Landlord and tenant — Improvements to business premises — Part I of Landlord and Tenant Act 1927 — Provisions for compensation at the end of the tenancy for improvements carried out by the tenant — Machinery for certification by the county court that the improvement is a proper one — Whether county court may grant a certificate where the improvement has already been carried out when the application comes before the court — Appeal by landlords against decision of recorder reversing order of deputy registrar who had struck out tenants’ originating application on the ground of delay
this case followed a remarkably desultory course — The tenants’ notice of
intention, the landlords’ notice of objection, the originating application for
a certificate all took place in 1979 — The works in question were commenced at
some point in 1979, probably after the tenants’ notice of intention but before
the issue of the originating application — The works were completed in 1981 —
The next events of material interest, however, did not take place until 1988,
when the deputy registrar struck out the originating application and the recorder
reversed that decision — Then followed the present appeal against the
recorder’s decision
for the Court of Appeal was whether an application for a certificate under
section 3 of the 1927 Act could be heard and determined after the relevant improvements
had been completed — The tenants conceded that the notice of intention had to
be given before the works were carried out (as was in fact done in this case)
but argued that the recorder was right in holding that the court still had
discretion to grant a certificate even if the application was heard after the
improvements had been completed — The court had no difficulty in rejecting this
view — The whole tenor of section 3 of the 1927 Act was consistent only with a
certificate being granted before the works were completed — This was implicit
in subsections (1), (2), (3), (4) and particularly (5) — In the present case
the improvements were completed as long ago as 1981
that Peter Gibson J in Deerfield Travel Services Ltd v Society of Leathersellers
had accepted a concession that the 1927 Act had the meaning at which the court
had arrived in the present case — It was thus not a decision by Peter Gibson J,
but the present court considered that the concession was rightly made
that the court concluded, disagreeing with the recorder and agreeing with the
deputy registrar, that section 3 on its true construction did not allow for
certification after completion of the improvement — The appeal was allowed and
the tenants’ originating application struck out
The following
case is referred to in this report.
Deerfield
Travel Services Ltd v Wardens and Society of the
Mistery or Art of the Leathersellers of the City of London (1983) 43
P&CR 143
This was an
appeal by the landlords, Westbourne Investments Ltd, and their successors in
title, Metropolitan & City Properties Ltd, from the decision of Mr Recorder
Spon-Smith in favour of the tenants, Hogarth Health Club Ltd and Mr George
Bernard Buckton, reversing the order of the deputy registrar who had struck out
the tenants’ originating application under Part I of the Landlord and Tenant
Act 1927 on the ground of delay.
The dispute
concerned improvements made to the club’s premises at Airedale Avenue,
Chiswick, London W4.
Edwin Prince
(instructed by DJ Freeman & Co) appeared on behalf of the appellants;
Andrew Simmonds (instructed by Easton Kinch & Bailey) represented the
respondent tenants.
Giving the
first judgment at the invitation of Balcombe LJ, STAUGHTON LJ said: The
Hogarth Health Club comprises a sports club and sports ground at Airedale
Avenue, Chiswick, London W4. By a lease dated September 19 1968 it was let for
a period of 28 years from March 25 1967 to the present applicants with two
others as joint tenants. The two others have since died and Mr Buckton has
assigned all his beneficial interest to the Hogarth Health Club Ltd. I shall
refer to the applicants as ‘the tenants’. The lease was granted by Westbourne
Investments Ltd, but the reversion was conveyed to Metropolitan & City Properties
Ltd on March 27 1986. Either or both of those companies, as appropriate, are
‘the landlords’.
The dispute
arises under Part I of the Landlord and Tenant Act 1927. That provides, so far
as relevant, for the tenant of business premises to recover compensation at the
end of the tenancy for any improvement which he has made and which adds to the
letting value of the premises (section 1). Provision is made for the tenant to
give notice of his intention to make an improvement, for the landlord to object
if he wishes, and for the county court to certify, if thought fit, that the
improvement is a proper one (section 3). Such a certificate may have two
effects: first, to render an improvement lawful which would otherwise have been
a breach of the terms of the lease and, second, to establish in part the
tenant’s right to compensation at the end of the lease.
