Landlord and tenant — Break clause — Notice — Whether notice incorrectly specifying 10th anniversary of date rather than commencement of term of lease valid notice — Landlord and Tenant Act 1954 — Request for new tenancy — Whether request for new tenancy to commence earlier than date lease would determine by effluxion of time valid
By a lease
dated July 10 1985 the plaintiff tenants held office premises from the defendant
landlord for a term of 20 years from June 24 1985. The lease was subject to
early determination by the tenants by six months’ previous notice in writing at
the expiration of the 10th year of the term. By a letter dated October 4 1994
the tenants served notice to determine the lease on July 9 1995. The letter
also enclosed a request for a new tenancy under section 26 of the Landlord and
Tenant Act 1954 from July 10 1995. In the court below the judge dismissed the
plaintiffs’ application for a declaration that the lease had determined at the
expiration of the 10th year of the tenancy on June 23 1995; he also decided
that the request for a new tenancy infringed the proviso to section 26(2), as
it sought a tenancy to commence earlier than the date when the lease would come
to an end by effluxion of time on June 23 2005: see [1996] 1 EGLR 113. The
plaintiffs appealed.
expressed to be served pursuant to the break clause of the lease, which
empowered the tenants to determine the term of the lease on June 23 1995. A
reasonable recipient of the letters with knowledge of the terms of the lease
would have known that that was the date, and the only date, on which it could
be determined. He would have known that the lease was dated July 10 1985, and
the notices specified the expiration of the 10th year from that date. The
reasonable recipient would have been left in no doubt that the plaintiffs
wished to determine the lease on June 23 1995, but had wrongly described the
date for determination as July 9. The judge was correct in deciding that the
request for a new tenancy infringed the proviso to section 26(2) of the 1954
Act. The commencement date of the new tenancy requested cannot be earlier than the
date when the lease would determine by effluxion of time. Where a tenant can
break a lease, and terminate his enjoyment of the benefit and burdens of the
lease on the terms agreed at its grant, the 1954 Act does not also enable that
tenant to obtain the benefit of a new tenancy.
The following
cases are referred to in this report.
Commercial
Properties Ltd v Wood [1968] 1 QB 15; [1967]
3 WLR 820; [1964] 3 All ER 546, CA
Garston v Scottish Widows Fund & Life Assurance Society [1996] 1
WLR 834; [1996] 1 EGLR 113; [1996] 23 EG 131
Hankey v Clavering [1942] 2 KB 326; [1942] 2 All ER 311, CA
Mannai
Investment Co Ltd v Eagle Star Life Assurance Co
Ltd [1997] AC 749; [1997] 2 WLR 945; [1997] 3 All ER 352; [1997] 1 EGLR 57;
[1997] 24 EG 122; 25 EG 138, HL
Mannai Investment
Co Ltd v Eagle Star Life Assurance Co Ltd
[1995] 1 WLR 1508; [1996] 1 EGLR 69; [1996] 06 EG 140
Scholl
Manufacturing Co Ltd v Clifton (Slim-Line) Ltd
[1967] Ch 41; [1966] 3 WLR 575; [1966] 3 All ER 16, CA; affirming [1966] Ch
298; [1966] 2 WLR 902; [1966] 1 All ER 993
This was an
appeal by the tenants from a decision of Rattee J, who had dismissed the
tenants’ application by originating summons to determine the validity of
notices served on the respondent landlord, Scottish Widows Fund & Life Assurance
Society.
Paul Morgan QC
and David Hodge QC (instructed by Reynolds Porter Chamberlain) appeared for the
appellants; Kim Lewison QC (instructed by Freshfields) represented the
respondent.
Giving
judgment, NOURSE LJ said: The primary question on this appeal is whether
a notice which before the decision of the House of Lords in Mannai
Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749*
would have been ineffective to determine a lease, must now, by virtue of that
decision, be held to have been effective. In the company of the man on the
Clapham omnibus, the officious bystander and the man skilled in the art there
has now been established the reasonable recipient, a formidable addition to the
imagery of our law. There is a further question as to the true construction of
the proviso to section 26(2) of the Landlord and Tenant Act 1954.
