Landlord and Tenant Act 1954, Part II — RSC, Order 21, rule 3 — Application by tenants for leave to discontinue proceedings for grant of new tenancy of premises occupied as a branch of bank — Landlords submitted that court should give leave only or condition that the tenants abandoned any claim for compensation under section 37 of the Act, the landlords having opposed the grant of a new tenancy on the ground mentioned in section 30(1)(f) of the Act — Landlords subsequently withdrew their opposition to the grant — Judge rejected the proposed condition as to compensation and gave unconditional leave to tenants to discontinue — Landlords appealed — Landlords now argued that, as they had notified the tenants that the grant of a new tenancy was no longer opposed, the tenants should not be allowed to discontinue proceedings and at the same time claim compensation under section 37 — Landlords’ contention rejected — Correct judicial principle stated — Tenant should be allowed unconditionally to withdraw unless landlord has been prejudiced: obligation to pay compensation not in itself evidence of prejudice — Principle applies even if landlord has withdrawn his counternotice — Appeal dismissed
This was an
appeal by the landlords, the City of London Corporation, from a decision of
Slade J giving the tenants, Lloyds Bank Ltd, unconditional leave to discontinue
proceedings for the grant of a new tenancy under Part II of the Landlord and
Tenant Act 1954. The premises in question were part of 3 Broad Street Place,
London EC2, occupied as the bank’s Finsbury Circus branch. The decision of
Slade J is reported at (1981) 262 EG 61, [1982] 1 EGLR 83.
Michael
Essayan QC and Michael J Segal (instructed by the Comptroller and City Solicitor)
appeared on behalf of the appellant corporation; Jonathan R Gaunt (instructed
by Cameron Markby) represented the respondents.
Giving the
judgment of the court at the invitation of Cumming-Bruce LJ, TEMPLEMAN LJ said:
This is an appeal by the defendant landlords, the Corporation of the City of
London, against the decision of Slade J delivered on May 22 1981, whereby he
gave leave to the plaintiff tenants, Lloyds Bank Ltd, to discontinue
proceedings under Part II of the Landlord and Tenant Act 1954 for the grant of
a new tenancy. The learned judge rejected the landlords’ submission that leave
should only be granted to the tenants to discontinue their proceedings provided
they abandoned any claim for compensation under the Act. The landlords appeal to
this court.
The tenants
were in occupation of part of 3 Broad Street Place, London, as the Finsbury
Circus branch of their banking business under the terms of a lease which was
expressed to expire by effluxion of time on December 18 1980. By section 23 of the
Act the tenancy could not come to an end unless terminated by a landlord’s
notice under section 25 or by a tenant’s request for a new tenancy under
section 26.
In January
1980 the tenants made inquiries to ascertain whether the landlords would grant
a new tenancy or whether they would oppose the grant of a new tenancy. The
tenants were unable to clarify the position. The tenants brought matters to a
head by a notice dated February 8 1980 whereby they requested the grant of a
new tenancy to begin on December 25 1980 for a term of 14 years at an annual
rent of £20,000.
If a landlord
is not willing for a new tenancy to be granted he must, under section 26(6),
within two months after receiving the tenant’s request, give a counternotice
stating on which of the grounds mentioned in section 30 of the Act he would
oppose an application to the court for a new tenancy. On March 31 1980 the
landlords served a counternotice pursuant to section 26(6) intimating that they
would oppose the grant of a new tenancy on the ground mentioned in section
30(1)(f).
There are
seven grounds upon which a landlord may successfully oppose the grant of a new
tenancy under the Act. Grounds (a), (b) and (c) relate to the conduct of the
tenant and, for example, debar the tenant from obtaining a new tenancy if he
has been found guilty of substantial breaches of covenant. Ground (d) debars
the tenant from a new tenancy if the landlord offers suitable alternative
accommodation. Grounds (e), (f) and (g) relate to the wishes of the landlord. In
particular, ground (f), upon which the landlords relied in the present case in
their counternotice, enables the landlord successfully to oppose the grant of a
new tenancy if the landlord intends to demolish or reconstruct or redevelop the
premises and cannot do so without obtaining possession.