The present
case raises the question whether a certificate may be granted where the
improvement has already been carried out when the application comes before the
court.
The history is
briefly as follows. On June 7 1979, just over 10 years ago, the tenants gave
notice to the landlords of their intention to make improvements. On September 4
1979 the landlords’ solicitors gave notice of objection. So on November 27 1979
the tenants made an originating application to the county court for a
certificate that the improvements were proper. There is evidence that the work
was commenced ‘in 1979′ without any more precise information; it is agreed that
we can treat this event as occurring after June 7 when the tenants’ notice of
intention was given, but no greater detail is possible. (The recorder said that
the works had been commenced before December 29 1979 when the originating
application was issued; if that date is correct, it seems highly likely that
the works began before issue of the application.)
The court
proceedings followed a desultory course and meanwhile, in October 1981, the
improvements were completed. There was little significant action for a long
time. Then on April 6
landlords and struck out the originating application on the ground of
inordinate and inexcusable delay.
The tenants’
appeal was heard by Mr Recorder Spon-Smith. In a reserved judgment on September
6 1988, he allowed the appeal and gave directions for the future conduct of the
tenants’ originating application. In essence, his reasoning was that if the
tenants could not be entitled to a certificate in respect of work which was
already completed when their application came before the court, there was no
point in allowing the application to proceed, and it would be struck out;
conversely, if they could pursue a valid application in those circumstances,
there was no point in striking it out (despite any amount of inexcusable
delay), as they would immediately initiate a fresh application. The recorder
held the second alternative to be correct.
It is not
disputed that the recorder correctly ascertained the crucial issue, which is
whether an application for a certificate can be heard and determined by the
court after the improvements have been completed. The answer depends entirely
on the meaning of the statute, which I now turn to consider in more detail.
Section 3(1) provides:
3. — Landlord’s
right to object —
(1) Where a tenant of a holding to which this
Part of this Act applies proposes to make an improvement on his holding, he
shall serve on his landlord notice of his intention to make such improvement,
together with a specification and plan showing the proposed improvement and the
part of the existing premises affected thereby, and if the landlord, within
three months after the service of the notice, serves on the tenant notice of
objection, the tenant may, in the prescribed manner, apply to the tribunal, and
the tribunal may, after ascertaining that notice of such intention has been
served upon any superior landlords interested and after giving such persons an
opportunity of being heard, if satisfied that the improvement —
(a) is of such a nature as to be calculated to
add to the letting value of the holding at the termination of the tenancy; and
(b) is reasonable and suitable to the character
thereof; and
(c) will not diminish the value of any other
property belonging to the same landlord, or to any superior landlord from whom
the immediate landlord of the tenant directly or indirectly holds;
and after
making such modifications (if any) in the specification or plan as the tribunal
thinks fit, or imposing such other conditions as the tribunal may think
reasonable, certify in the prescribed manner that the improvement is a proper
improvement:
Provided that
if the landlord provides that he has offered to execute the improvement himself
in consideration of a reasonable increase of rent or of such increase of rent
as the tribunal may determine, the tribunal shall not give a certificate under
the section unless it is subsequently shown to the satisfaction of the tribunal
that the landlord has failed to carry out his undertaking.
Mr Simmonds,
for the tenants, concedes that at least their notice had to be given before the
works were carried out — as in fact it was. That concession is not just the
result of the natural (and wise) tendency of counsel to give away what they do
not need to defend; it must follow from the words of subsection (1):
Where a
tenant . . . proposes to make an improvement.
So the process
must start at a time when the tenant has merely a proposal. Asked why
Parliament should have imposed that requirement, Mr Simmonds answers that it
would enable the landlord to look at the property before work commences.
