Landlord and tenant — Rent review clause in underlease — Whether certain alterations, assumed for the purpose of the decision to be improvements, were to be taken into account or disregarded in determining the review rent — The material part of the review clause provided that the rental value should be determined on the supposition (if not a fact) that the tenant had complied with all the obligations imposed by the tenancy; and that no account should be taken of, inter alia, the effect of improvements (to which the landlord had given written consent) carried out by the tenant otherwise than in pursuance of an obligation to the landlord — In fact in the course of a long history of complex negotiations written consent had not been given to the alterations in question, which included the installation of a new shop front and ground-floor entrance, the installation of a toilet and shower and the infilling of an internal staircase — Plaintiff landlords eventually sought a declaration that, as no improvements had been carried out for which the necessary consent had been obtained, account should be taken of all improvements in determining the rental value — Defendant tenants claimed that consent had been unreasonably withheld and made four submissions — These were (1) that the review clause should be read as if it provided that improvements to which the landlords had unreasonably refused consent should be disregarded; (2) that in view of the unreasonable refusal the plaintiffs would be taking advantage of their own wrong if the improvements were taken into account; (3) that, as the review clause required it to be supposed that the tenants had complied with all their obligations, it must be assumed that they had not carried out the improvements without consent; and (4) that the landlords were estopped from denying that the tenants had obtained such consent, on the ground of proprietary estoppel or estoppel by convention — Held, rejecting the claim that the landlords had unreasonably refused consent and the four submissions mentioned above, that account should be taken of all the improvements in determining the rental value — Declarations made as sought by plaintiff landlords
This was an
originating summons issued by the plaintiffs, Hamish Cathie Travel England Ltd,
seeking declarations the effect of which was that, for the purpose of the
relevant rent review clause, account should be taken of the effect of all
improvements to the demised premises carried out by the first defendants,
Insight International Tours Ltd or their predecessors in title — the second
defendants were Black & Edgington Ltd, of which the first defendants were
Black & Edgington Ltd, of which the first defendants were a subsidiary. The
rent review clause was in an underlease of premises at 25 and 25A Cockspur
Street, London W1. The freehold of the building was vested in the Crown and the
plaintiffs were head lessees for a term ending in 1995. There was a
counterclaim by the defendants that consent to the improvements had been
unreasonably withheld.
Peter Crampin
(instructed by Malkin, Cullis & Sumption) appeared on behalf of the
plaintiffs; Michael Driscoll (instructed by Kagan Morris & Co) represented
the defendants.
Giving
judgment, MR FRANCIS FERRIS QC said: The question raised by these proceedings
is whether certain alterations made by a tenant to demised premises, some or
all of which alterations may be classified as improvements, are to be
disregarded in assessing the amount of the rent payable in respect of the
demised premises under a rent review.
The premises
in question are the ground floor and basement of a building known as 25 and 25A
Cockspur Street, London W1. The building as a whole consists of a basement,
ground floor and three upper floors. The freehold has at all material times
been vested in the Crown on whose behalf it is administered by the Crown Estate
Commissioners (‘the Commissioners’). The plaintiff company, which as its name
suggests is engaged in the travel business (and to which I shall refer as
‘Travel England’), has been in occupation of part of the building since 1975.
Between 1975 and the summer of 1979 it occupied the ground floor and basement
under tenancy arrangements of which no details are before the court. During
that period the entrance to the ground floor was set back some way from the
street frontage and was reached through an area open to the street at the front
and lined with dis0play windows on each side. The entrance to the upper part
was by means of a door and staircase situated to one side of this area and
reached by passing through the area. This arrangement was not very
satisfactory, because it did not provide a good means of access to the upper
parts and the open entrance area attracted rubbish and sometimes vagrants.
Moreover the ground floor and basement of the building were in a poor state of
repair, the basement being particularly bad and almost unusable.
In 1979 Travel
England agreed with the Commissioners to take a new lease of the entire building
on terms which I shall mention in a moment. Presumably in anticipation of the
grant of such lease, Travel England moved its offices in 1979: first (but only
for a short time) to the fourth floor of the building, and then in September
1979 to the third floor, which it still occupies. As part of the negotiations
for the new lease, Travel England proposed to alter the entrance to the
building so that the upstairs parts would be reached by a new door facing
directly on to the street. This was agreed to by the Commissioners and, as will
be seen, the making of this alteration became an obligation of Travel England
under the new lease.
The new lease
(‘the headlease’) is dated December 10 1979. By it, the Commissioners demised
the whole of the building to Travel England for a term beginning on July 19
1979 and ending on October 10 1995 at a rent of a peppercorn until September 22
1979 and thereafter a rent of £33,500 per annum plus additional rents payable
from each of two review dates, namely October 10 in the years 1985 and 1990.
These additional rents were to be ascertained by reference to the market rent
of the demised premises at the review dates. I need not describe the machinery
for ascertaining such market rent except to say that there was no provision for
leaving out of account the value of improvements made by the tenant.
The headlease
contained two covenants on the part of the tenant which call for mention.
First, by clause 3(3)(a) the tenant covenanted that it would, before July 19
1980 or such later date as the landlord might agree in writing, complete the
closure of the existing entrance to the upstairs part of the building at
ground-floor level and the installation of a new entrance in such a position
and of such design as should be approved by the landlord and all such works as
were
substantial repair, order and condition. Second, by clause 3(13) the tenant
covenanted (inter alia) that none of the principal timbers, iron or steelwork
or walls of the demised premises should be altered, cut or damaged and that no
alteration whatsoever should be made in the plan elevation, architectural
decorations or external colour of the demised premises. It will be observed
that this last mentioned covenant was an absolute covenant against the making
of alterations, not a covenant against the making of alterations without the
landlord’s consent.
By an
underlease dated January 18 1980 and made between Travel England as landlord
and a company named Avco Financial Services Ltd (‘Avco’) as tenant, Travel
England sublet to Avco the ground floor and basement of the building for a term
of 16 years and 9 days from September 29 1979 at the initial rent of £15,000.
The question with which I am concerned arises under this underlease and I must
refer to a number of its provisions.
First, the
term of the underlease will expire on October 8 1995: so that Travel England
reserved only a nominal reversion of two days. Second, the underlease provided
for the rent to be reviewed on September 29 1982, September 29 1985 and
September 29 1990. The last two review dates are practically the same as those
on which the rent payable under the headlease is to be reviewed, but the review
date of September 29 1982 has no counterpart in the headlease. The underlease
provided that on each review date the rent should be increased to an amount
equal to the best rack rental value of the demised premises, the meaning of
which is set out in clause 2(C) of the underlease which I must read in full:
The rack
rental value of the demised premises at each date of review shall be such an
amount as may be agreed between the Landlord and the Tenant or determined in
accordance with sub-clause (D) of this Clause as representing the rental value
of the demised premises for a term of years equal to the terms of years granted
by these presents as between a willing lessor and willing lessee with vacant
possession but upon the supposition (if not a fact) that the Tenant has
complied with all the obligations on the part of the Tenant imposed by these
presents (but without prejudice to any rights of the Landlord in regard
thereto) and taking no account of:
(i) any goodwill attributable to the demised
premises by reason of any trade or business carried on therein by the Tenant or
any undertenant; and
(ii) any effect of any improvements to the demised
premises (to which the Landlord shall have given written consent) carried out
by the Tenant or any undertenant otherwise than in pursuance of an obligation
to the Landlord; and
(iii) any effect on rent of the fact that the Tenant
or any undertenant may have been in occupation of the demised premises; and in
all other respects on the terms and conditions of these presents.
