Landlord and tenant — Rent-review clause in lease of business premises — Question as to whether improvements carried out by the tenants should be taken into account in assessing the rent for the purpose of the review — Under the terms of the lease the effect of such improvements on rent was to be disregarded unless they were carried out in pursuance of an obligation to the immediate landlord — In the present case the improvements were carried out under licence at the request of the tenants — The licences did not impose on the tenants an obligation to carry out the improvements, but did impose some conditions, if the tenants carried out the work, to ensure that it was done properly — Held that the effect of the improvements on the rental value should be disregarded in fixing the rent under the review clause
This was an
originating summons by which the plaintiff, John James Godbold, sought the
decision of the court on the construction of the rent-review clause in a lease
of business premises, a newsagent’s shop at Bedfont, Middlesex, of which the
plaintiff was the present landlord, and the defendants, Martin the Newsagents
Ltd, were the tenants.
David Rowell
(instructed by Bird & Lovibond) appeared on behalf of the plaintiff;
Nicholas Dowding (instructed by Park Nelson) represented the defendants.
Giving
judgment, JUDGE BLACKETT-ORD said: I have before me an originating summons
raising a question of construction on a rent-review clause in a lease. The
lease in question is dated January 23 1978, between Philtown Properties Ltd
(who are no longer the landlords, the landlord now being the plaintiff, Mr
Godbold) and Martin the Newsagents Ltd, as tenants, for 20 years from September
29 1977. (I interpose that that date was the date of the expiry of a previous
21-year lease which, when expired, was vested in the tenants.) The initial rent was £1,200 a year and there
was provision for its review every five years to, broadly speaking, the market
rent. Under the previous lease the landlords from time to time granted three
licences, in 1964, 1968 and 1971, for the tenants to carry out improvements.
The question is whether the value of those improvements is, or is not, to be
taken into account in the fixing of the new rent.
The
rent-review clause, as is the way of such things, is of considerable length,
but I need not read the whole of it. It provides for rent to be reviewed to
something which is called ‘the current market rent’ and includes clause
2(1)(b):
‘Current
market rent’ shall mean the gross full market rent without any deductions
whatsoever at which having regard to rental values current in the
neighbourhood, the demised premises might reasonably be expected to be let at
the relevant review date in question in the open market without a fine or
premium and with vacant possession by a willing landlord for the term then
unexpired of this lease under a lease on the same terms and conditions in all
other respects as this present lease and upon the supposition (if not a fact)
that the tenant had complied with all the obligations as to repair and
decoration herein imposed, there being disregarded:
(i) refers to
occupation and goodwill and no question arises on that.
(ii) Any
effect on rent of any improvement of the demised premises or any part thereof
carried out by the Tenant at the Tenant’s expense otherwise than in pursuance
of any obligation to the Landlord and carried out during the current tenancy or
in respect of
which
the
conditions as contained in section 34 of the Landlord and Tenant Act 1954 as
amended by section 1 of the Law of Property Act 1969 are satisfied.
One refers to
the Landlord and Tenant Act 1954 as amended and, so far as relevant (for it is
dealing with rent payable under a lease granted by order of the court), it
provides that that rent shall be, in default of agreement, ‘such as may be
determined by the court to be that at which, having regard to the terms of the
tenancy, the holding might reasonably be expected to be let in the open market
by a willing lessor, there being disregarded’ [I omit the references to
occupation and goodwill] ‘(c) any effect on rent of an improvement to which
this paragraph applies’. Then subsection (2), like (c), inserted in 1969:
Paragraph (c)
of the foregoing subsection applies to any improvement carried out by a person
who at the time it was carried out was the tenant, but only if it was carried
out otherwise than in pursuance of an obligation to his immediate landlord and
either it was carried out during the current tenancy or the following
conditions are satisfied
. . . briefly
that it was completed not more than 21 years before the application, that there
had been a business tenancy ever since and that at the termination of any prior
tenancy the tenant did not quit.
case. The question is whether, in the light of the terms of the licences to
which I have referred, the improvements were carried out otherwise than in
pursuance of an obligation to the then tenant’s immediate landlord.