*Editor’s
note: Also reported at [1997] 1 EGLR 57
By a lease
dated July 10 1985 and made between Merchant Navy Officers’ Pension Fund
Trustees Ltd, as landlord, of the one part, and Manufacturers Hanover Finance
Ltd, as tenant, of the other part, office premises comprising the seventh floor
of Lincoln House, 296/302 High Holborn, London WC1, were demised to the tenant
‘from the 24th day of June 1985 for a term of twenty years’ at a yearly rent of
£47,000, subject to upwards-only rent reviews at the end of every five years of
the term. Clause 7 of the lease provides:
IF the Tenant
shall desire to determine the term hereby granted at the expiration of the
tenth year of the term and shall give to the Landlord at least six months’
previous notice in writing of such his desire then immediately on the
expiration of the tenth year of the term hereby granted the demise and
everything herein contained shall cease and determine but without prejudice to
the rights and remedies of either party against the other in respect of any
antecedent claim or breach of covenant.
On September
29 1988 the lease was assigned by Manufacturers Hanover Finance Ltd to the
plaintiffs, the first being a former partner and the other three partners in
the solicitors’ firm Reynolds Porter Chamberlain, who have occupied the demised
premises as an annexe to their principal offices nearby. At all material times
the reversion
By the late
summer of 1994 Reynolds Porter Chamberlain had resolved to exercise their power
to determine the lease at the expiration of the 10th year thereof; that being a
power to determine it at the expiration of the 10th year of a term that ran
from June 24 1985, the date on which it had to be determined was June 23 1995.
On September 14 1994 Reynolds Porter Chamberlain wrote a letter to the
defendant, stating that they did so on behalf of the firm and referring to the
lease and the assignment. The letter continued:
Pursuant to
clause 7 of the Lease the Lessee hereby serves Notice on the Lessor to determine
the Lease and this Notice shall expire on the 9 July 1995.
The Lease is
governed by the provisions of the Landlord & [sic] Tenant Act 1954.
Accordingly on behalf of the tenant we enclose the tenant’s request for a new
tenancy of business premises under section 26 of the Landlord & [sic]
Tenant Act 1954.
Enclosed with
the letter was a request under section 26 of the 1954 Act requesting the
defendant to grant a new tenancy beginning on July 10 1995, the day following
the date specified in the letter for the expiry of the notice. The request
stated the name of the tenants as Reynolds Porter Chamberlain.
The notice
contained in the letter of September 14 and the enclosed request having been
served on behalf of Reynolds Porter Chamberlain, on October 4 1994 they wrote a
further letter to the defendant in terms identical to those of the letter of
September 14, except that it was expressed to be written on behalf of the
plaintiffs. Enclosed with the letter was an identical request for a new tenancy
under section 26, except that the names of the tenants were stated to be those
of the plaintiffs.
It is clear
and accepted on both sides that the writer of the letters of September 14 and
October 4 1994 made the mistake of thinking that the time for determining the
lease under clause 7 was the expiration of the 10th year from the date of the
lease (July 9 1995) instead of the expiration of the 10th year of the term
(June 23 1995). Subject to that point, both letters having been received by the
defendant more than six months before June 23 1995, it is agreed that that of
October 4, if not that of September 14, was a valid notice under clause 7 of
the lease.
The defendant
having maintained that the lease had not been validly determined, on June 29
1995 the plaintiffs issued an originating summons in the Chancery Division
claiming a declaration that the lease had been validly determined by one or
other of the letters of September 14 and October 4 1994, alternatively by one
or other of the requests for a new tenancy under section 26. The summons came
before Rattee J, who, on March 21 1996, dismissed it: see [1996] 1 WLR 834*.
*Editor’s
note: Garston v Scottish Widows Fund & Life Assurance Society, also
reported at [1996] 1 EGLR 113
At that time
the effect of the notices given in the letters of September 14 and October 4
was governed by the decisions of this court in Hankey v Clavering
[1942] 2 KB 326 and Mannai Investment Co Ltd v Eagle Star Life
Assurance Co Ltd [1995] 1 WLR 1508*. In the latter case I summarised the
effect of the previous authorities, at p1513F:
*Editor’s
note: Also reported at [1996] 1 EGLR 69
If a notice
clearly and specifically purports to determine a demise for a fixed term on a
date not authorised by the lease, the date cannot be corrected simply because
it is clear, first, what the correct date ought to be, secondly, that the wrong
date was inserted by a slip and, thirdly, that the recipient might guess or
even be certain that that was what had happened. An exception can only be made
where the date specified is an impossibility, either because it has passed or
because it is on some other ground inconceivable that it was the date intended.