The question
in this case is whether certain assumed improvements which I refer to later are
to be left out of account by virtue of para (ii) of clause 2(C).
The next
provision of the underlease which I must mention is clause 3(J), relating to
alterations or additions. This contains two separate subclauses. Subclause (i)
provides that if the tenant desires to make any structural alterations or
additions it is to supply full particulars to the landlord which, if it agrees
in principle to the making of such alterations or additions, is then to have the
option to carry out the works itself and to charge an increased rent calculated
by reference to the cost of such alterations or additions. Subclause (ii) is of
more immediate relevance to the issues with which I am concerned. It is a
covenant on behalf of the tenant and reads as follows:
Subject as
aforesaid not to cut remove divide alter maim or injure the demised premises
nor merge the demised premises with any adjoining premises nor make any
alterations or additions to the demised premises except with the previous
consent in writing of the Landlord and in accordance with drawings and
specifications previously submitted to and approved in writing by the
Landlord’s Surveyors (such consent not to be unreasonably withheld) . . .
There follows
a proviso enabling the landlord to attach certain conditions to any such
consent, but none of the permitted conditions is material to the issue in this
case.
By clause 3(P)
the tenant covenanted (inter alia) at all times during the term to
comply in all respects with the Town and Country Planning Acts and not to make
any application for planning permission or give any notice to any authority of
an intention to commence or carry out any development or any step related
thereto without the previous consent of the landlord, such consent not to be
unreasonably withheld. By clause 3(S) the tenant covenanted to observe and
perform the covenants, other than the covenants for payment of rent, contained
in the headlease so far as the same related to the demised premises. One effect
of this last mentioned covenant was that the tenant became liable to perform
the obligations assumed by Travel England under clause 3(3)(a) of the headlease
in respect of the alteration of the entrance to the upstairs part and the
putting of the ground floor and basement into good and substantial repair and
condition.
It appears
that Avco entered into the underlease with a view to obtaining the ground floor
and basement for the use of one of its subsidiaries, a company named Cartan
Travel Ltd (‘Cartan’). Cartan went into occupation and carried out some of the
works of repair and alteration which the headlease required to be done. In
particular, the entrance to the upstairs part of the building was repositioned
as required. But the necessary work was not finished, a newly constructed wall
not being properly rendered and the work not being done to a very high
standard. Some repair work was also carried out but evidently not to the
satisfaction of the Commissioners.
At some time
during or before September 1980 the Commissioners served on Travel England a
schedule of dilapidations specifying various work which the Commissioners
required to be done in order to comply with the covenants in the headlease. On
September 15 1980 Travel England served on Avco a schedule of dilapidations
incorporating such of the works mentioned in the Commissioners’ schedule as
related to the ground floor and basement.
At about this
time, or shortly afterwards, Avco sought an assignee for the underlease. By
October 20 1980 the first defendant, Insight International Tours Ltd
(‘Insight’), appeared on the scene as a prospective assignee. As its name
suggests, Insight is also engaged in the travel business. It was and remains a subsidiary
of the second defendant, Black & Edgington Ltd. Before the end of November
1980 the solicitor to Travel England, Mr K D Bichard, a partner in the firm of
Cripps Harries Willis & Carter, was in contact with Insight’s solicitors,
Kagan Morris, and had submitted to them a draft of the proposed licence to
assign. In its original form this draft contained covenants on the part of
Insight to complete the installation of a new shop front at ground-floor level
within six months and within one month to do all such works as were necessary
to put the demised premises into good and substantial repair, order and
condition to the satisfaction of Travel England and the Commissioners.
Between the
submission of the draft licence and the end of 1980 there were several
communications about the transaction between the solicitors to the parties. I
need not go into these in any detail. It will suffice to say that on December 1
1980 Kagan Morris sent to Mr Bichard a plan which was said to show Insight’s
proposals for the premises. Travel England was asked to confirm that it was
agreeable to these proposals, that it did not wish to carry them out itself (it
appears to have been thought that the proposals involved structural work to
which the option contained in clause 3(J)(i) of the underlease applied) and
that the works would be excluded on a rent review. Shortly afterwards Mr
Bichard informed Kagan Morris over the telephone that Travel England did not
wish to carry out the works itself and was not agreeable to the alterations
being excluded on a rent review. On December 23 1980 Mr Bichard indicated to
Kagan Morris that Travel England was not content with the plan which had been
submitted on December 1. He asked Insight to submit three drawings showing more
clearly the structural alterations which were proposed, and he suggested that a
meeting be held, to be attended by the surveyors to the parties, to discuss the
proposals. He informed Kagan Morris that Travel England was not able to give
immediate consent to the proposals, that the Commissioners had not been
approached for their consent to the alterations and that Travel England would
only approach the Commissioners for such consent when a more satisfactory plan
had been supplied.
There matters
remained until a meeting on January 13 1981. This meeting was attended by Mr
Grant (the managing director of Travel England) and Mr Bichard on behalf of
Travel England; by Mr Tarsh (a director of Insight) and Miss Shirley Morris (a
partner in Kagan Morris) on behalf of Insight; and by representatives of
Cartan. There was a wide-ranging discussion of all the issues. The evidence
indicates that there was an air of urgency about the matter. Avco, through
Cartan’s representatives, indicated its desire to divest itself of the
underlease; Insight was eager to complete the assignment and to begin work on
the premises; and Travel England was concerned that the ground floor and
basement should be put into good repair as soon as possible. There was some
discussion as to the alterations which Insight was going to carry out, but it
is not clear how far these
agreement about the matters which were discussed. Mr Grant said in evidence
that he came away from the meeting with the feeling that matters were
sufficiently resolved and that Insight would be taking an assignment of the
underlease. Mr Tarsh evidently had much the same feeling, because the
transaction with Avco was rapidly finalised.
One of the
matters which were discussed at the meeting on January 13 was whether the
alterations would or would not be left out of account on a rent review. On the
affidavit evidence there was some conflict as to the course of this discussion.
However, in cross-examination Mr Grant, and I think Mr Bichard as well, agreed
that Mr Tarsh’s version of the discussion was probably the most accurate. What
Mr Tarsn said in his affidavit was that the question of exclusion of the
alterations on a rent review was not resolved at the meeting, that there was no
agreement to reconsider the matter in due course, but that Mr Grant and Mr
Bichard simply did not commit themselves at the meeting to the alterations
being excluded. I accept this evidence as substantially correct.