There are
indications in subsection (1) that when the application comes before the court
it must relate to an improvement yet to be made in the future. The court must
be satisfied that the improvement ‘will not diminish the value of any other
property’; and the court may make modifications in the specification or plan or
impose conditions. Furthermore, it is contemplated that the landlord may
himself offer to carry out the improvement.
By section
3(2):
In
considering whether the improvement is reasonable and suitable to the character
of the holding, the tribunal shall have regard to any evidence brought before
it by the landlord or any superior landlord (but not any other person) that the
improvement is calculated to injure the amenity or convenience of the
neighbourhood.
The court must
consider whether the improvement is calculated to injure amenity, not whether
it has already done so.
Section 3(3)
requires the tenant, at the request of any superior landlord or the court, to
provide copies of the plans and specifications of the proposed
improvement.
Section 3(4)
reads:
Where no such
notice of objection as aforesaid to a proposed improvement has been served
within the time allowed by this section or where the tribunal has certified an
improvement to be a proper improvement, it shall be lawful for the tenant as
against the immediate and any superior landlord to execute the improvement
according to the plan and specification served on the landlord or according to
such plan and specification as modified by the tribunal or by agreement between
the tenant and the landlord or landlords affected, anything in any lease of the
premises to the contrary notwithstanding:
Provided that
nothing in this subsection shall authorise a tenant to execute an improvement
in contravention of any restriction created or imposed —
(a) for naval, military or air force purposes;
(b) for civil aviation purposes under the powers
of the Air Navigation Act 1920;
(c) for securing any rights of the public over
the foreshore or bed of the sea.
This provides
for one of the two consequences of a certificate that an improvement is proper:
the execution of it will not be a breach of any term of the lease. Mr Simmonds
concedes that this benefit will not accrue to a tenant if he carries out the
work first and applies for and obtains a certificate afterwards: the words ‘it
shall be lawful’ cannot be read as including ‘it shall have been lawful
retrospectively’. That, according to Mr Simmonds, is a risk which the tenant
may take if he chooses; no doubt a certificate subsequently obtained would
provide grounds for arguing in favour of relief from forfeiture.
But section
3(5) is of vital importance for this case:
A tenant
shall not be entitled to claim compensation under this Part of this Act in
respect of any improvement unless he has, or his predecessors in title have,
served notice of the proposal to make the improvement under this section, and
(in case the landlord has served notice of objection thereto) the improvement
has been certified by the tribunal to be a proper improvement and the tenant
has complied with the conditions, if any, imposed by the tribunal, nor unless
the improvement is completed within such time after the service on the landlord
of the notice of the proposed improvement as may be agreed between the tenant
and the landlord or may be fixed by the tribunal, and where proceedings have
been taken before the tribunal, the tribunal may defer making any order as to
costs until the expiration of the time so fixed for the completion of the
improvement.
It is only
that subsection, for present purposes, which negatives the general right to
compensation provided by section 1 of the Act. It does not in express terms say
that there shall be no compensation if the works are completed before the
application is heard by the court. But it does introduce a new requirement,
that the improvement must be completed within such time as may be agreed or may
be fixed by the court. That requirement cannot literally be fulfilled if no
time has been agreed and none has been fixed; and it is difficult to
contemplate the court’s fixing a time retrospectively, particularly in the
light of the concluding words of the subsection.
I can derive
no assistance from subsection (6), which deals with another kind of
certificate.
The recorder
took the view that the court still had a discretion to grant a certificate even
if the application was heard after the improvements had been completed; in the
exercise of that discretion, the court could consider what modifications might
have been required or conditions imposed as grounds which might lead to the
refusal of a certificate. But in my judgment, the whole tenor of section 3 is
consistent only with a certificate’s being granted before the works are
completed. Mr Prince, for the landlords, disclaimed any argument based on
implication; he contended that his result flowed as a matter of construction.