On that state
of the law the plaintiffs accepted, correctly, that Rattee J was bound to hold
that the notices were ineffective to determine the lease pursuant to clause 7.
However, leave to appeal to the House of Lords in the Mannai Investment
case having by then been granted, the question was kept open for argument in a
higher court: see [1996] 1 WLR 834, at p837C.
The question
argued before Rattee J was whether the requests for a new tenancy under section
26 were themselves effective to bring the lease to an end. He held that they
were not. On July 16 1996 the plaintiffs entered a notice of appeal against the
judge’s decision, which also stated that they might seek leave to amend in the
light of the decision of the House of Lords in the Mannai Investment case.
Their lordships’ decision [1997] AC 749 having been given on May 21 1997, the
plaintiffs were granted the necessary leave at the start of the hearing in this
court. Argument was heard, first, on the question raised by the amendment and
then on the question decided by the judge. I will deal with them in the same
order.
What the
majority of the House of Lords decided, as applied to this case, was that if a
reasonable recipient in the position of the defendant and with knowledge of the
terms of the lease would, on reading the letters of September 14 and October 4
1994, have been left in no doubt that the plaintiffs wished to determine the
lease on June 23 1995, but had wrongly described the date for determination as
July 9 1995, then the lease was validly determined on the earlier of those
dates. While it seems likely that there will be cases in which the application
of that test will be a matter of difficulty, of greater difficulty than the
application of the test formerly thought to be correct, there is no such
difficulty here.
Had it not
been for the requests for a new tenancy enclosed with the letters of September
14 and October 4, the position would have been straightforward. The notices
were expressed to be served pursuant to clause 7 of the lease, which empowered
the plaintiffs to determine the term thereby granted at the expiration of the
10th year, that is to say on June 23 1995. A reasonable recipient of the
letters with knowledge of the terms of the lease would have known that that was
the date, and the only date, on which it could be determined. He would also
have known that the date of the lease was July 10 1985 and that the date
specified for the expiration of the notices, July 9 1995, was the expiration of
the 10th year from that date. In that state of knowledge the reasonable
recipient would have been left in no doubt that the plaintiffs wished to
determine the lease on June 23, but had wrongly described the date for
determination as July 9.
It is said,
however, that this straightforward view of the matter cannot stand with the
plaintiffs’ simultaneous service of the requests for a new tenancy under
section 26. It is said that, from a reading of the letter and the request
together, the reasonable recipient would, or at least could, reasonably have
concluded that the plaintiffs intended to remain in possession until the new
tenancy began on July 10, and that because they could not reasonably be taken
to have intended to be trespassers between June 24 and that date, they did
indeed intend to determine the lease on July 9. Coupled with that basic
submission are submissions to the effect that if the reasonable recipient had
read the small print on the back of the section 26 requests, or if he had
considered the implications of Commercial Properties Ltd v Wood
[1968] 1 QB 15, or if he had looked at section 26(4) of the 1954 Act, his mind
would, at the least, have been afflicted with reasonable doubts as to the
plaintiffs’ true intentions.
These
submissions are unrealistic. While I gladly credit the reasonable recipient,
this paragon of the law, with the eyesight, omniscience and diligence that they
demand of him, in the end he could only reasonably have concluded that the
plaintiffs, in specifying July 10, had intended to specify the day following
the day on which they wished to determine the lease by the notices under clause
7. In other words, the reasonable recipient would have been left in no doubt
that the plaintiffs wished to specify June 24 as the date for the commencement
of the new tenancy, but had wrongly described it as July 10.
For these
reasons, I would hold that the notices contained in the letters of September 14
and October 4 1994 were effective to determine the lease on June 23 1995
pursuant to the power in clause 7 thereof. On that footing the plaintiffs are
entitled to succeed on this appeal and it is not strictly necessary for us to
consider the question
we have heard full argument, it is appropriate that we also should consider it.
Since I am in complete agreement with the decision of the judge, I can state my
reasons relatively briefly.