After the
meeting on January 13 1981 matters proceeded with some speed. The form of
licence to assign was agreed between the solicitors to the parties. The
covenant which had been contained in the draft as to completion of a new shop
front within six months was omitted, and the period for carrying out the work
necessary to put the demised premises into good and substantial repair was
extended to two months from the date of the licence. It was agreed that the
second defendant should join in the licence and become surety for Insight. The
assignment of the underlease from Avco to Insight was actually completed on
January 21. At that date the licence to assign had not yet been executed, but
it was completed on February 5 and was then backdated to January 21. Nothing
seems to turn on this irregularity. I ought, however, to say that, despite the
absence of any reference to the new shop front in the licence, I am satisfied
that both Travel England and Insight had it in mind that work on the new shop
front would at least be begun while the repair work was being carried out.
In a letter of
January 21 1981, which was delivered by hand to Kagan Morris and was received
by them before the assignment had been completed, Mr Bichard said among other
things the following:
We certainly
confirm that in principle our clients would like your clients’ proposed works
carried out, but we must make it clear that as yet we have certainly not yet
granted a Licence for these works. As mentioned in previous correspondence, if
you wish to apply to us for such a Licence in due course, then perhaps you
would be kind enough to let us have an undertaking to be responsible for our
charges in this matter, when the application can be considered further.
Kagan Morris
replied immediately on January 22 giving their undertaking in respect of costs.
In connection
with the schedule of dilapidations, the Commissioners had for some time past
been represented by Cluttons (on whose behalf the person concerned was a Mr
Sankey) and Travel England had been represented by Hillier Parker May & Rowden
(‘Hillier Parker’), where the person concerned was a Mr Crowther. In about the
middle of February 1981, Insight instructed a firm of architects, who were not
the architects who had prepared the plan submitted in December 1980, namely
Trehearne & Norman, Preston & Partners (‘Trehearnes’), to prepare new
plans for their proposed alterations (the person dealing with the matter being
a Mr McKenzie). On February 25 1981, Trehearnes wrote to Hillier Parker saying
that Insight had instructed Trehearnes to obtain agreement from Travel England
to alterations and improvements to the premises. Trehearnes enclosed new
drawings, one of which was stated to indicate the proposals which Insight
wished to implement without delay. A copy of the same letter with the drawings
was sent to Cluttons with a covering letter stating that Trehearnes would like,
on behalf of Insight, the Commissioners’ approval to the proposed alterations.
On February 26
1981, Cluttons replied to Trehearnes’ letter, stating that they saw no objection
in principle to the proposal and commenting that they would advise the
Commissioners to consent to the proposal provided certain works, being the
outstanding items from the schedule of dilapidations, were carried out. These
works were then set out under five heads. In the concluding paragraph of the
letter Cluttons said:
If you could
confirm that these conditions will be met and subject to any other comments
which the mesne landlord might wish to make, we would be prepared to recommend
the Commissioners to grant consent to your proposals.
At the time
when the letter of February 25 was received by Hillier Parker, Mr Grant was
abroad, where he remained until March 9. Hillier Parker were therefore unable
to obtain direct instructions from him, but Mr Crowther discussed the matter on
the telephone with Mr Bichard. In a letter of February 27 1981 to Hillier
Parker, Mr Bichard recorded his view as being that no acknowledgement of
consent to the alterations should be given because Mr Bichard had not yet
himself approached the Commissioners and because Mr Grant ought to see the
plans as he had a keen interest in the new entrance. Mr Bichard remarked that
the consent must in any event be dealt with by deed and not on an informal
basis. On February 27 Mr Crowther spoke to Mr McKenzie of Trehearnes on the
telephone. It seems likely that he had not at that time received Mr Bichard’s
letter. According to a letter which Mr McKenzie wrote to Mrs Hoffman (another
director of Insight) on March 2, which is consistent with a note which Mr
McKenzie appears to have written immediately after the telephone conversation,
Mr Crowther informed Mr McKenzie that approval of Travel England would be given
subject to the approval of the Commissioners and of the Westminster City
Council as planning authority. In that same letter to Mrs Hoffman, Mr McKenzie
referred to Cluttons’ letter of February 26 as approving the proposals shown in
the drawings. This of course was not entirely correct. On March 4 Mrs Hoffman
wrote to Mr McKenzie in connection with the five outstanding items mentioned in
Cluttons’ letter of February 26. Two of these items were regarded by Mrs
Hoffman as being of no concern to Insight. As regards the other three items,
Mrs Hoffman indicated that remedial work was well under way.
On March 17 Mr
Sankey of Cluttons wrote to Mr Crowther, saying that he had passed the premises
and noticed that Insight had commenced the proposed work without the
Commissioners’ formal consent and without planning consent. He concluded his
letter by saying:
We can see no
reason why consent should not be granted in principle to allow these works to
proceed, subject to the conditions set out in our letter of the 26th February.
We should appreciate hearing whether or not your clients agree these proposals
so that consideration can be given to the granting of consent to the works
proposed.
Mr Sankey sent
a copy of this letter to Trehearnes and it appears that they sent a copy of it
to Mrs Hoffman on March 19.
Also on March
19 a meeting took place between Mr Tarsh and Mr Grant at which the new shop
front was discussed. It appears that Mr Grant had not liked some aspects of the
designs shown on the drawing which Trehearnes had put forward on February 25.
After the meeting on March 19 Mr Tarsh at once went back to Trehearnes and got
them to produce a revised drawing, a copy of which he sent to Mr Grant on March
20, asking Mr Grant for his comments on a number of matters. It does not appear
what comments, if any, Mr Grant made. He said that he thought that he had
already made his comments to Mr Tarsh on March 19. Mr Tarsh did not point to
any specific subsequent discussions, although he said he thought that Mr Grant
had approved the detailed points mentioned in his letter of March 20 as the
work was carried out.
It appears
from an account submitted by Insight’s builders on March 31 1981 that the bulk
of the work, both of repair and of alteration, had been carried out by that
date, although the work to the new shop front might still have been
uncompleted.
On April 2
1981, Hillier Parker wrote to Insight saying that they had visited the premises
and noted that alterations to the ground floor and basement were going on
apace. The letter continued:
We must
formally record the fact that our clients, Travel England Ltd, have not yet
given you their formal approval as you have not yet furnished them with
evidence that you have obtained all the necessary statutory and landlords
approvals.
Therefore you
must recognise that the works currently in progress are being executed entirely
at your own risk.
Mr Bichard
seems to have been unaware of the plans which had been submitted to Hillier
Parker on February 25 and of the revised plan of the frontage supplied to Mr
Grant on March 20. On March 24 he wrote to Kagan Morris, referring to earlier
correspondence in which the question of submission of new plans had been
discussed, and asked whether or not fresh plans had been prepared. Kagan Morris
seem to have been equally unaware of what had been going on, because on March
26 they replied that they had asked Insight about this matter. On April 8,
having received from Mr Crowther a copy of Hillier Parker’s letter of April 2
to Insight, Mr Bichard wrote to Kagan Morris saying:
Whilst our
clients are naturally pleased that progress has been made so quickly may we
respectfully remind you that our clients cannot permit the proposed alterations
to the Ground Floor entrance until firstly our clients consent to this is given
and secondly the consent of the Freeholders is obtained through ourselves. We
must emphasise that we ourselves need to contact the Freeholders concerning
these proposals and informal contacts between your own clients and Messrs
Cluttons are not sufficient as far as we are concerned, quite apart from the
fact that as yet of course our clients have not agreed to your own clients
proposals. Before we approach the Freeholder’s solicitors we naturally require
to see full plans showing the proposal alterations and if your clients wish to
proceed with this no doubt they will forward such plans to us as soon as
possible.