For my part I prefer to say that it is implicit in the section, but this is
only a matter of words. The intent and purpose of section 3 was, as it seems to
me, to provide the tenant with the means of knowing in advance whether
improvements that he proposed to carry out would be lawful, and would be proper
for the purpose of calculating compensation at the end of his tenancy, though
no doubt it was also intended to provide a record before documents were lost
and witnesses died. The section could have been designed to provide
retrospective comfort for the tenant and a record after the improvements had
been completed; but to my mind it manifestly was not.
If that be
right, Mr Simmonds asks whether the tenant becomes disabled from seeking a
certificate when the works are commenced or only when they are concluded. A
third possibility is that he becomes disabled pro tanto as each piece of
work is carried out. It is not necessary to decide the point, as the
improvements in this case were completed eight years ago, and I do not express
any view upon it.
A point was
raised by the court upon section 2(1)(a), which provides that no compensation
may be obtained
in respect of
any improvement made before the commencement of this Act
correct? Theoretically it was possible,
although unlikely, that a tenant had given notice of his intention to make an
improvement, and the landlord had not objected, and the improvement had not
been carried out before the Act came into force; in such a case the tenant
might arguably have had a claim for compensation under section 1, since no
certificate was required by section 3(5), but for the provisions of section
2(1)(a). But if that be thought far-fetched, I am quite content to hold that
section 2(1)(a) was inserted from an abundance of caution and was unnecessary.
It is noticeable that provisions dealing with transition and the effect of
commencement are scattered about sections of the Landlord and Tenant Act 1927
and not (as is modern practice) included in one section or a schedule.
Thus far I
have not referred to the decision of Peter Gibson J in Deerfield Travel
Services Ltd v Society of Leathersellers (1981) 43 P&CR 143,
affirmed (1982) 46 P&CR 132. The judge there accepted a concession that the
Act has the meaning which I have adopted. I think that the recorder in this
case was right in concluding that this was not a matter of decision on the part
of Peter Gibson J. But equally I think that the concession was rightly made.
There may in
these days be some injustice in this area of the law. A landlord may object to
the tenant’s proposed improvement for little or no reason and thus hold it up
until the county court can provide a hearing, with no penalty other than costs.
In another appeal recently under the Landlord and Tenant Act 1954, this court
was told that the threat of delay is often used as a negotiating counter (in
that instance by tenants) in order to obtain a better bargain than would be
obtainable at a hearing in court. This seems to me wholly plausible. But I
would have thought that the right remedy was to reduce the waiting time in
county courts rather than to alter the substantive law.
Despite the
careful judgment of the recorder, I would reach a different conclusion, allow
the appeal, and strike out the tenants’ originating application.
RALPH
GIBSON LJ agreed and did not add anything.
Also agreeing,
BALCOMBE LJ said: Nowhere in section 3 of the Landlord and Tenant Act
1927 is it expressly stated that an application for a certificate cannot be
heard and determined by the court after the improvements have been completed.
Nevertheless, for the reasons given by Staughton LJ, whose judgment I have had
the advantage of reading in draft, it is clear from the section that it was
contemplated that no certificate would be given if the improvement had already
been completed. Otherwise, certain provisions of the section are clearly
otiose, eg the provisions of subsection (5) about completion of the improvement
within the time fixed by the tribunal. It is possible that the reason for the
omission of an express bar is that the draftsman never contemplated that a
tenant might be so foolhardy as to go ahead with an improvement, against the
landlord’s objection, without the certificate of the tribunal.
Not without
some hesitation, I have come to the conclusion that the section on its true
construction does not allow for certification after completion of the
improvement for the reasons given by Staughton LJ, and I agree with him that
this appeal should be allowed.
The appeal
was allowed with costs in the Court of Appeal and below; an application for
leave to appeal to the House of Lords was refused.
