Counter-Inflation Act 1973 and orders — End of standstill on business rents — Dispute as to amount of rent payable for a period of 14 months affected by the provisions of the Counter-Inflation (Business Rents) (Decontrol) Order 1975 — Impact of counter-inflation legislation on parties who had been negotiating for the revision of out-of-date rents — Old rents frozen by Counter-Inflation (Business Rents) Order 1973 — Decontrol on February 1 1975 dependent on service of a ‘decontrol notice’ under 1975 order — Landlords did not serve decontrol notices — Whether in consequence the standstill continued until expiry of Act of 1973 on March 31 1976 — Question turned on the application of article 3 of the 1975 order to the facts — Tenants pending execution of new leases were tenants at will, but for the purposes of article 3 there was a subsisting business tenancy on January 31 1975 and the ‘rent payable’ was the rent previously agreed to be paid on the leases not then yet executed — Held that a decontrol notice was necessary under article 3 to bring the standstill to an end on February 1 1975 and, as none had been served, the control period lasted until March 31 1976 — Thus the tenants were not liable for arrears of rents
These
proceedings consisted of two actions relating to land and buildings at East
Finchley station. The plaintiffs, London Transport Executive, sued the
defendants, Gray Brothers (East Finchley) Ltd, builders’ merchants, for arrears
of rent claimed to be due in respect of a period between February 1 1975 and
March 31 1976.
R P Ground QC
(instructed by V J Moorfoot, London Transport Executive) appeared on behalf of
the plaintiffs; J R Gaunt (instructed by Young, Jones, Hair & Co)
represented the defendants.
Giving
judgment, FORBES J said: On September 14 1940 the defendants took from the
plaintiffs a quarterly tenancy of some offices on the ground and first floors
of the East Finchley Station Buildings at a rent amounting to £90 a year. On
May 12 1941 they took from the plaintiffs a yearly tenancy of some land and
buildings adjoining the car park at that station at a rent of £330 a year.
By June 1972
these rents had fallen well below the level of current rents and the plaintiffs
wished to recover appropriate rents for the premises. They accordingly wrote
two letters on June 15 1972 to the defendants, one in respect of each of the
premises, indicating that they were prepared to consider granting fresh leases
at enhanced rents, and on June 19 1972 they served notices under the Landlord
and Tenant Act 1954 to terminate the business tenancies of the defendants on
December 25 1972.
The end-result
has been a dispute between the parties as to the rent properly payable for a
short period from February 1 1975 to March 31 1976 in circumstances which I
shall have to relate. There are two actions, one in respect of each of the
premises, which have been heard together; but there is no difference between
the respective situations of each of the premises and it will be sufficient to
consider the history and the arguments relating to either one of them.
After the
initial letters and notices of June 1972 the defendants failed either to give
notice of unwillingness to give up possession or to make a request for a new
tenancy under the 1954 Act. The parties, nevertheless, continued to negotiate
terms for a new tenancy of the premises. There is no doubt that there was a
certain dilatoriness displayed by the defendants in dealing with various points
during the negotiations, and the plaintiffs more than once threatened to take
proceedings for possession if the defendants did not move faster; but by August
16 1974 the defendants had approved the draft leases sent by the plaintiffs,
including, of course, the new rents embodied therein. The engrossed counterpart
leases
and returned to the plaintiffs, executed by the defendants, by letter dated
January 2 1975 but not received by the plaintiffs until February 18 1975. The
leases themselves, executed by the plaintiffs, were sent to the defendants on
March 13 1975.
The leases
themselves are unremarkable. They are dated March 14 1975. The terms are stated
to be for seven years from June 24 1973 and the rents are described as £1,350
per annum and £1,500 per annum respectively, payable quarterly in advance; the
first payment, it is recited, having become due on June 24 1973.
The
difficulties which have arisen are due to the intervention of what was known as
the counter-inflation legislation of 1973. The Counter-Inflation Act 1973 gave
power under section 11 for the making of orders restricting or preventing
increases of rent. The relevant orders which have to be considered here are the
Counter-Inflation (Business Rents) Order 1973 (SI 1973 No 741) and the
Counter-Inflation (Business Rents) (Decontrol) Order 1975 (SI 1975 No 21). The
Act, by section 3(1), came into force on the date of the making of the first
order, which was not in fact the 1973 order above but another one, otherwise
irrelevant for our purposes, which was made on April 1 1973. The Act expired,
by section 4, three years after that date, namely on March 31 1976.
It will be
necessary to look at certain provisions of the two orders I have mentioned but,
in construing those provisions, it is necessary to remember the purpose of the
Act. Its preamble indicates that, inter alia, it was ‘to afford powers
of control over prices, pay, dividends and rents’. I think I should take it
that the object of this part of the counter-inflation legislation was to
provide for a period of ‘standstill’ for business rents — and I
emphasise that word — and that it must have been the intention of the
legislation to restrict increases in all business rents generally except where
the statutory wording provides for exceptions. The relevant provisions of the
orders are fortunately few. I should start with the 1973 order. Article 2
provides in the definitions:
‘business’
includes a trade, profession or employment and includes any activity carried on
by a body of persons whether corporate or unincorporate.