On April 9
Kagan Morris replied that they had reminded Insight of the position and sent
Insight a copy of Mr Bichard’s letter of April 8.
Thereafter
correspondence between the solicitors on this aspect of the matter fell into
abeyance. On April 30 Westminster City Council gave planning consent for the
new shop front. Consent for an illuminated sign was refused and Insight decided
not to install such a sign. The evidence shows that all the work was completed
at about the time the planning consent was granted or quite soon afterwards.
There was, however, an exchange of correspondence between Mr Grant and Mr Tarsh
in August 1981 in which Mr Grant complained about certain minor matters
concerning the new entrance to the upstairs part of the building, but this
correspondence appears to be of no great significance and Insight duly attended
to all these matters.
In June 1981
Cluttons drew attention to the fact that the pavement light, which had been
removed by Avco or Cartan and replaced by a concrete slab, must be replaced by
a new pavement light. Unsuccessful attempts were made to persuade Cluttons to
withdraw this requirement and eventually Insight did the necessary work in
November 1981.
It thus
appears that by November 1981 the five matters mentioned in Cluttons’ letter of
February 26 as being conditions of the Commissioners’ consent under the
headlease had all been dealt with, although neither the Commissioners nor
Cluttons had ever been formally notified that these conditions were accepted
and no formal consent had been obtained from the Commissioners.
On January 20
1982, Mr Bichard had to write to Kagan Morris about another matter concerning
the property, and he reminded Kagan Morris that Insight had carried out various
works to the ground-floor entrance without any formal licence or consent from
Travel England. He referred back to the letters of April 8 and 9 1981 which I
have already mentioned and continued:
May we take
this opportunity of reminding you again that the headlease of this property,
the covenants of which our clients agree to observe, contains restrictions upon
alterations and therefore any works which your clients have carried out are
entirely at their own risk. Having said this, we do not wish informal contacts
between your clients and our clients’ landlord’s agents to take place and any
future dealings should be direct with our clients or with ourselves and not
with Messrs Cluttons. It does appear that Messrs Cluttons are aware of the
alterations to the ground floor entrance and have not raised any objections to
these but we must naturally reserve our client’s position with regards these
generally for reasons which we are sure you will appreciate.
On February 11
1982, Kagan Morris replied:
In connection
with the alterations we have sent a copy of your letter to our clients who tell
us that their proposals were approved some time ago by Cluttons on behalf of
the Superior Landlords and that the works have been inspected and approved by
Philip Grant on behalf of the Landlords. We do, however, agree that a formal
Licence should be completed for which purpose we have asked our clients to let
us have sets of the final drawings and we trust that as soon as we can produce
these to you we will be able to settle the outstanding Licence.
On February 19
1982, Kagan Morris sent Mr Bichard two drawings and asked for a formal licence
for the alterations shown in these drawings. One of the drawings then submitted
included ground-floor and basement plans which were for all practical purposes
the same as those shown in the corresponding drawing previously submitted by
Trehearnes to Cluttons and Hillier Parker under cover of the letters of
February 25 1981. The other drawing showed the front and side elevations of the
new shop front, the front elevation being similar in all important respects to
the drawing which Mr Tarsh had sent to Mr Grant on March 20 1981. For reasons
which are not explained, no formal licence was granted in response to the request
contained in the letter of February 19 1981 and the request was not followed
up.
In October
1982 the first rent review under the underlease became due. Apparently the
valuers to Travel England and Insight produced figures for the revised rent
which were very wide apart, a major cause of the divergence being the exclusion
of the value attributable to the alterations carried out in 1981 by one valuer
and the inclusion of this value by the other. This led to a further exchange of
correspondence between the solicitors to the parties in March 1983 in which
Kagan Morris claimed that Travel England had already given written consent to
the alterations and Mr Bichard denied this. On December 9 1983 Travel England
issued the originating summons in these proceedings seeking a declaration that
as at September 29 1982 neither Avco nor Insight had carried out any
improvements to the demised premises for which they had the written consent of
Travel England other than improvements carried out in pursuance of an obligation
to Travel England; and a further declaration that for the purpose of the
determination of the rack rental value of the demised premises at September 29
account is to be taken of the effect of all improvements, if any, to the
demised premises by whomsoever carried out. The defendants responded by raising
a number of contentions which I mention below and by making a counterclaim, by
summons dated March 21 1984, for a declaration that as at September 29 1982
Travel England were unreasonably withholding the grant of a licence in respect
of the improvements referred to in the letters dated February 11 and 19 1982
from Kagan Morris and shown in the two drawings enclosed with the letter of
February 19 1982; and further or alternatively a declaration that Travel
England is still unreasonably withholding the grant of such a licence. In the
course of argument it became apparent that the counterclaim, as so formulated,
might not correspond with the contentions put forward by Mr Driscoll for
Insight, but no issue was raised as to this and it is common ground that I can
consider the submissions as made and, if appropriate, give any necessary
directions as to the amendment of the counterclaim after I have ruled on the
submissions.
It is
appropriate to note at this stage that the improvements which, according to
Insight, are to be left out of account on a rent review fall under four heads,
namely (i) the installation of a toilet and shower in the basement of the
premises; (ii) the installation of a new shop front and ground-floor entrance;
(iii) the infilling of an internal staircase to provide additional floorspace
on both ground-floor and basement levels; and (iv) the installation of air
conditioning in the basement. Travel England does not accept that all these
items are necessarily improvements, but I am not asked to decide this question:
I am only concerned to decide whether, on the assumption that all these items
are improvements carried out by Insight, the effect of them is or is not to be
left out of account under clause 2(C)(ii) of the underlease.
The basic
submission made on behalf of Travel England is that under the terms of clause
2(C) of the underlease what has to be considered is the rack rental value of
the demised premises at the relevant date of review; that the reference to the
demised premises means the demised premises as they exist at that date,
including all alterations and improvements not expressly directed to be left
out of account; that under clause 2(C)(ii) improvements carried out by the
tenant are only to be left out of account if (inter alia) the landlord
has given its written consent to them; and that no written consent has been
given here.
Although the
correspondence and the affidavits had indicated that Insight would submit that
there was a written consent to the alterations which are said to constitute the
improvements in this case, Mr Driscoll, on behalf of Insight, did not in the
end pursue this point. The submissions which he made can be summarised as
follows. First, he said that on the true construction of the underlease the
words in parenthesis in clause 2(C)(ii) should be read as if they referred not
only to improvements to which the landlord had given written consent but also
to improvements in respect of which the landlord’s consent had been
unreasonably withheld. He contended also that Travel England has unreasonably
withheld its consent to the improvements in this case. Secondly, he said that,
in view of this unreasonable withholding of consent, improvements must in any
event be left out of account on a rent review because not to do so would enable
Travel England to take advantage of its own wrong. Thirdly, he said that even
if he were wrong about the first two points, this would not matter because
clause 2(C) requires it to be supposed that the tenant has complied with all
its obligations under the underlease and this means that it has to be supposed
that Insight has obtained the written consent of Travel England to the
improvements in question. Fourthly, he argued that in the circumstances of this
case Travel England is estopped from denying that it has given written consent
to the improvements.