It will be
seen that the wording of the Act, to a large extent, overlaps the express
provisions of clause 2(1)(b) but goes further in applying to improvements made
by a tenant’s predecessors within the previous 21 years.
I refer to the
licences in question. They are similar in substance, though they vary in
detail. The first, dated December 22 1964, was granted by the original landlord
under the then subsisting lease of December 21 1956 to the original tenant. It
recites clause 2(12) of the lease whereby the tenant covenanted not to make any
structural alterations. It recites:
the Tenant
being desirous of executing in and upon the premises . . . works of alteration
and addition detailed on the specification plan annexed hereto . . . has
requested the Landlords to grant to it licence to execute such works in
conformity with the said plan subject to the approval of the Landlords’
surveyor and the Landlords have agreed to grant such licence upon the terms and
subject to the conditions hereinafter expressed
Clause 1
provides:
In pursuance
of the said agreement and in consideration of the premises the Landlords hereby
grant licence and authority to the Tenant to execute in and upon the demised
premises the several works of alteration . . . on condition that the said works
of alteration shall be completed or carried out in all respects to the
reasonable satisfaction of the Landlords’ surveyor.
In clause 2
there are a number of covenants by the tenant, upon two of which the landlord
relies:
(a) to carry out the said works of alteration in
a proper and workmanlike manner using the best obtainable materials and to
comply with the provisions of all Acts of Parliament . . . and to make good any
damage to the demised premises or any part thereof as a result of the works of
alteration aforesaid —
(c) To do all
things necessary and make all payments necessary for obtaining the consent so
far as requisite of any statutory or local authority or owners of adjoining
properties and obtain any necessary licence for commencing the aforesaid works
of alteration and at his own cost and expense to make good all damage caused
through the carrying out of the said works.
The works
authorised were the erection of a concrete garage and the construction of two
bedrooms in the roof space. I should have said that the premises comprised in
the lease consist of a newsagent’s shop at Bedfont, Middlesex, with living
accommodation over.
The 1968 lease
related to a new shop front and extensive refitting of the shop. It was made by
the new landlords, Philtown Properties Ltd, to the original tenants and
recites:
(3) The Lease contains covenants on the part of
the Tenant (inter alia) not at any time during the said term without the
Licence in writing of the Landlord first obtained erect or place any new or
additional new building or erection on any part of the demised premises or make
any alteration or addition whatsoever in or to the premises thereby demised . .
.
(4) The Tenant has requested the Landlord to
grant to the Tenant a Licence to carry out the several alterations and works
[‘the said Works’] . . . referred to in the Schedule, hereto which the Landlord
has agreed to grant upon the terms and subject to the conditions hereinafter
contained.
Paragraph 1
provides:
The Landlord
as requested . . . HEREBY GRANTS unto the Tenant LICENCE AND CONSENT to carry
out in and upon the demised premises not later than the 17th day of July One
Thousand nine hundred and sixty eight the said Works in conformity with the
said drawings and in accordance with the covenants by the Tenant hereinafter
contained and the terms covenants and provisions of the Lease as varied by this
Deed and in all respects to the satisfaction of the Landlord’s Surveyor.
Clause 2
contains a provision for increasing the rent which was then £270 a year, by £15
a year. Clauses 2, 3 and 4 are directed to endeavouring to be sure that this
additional annual payment was rent in the technical sense, although clause 4,
out of context, could perhaps be construed more widely because it is in these
terms:
4. THE right
of re-entry reserved to the Landlord by the Lease shall be EXERCISEABLE by the
Landlord as well in case of the non-payment of the additional rent hereby
covenanted to be paid or of the breach of any of the covenants on the part of
the Tenant herein contained as in case of the non-payment of the rent reserved
by the Lease or of a breach of any of the covenants as amended by this Deed on
the part of the Tenant therein contained.
So there is a
general reference to the tenant’s covenant in the deed, which includes those
which are then inserted as clause 5 which deal with the question of
alterations. In 5(1) there is a covenant very similar to 2(a) in the 1964
licence, in these terms:
5(1) At its own expense to carry out and complete
the said Works in conformity with the said drawings and the provisions of the
Lease in a good and substantial and workmanlike manner with new good and sound
materials within the period and in the manner hereinbefore specified.