By section
24(1) and section 29 a tenant who has made a request for a new tenancy may, not
less than two nor more than four months after the making of the request, apply
to the court for a new tenancy. By section 64 the effect of an application to
the court is to continue the existing tenancy, so far as is necessary, until
three months after the date on which the tenant’s application to the court for
a new tenancy is finally disposed of. The tenants in the present case applied
to the court for a new tenancy on June 5 1980.
On June 26
1980 Master Dyson ordered that the question whether the landlords’ opposition
to the grant of a new tenancy was well founded should be tried as a preliminary
issue and he directed discovery.
On July 14
1980 representatives of the landlords informed the tenants that the landlords
would abandon their opposition to the grant of a new tenancy. A formal letter
to this effect was sent on July 17 1980.
From January
1980 onwards the tenants were uncertain whether they would be able to continue
in the premises. From March 31 1980 onwards it was doubtful, in view of the
landlords’ notice of opposition under section 30(1)(f), whether the tenants
would be able to continue in the premises. The tenants, therefore, investigated
alternatives. Those investigations resulted in a decision a fortnight after the
landlords had changed their minds and withdrawn their opposition to the grant
of a new tenancy. On July 29 1980, as appears from a file note of the tenants,
the joint general manager of the tenants decided ‘that we would not renew the
lease and that some time in the spring the branch would close and that the
business would be amalgamated with Stock Exchange branch. This proposal is to
be put to committee very shortly and the full instruction shall be issued to us
shortly after’. This decision was confirmed and the tenants’ solicitors were so
informed by a letter dated August 7 1980. This letter from the estates manager
of the tenants advised that:
. . . our
General Managers’ Committee has agreed to the closure of Finsbury Circus
Branch, with the work being transferred to vacant accommodation in our Stock
Exchange Branch. This matter is still rather confidential, as the staff of the
branches concerned have not yet been told, but I feel that we should now make
an approach to the City Corporation.
The position
is that it is anticipated the transfer can be effected by April 1981 and we are
therefore likely to want an extension on our existing lease for, say, six months.
I have not yet had terms quoted to me by the City Corporation for the granting
of a new lease and I would like you, please, to write to them on this matter. I
would suggest that we should advise them that, in view of our uncertainty as to
whether a new lease would be granted, consideration was given as to any
alternative action we could take to protect the bank’s interest. We can say
that it has now been found possible to transfer the business to another branch
and, under the circumstances, we will be prepared to give vacant possession, so
that the landlords can carry out their refurbishment without the complication
of a sitting tenant.
The tenants
did not communicate their decision of August 1980 to the landlords immediately
because of the need for confidentiality. The landlords remained under the
impression that the tenants were still seeking a new tenancy until October 20
1980. The Comptroller and City Solicitor was then informed by the tenants’
solicitor that:
Our clients
have instructed us that your opposition earlier this year to their request for
the grant of a new tenancy of their branch premises in the building caused
their general management to consider the continued presence of the branch in
the building and, as a result, our clients will, in fact, be vacating the
premises in the spring of next year.
Would you
please confirm that on vacating the premises our clients will be paid the
statutory compensation to which they are entitled under section 37 of the 1954
Act.
Apart from
acknowledgements there was no reply to this letter or to reminders and on
January 23 1981 the tenants’ solicitors wrote to the City Solicitor saying:
Our clients
will be ceasing business at the premises at about the end of next month and
they will be finally vacating the premises about a month after that.
Accordingly, we consider that our clients’ proceedings should now be withdrawn
by mutual consent. . . .
Our clients
are entitled to statutory compensation of an amount equal to twice the rateable
value of their premises.
Section 37 of
the Landlord and Tenant Act 1954 as amended by the Law of Property Act 1969
provides that, where a tenant applies to the court under section 24 for a new
tenancy and the court is precluded from making an order for the grant of a new
tenancy by reason of any of the grounds specified in paragraphs (e), (f) and
(g) of section 30(1)
or where no
other ground is specified in the landlord’s notice . . . under section 26(6) .
. . than those specified in the said paragraphs (e), (f) and (g) and either no
application under the said section 24 is made or such an application is
withdrawn, then . . . the tenant shall be entitled on quitting the holding to
recover from the landlord by way of compensation an amount
which in the
case of business premises occupied for the past 14 years shall be twice the
rateable value.