It appears to
me that the submission made on behalf of Travel England is correct unless it is
displaced by one or more of the
burden of satisfying me as to the correct answer lies upon Insight rather than
upon Travel England. I merely mean to indicate that, as I see it, the
convenient course will be to consider the submissions made on behalf of Insight
before returning to those made on behalf of Travel England. As will be seen,
there is a certain degree of overlap between the component parts of Mr
Driscoll’s first three submissions.
The first
submission has two limbs, the first being an argument as to the construction of
clause 2(C)(ii) of the underlease and the second being a contention that
consent to the improvements has in fact been unreasonably withheld. As to the
first limb, Mr Driscoll submitted that the words in parenthesis in clause
2(C)(ii) should be read as if they referred to improvements carried out by the
tenant ‘to which the landlord shall have given written consent or in respect of
which the landlord’s consent has been unreasonably withheld’. It appears to me
that this cannot be done by any form of interpretation of the words which are
actually present in the clause and that if it is to be done at all it involves
the implication into clause 2(C)(ii) of a new condition which constitutes an
alternative to the condition actually expressed in the parenthesis. In other
words the form of construction relied upon is that form which, where
applicable, implies into an instrument terms which are not actually there.
The
circumstances in which the court will make such an implication have, of course,
been frequently considered in reported cases, the most authoritative recent
instance being Liverpool City Council v Irwin [1977] AC 239. In
that case at pp 253-4 Lord Wilberforce said this:
But there are
varieties of implications which the courts think fit to make and they do not
necessarily involve the same process. Where there is, on the face of it, a
complete, bilateral contract, the courts are sometimes willing to add terms to
it, as implied terms: this is very common in mercantile contracts where there
is an established usage: in that case the courts are spelling out what both
parties know and would, if asked, unhesitatingly agree to be part of the
bargain. In other cases, where there is an apparently complete bargain, the
courts are willing to add a term on the ground that without it the contract
will not work — this is the case, if not of The Moorcock (1889) 14 PD 64
itself on its facts, at least of the doctrine of The Moorcock as usually
applied. This is, as was pointed out by the majority in the Court of Appeal, a
strict test — though the degree of strictness seems to vary with the current
legal trend — and I think that they were right not to accept it as applicable
here. There is a third variety of implication, that which I think Lord Denning
MR favours, or at least did favour in this case, and that is the implication of
reasonable terms. But though I agree with many of his instances, which in fact
fall under one or other of the preceding heads, I cannot go so far as to endorse
his principle; indeed, it seems to me, with respect, to extend a long, and
undesirable, way beyond sound authority.
Lord
Wilberforce went on to mention a fourth case, of which the Liverpool City
Council case was itself an example, where the court is concerned to
establish what the contract is, the parties not having themselves fully stated
the terms. Clearly, we are not concerned with a case of this type today. Lord
Cross of Chelsea, addressing himself to a case where the court is being asked
to insert into a contract a term which the parties have not expressed, said at
p 258:
Here it is
not enough for the court to say that the suggested term is a reasonable one the
presence of which would make the contract a better or fairer one; it must be
able to say that the insertion of the term is necessary to give — as it is put
— ‘business efficacy’ to the contract and that if its absence had been pointed
out at the time both parties — assuming them to have been reasonable men —
would have agreed without hesitation to its insertion.
Lord Edmund
Davies said trenchantly at p 266 ‘the touchstone is always necessity and
not mere reasonableness‘.
Mr Driscoll
contended that the written consent which is referred to in the words in
parenthesis in clause 2(C)(ii) is the written consent without which, by virtue
of clause 3(J)(ii), the tenant is precluded from carrying out any alterations
to the demised premises. This last mentioned consent is a consent which the
landlord may not unreasonably withhold. Mr Driscoll contended that it would be
illogical if the landlord were precluded from withholding consent unreasonably
for the purposes of clause 3(J)(ii) but were allowed to prevent an improvement
being left out of account under clause 2(C)(ii) by the simple expedient of withholding
consent, albeit unreasonably.
While I see
the force of this argument, it is not enough, in my judgment, to give rise to
the suggested implication here. The provisions of clause 2(C) of the underlease
will work perfectly well without the suggested implication. Mr Driscoll’s
complaint is in reality a complaint that it will operate unfairly or
unreasonably and Liverpool City Council v Irwin has shown that
this is not enough. Moreover, if the well-known officious bystander test were
applied I think that, in deciding what answer the parties would have given to
the question whether the matter was to be governed by the proposed implication,
the parties should be treated as having had their attention drawn not only to
the absence of a reference to the unreasonable withholding of consent in clause
2(C)(ii) but also to the absence of a corresponding disregard in the rent
review provisions of the headlease and to the presence in the headlease of an
absolute covenant against the making of alterations. If the parties had all
these matters in mind, it is, in my judgment, by no means apparent that they
would answer the officious bystander by saying that of course they intended the
suggested implication to be made. I consider it just as likely that one at
least of them would have said either that clause 3(J)(ii) must be reformulated
so as to correspond with the equivalent covenant in the headlease or that
clause 2(C) must contain no provision at all for disregarding improvements.
My decision on
this first limb of the argument would, by itself, be enough to dispose of Mr
Driscoll’s first submission, but I think I must consider also the contention as
to unreasonable withholding of consent, in case I am wrong about the first limb
and also because this contention forms part of Mr Driscoll’s later submissions.
The
counterclaim as formulated in the summons dated March 21 1984 seemed to be
based upon an unreasonable withholding of consent pursuant to the request for a
licence which was made in the correspondence in February 1982 to which I have
already referred. But Mr Driscoll accepted in argument that he could not rely
upon this request because it was made after all the relevant work had been
completed and the consent required by clause 3(J)(ii) of the underlease is ‘the
previous consent in writing of the landlord’; that is to say consent given
before the work is done. Instead Mr Driscoll relied upon the failure of Travel
England to grant consent pursuant to the request made by Trehearnes in their
letter of February 25 1981 to Hillier Parker.
