Landlord and Tenant Act 1954–Application for new lease–Preliminary points–Whether tenants’ proposals in originating summons constituted an offer accepted by landlords–Held that, even if proposals constituted offer capable of acceptance, landlords had not accepted but had made counter-offer–Principles for determination under section 34 of rent for new tenancy–Rent to be determined as at date of hearing at figure at which premises might reasonably be expected to be let in open market for a term commencing when new tenancy is to commence
These
proceedings were concerned with preliminary points arising in an application by
tenants Lovely & Orchard Services Ltd, for a new lease of part of the
ground floor of Africa House, Kingsway, London WC2. These points, which are
fully explained in the judgment, were ordered to be dealt with as preliminary
issues before the trial of the action.
R C Pryor
(instructed by Waltons & Morse) appeared on behalf of the plaintiffs; R M
Slowe (instructed by Tobin & Co) represented the defendants.
Giving
judgment JUDGE JOHN FINLAY said: This is an application under the Landlord and
Tenant Act 1954, made by the tenants by originating summons dated August 7
1975, whereby they applied for an order for the grant of a new lease upon the
terms proposed in the summons, or, alternatively, upon such other terms as to
period of rent and otherwise as the court may determine. Two preliminary points
have arisen in the application the first of which is whether the tenants’
originating summons contains an offer as to the terms of the new tenancy which
the tenants propose which is capable of being accepted and whether in the
events which have happened the offer has been accepted.
The summons is
in the form provided for by Order 97 and contains the particulars required by
the rules of the order. These particulars after describing the premises, which
are part of the ground floor of Africa House, Kingsway, London, specified the
current tenancy as being a term of years commencing on October 29 1971 and
expiring on September 26 1975, granted by a lease dated April 11 1972, and
continued in these terms:
The
defendants have served on the plaintiffs a notice of termination under section
25 of the said Act dated 9th April 1975, specifying as the date at which the
tenancy is to come to an end the 14th October 1975, and stating that an
application to the court for a new tenancy would not be opposed. The plaintiffs
have by a counter notice dated 25th April 1975 notified the defendants that the
plaintiffs will not be willing at that date of termination to give up
possession of the property comprised in the tenancy.
There is a new
paragraph:
The
plaintiffs’ proposals as to the new tenancy are: 1. Period: 15 years from the
date of termination of the current tenancy; 2. Rent: £27,500 pa with rent
reviews every five years. 3. Other Terms: As in the above-mentioned lease dated
11th April 1972.
The landlords
submit by Mr Slowe, who appears on their behalf, that that originating summons
containing these particulars, and, in particular, the paragraph beginning ‘The
plaintiffs’ proposals as to the new tenancy’ contains an offer which was
capable of being accepted and has, in the event, been accepted by the landlords.
The subsequent
history of the proceedings in brief was as follows: The landlords having served
the section 25 notice and apparently not knowing, because the tenants’ summons
was not immediately served, of the issue of the tenants’ summons, themselves
issued a summons under the Act for an order determining the interim rent, that
application being made under section 24A of the 1954 Act. That summons has, by
order for consolidation, been ordered to come on for hearing as consolidated
with the tenants’ summons. Furthermore, in May 1976 affidavit evidence was
filed on behalf of the tenants proposing a rent for the new tenancy of £21,000
per annum and a further affidavit on behalf of the tenants served on or about
February 25 1977 proposed a rent of £15,300. It will be observed that the
successive proposals made in the tenants’ summons and in the two affidavits
which I have mentioned all proposed at the various dates rents of decreasing
amounts.
By a letter
dated February 23 1977 the landlords by their solicitors wrote to the tenants’
solicitors in these terms, after referring to the property:
We are
instructed by our clients, Daejan Investments (Grove Hall) Limited, to accept
the offer made by your clients, Lovely & Orchard Services Limited, which
same was made on the 7th August 1975 in their application to the High Court in
the action, the short title of which is . . .
and then it is
stated:
The offer was
set out in the Particulars thereto, namely, to take a lease of all that Ground
Floor ‘B’ of the premises known as Africa House, Kingsway, London WC2 for a
period of 15 years from the 14th October 1975 at a rent of £27,500 per annum
with rent reviews every five years and otherwise on the terms as in the Lease
of the 11th April 1972 set out. It is this offer that on behalf of our clients
we do hereby accept. By this acceptance, the application by your clients is
compromised and the new rent will become payable three months from the date of
delivery of this letter, which will be the date first above written.