In the present
case the tenants applied to the court under section 24 for a new tenancy. The
landlords served a counternotice opposing the grant of a new tenancy on the
ground specified in section 30(1)(f) and on no other grounds. The tenants
propose to withdraw their application for a new tenancy. The tenants claim
compensation of two years’ rateable value amounting to the agreed sum of
£65,776.
The City
Solicitor replied on January 30 1981:
At the
present moment the corporation are not willing to consent to the withdrawal of
your clients’ action . . . as certain points must be cleared up before this
step can be taken. Firstly the question of interim rent must be dealt with as
this is due from your clients to the corporation and before I am able to expand
on this point, I must take instructions with regard to the rate at which this
is due. . . . I am again taking instructions with regard to the second matter,
namely any compensation payable to your clients by the corporation.
On March 9
1981 the landlords issued a summons in the tenants’ proceedings for a new
tenancy asking under section 24A of the Act for the court ‘to determine a rent
which it would be reasonable for the tenant to pay while the tenancy continues
by virtue of section 24’ of the Act. The interim rent would have been payable
from December 18 1980 if the landlords had taken the step of issuing their
summons on or before that date. The landlords did not, however, issue a summons
until March 9 1981 and, under the provisions of section 24A as construed in Stream
Properties Ltd v Davis [1972] 1 WLR 645, the interim rent became
payable from March 9 1981, the date of the landlords’ summons, until the
existing tenancy ends under section 64 of the Act, three months after the date
on which the tenants’ application to the court for a new tenancy was finally
disposed of.
On March 24
1981 the landlords wrote to the tenants’ solicitors, saying: ‘I note that your
clients wish to vacate the premises on March 31 next. I am prepared to consent
to an application by your clients to discontinue the proceedings which at
present stand adjourned, provided that’ the tenants undertook not to seek
compensation under section 37 of the Landlord and Tenant Act 1954, undertook to
pay interim rent until a date for vacating the premises was agreed between the
parties or was ascertained by reference to an order of the court and undertook
to pay an appropriate sum for dilapidations. These terms were not acceptable to
the tenants.
On March 31
1981 the tenants vacated the premises. The landlords have not yet resumed
possession.
On April 6
1981 the tenants issued a motion for leave to discontinue their proceedings for
a new tenancy.
Order 21, rule
3 of the Rules of the Supreme Court provides that, with exceptions not here
material, a party may not discontinue an action, whether begun by writ or
otherwise, without the leave of the court, which may order the action to be
discontinued ‘on such terms as to costs, the bringing of a subsequent action or
otherwise as it thinks just’.
The tenants’
application for leave to discontinue their proceedings for a new tenancy came
before Slade J and the landlords submitted that the tenants should only be
allowed to discontinue their application for a new tenancy on condition that
they undertook not to apply for compensation under section 37.
On May 22 1981
Slade J in a reserved judgment gave reasons for giving the tenants
unconditional leave to discontinue and for his refusal to make that leave
conditional on the tenants abandoning their claim for compensation. He ordered
that the landlords’ application for an interim rent should continue as a
counterclaim and he ordered that the tenants’ proceedings for a new tenancy be
discontinued. The tenants were ordered to pay the landlords’ costs of the
tenants’ proceedings down to and including January 23 1981.
If the order
of Slade J of May 22 1981 is the date when the tenants’ application for a new
tenancy ‘is finally disposed of’ then by section 64 the existing tenancy will
terminate on August 22 1981. If the tenants’ proceedings are only finally
disposed of by appellate proceedings then the existing tenancy will terminate
three months after the date of final disposal of those proceedings. In this
court the landlords, appealing against the decision of Slade J, have submitted
that the tenants should only be allowed to discontinue their proceedings for a
new tenancy on terms that they waive any compensation under the Act. The landlords
further submit that the tenants should pay all the costs of the tenants’
proceedings for a new tenancy and that the tenants are liable to pay an interim
rent from March 9 1981 and until the termination of the existing tenancy. The
landlords are agreeable to any formula which will establish the order of Slade
J as the final disposition of the tenants’ proceedings for a new tenancy, a
formula which will entitle the landlords to an interim rent from March 9 1981
until August 22 1981, that is to say three months after Slade J made his order
dated May 22 1981.