‘business
tenancy’ means any tenancy where the property comprised in the tenancy is or
includes premises which are occupied by the tenant and are so occupied for the
purpose of a business carried on by him or for those and other purposes but
does not include a tenancy of or right to occupy land used for agriculture or a
building lease.
‘rent’
includes the amount of any premium rateably apportioned over the period of the
tenancy, but excludes any sums payable by the tenant in respect of rates,
services, repairs, maintenance or insurance.
Article 4 is,
so far as is relevant, in these terms:
. . . the
standard rate in relation to any premises means (a) where a business tenancy
was subsisting on November 5 1972, the rate at which rent was payable (whether
or not then determined as to amount) under that tenancy at that date. . . .
Article 5
reads:
Subject to
the provisions of this order, where in relation to any premises there is a
standard rate, rent under a business tenancy (whether granted before or after
the coming into force of this order) of those premises shall not be payable in
respect of any part of the time during which this order is in force at a rate
exceeding the standard rate.
Pausing there,
there is no dispute between the parties that, on November 5 1972, there was
here a business tenancy subsisting on that date and that there was a rent
payable under that tenancy on that date. The rent was £90 a year for the first
premises and £330 a year for the second. These rents therefore became the
respective standard rates and no rents in excess of them were payable while the
order was in force.
Turning to the
1975 order, the relevant passages are again mercifully short. Article 3, so far
as is relevant, is in these terms:
3(1) Where in the case of a business tenancy
subsisting on January 31 1975 the rent payable under that tenancy on that date
(whether or not then determined as to amount) would, apart from the general
control provisions, be payable at a rate exceeding the standard rate . . . the
general control provisions shall cease to have effect in relation to that
tenancy (hereafter called an ‘existing tenancy’), . . . on such date as may be
specified in a decontrol notice served by the landlord on the tenant.
(4) Subject to the foregoing provisions of this
article, the general control provisions shall cease to have effect on February
1 1975.
(5) Nothing in this article shall affect the
operation of the general control provisions in relation to any business tenancy
in respect of any time before those provisions cease to have effect in relation
to that tenancy.
The relevant
part of article 4 is paragraph (1):
A notice
served by the landlord on the tenant for the purposes of paragraph (1) of
article 3 shall be in writing and shall specify a date not earlier than March
19 1975 nor earlier than one month after the date of service of the notice on which,
in accordance with the provisions of this order, the general control provisions
cease to have effect.
By article 2(2)
the ‘general control provisions’ means article 5 of the 1973 order.
The plaintiffs
never served at any material time a decontrol notice as envisaged by article 3
and provided by article 4. The whole compass of the issues raised in these
cases lies really in the interpretation of the first few lines of article 3(1).
Mr Ground, for
the landlords, maintains that there was subsisting on January 31 1975 no
business tenancy, or no business tenancy contemplated by the order; there was
only some form of licence. That being so, he says, there was no need to serve a
decontrol notice; the situation did not fall within the ambit of article 3(1).
If, he adds, contrary to his first contention there was a business tenancy
under this legislation, it can only have been a tenancy at will and there was
no rent payable ‘under that tenancy on that date’ because the words ‘under that
tenancy’ can only refer to the tenancy at will. As it was not a case for
service of a decontrol notice, the provisions of article 5 of the 1973 order,
which prevented a landlord from recovering more than the standard rate, ceased
to have effect from February 1 1975 (article 3(4) of the 1975 order) and from
that date the plaintiffs were entitled to the full amount of the rents referred
to in the leases of March 14 1975.
Mr Gaunt, for
the tenants, on the other hand maintains that a decontrol notice was necessary
in the circumstances and that, as none was served, the decontrol provisions
continued until the Act expired on March 31 1976. He accepts that, in order to
succeed, he must show both that there was a business tenancy subsisting on
January 31 1975 and that the rent under that tenancy on that date exceeded the
standard rate. Those, therefore, seem to me to be the two issues which I am
called on to determine.
The parties
have very sensibly agreed what should occur when judgment is given. The
plaintiffs have accepted, without prejudice, the rent payable on the
defendants’ contentions, save that they hold a cheque for £105 for rent from
the defendants tendered before action, but which is now out of date. It has
been agreed, therefore, that, if the defendants are right, the only thing
remaining to be done is for them to tender a current cheque for this amount. If
the plaintiffs are right there should be judgment for £1,410.50 in the first
action and £1,516 in the second action as arrears of rent and, in addition,
interest at 12 per cent.
