Landlord and Tenant Act 1954 – New tenancy – Agreement – Appellant landlord serving notice terminating tenancy of business premises but not opposing grant of new tenancy — Respondent applying for new tenancy – Terms of new lease negotiated subject to contract – Court informed that all issues agreed save for interim rent – Appellant later claiming terms of new lease not agreed – Whether lease terms to be treated as agreed – Whether judge entitled to order grant of new lease on terms of draft submitted to court – Whether determination of interim rent to be conducted pursuant to section 24C or 24D of 1954 Act – Appeal allowed
The appellant was the landlord and the respondent was the tenant under a lease of commercial premises in Grays, Essex, for a term of 25 years from 1985 at a rent of £64,000 pa. The lease was a business tenancy to which Part II of the Landlord and Tenant Act 1954 Act applied.
In March 2010, the appellant served a notice on the respondent, under section 25 of the 1954 Act, to terminate the tenancy at the end of September 2010; however that notice stated that the appellant did not oppose the grant of a new tenancy and set out the appellant’s proposed terms for that tenancy. The respondent applied to the court, under section 24 of the 1954 Act, for the grant of a new tenancy on different terms. The appellant served an acknowledgement of service setting out its counter-proposals. Following negotiations between the parties, which were conducted “without prejudice” and “subject to contract”, a draft lease was drawn up for a five-year term from the date of execution at an annual rent of £45,000. Further discussions on the subject of interim rent failed to produce an agreement on that matter and the appellant objected to signing the new lease in those circumstances.
Notwithstanding that disagreement, at a case management conference in March 2013 the parties informed the district judge that all points were agreed save for interim rent. The district judge ordered a final hearing on the issue of interim rent only, to take place in May 2013.
In correspondence prior to that hearing, the appellant asserted that the new lease terms were not agreed. The respondent contended that the new lease terms had effectively been agreed and that, after the March 2013 case management conference, it was too late for the appellant to resile from that agreement.
At the hearing, the district judge ordered that the interim rent determination should proceed under section 24D of the 1954 Act. That decision was reversed by a judge, who ordered: (i) the grant of a new tenancy pursuant to section 29 of the 1954 Act on the terms of the draft lease placed before him; and (ii) a further hearing to assess the interim rent pursuant to section 24C of the 1954 Act, the provisions of which applied where a new tenancy of the premises was granted and the landlord did not oppose it. The appellant appealed.
The issues on the appeal were whether there was an agreement as to the lease terms and which provisions of the 1954 applied to the determination of interim rent in the case.
Held: The appeal was allowed.
(1) The judge was wrong to hold that the parties had agreed the rent and other terms of the new lease for the purposes of sections 32 to 35 of the 1954 Act. He had not been entitled to find that any right to rely on the “subject to contract” qualification ceased or was waived once the case management conference had taken place and the district judge had made her order for the hearing of the application for the determination of interim rent. The correspondence after that date had clearly alerted the claimant to the fact that the defendant no longer stood by the negotiated terms and was no longer willing to execute a lease in those terms. The defendant had made it clear that, in the circumstances that then existed, it objected to the signing of the lease. Accordingly, those terms were not agreed for the purposes of the 1954 Act.
Even if the appellant’s agreement to the order made at the case management conference was to be viewed as a concession that the terms of the new lease were agreed, there was no reason why the appellant should not, in all the circumstances, have been entitled to withdraw that concession by the time of the hearing in May 2013. There was no public policy reason to hold the appellant to its earlier concession. It would be wrong and disproportionate to do so in circumstances where the appellant had made it plain that no longer agreed to the grant of a property interest to the respondent on the terms specified, particularly in light of the court’s ability, if appropriate, to penalise the appellant for any wasted costs.
When asking whether the terms of the lease had been agreed, the court had to look for an agreement entered into between landlord and tenant, not necessarily for the purposes of the grant of a new lease, but at least for the purposes of an application before the court. An agreement made “subject to contract” in an endeavour to avoid the necessity of proceeding with the court application could not be held to be binding for the purposes of the application if the negotiations proved unsuccessful: Derby & Co Ltd v ITC Provision Trust Ltd [1977] 2 All ER 890 applied. Accordingly, there was no agreement between the parties as to the rent and other terms of the new lease by the time of the hearing in May 2013 for the purpose of determining the interim rent or for any other purpose.
(2) The interim rent in the present case fell to be determined under section 24C of the 1954 Act. The consequence of the appellant’s section 25 notice, in which it stated that it was not opposed to granting a new tenancy, together with the respondent’s claim for a new tenancy under section 24 and the appellant’s acknowledgement of service, was that the present proceedings would result in the grant of a new tenancy to the respondent so long as the respondent continued to wish to have one or the tenancy was not forfeited. The circumstances were precisely those specified in section 24C(1), namely where: (i) the landlord had given a notice under section 25, at the time when the tenant was in occupation of the whole of the property comprising the relevant tenancy for business purposes, and stated in the notice that it was not opposed to the grant of new tenancy; and (ii) the landlord granted a new tenancy of the whole of the property comprising the relevant tenancy to the tenant, whether as a result of an order for the grant of a new tenancy or otherwise. In that context, the word “grant” in section 24C(1) encompassed an order of the court for the grant of a new tenancy. It followed that the respondent’s claim for an interim rent would, when it was heard, inevitably be determined under section 24C. Section 24D had no application to the case since it applied only where section 24C did not. Where an application for interim rent was made in a case to which section 24C would apply, then, in the ordinary course of events and unless the parties and the court otherwise agreed, the interim rent had to be determined at the same time as the court determined the terms of the tenancy to be granted and ordered the grant of the tenancy, or the landlord had by agreement out of court granted a new tenancy.
It followed that, in the ordinary course of events, the choice between section 24C and section 24D would not turn on issues such as whether the agreement was or was not “subject to contract” or “without prejudice”. If a new lease was to be granted, section 24C would apply and the interim rent would be determined at the same time as the court determined the other terms and made an order for the grant of the tenancy, or after the landlord had granted the new tenancy without any court order.
(3) Accordingly, had it had been appreciated that the rent and other terms of the lease were “subject to contract” and were not agreed, neither the respondent nor the court would have agreed to the hearing of the application for interim rent being determined on its own, in advance of determination of the other terms of the new tenancy. They had so agreed only as the result of a mistake or misunderstanding. The court should have ordered that all issues as to the terms of the new tenancy and the amount of interim rent should be dealt with together at a future hearing.
Thomas Roe QC (instructed by Bluetts Solicitors) appeared for the claimant; Tamsin Cox (instructed by Geldards LLP) appeared for the defendant.
Sally Dobson, barrister