I am prepared
to treat that letter as a letter asking for formal written consent to the
alterations, other than the installation of air conditioning in the basement,
although I see the force of Mr Crampin’s submission that all that was being
asked for was an informal indication of approval. I make an exception as
regards the air conditioning because the alterations for which agreement was
sought are said to be set out in certain plans enclosed with the letter of
February 25 1981 and I cannot find in those plans any indication that there was
to be air conditioning in the basement. Treating the letter in this way, the
answer which Trehearnes received from Mr Crowther in the telephone conversation
of February 27 1981 as recorded by Mr McKenzie was not the agreement which had
been asked for. It was merely an indication that approval would be given in the
future if the Commissioners gave their own approval and if planning permission
was obtained. It is not suggested that it was unreasonable for this attitude to
be taken on behalf of Travel England at that stage. Likewise the Commissioners
did not give their own immediate approval. Cluttons indicated that they would
advise the Commissioners to give approval if certain conditions were met. They
asked for confirmation of the acceptance of these conditions but never received
it. The indications are that Insight was prepared to accept these conditions,
but Cluttons were never informed of this and the last of the work required to
satisfy the conditions, namely the replacement of the pavement light, was not
in fact completed until November, by which time all the alteration work had
been done for some time. The Commissioners have indeed never actually given
their formal consent to the alterations. As to planning consent, this was not
obtained until April 30, but neither Hillier Parker nor Travel England appear
to have been informed of this. In the meantime both Cluttons and Hillier Parker
had drawn the attention of Insight to the fact that they were proceeding with
the work without consent and, as between the solicitors, there had been
correspondence in April 1981 on the footing that an application for consent had
yet to be made on behalf of Insight. An attempt was made to criticise Travel
England because it made no effort itself to obtain the consent of the
Commissioners. In my judgment such criticism is unjustified. Hillier Parker
thought that Insight was dealing direct with Cluttons on behalf of the
Commissioners and Mr Bichard made it clear to Kagan Morris in his letter of
April 8 that he was not going to approach the Commissioners until full plans
were submitted. He was not met with the response that such plans had already
been submitted. Moreover, when the question of a licence was revived in January
and February
and Insight made no attempt to suggest that the fault lay with Travel England
for not attending fully to Trehearnes’ request made in the letter of February
25 1981.
Mr Driscoll
drew my attention to Lambert v F W Woolworth & Co Ltd (No 2)
[1938] 1 Ch 883 and submitted that, having regard to that case and to section
19(2) of the Landlord and Tenant Act 1927, Travel England could not properly
have refused consent on the ground of diminution in the value of its
reversionary interest, but would have been limited to demanding reasonable
compensation for such diminution. That may well be so. But in my judgment the
matter never proceeded to that stage. I think that Trehearnes accepted the
telephone conversation with Mr Crowther on February 27 1981 as sufficient for
their purposes, even though it fell a long way short of what I am prepared to
treat them as having asked for. If, notwithstanding this, the request remained
outstanding to any extent after February 27 the parties nevertheless
effectively treated it as being in abeyance and did not regard Travel England
as being under an obligation to do anything further. No attempt was made to
raise the matter again until Mr Bichard drew attention to the absence of
consent early in 1982 at which date it was too late to obtain ‘previous consent
in writing’. If, contrary to my view, Travel England was under an obligation to
do something further after February 27 1981 it was, in my judgment, reasonable
for it to await the formal consent of the Commissioners, either in response to
the approach made direct by Trehearnes or in response to an approach which Mr
Bichard indicated that Travel England was prepared to make if and when Kagan
Morris supplied him with particular material.
I therefore
reject the submission that Travel England has unreasonably withheld from
Insight such consent as was made necessary by clause 3(J)(ii) of the
underlease. Moreover, in respect of the air conditioning in the basement I
consider that such consent was never sought by Insight.
I turn to Mr
Driscoll’s second main submission. This has two elements, namely (i) that
Travel England has unreasonably withheld its consent to the improvements; and
(ii) that this constitutes a ‘wrong’ on the part of Travel England for the
purposes of the principle that no man may take advantage of his own wrong.
Having regard to what I have already said about unreasonable withholding of
consent, this submission must fail because the first element is not present.
Nevertheless I think I ought to state my views on the second element as well,
particularly because the principle that no man may take advantage of his own
wrong has a bearing on the third main submission.
The principle
in question was considered by the House of Lords in New Zealand Shipping Co
Ltd v Societe des Ateliers et Chantiers de France [1919] AC 1. In
the recent case of Cheall v APEX [1983] 2 AC 180, at pp 188-9,
Lord Diplock described what the House of Lords had said in the earlier case in
the following way:
In the course
of the speeches [in the New Zealand Shipping case], which are not
entirely consistent with one another, reference was made by all their Lordships
to the well known rule of construction that, except in the unlikely case that
the contract contains clear express provisions to the contrary, it is to be
presumed that it was not the intention of the parties that either party should
be entitled to rely upon his own breaches of his primary obligations as
bringing the contract to an end, ie as terminating any further primary
obligations on his part then remaining unperformed. This rule of construction,
which is paralleled by the rule of law that a contracting party cannot rely
upon an event brought about by his own breach of contract as having terminated
a contract by frustration, is often expressed in broad language as: ‘A man
cannot be permitted to take advantage of his own wrong’. But this may be
misleading if it is adopted without defining the breach of duty to which the pejorative
word ‘wrong’ is intended to refer and the person to whom the duty is owed.
Here also it
is necessary to consider a similar point, bearing in mind that the ‘wrong’
relied upon is the unreasonable withholding of consent to alterations pursuant
to clause 3(J)(ii). For this purpose I assume, contrary to what I have already
decided, that consent has been unreasonably withheld. It is clear, however,
that this would not render Travel England liable to an action for damages. In
the well-known case of Treloar v Bigge (1874) LR 9 Ex 151 a
covenant by a tenant not to assign leasehold premises without the consent of
the lessor, ‘such consent not being arbitrarily withheld’ was under
consideration. In that case Kelly CB said at p 154:
The words,
taken grammatically, do not seem to me to amount to an undertaking by the
lessor, but are a part of the same sentence as that containing the lessee’s
covenant, and qualify its generality. They prevent that covenant operating in
any case of arbitrary refusal on the part of the lessor, that is, in any case
where, without fair, solid, and substantial cause, and without reason given,
the lessor refuses his assent.
Amphlett B
said at p 156:
. . . I think
they [the words relied upon] ought to be construed as a qualification on the
covenant of the lessee. That covenant is in derogation of his common law
rights, and it is more convenient and reasonable to hold that the words were
introduced to limit the generality of the covenant than to hold them to impose
an obligation on the lessor. The true interpretation of the words, I think, is
to release the plaintiff from his covenant not to assign without the
plaintiff’s assent, if that assent is arbitrarily withheld.
It appears to
me that this reasoning leads inevitably to the conclusion that where a lessee
covenants not to do something without the consent of the lessor, such consent
not to be unreasonably refused, an unreasonable refusal of consent by the
lessor does not amount to any kind of wrong on his part. It merely produces a
situation in which the lessee’s covenant no longer applies and leaves the
lessee free to do the act in question as if he had never entered into a
covenant not to do it.
In these
circumstances I consider that Mr Driscoll’s attempt to invoke the principle
that no man may take advantage of his own wrong fails, whether this principle
is used in support of the implication which I have already refused to make or
whether it is relied upon in support of a free-standing argument that, even without
such implication, the improvements in this case are to be left out of account
on a rent review.
The next
submission which I must deal with is that which is based upon the supposition
required to be made by clause 2(C) of the underlease. What clause 2(C) requires
is that the rental value of the demised premises shall be agreed or determined
as if they were let for a particular term of years as between a willing lessor
and a willing lessee with vacant possession, subject to two qualifications. The
first qualification is expressed in the words ‘but upon the supposition (if not
a fact) that the Tenant has complied with all the obligations on the part of
the Tenant imposed by these presents’. I will refer to it as ‘the supposition’.