Was there a
business tenancy subsisting at January 31 1975?
It is accepted by both parties that, although the leases state that the
term runs from June 24 1973, as they were not executed until March 14 1975 they
cannot take effect in law as the grant of a tenancy before the date of
execution (Roberts v Church Commissioners for England [1972] 1 QB
278). Some other explanation of the status of the defendants between December
25 1972 and March 14 1975 must, therefore, be sought. Mr Gaunt maintains that
this is a classic case of the creation of a tenancy at will — the tenant
holding over with the consent of the landlord after the expiry of the lease. Mr
Ground argues that the correspondence and the conduct of the parties show that
they did not intend to create any contractual relationship until the lease was
executed. He relied on Coope v Ridout [1921] 1 Ch 291 and Clifton
v Palumbo [1944] 2 All ER 497. But I do not think that either of these
cases is directly in point. They were both concerned with whether, at a
particular stage in the negotiations, it could be said that there was a
concluded agreement. There is no suggestion here about a concluded agreement
before March 14 1975. Indeed, in the circumstances of this case, the only basis
for
agreement existed. The fact is that the question of whether there was a tenancy
at will or not depends on whether it can be deduced from the correspondence and
conduct of the parties that the tenants remained in occupation with the consent
of the landlords.
I agree with
Mr Gaunt that this is a classic case of a tenancy at will. There is nothing in
the correspondence to indicate a lack of consent or a refusal of consent by the
landlords and, in a commercial situation such as this, the inference that the
tenant holds over with the consent of the landlord seems to me almost
overwhelming. The fact that the cases of holding over like this are still
regarded as classic cases of tenancies at will can be shown by a passage from
the judgment of Scarman LJ (as he then was) in Heslop v Burns
[1974] 1 WLR 1241 at p 1253 A:
In the books
. . . one finds still the assertion that an exclusive occupation of indefinite
duration can create a tenancy at will. The social changes to which I have
alluded seem to show that less and less will the courts be inclined to infer a
tenancy at will from an exclusive occupation of indefinite duration. It may be
that the tenancy at will can now serve only one legal purpose, and that is to
protect the interests of an occupier during a period of transition. If one
looks to the classic cases in which tenancies at will continue to be inferred,
namely, the case of someone who goes into possession prior to a contract of
purchase, or of someone who, with the consent of the landlord, holds over after
the expiry of his lease, one sees that in each there is a transitional period
during which negotiations are being conducted touching the estate or interest
in the land that has to be protected, and the tenancy at will is an apt legal
mechanism to protect the occupier during such a period of transition: he is
there and can keep out trespassers: he is there with the consent of the
landlord and can keep out the landlord as long as that consent is maintained.
It may be, therefore, that, not under any change in the law, but under the
impact of changing social circumstances, the tenancy at will has suffered a
certain change, at any rate in its purpose and function.
Mr Ground
relied on a passage from the speech of Viscount Simonds in Wheeler v Mercer
[1957] AC 416 at p 423, suggesting that this passage indicated that what was
significant in Viscount Simonds’ mind about the situation in that case which
resulted in a tenancy at will was that the tenant had given notice under the
Landlord and Tenant Act 1927 claiming a new lease or compensation. Mr Ground
pointed to the difference in this case in which the tenant had failed to
request a new lease under the 1954 Landlord and Tenant Act. This is, to my
mind, an irrelevant comparison. If the tenants here had asked for a new lease
under the 1954 Act no tenancy at will would have arisen; instead they would
have had the statutory right to remain in occupation provided by that Act. The
1927 Act had no such provision: the practical effect of a claim for a new lease
or compensation was, if the landlord wanted to avoid paying compensation, that
the parties went to the tribunal or, as in that case, negotiated on the basis
that a new lease would be granted. If the tenant remained in occupation during
those negotiations he did so in the normal case as a tenant at will as Wheeler
v Mercer shows. The important point to which Viscount Simonds was
drawing attention was that, the tenant having claimed a new lease, the parties
were negotiating on the basis that a new lease was going to be granted.
I feel
satisfied that here these tenants held over and continued to occupy and to
trade from the premises with the consent of the landlords, and that the
relationship between the parties created a tenancy at will.
Mr Ground’s
second point on the tenancy is that, if it was a tenancy at will, then such
tenancies are too ephemeral to fall within the ambit of the control
legislation; the landlord could at any time put an end to the tenancy. Wheeler
v Mercer shows, he says, that a tenancy at will does not fall within the
ambit of those business tenancies covered by the 1954 Act; the control
legislation is set against the background of that Act and the definition of
‘business tenancy’ in the 1973 order is borrowed verbatim from the definition
set out in section 23 of that Act. Mr Gaunt answered this argument by showing
that the reason why the House of Lords in Wheeler v Mercer
decided that tenancies at will did not fall within the Act was because various
provisions of that Act were clearly inappropriate to such a tenancy. He goes on
to assert that no such argument can be mounted here. In addition, he points out
that there may be many types of business tenancy that are excluded from the
1954 Act by section 43 and section 23(2) of the Act; and that, although
agricultural tenancies and building leases are specifically excluded in the
control legislation, the remaining tenancies excluded from the 1954 Act will be
covered by the control order. There is, he suggests, no reason why tenancies at
will should not fall within the same category.