On the present
wording of section 37 of the 1954 Act as amended the tenants are entitled to
compensation if they withdraw their application for a new tenancy. The section
provides for compensation if a landlord serves a notice opposing the grant of a
new tenancy on the ground of section 30(1)(f) and the tenant either makes no
application for a new tenancy or withdraws his application. But, as Mr Essayan
on behalf of the landlords pointed out, the tenants cannot withdraw their
application without leave and the question is whether, in the exercise of its
discretion under Order 21 rule 3, the court should allow the tenants to
withdraw their application without imposing terms on the tenants.
Section 37 of the
Landlord and Tenant Act 1954 as originally enacted only provided compensation
where the court dismissed a tenant’s application for a new tenancy because the
landlord had established a ground of opposition within section 30(1)(e), (f) or
(g). The tenant could not claim compensation if he withdrew his application.
The Act was amended by the Law of Property Act 1969 so as to enable a tenant to
claim compensation if the landlord served a counternotice and the tenant either
did not apply to the court at all or, after making an application, withdrew
that application before it came on for hearing before the court. One object of
the amendment was to save the time and expense involved in initiating or
continuing an application to the court, an application in which the tenant no
longer had any confidence in the face of the landlord’s counternotice, but an
application which the tenant was compelled to continue in order to obtain
compensation when the court ultimately refused his application. Mr Essayan
submitted that the amendment was never intended to allow a tenant to claim
compensation if he withdraws his application for a new tenancy after the
landlord has withdrawn his opposition to the grant of a new tenancy.
If the tenant
proceeds with his application after the landlord has withdrawn his opposition,
the tenant will be entitled to an order for a new tenancy; by section 36(2) the
tenant can apply within 14 days from the order for the order to be revoked and
can thus refuse to take up the new tenancy, but in that event no provision is
made for the tenant to receive compensation. Mr Essayan submitted that the
discretion conferred on the court by Order 21 rule 3 should be
gained. The landlords, he said, obtained an advantage in July 1980 when they
abandoned their opposition to the grant of a new tenancy and thus made it
certain that, if the tenants continued with their application for a new
tenancy, the landlords could not be obliged to pay compensation.
Mr Essayan
submitted that authority established the principle that the court, in the
judicial exercise of its discretion under Order 21 rule 3, would not deprive
the landlords of the advantage which they had gained when they changed their
minds in July 1980 and decided no longer to oppose the grant of a new tenancy
before the tenants in turn changed their minds in August 1980 and decided to
withdraw their application for a new tenancy. Whitford J accepted a similar
submission in Young, Austen & Young Ltd v British Medical
Association [1977] 1 WLR 881 and only allowed a tenant to discontinue an
application for a new tenancy on their undertaking not to pursue their claim to
compensation under section 37.
On behalf of
the tenants Mr Gaunt referred to two anomalies which arise if, in the exercise
of the discretion conferred by Order 21 rule 3, the court is only prepared to
grant leave to the tenants to discontinue their proceedings for a new tenancy
provided they abandon their claim for compensation.
If a tenant
serves a request for a new tenancy and the landlord serves a counternotice
opposing the grant of a new tenancy and the landlord withdraws his opposition
within four months after the tenant’s request, it is open to the tenant also to
change his mind and to forfeit his right to a new tenancy by making no
application to the court for a new tenancy within the prescribed four months’
period. In this unlikely combination of events, section 37 as amended provides
for compensation to be paid to the tenant. The landlord will lose the advantage
which, it is said, he obtains by withdrawing his opposition to the grant of a
new tenancy before the tenant decides to abandon his application. I agree with
Mr Essayan that this result follows because in the circumstances Order 21 rule
3 has no application.
Similarly, in
the county court, which has jurisdiction under Part II of the Landlord and
Tenant Act 1954 as amended, where the rateable value of the demised premises
does not exceed £5,000, there is no rule which confers on the county court the
discretion which is to be found in Order 21 rule 3 of the Rules of the Supreme
Court. A tenant may withdraw his application to the county court for a new
tenancy without leave and cannot be deprived of the claim to compensation under
section 37 if he withdraws his application, even if the landlords have
withdrawn their opposition to the grant of a new tenancy before the tenant
decides to withdraw his application for a new tenancy. Again, in those
circumstances, the landlords will lose the advantage which Mr Essayan claims.