The second qualification is made by providing that no account shall be taken of
certain matters, including the effect of improvements to which the landlord has
given written consent.
It is obvious
that the main purpose of the supposition was to prevent the rental values being
depressed as a result of a breach by the tenant of its obligations under the
underlease, for example by the tenant’s failure to repair the demised premises.
However, there seems to be no reason why the supposition should not have a
wider effect if, on the language of clause 2(C) as a whole, it is capable of
doing so.
The first
point to be noticed is that the language of clause 2(C) requires that the
supposition shall only be made where it is not the fact that the tenant has
complied with all its obligations. Accordingly it is not necessary to make the
supposition in relation to alterations where the landlord has in fact given his
written consent to them. In my judgment this is also the case where the
landlord has been asked for his consent to the alterations and has unreasonably
withheld it. The reason why this is so is that, as I have already stated, where
a tenant’s covenant provides that something shall not be done without the
landlord’s consent, such consent not to be unreasonably withheld, the
unreasonable withholding of consent by the landlord frees the tenant from the
burden of the covenant in respect of the matter for which consent was sought.
If in such a case the tenant proceeds to do what the covenant originally
prohibited him from doing without consent, he commits no breach of any
obligation.
There remains,
however, the case where there is no unreasonable withholding of consent. For
example, the tenant may carry out alterations without asking for consent or
without giving the landlord a reasonable opportunity to consider whether to
give or withhold consent or the alterations may be such that the landlord can
reasonably refuse his consent to them. On the findings I have already made,
there was no unreasonable withholding of consent in the present case, so that
this case falls within the category now under consideration. Is the supposition
applicable in this category of case and, if so, what precisely does it require
to be supposed?
It is
convenient to deal with the second part of this question first, making the
assumption at this stage that the supposition applies. There appear to be three
possibilities. The first is to assume that the tenant has obtained the
landlord’s written consent, although it is known that he has not. The second is
to recognise that the tenant has not obtained written consent to the
alterations and to assume that he has complied with his covenant so that he has
not in fact made any
improvements are to be left out of account on a rent review because they are to
be treated as not having been made at all. The third possibility is to
recognise both the absence of written consent and the presence of the
alterations, with the result that the alterations must be assumed to have been
made by somebody other than the tenant. This would result in alterations which
are improvements being left out of account because they would be deemed not to
have been carried out by the tenant.
Mr Driscoll
contended primarily for the first of these possibilities. However, I cannot
accept that this is correct. The relevant obligation of the tenant under the
underlease was not a positive obligation to obtain the written consent of the
landlord to the proposed alterations but a negative obligation not to carry out
alterations if it did not have such consent. Mr Driscoll’s second preference
was for the second possibility and in this he was joined by Mr Crampin. The
third possibility might have suited Mr Crampin’s case better, but he felt
unable to contend for it because of its artificiality and because it would lead
to absurd results if the alteration had been such as to reduce the rental value
of the demised premises. I am not altogether convinced that the second
possibility is any less artificial than the third but, faced with a measure of
consensus between opposing counsel, I think I must proceed on the footing that,
if it applies at all, the supposition requires it to be assumed that Insight
has made no alterations at all.
Nevertheless,
returning to the first part of the question which I posed above, I feel bound
to hold that the supposition does not apply at all in the circumstances of this
case. I reach this conclusion for two reasons. First, if it were to apply in
the manner contended for it would virtually destroy the effect of the
requirement, imposed by clause 2(C)(ii), that improvements carried out by the
tenant are to be left out of account only if they are improvements to which the
landlord has given written consent. In a case where consent has actually been
given clause 2(C)(ii) would apply. In a case where consent had not been asked
for or had been reasonably withheld the supposition would, if allowed to
operate, result in the improvements being left out of account without resort to
clause 2(C)(ii). The only circumstance in which improvements would not be left
out of account would be when the tenant has quite properly carried them out
after an unreasonable refusal of consent by the landlord. I cannot accept an
interpretation of clause 2(C) which means that a tenant who has not acted in
breach of covenant is in a worse position than one who has acted in breach. In
my judgment the express requirement for written consent imposed by clause
2(C)(ii) overrides the supposition in determining whether improvements are or
are not to be left out of account.
Second, my
conclusion is based on the principle, already mentioned, that no man may take
advantage of his own wrong. In the passage from Cheall v APEX
which I have already quoted, Lord Diplock referred ‘to the well-known rule of
construction that . . . it is to be presumed that it was not the intention of
the parties that either party should be entitled to rely upon his own breaches
of his primary obligations as bringing the contract to an end’. Cases where
this rule of construction have been applied were cited in the New Zealand
Shipping case. I do not see why this rule should be limited in its
application to cases where a party seeks to rely on his own default as bringing
a contract to an end. I would hold that it applies also where a party seeks to
assert that his own breach of contract enables him to take advantage of a
contractual presumption. In my judgment, on the true construction of clause
2(C) of the underlease, the supposition that, contrary to the true fact, the
tenant has complied with its obligations is only to be made in favour of the
innocent party, namely the landlord.
Finally, I
must deal with the arguments founded upon estoppel. Mr Driscoll relied
primarily on proprietary estoppel, saying that Travel England represented to
Insight that if Insight incurred expense in carrying out the proposed
alterations, Travel England would grant a formal written licence for these
alterations. He said that this raised an equity in favour of Insight which should
be given effect to by requiring Travel England to act as if such a licence had
been given and therefore to accept an assessment of rent on the rent review as
if such a licence was in existence. Alternatively I think he contended that
Travel England should be required to grant a licence now with retrospective
effect. In support of this proposition he referred to Taylors Fashions Ltd
v Liverpool Victoria Trustees Co Ltd (Note) [1982] 1 QB 133 and to Snell’s
Equity, 28th ed, p 558. In the alternative Mr Driscoll relied on estoppel
by convention as discussed in Amalgamated Investment & Property Co Ltd
v Texas Commerce International Bank Ltd [1982] QB 84. In the further
alternative, Mr Driscoll invoked promissory estoppel.
In my judgment
estoppel by convention cannot assist Mr Driscoll here. The principle of this
variety of estoppel is, I think, accurately summarised in the headnote to the Amalgamated
Property case in the following words:
When parties
in their course of dealing in a transaction have acted upon an agreed
assumption that a particular state of facts between them is to be accepted as
true, each is to be regarded as estopped as against the other from questioning
as regards that transaction the truth of the statement of facts so assumed.
On no view of
the facts of this case can it be said that the parties have acted on the
footing that a particular state of facts exists when this is not in fact the
case. The highest that the matter can be put, although I shall have to examine
the correctness of this in a moment, is that they acted on the footing that a
particular instrument would be brought into existence in the future.