I think Mr
Gaunt is right. I remind myself that the purpose of this legislation is to
prevent increases of rent (along with prices, pay and dividends) as a
counter-inflationary measure. The object must have been to include every
possible form of rent arising from every tenancy. The cases concerned with this
legislation show — and I will refer to them later — that one must construe the
Act in a business rather than a purely legal sense. In my view, tenancies at
will were intended to fall within the ambit of the order. I conclude that there
was here a tenancy at will, admittedly of business premises, and that, for the
purposes of article 3(1) of the 1975 order, there was therefore a business
tenancy subsisting on January 31 1975.
What was the
rent ‘payable under that tenancy’ on that date?
If these words mean the rent actually payable on that day then, of
course, the answer is that no rent was so payable — the tenancy was a tenancy
at will. This is Mr Ground’s argument. He relies on Bradshaw v Pawley
[1980] 1 WLR 10, a decision of Sir Robert Megarry V-C. I need not, I think,
read any of the judgment; it is clear from the passage at p 15H to p 16C that
the learned Vice-Chancellor took the view that an obligation in a lease to pay
‘rent’ in respect of a period before the execution of the lease could still be
regarded as an obligation to pay rent, even though technically the lease did
not exist at that period, because it was a periodical payment of money in
consideration of the grant of the lease. If, says Mr Ground, it was part of the
consideration for the grant of the lease of March 14 1975, it was rent payable
under that tenancy and cannot possibly be described as rent payable under the
tenancy at will.
Mr Gaunt’s
answer is that this is a wholly technical view of the matter and that this
legislation must be viewed in a practical and commercial rather than a legal
way. He relies on three cases reported only in ESTATES GAZETTE: Tavistock
Developments Ltd v Banks, Wood & Partners (1974) 231 EG 745, Secretary
of State for Social Services v Rossetti Lodge Investment Co Ltd (1975)
235 EG 501, [1975] 2 EGLR 36 and Co-operative Insurance Society v Freeman
Fox & Partners (1976) 241 EG 391. All three are authorities for the
proposition that one must construe this legislation in a business sense. All
three are also authority for saying that, although agreements may be ‘subject
to contract’ at the relevant date under the legislation, as long as they
subsequently fructify into concluded agreements, it is permissible to apply the
rent under the concluded agreement to the tenancy which existed at the earlier
date.
Although the
only report of the Court of Appeal’s decision in the Rossetti Lodge case
is that in ESTATES GAZETTE, the transcript of the judgment is, of course, in
the Supreme Court Library, and I should refer in full to a passage at the end
of the judgment of Scarman LJ (as he then was) at p 9G of the transcript, which
is referred to only in precis form in the ESTATES GAZETTE report:
Those being
the circumstances, one now returns to consider the meaning of ‘standard rate’
given by the order. There was a business tenancy subsisting on November 5, as I
have already mentioned. Of course, under the strict property law, there was no
rent then payable other than the £900 a year; for no other rent had by then
been agreed or determined. But the definition contained in the order indicates
that we are not to be limited to the technical terms and concepts of the
property law inasmuch as it visualises that the rent, though payable, may
nevertheless not yet be determined — really a contradiction in terms when there
is in being a tenancy at an agreed rent. But it is real common sense, if one
considers the purpose of the legislation, which was to cut across contractual
relationships as fairly as possible. The words of the definition ensure that
this brutal process of cutting across contractual relations was at any rate to
be done as humanely as possible.
The rent was
determined later at a figure of £5,000 per annum. When it was determined it
became the rent payable from September 29, and therefore payable on November 5,
which the parties had, as long ago as June,
reason of the lease of 1951 and its extension pursuant to section 64.
It seems quite
clear to me from that passage that, in the Rossetti Lodge case, the only
rent ‘payable under that tenancy at that date’ was £900 a year. The Court of
Appeal, nevertheless, found no difficulty in substituting the subsequently
agreed figure of £5,000. I think I should follow suit. In my view, the rents
payable under the tenancy which subsisted on January 31 1975 were the rents
previously agreed informally and subsequently formally embodied in the lease of
March 14 1975. Those rents were in excess of the standard rates. Accordingly, a
decontrol notice was necessary under article 3 of the 1975 order. As none was
served, the control period lasted until March 31 1976. There are thus no
arrears of rent due to the plaintiffs and there must be judgment for the
defendants.