(2) Before commencement of the said Works to
produce to the Landlord for its approval copies of all necessary permissions .
. .
It is
unnecessary to read the rest. It requires the tenant to give the landlord 10
days’ notice of starting the works and allows the landlords’ surveyor to enter
and inspect.
The final
licence is dated March 19 1971 by Philtown Properties to the present tenant,
who by then had acquired the 1956 lease. That licence again recites the
covenant against alteration and in recital (4) says:
(4) The Tenant has requested the Landlord to
grant to the Tenant a Licence to carry out the several alterations and works
(such alterations and works being hereinafter referred to as ‘the said Works’)
. . . which the Landlord has agreed to grant upon the terms and subject to the
conditions hereinafter contained.
This time it
was a substantial extension to the rear of the shop. In the operative part:–
1. THE
Landlord as requested as aforesaid hereby grants unto the Tenant LICENCE AND
CONSENT to carry out in and upon the demised premises not later than the 18th
day of September One thousand nine hundred and seventy-one
six months
ahead
the said Works
in conformity with the said drawings and in accordance with the covenants by
the Tenant hereinafter contained and in all respects to the satisfaction of the
Landlord’s Surveyor —
2. In
consideration of this Licence the Tenant hereby covenants with the Landlord as
follows —
(1) At its own expense to complete the said Works
in conformity with the said drawings . . . and in a good and substantial and
workmanlike manner with new good and sound materials within the period and in
the manner hereinbefore specified.
(2) Before commencement of the said Works to
produce to the Landlord for its approval copies of all necessary permissions .
. . and to comply with the terms and conditions of any such permissions or
consent.
(3) To give the Landlord not less than ten days’
notice in writing . . .
of
commencement
(4) To permit the Landlord’s Surveyor
substantially
in the same terms as the 1968 licence.
In 3 there is
a slight change:
3. IT IS
HEREBY AGREED AND DECLARED between the parties hereto —
(1) That the covenants on the part of the Tenant
herein contained shall be deemed to be incorporated in the Lease and the terms
and conditions of the Lease shall apply to the demised premises as altered in
pursuance of this Licence and that the power of re-entry contained in the Lease
shall be construed and have effect accordingly —
(2) If the said Works are not completed in the
time limit hereinbefore specified or in the event of any breach before the
completion of the said Works of the covenants on the part of the Tenant herein
contained this Licence shall become null and void.
The question
is whether the various covenants by the tenants to do the various works are
such as to make them such that they were carried out pursuant to an obligation
to the immediate landlord, or not. That depends upon the construction of the
respective tenant’s covenants and in particular as to whether they are to be
construed as imposing a positive obligation on the tenant to carry out the
works, or whether simply they impose an obligation on the tenant if he decides
to take advantage of the licence, then to carry out the works properly.
Surprisingly,
I have not been referred to any authority, so I must consider within the
wording of the Act, section 34(2) which, in its tortuous language, applies to
any improvement, but only if it was carried out otherwise than in pursuance of
an obligation to the tenant’s immediate landlord. My impression is that the
draftsman had in mind, primarily, an obligation imposed by the lease. But, of
course, the provision can also apply to an obligation imposed in some other
contractual document. But looking at the licences it is clear that they were
all granted at the request of the tenant and the language of clause (1) in each
case is the language of permission. Those claims do not say that it has been
agreed that the tenant shall carry out; he is simply granted permission. In my
judgment the following clauses are in each case subsidiary to that. Although
the
authorised are not to be taken into account in fixing the rent under the
present review. I am fortified in that view by the opinions expressed by Harman
LJ and Russell LJ in the case of Ridley v Taylor [1965] 1 WLR
611, where their lordships took the view that covenants of the nature of which
I have been considering are not generally to be construed as imposing positive
obligations.
Accordingly I
answer question 1 of the originating summons in the sense of subparagraph (1).
Judgment was
given for the defendant tenants with costs.