Mr Crampin
contended that the claim based on proprietary estoppel must also fail because
proprietary estoppel could not apply in circumstances such as those of the
present case. He cited Western Fish Products Ltd v Penwith District
Council [1981] 2 All ER 204, where Megaw LJ, giving the judgment of the
Court of Appeal, discussed the law relating to proprietary estoppel and said,
at p 218:
We know of no
case, and none has been cited to us, in which the principle set out in Ramsden
v Dyson and Crabb v Arun District Council has been applied
otherwise than to rights and interests created in and over land. It may extend
to other forms of property: see per Lord Denning MR in Moorgate Mercantile
Co Ltd v Twitchings [1975] 3 All ER 314 at 323-324, [1976] QB 225 at
242. In our judgment there is no good reason for extending the principle
further. As Harman LJ pointed out in Campbell Discount Co Ltd v Bridge
[1961] 2 All ER 97 at 103, [1961] 1 QB 445 at 459, the system of equity has
become a very precise one. The creation of new rights and remedies is a matter
for Parliament, not the judges.
In his reply
counsel for the plaintiffs seemed to recognise that the reported cases did put
limits to the application of the so-called concept of proprietary estoppel. He
submitted that the plaintiffs’ case was within that concept because what the
defendant council, by their officers, had represented had, to their knowledge,
caused the plaintiffs to spend money on or in connection with their own land
which they would not otherwise have spent. On their own case they have spent
money in order to take advantage of existing rights over their own land which
the defendant council by their officers had confirmed they possessed. There was
no question of their acquiring any rights in relation to any other person’s
land, which is what proprietary estoppel is concerned with.
In my judgment
the possible application of proprietary estoppel cannot be excluded on these
grounds here. The dispute in this case does concern rights or interests in
land. The question, in effect, is whether the value of the improvements, which
have become part of the land, is to be treated on a rent review as attributable
to the landlord’s interest in the demised premises or to the tenant’s interest.
Insight, by asserting the latter, is in effect claiming that, by virtue of an
estoppel, what would otherwise be part of the landlord’s property is to be treated,
for valuation purposes, as part of the tenant’s property. If I am satisfied on
the facts that a representation to the necessary effect was made, I see no
reason why I should not give effect to this by recognising an equity and
implementing it in whatever way appears to be most just.
Accordingly I
consider that the outcome of the arguments based on proprietary estoppel and
indeed on promissory estoppel depends on the evaluation of the facts of this
case. I have already stated most of the primary facts, but there is one matter
to which I must return. Mr Tarsh said in his oral evidence that, although the
question whether or not the alterations would be excluded on a rent review was
not resolved at the meeting on January 13, he thought it was resolved a few days
later. The basis for this was the exchange of letters in which Mr Bichard had
indicated that he had in mind a grant of a written licence and had asked for
Kagan Morris’ undertaking to be responsible for his charges in relation to such
a licence and Kagan Morris had given their undertaking in this respect by their
letter of January 22 1981. Mr Tarsh said he appreciated at the time that such a
licence would be a written consent for the purposes of clause 2(C)(ii) and that
after Insight, through its solicitors, gave its undertaking to pay the costs of
such a licence he thought there was no need to get express agreement to exclude
the effect of improvements on a rent review because this would be automatic
under the terms of the underlease itself.
I am afraid
that I cannot accept Mr Tarsh’s evidence on this point.
understanding legal documents such as the underlease, I cannot believe that
this was how he appraised the matter in January or February 1981. If he had
looked at the matter in this way it would have been a most important piece of
evidence, yet I see no trace of it in either of his two affidavits and,
although he supplemented these affidavits by evidence in chief, the statement of
his belief did not emerge until he was cross-examined. I am sure Mr Tarsh was
trying to give his recollection of what happened and what he thought at the
time to the best of his ability, but I fear that what he said about his
reasoning in January or February 1981 does not represent the state of his mind
at the time. I think that what has happened is that unconsciously Mr Tarsh has
come to believe that some of the points which have been discussed in the course
of preparation of this case represent what actually happened at the time.
What
representation, if any, did Travel England make to Insight concerning the
alterations? I have no doubt that Travel
England represented that it had no objection to the alterations being carried
out. Had these proceedings been based upon an alleged breach of the prohibition
contained in clause 3(J)(ii) of the underlease I would have had no hesitation
in holding that Travel England is estopped from complaining of any such breach.
But it appears to me that in order for Mr Driscoll’s arguments on clause
2(C)(ii) to succeed on the basis that Travel England is estopped from denying
that it has consented in writing to the improvements, something more than mere
non-objection to the alterations must be proved. In my judgment it would be
necessary for Insight to show either that Travel England promised to grant a
written licence (in which case one would have expected Insight’s claim to have
been formulated as a contractual claim) or that it represented that,
notwithstanding the absence of written consent, it was content for the
improvements to be left out of account on a rent review. In my judgment nothing
of this kind can be spelt out of the facts. I regard it as of the utmost
significance that the last occasion before this dispute arose on which the
leaving of the improvements out of account was discussed between the parties
was on January 13, when everyone agrees that the matter was left undecided.
Thereafter all the discussions concerning a licence were, in my judgment,
discussions in relation to the consent to alterations required by clause
3(J)(ii) and the parties did not address their minds to whether improvements
were or were not to be left out of account on a rent review. No form of licence
was ever discussed or agreed. Although Travel England clearly indicated that it
had no objection to the alterations it did not, in my judgment, make any
representation as to leaving out of account on a rent review any of these
alterations. The fact that it was contemplated that the matter would be dealt
with by a written licence does not, in my view, amount to a representation that
there would be a written consent for the purposes of clause 2(C)(ii). It may be
that if a formal licence had been prepared Travel England would have forgotten
about the point and would unwittingly have given a written consent for the
purposes of clause 2(C)(ii). On the other hand, if a formal licence had been
prepared and considered the matter might have been reconsidered and a provision
altering the effect of clause 2(C)(ii) might have been agreed. At the highest
it appears to me that there is no more than a suspicion that, if the matter of
formal consent for the purposes of clause 3(J) had been pursued, Travel England
might have forgotten about the clause 2(C)(ii) point. In my judgment it is
impossible to elevate this into a representation that Travel England was
prepared to grant a licence which would resolve the clause 2(C)(ii) point in
favour of Insight.
I would add
that it appears to me that the conclusion which I have just expressed would not
be any different even if I had felt able to accept Mr Tarsh’s evidence as to
his belief that the matter had been resolved by the exchange of correspondence
in January 1981. If Mr Tarsh had held that belief it did not, in my judgment,
arise from anything said or done on behalf of Travel England. In particular Mr
Bichard cannot, in my view, be taken to have represented that if a licence was
granted as envisaged it would resolve the clause 2(C)(ii) point by its silence.
In the result,
therefore, I am unable to accept any of the arguments advanced on behalf of
Insight. In my judgment the arguments on behalf of Travel England accord with
the natural meaning of the words of clause 2(C)(ii) and are not in any way
displaced. Subject to any submissions as to the precise form of order, it
appears to me that I ought to grant Travel England the declarations which it
has claimed and to dismiss the counterclaim.
Declarations
were made as sought in plaintiffs’ amended summons, the counterclaim as amended
was dismissed. The defendants were ordered to pay the costs including costs of
counterclaim.