I am asked to
determine whether the proposals put forward by the tenants’ summons are capable
of constituting an offer. It is, I think, clear that in an application for a
new tenancy under the 1954 Act it would be possible for a tenant to make
proposals in such terms as would constitute an offer capable of being accepted
and giving rise to a contract. The question is whether that has been done in
this case. I will assume for the moment that the proposals put forward by the
tenant were capable of constituting an offer. The question then arises: what
upon the true construction of the summons the offer was? That raises a question of construction
because of the reference in the first term of the offer to the period of the
tenancy as being 15 years from the date of termination of the current tenancy.
The summons, as I have indicated, contained a reference to the section 25
notice as specifying the date at which the tenancy was to come to an end on
October 14 1975 and referred to the counter notice by the tenants that
the tenants would not be willing to give up possession at that date of
termination.
In my
judgment, the reference, in the proposal that the term should be 15 years from
the date of termination of the current tenancy, to the date of termination of
the current tenancy is not a reference to that date of termination which was
specified in the section 25 notice. On the construction of the originating
summons, my view is that the reference to a 15-year term commencing on the date
of termination of the current tenancy is a reference to the date of termination
which will result from the application of the provisions of section 64 of the
Landlord and Tenant Act 1954. This provides, in brief, that in a case where
notice has been given under section 25 and an application has been made to the
court and, apart from the section, the effect of the notice would be to
terminate the tenancy before the expiration of the three months beginning with
the date at which the application was finally disposed of (which would be the
case here) the effect of the notice is to terminate the tenancy at the
expiration of the said period of three months and not at any other time.
Accordingly, I construe the offer, assuming that it be such, as an offer to
take a tenancy for 15 years from the date falling three months after the date
when the application is finally disposed of.
That in my
judgment gives rise to an initial difficulty in regarding the proposals, as put
forward in the summons, as constituting an offer, because it leaves uncertain
the date when the tenancy is to commence, making that date ascertainable only
by reference to the determination of the proceedings under the provisions of
section 64 of the 1954 Act. That uncertainty is, of course, capable of being
resolved in that in due course in one way or another the proceedings will be
finally disposed of and, therefore, the date of termination as ascertained
under section 64 will be determined.
This
circumstance, however, that the ascertainment of the date of commencement of
the term depends upon the date of termination of the proceedings, suggests to
me that the proposals as put forward in the summons were not intended to be put
forward as an offer. However, assuming that they were so put forward, it is
submitted by Mr Pryor, on behalf of the tenants, that the offer made by the
originating summons was an alternative offer, that is, an offer either to have
the terms of the tenancy determined by the court, or, alternatively, to have
the terms of the tenancy be such as were set out in the summons. If, as he
suggests, it was an alternative offer, then the landlords by filing evidence in
the proceedings, as they have done, have elected to pursue the matter in one
way, ie to have the terms of the tenancy determined by the court, and it is not
now open to them to accept the alternative offer, which was an offer to have
the terms determined by offer and acceptance by the parties. I do not think
that it is necessary for me for the purpose of disposing of this preliminary
point to decide whether that submission is or is not well founded, because, in
my view, the only acceptance of the suggested offer which is relied upon is
that contained in the letter of February 23 1977 and that letter, in my
judgment, does not constitute an acceptance of the offer.
The letter
falls into several paragraphs, and in the first the letter states: ‘We are
instructed by our clients . . . to accept the offer made by your clients,’ that
is by the tenants, ‘which same was made on August 7 1975 in their application
to the High Court.’ Assuming that the
summons contained an offer, that paragraph would constitute an acceptance of
it, if it were not for the point about the alternative offers being made by the
summons. But giving that paragraph the construction that it is applicable only
to the proposals as to a new tenancy, not to the alternative that the matter
should be determined by the court, which I think is a fair construction to put
upon the first paragraph of the letter, there then follows a second paragraph
which states that: ‘The offer was set out in the Particulars thereto, namely,
to take a lease of all that the ground floor,’ which is more fully described,
‘for a period of 15 years from October 14 1975 at a rent of £27,500 per annum
with rent reviews every five years and otherwise on the terms as in the lease
of April 11 1972 set out.’ The letter
then says: ‘It is this offer that on behalf of our clients we do hereby
accept.’ These latter words in
particular, as well as the whole of the preceding paragraph, make it
impossible, in my judgment, to construe the first paragraph of the letter as
containing an acceptance of the offer simpliciter. They accepted an offer of a
tenancy of a lease for 15 years from October 14 1975. I have already held that
on the true construction of the summons that is not the offer, assuming there
be an offer, which the summons puts forward. The purported acceptance therefore
of a lease for a term of 15 years from October 14 1975 is not a true acceptance
but in the nature of a counter offer.