But I agree with Mr Essayan that the absence of a discretion in the county
court does not assist the High Court in the exercise of its undoubted
discretion under Order 21 rule 3.
Mr Essayan
referred to authority in support of his submission that the landlords should
not be deprived of the advantage which they gained when in July 1980 they
withdrew their opposition to the grant of a new tenancy. In Stahlschmidt
v Walford (1879) 4 QBD 217 the court refused to allow a plaintiff to
discontinue an action in which an arbitrator had found facts adverse to the
plaintiff in a case stated. The advantage in that case consisted of findings of
fact which the defendant had established and it would have been unjust to enable
the plaintiff to dispute those findings in a fresh action.
In my
judgment, that decision is of no assistance in the present circumstances, where
the landlords claim an advantage as a result of the accidental and fortuitous
fact that they changed their minds in July 1980 before the tenants changed
their minds in August 1980. In Stahlschmidt v Walford it was held
by Cockburn CJ at p 219 that the defendant was ‘in justice entitled to the
fruits of these proceedings, and we ought not to interfere to deprive him of
them’. In the present case the landlords did not become entitled to the fruits
of any proceedings. They abandoned their opposition to the tenants culling the
fruits of their proceedings for a new tenancy shortly before the tenants
concluded that the fruits were not worth culling. In the same case Mellor J at
p 219 said that the discretion exercisable to impose terms on the withdrawal of
proceedings ‘must be exercised within certain limitations, and so as not to
take away from the defendant any advantage to which he is fairly and reasonably
entitled’. In Covell Matthews & Partners v French Wools Ltd
[1977] 1 WLR 876 approved by the Court of Appeal in [1978] 1 WLR 1477, Graham J
echoed the words of Mellor J and said that ‘the defendant is not to be deprived
of some advantage which he has already gained in the litigation’. In the
present case the landlords did not gain an advantage by the litigation or at
all. In July 1980 the landlords abandoned the right to prevent the tenants
obtaining a new tenancy. The landlords in July 1980 could not foresee and were
not entitled to the advantage of regaining possession of the property without
payment of compensation. The landlords seek an advantage which will accrue to
them only if the court now imposes terms on the tenants, namely the advantage
of recovering demised premises without payment of compensation.
I therefore
reject Mr Essayan’s ingenious submission which in effect meant that the
landlords would be entitled to the best of both worlds because the landlords
withdrew their opposition before the tenants withdrew their application.
In my
judgment, where a landlord serves a counternotice based on grounds (e), (f) or
(g), he is asserting a right to inflict loss or damage on the tenant by
requiring the tenant, to quit the premises. That counternotice creates
difficulties for the tenant, who cannot know whether the landlord will succeed
in his opposition or not. The prudent tenant must, therefore, cast around for
alternative courses open to him if he is obliged to quit the premises and must
then decide whether it is safer to adopt one of those alternative courses or to
take the risks inherent in proceeding with an application for a new tenancy.
The tenant’s difficulties do not disappear if the landlord withdraws his
opposition. In the present case the landlords, by their counternotice in March
1980, asserted that they intended to carry out redevelopment on the premises
and required possession for that purpose. The withdrawal by the landlords in
July 1980 of their opposition on these grounds left alive the possibility that
the landlords remained anxious to redevelop and would be able to prevail on the
court to grant a new tenancy to the tenants of a short duration or a tenancy
which could be determined by the landlords as soon as they were in a position
to carry out works of redevelopment. When a landlord serves a counternotice
under (e), (f) or (g) he brings to bear influence and pressure on the tenant to
consider the advisability of quitting the premises. That pressure and influence
are not removed as soon as the landlord withdraws his opposition. By then the
tenant will, in most cases, have made investigations and inquiries which he
would not have made if the landlord had not served a counternotice in the first
place. The prudent tenant must consider his alternatives and will have reason
to fear that his days of occupation are numbered and will not be reassured by
the withdrawal of the landlord’s opposition to the grant of a new tenancy.
In my
judgment, a landlord who serves a counternotice opposing the grant of a new
tenancy under (e), (f) or (g) presents the tenant with a choice between the doubtful
possibility of a new tenancy or the certainty of compensation under section 37.
Once such a counter-notice is served, the landlord has no right both to recover
the demised premises and to avoid payment of compensation.
