On the grant
of any lease a covenant for quiet enjoyment will be implied but, in practice,
it is usual for the covenant to be expressed so that the landlord can ensure
that he covenants only in the qualified form. Such a qualified covenant
is usually worded ‘the tenant shall peaceably hold the demised premises for the
term granted without any lawful interruption by the landlord or by any person
lawfully claiming through under or in trust for the landlord’. The advantages
for a landlord of covenanting in the qualified form (and the commensurate
disadvantages to the tenant) are demonstrated by the recent Court of Appeal
decision in Celsteel Ltd v Alton House Holdings Ltd (no 2) (1986)
281 EG 1446.
Here,
Calflane Ltd developed a site as a block of flats with garages. These were let
on long leases which conferred on the lessees rights of way over the drives.
Calflane then sold its freehold interest to Alton House, subject to the
existing leases. Alton House then granted to Mobil Oil Co Ltd a 99-year lease
of the forecourt, including part of the driveway, which the latter was to
develop as a petrol filling station. Mobil wished to build a car wash but, as
events turned out, to do so entailed encroaching on to the driveway across
which the tenants of the flats enjoyed rights of access to their garages. These
tenants successfully established that this would amount to an infringement of
their rights and obtained an injunction to restrain Mobil from constructing the
car wash (see Celsteel Ltd v Alton House Holdings Ltd [1985] 2
All ER 562 and ‘Legal Notes’ (1985) 275 EG 155).
Understandably
miffed at being unable to develop their property in the manner contemplated by
the lease, Mobil’s gaze turned to those who might compensate them for their
losses. The present litigation represents their efforts vis-a-vis Alton
House, their landlords. In the lease to Mobil, Alton House had given a
qualified covenant for quiet enjoyment in the form referred to above. Mobil
claimed that the exercise of their rights over the driveways by the lessees of
the flats and garages constituted a breach, by Alton House, of their covenant
for quiet enjoyment, since the flat owners could be said to be ‘lawfully
claiming under’ Alton House for the purposes of this covenant. The case
therefore turned on the meaning of these words. Mobil claimed that Alton House
were responsible, despite the fact that they had not granted the leases to the
flat owners, since they should be treated as assuming liability for them as
their immediate tenants (of whose rights they were aware), rather than as
predecessors in title.
The Court of
Appeal, agreeing with the judge below, held that the words ‘claiming under’ did
not extend so far. The ‘claim’ referred to was, it was true, a claim by the
lessees of a lawful right to interrupt Mobil’s enjoyment of its property; but,
the Court of Appeal held, it could not be said to be a claim made by those
lessees ‘under’ Alton House. The lessees had derived their title from Calflane,
not Alton House, and in deducing their title reference to Alton House, who had
conferred nothing on them, would have been irrelevant, since those rights had
been granted by Calflane in exercise of an interest prior and paramount to that
of Alton House. As it is clear that a qualified covenant for quiet enjoyment
excludes liability for acts by an owner having title paramount to that of the
landlord, Alton House could not be liable.
The Court of
Appeal referred to some recommendations of the Law Commission (Report No 67,
June 1975). There it had been suggested that the landlord’s responsibility
should be extended to the lawful acts of anyone, whether the justification for
the disturbance depends on a title superior to the landlord’s or on a title
created out of the landlord’s title. Even so, the Law Commission did not
suggest absolute liability: ‘If [the landlord] does disclose everything that he
can of his own title and everything that he knows of which might interrupt or
disturb the tenant’s occupation, we do not think that he should be liable to
the tenant for risks he cannot know about.’
(para 54). The Law Commission’s recommendations have not been accepted,
but even if they had, as the Court of Appeal observed, Alton House would not
have been liable to Mobil, because the flat owners’ leases had been disclosed.
To avoid the
risk of unanticipated lawful interruptions the tenant might insist on a more
comprehensive covenant than the usual qualified covenant, though it is unlikely
that landlords’ advisers would recommend acceptance of such liability. A more
practical answer is to consider in greater detail, when the lease is being
negotiated, the potential impact of third party rights on any future
development of the demised premises and to require the fullest disclosure from
the landlord.
reviews: admissibility of trading accounts
Generally
speaking, when determining a new rent, a valuer will rely primarily on the
rental value of comparable properties. However, there are circumstances where
he would like to call in evidence trading accounts, so that profitability can
play its part in the equation. It is at this point that the law steps in to
decide in what circumstances such evidence is admissible.
This question
has been before the courts on a number of occasions. In Harewood Hotels Ltd
v Harris (1957) 170 EG 777 the Court of Appeal upheld a ruling that the
previous five years’ trading accounts of an hotel were admissible evidence for
the purpose of determining a new rent under section 34 of the Landlord and
Tenant Act 1954. In doing so the court decided that the statutory disregards
relating to the effect of the tenant’s occupation of the premises and goodwill
did not operate to exclude such evidence. However, the court did make clear
that such accounts were admissible for the sole purpose of assisting in the
determination of the appropriate open market rent; they could not be used as
evidence to support a discounted rent, on the basis of hardship to the tenant,
or to support a higher rent on the basis of what the tenant could afford.
The scope of
the Harewood rule was substantially curtailed by the Court of Appeal in W
J Barton Ltd v Long Acre Securities Ltd (1981) 262 EG 877. Here, an
order for discovery of the tenant’s trading accounts was refused on the basis
that such evidence was admissible only in certain, limited circumstances; in
particular where, because of the nature or location of the business, the rental
evidence available on comparable premises was inadequate.
A new twist
to the tale has now been added by the recent decision in Cornwall Coast
Country Club v Cardgrange Ltd (1987) 282 EG 1664. This case raised a
number of issues on the rent review of premises occupied by Crockford’s in
Mayfair, but we shall concentrate on the judge’s ruling on a request for an
order for discovery of the tenant’s trading accounts. Although he refused to
grant the order, his reasoning throws this issue wide open. In the first place,
and most important, Scott J ruled that private trading records are never
admissible in evidence, and to the extent that the Harewood and the Barton
cases said anything to the contrary, they must be regarded as wrong.
In coming to
this conclusion, the judge thought that the House of Lords decision in Lynall
v IRC [1972] AC 680 must now be seen as authoritative. In that case,
which concerned the valuation, for estate duty purposes, of shares in a private
company, their lordships decided that regard could not be had to private
documents indicating that a public flotation was under active consideration by
the directors. In their view, a hypothetical purchaser in the open market
cannot be treated as having access to confidential information.
Transposing
this to the rent review scene, Scott J was firmly of the view that this means
that only publicly available accounts are admissible as evidence for rent
review purposes. Thus, in those instances where the tenant’s trading figures
are not required to be made public, discovery could be ordered only if it could
be established that the current tenant would make such figures available to a
prospective lessee; he made it quite clear that he did not think the latter a
realistic scenario.
It is also
worth noting that Scott J took a further sideswipe at the Barton
decision. This case has been widely regarded as ruling that trading accounts
are not admissible in relation to properties where there are plenty of readily
available comparables. What the judge in Cardgrange has pointed out is
that in Barton it was conceded that adequate comparables were available.
Hence, in his view, if such a concession is not made, public trading accounts
are, generally, admissible from the outset, since it is only after considering
all the evidence that the valuer can decide if the comparables produce
compelling evidence of the rental value.
If this
decision is correct, and it has to be said that there is a compelling logic to
the judge’s remarks, the rules on the admissibility of trading accounts have,
in one fell swoop, been both extended and confined. The more generous approach
to the earning capacity of business premises may involve valuers in some
serious re-thinking.