So far as
material, subsections (1) and (2) of section 26 of the 1954 Act provide:
(1) A tenant’s
request for a new tenancy may be made where the tenancy under which he holds
for the time being (hereinafter referred to as ‘the current tenancy’) is a
tenancy granted for a term of years certain exceeding one year, whether or not
continued by section twenty-four of this Act, or granted for a term of years
certain and thereafter from year to year.
(2) A
tenant’s request for a new tenancy shall be for a tenancy beginning with such
date, not more than twelve nor less than six months after the making of the request,
as may be specified therein:
Provided that
the said date shall not be earlier than the date on which apart from this Act
the current tenancy would come to an end by effluxion of time or could be
brought to an end by notice to quit given by the tenant …
It will be
seen that subsection (1) includes two types of tenancy in the expression ‘the
current tenancy’: first, a tenancy granted for a term of years certain
exceeding one year; and, second, a tenancy granted for a term of years certain
and thereafter from year to year. Subsection (2) then provides for the date on
which the new tenancy is to begin, subject to a proviso that it shall not be
earlier than the date on which apart from the Act the current tenancy: (a)
would come to an end by effluxion of time; or (b) could be brought to an end by
notice to quit given by the tenant.
If the
question fell to be decided on the wording of section 26(1) and (2) alone,
there could be no doubt that the commencement date specified in the request
could not be earlier than June 23 2005, that being the date on which, apart
from the 1954 Act, the lease would come to an end by effluxion of time. That is
because in normal legal parlance the expression ‘notice to quit’ is not a
correct description of a notice determining a lease pursuant to a power such as
that contained in clause 7 of the lease in this case. It could only have
referred to the determination of a tenancy granted for a term of years certain
and thereafter from year to year. However, by section 69(1) of the 1954 Act
‘notice to quit’ is defined to mean:
a notice to
terminate a tenancy (whether a periodical tenancy or a tenancy for a term of
years certain) given in accordance with the provisions (whether express or
implied) of that tenancy.
It follows
that the proviso to section 26(2) must be construed on the footing that ‘notice
to quit’ includes a notice such as that which is required to be given pursuant
to clause 7: cf Scholl Manufacturing Co Ltd v Clifton (Slim-Line) Ltd
[1967] Ch 41. On that footing, it is the plaintiffs’ case that the requests
here did not infringe the proviso, in that the commencement date of the new
tenancy requested was not earlier than the date on which the existing tenancy
could be brought to an end by such a notice.
In rejecting
that argument, Rattee J said, at [1996] 1 WLR 839H:
In my
judgment, the actual words of the proviso on their natural construction
contemplate one relevant date only in respect of a given tenancy, and the two
alternative definitions of that date are to take account of the fact that the
relevant tenancy may be (a) one granted simply for a term of years, in which
case the relevant date under the proviso will be the date on which it would
come to an end by effluxion of time, or (b) one granted for a term of years certain
and thereafter from year to year, in which case, as Mr Lewison pointed out, the
tenancy will never come to an end by effluxion of time, and the only possible
relevant date specified in the proviso to section 26(2) is the date on which,
as at the date of the request under section 26(1), the existing tenancy could
be brought to an end by notice to quit given by the tenant. Thus, in the case
of a tenancy granted for a term of years exceeding one year, the date for the
commencement of a new tenancy cannot be earlier than the date on which the
current tenancy would, apart from the Act of 1954, come to an end by effluxion
of time.
I respectfully
agree. Moreover, any doubt there may be is resolved by some later observations
of the judge, at p840D:
I do not find
it surprising that the Act does not, as would Mr Hodge’s construction of it,
mean that the inclusion in a lease for a term of years of a power for the
tenant to break the lease has the effect that the tenant can not only terminate
his enjoyment of the benefit and suffering of the burdens of the lease on the
terms agreed on its grant, but at the same time obtain the benefit of a new
tenancy on, in times of recession, terms much more favourable to him than those
of the lease into which he entered or which he took by way of assignment.
That is
eminent good sense. One of the main purposes of Part II of the 1954 Act is to
enable business tenants, where there is no good reason for their eviction, to
continue in occupation after the expiration of their contractual tenancies. It
is not a purpose of the Act to enable a business tenant who has chosen to
determine his contractual tenancy to continue in occupation on terms different
from those of that tenancy.
I would allow
this appeal.
MUMMERY LJ and SIR JOHN VINELOTT agreed and did not add anything.
