage of considering in draft the two judgments of my
brethren. I have had many doubts in the course of the case, but of one thing I
feel reasonably certain: namely that Parliament in enacting section 34 in 1954
and in amending section 34 and enacting section 24A in 1969 never considered
the problem raised by this appeal: the impact of disrepair in the property
comprised in a tenancy on the court’s power to determine a rent under either
section.
I agree with
both Goff LJ and Brandon LJ that on its true construction section 34 as amended
authorises, by subsection (3), what has been called a variable rent–that is a
provision for the parties varying the rent by a rent review clause–and by
subsection (1), what Brandon LJ has termed a differential rent–that is a
provision by the court varying the rent payable at different periods during the
term of the new tenancy. But I long shared Goff LJ’s doubts whether section
24A, on its true construction, permitted a differential interim rent. However,
the reasoning of Brandon LJ has resolved those doubts and driven me to his
conclusion that, if the court has the power to give effect to disrepair of the
property during the new tenancy and to determine a differential new rent, there
is nothing in the language or the purpose of section 24A which prevents the
court from giving effect to the disrepair of the premises while the current
tenancy continues and ‘differentiating’ the interim rent in a case where the
evidence justifies it.
The cases in
which the court could fix a differential interim rent must, I would think, be
extremely rare, even where the period when interim rent is payable is prolonged
by the operation of section 64. But like Brandon LJ, with whose judgment I am
in complete agreement, I would not like to rule out the possibility of
admitting expert evidence which could
interim rent.
On all other
points I am in agreement with the judgment of Goff LJ.
The appeal
was allowed and the question of the amount of the interim rent, including the
question whether it should be a differential rent, and also the question
whether there should be any provision for reducing or suspending the new rent,
if the works of repair were not completed by the commencement of the new lease,
referred back to the county court judge.