It is not
right to treat the tenant as being in no different or worse position than he
would have occupied if the landlord had never served a counternotice.
In the present
case it is not just to deprive the tenants of compensation because of the
accident that the landlords in July 1980 completed their inquiries and
investigations which satisfied them that they could not, or no longer wished
to, persist in opposing the grant of a new tenancy, whereas it was not until
August 1980 that the tenants completed inquiries and investigations which
satisfied them that, having regard to the landlords’ conduct or to other
factors, the tenants no longer wished to persist in their application for a new
tenancy. If the tenants had repented of their application to the court in June
1980 before the landlords repented of their counternotice in July 1980 the
tenants would clearly have been entitled to compensation. I do not accept that
the fact that the landlords happened to repent one month before the tenants
enables the landlords, who made themselves liable to pay compensation by
serving a counternotice, now to recover possession of the demised premises
without compensation.
In my
judgment, when a tenant applies for leave to discontinue an application for a
new tenancy, the correct judicial principle which the court ought to apply in
considering the exercise of its discretion under Order 21 rule 3 involves the
court in inquiring whether the landlord has been prejudiced. The fact that the
landlord will be
Act provides for compensation to be paid if the landlord has served the
counternotice. The tenant should be allowed unconditionally to withdraw his
application for a new tenancy, even if the landlord has withdrawn his counternotice,
unless the landlord has been prejudiced by the delay or by the events which
have occurred between the date when the landlord withdrew his opposition to the
grant of a new tenancy and the date when the landlord is informed that the
tenant does not propose to proceed with his application for a new tenancy.
There is no
evidence that the landlords in the present case suffered because they were not
informed in June or July 1980 that the tenants would not persist in their
application for a new tenancy. The landlords have been in no hurry to recover
possession and could not have hoped in practice to recover possession before
the tenants were willing to vacate the premises on March 31 1981. The landlords
were informed in October 1980 of the tenants’ intentions and it would have been
a simple matter for the landlords to have arranged with the tenants for the
landlords to take possession of the demised premises on March 31 1981 when the
tenants vacated the premises without prejudice to the outcome of the disputes
between the landlords and the tenants over the right to compensation and over
interim rent. The landlords could have applied for an interim rent to take
effect after December 18 1980 but they neglected to do so until March 9 1981.
After the tenants vacated the premises on March 31 1981 the landlords allowed
the premises to lie idle and are now in a position to demand rent from the
tenants at a rate determined by the court pursuant to section 24A for the
period from March 9 1981 until August 22 1981. It does not appear to me that
the landlords have suffered from the delay and it was open to them to bring the
delay to an end and to recover possession at any time on or after March 31
1981. I cannot see, therefore, that the landlords have suffered and I would dismiss
the appeal. It follows that I would also disapprove of the decision of Whitford
J in Young, Austen & Young Ltd v British Medical Association
[1977] 1 WLR 881.
By the Local
Government, Planning and Land Act 1980, section 193 and Schedule 33 paragraph
4, the provisions of section 37 of the Landlord and Tenant Act 1954 were
amended so as to permit the Secretary of State by statutory instrument to
prescribe that a multiple of the rateable value of the demised premises should
be the amount of compensation payable by the landlord. By the Landlord and
Tenant Act 1954 (Appropriate Multiplier) Regulations 1981 (SI 1981 no 69),
which came into force on March 25 1981, the minister prescribed
two-and-a-quarter times as the appropriate multiple. In the present case, and
notwithstanding the decision of this court in Cardshops Ltd v John
Lewis Properties Ltd reported in The Times on June 30 1982 [since
fully reported at (1982) 263 EG 791, [1982] 2 EGLR 53] the tenants have agreed
to limit their claims to compensation to twice the rateable value.
Accordingly,
upon the tenants’ undertaking not to require payment of compensation in excess
of twice the rateable value of the premises and upon the landlords’ undertaking
not to require payment of any rent for any period after August 22 1981, I would
dismiss the appeal.
The appeal was
dismissed with costs. Counsel agreed to accept the decision of Cumming-Bruce
and Templeman LJJ as to costs, O’Connor LJ not being present for the delivery
of judgment. Leave to appeal to the House of Lords was refused. It was ordered
that compensation would be payable as from August 22 1981, when the interim
rent ceased to be payable.