Furthermore,
the letter continues: ‘By this acceptance, the application by your clients is
compromised and the new rent will become payable three months from the date of
delivery of this letter, which will be the date first above written.’ That paragraph proceeds on the basis that the
acceptance of the offer will terminate the proceedings and thus under section
64 of the Act determine the date upon which the new tenancy is to begin,
namely, the expiration of three months from the date of the acceptance of the
offer. I cannot construe section 64 as having that effect. Section 64, in my
judgment, results in the date of termination of the current tenancy falling
three months after the date on which the application is finally disposed of,
and the application is finally disposed of, in accordance with section 64(2),
on ‘. . . the earliest date by which the proceedings on the application
(including any proceedings on or in consequence of an appeal) have been
determined and any time for appealing or further appealing had expired,’ save
when the application is withdrawn or any appeal is abandoned in which case the
reference to the determination or to the proceedings having been finally
disposed of is construed as a reference to the date of the withdrawal or
abandonment. The date upon which the parties come to terms is not, in my
judgment, a date which starts to run the period of three months which is
mentioned in section 64. Accordingly, this paragraph of the letter which
suggests that the new rent would become payable ‘three months from the date of
the delivery of this letter’ is itself a new term proposed and differing from
the terms suggested in the summons, and, therefore, for this reason also, the
letter would fall to be construed as a counter offer and, therefore, not an
acceptance of the terms put forward by the tenant.
For these
reasons I have come to the conclusion that there has been no determination of
these proceedings in the sense of an acceptance by the landlords of any offer
which may have been made by the tenants in the originating summons which they
issued on August 7 1975.
That being so,
there falls for determination the second preliminary point, which is as from
what date the rent falls to be determined for the purposes of section 34 of the
1954 Act. That section provides that:
The rent
payable under a tenancy granted by order of the court under
Part II of the
Act
shall be such
as may be agreed between the landlord and the tenant or as, in default of such
agreement, may be determined by the court to be that at which, having regard to
the terms of the tenancy (other than those relating to rent), the holding might
reasonably be expected to be let in the open market by a willing lessor, there
being disregarded
various matters
which I do not think for the present purpose I need read.
It is to be
noted that the duty imposed upon the court by the section is to determine the
rent at which, ‘the holding might reasonably be expected to be let in the open
market by a willing lessor.’ That
wording itself suggests to my mind that the determination must be of the rent
which would be appropriate either at the date when the determination is made
or, at any rate, at some later date and that it is not very likely that having
regard to the wording the statute contemplates the determination of some rent
payable as from some earlier date. It is submitted, however, on behalf of the
landlords, that for a variety of reasons the proper date for the determination
of the rent at which the premises might reasonably be expected to be let should
be the same date as that from which an interim rent would be payable if it fell
to be determined under section 24A, that is to say, the date when apart from
the application under the Act the tenancy would have come to an end by reason
of the section 25 notice and the date of termination therein specified, namely,
October 14 1975.
There are
three possibilities as to the date on which the reasonable rent should be
ascertained. The first is the date I have mentioned, October 14 1975, the
second is the date of the hearing, and the third is the date as from which the
new lease will commence, that is to say, the date when the present tenancy
comes to an end having regard to the joint effect of the provisions of section
25 of the Act and section 64 thereof, that last mentioned date being in the
event of the matter having to be determined at the hearing of the summons, as
is the case, the date falling three months after the hearing or three months
after the hearing plus the time allowed for appealing or such later date as may
be determined if there are any further proceedings by way of appeal in
accordance with section 64 (2).
Mr Slowe, who
appears for the landlords, submits that there are numerous reasons, all I think
based upon reasons of convenience, why the date for consideration of what the
appropriate rent is should be October 14 1975. First, he submits, that although
there is nothing in section 34 which gives any direct guidance upon it, in
order to give effect to section 34 it would be highly convenient if the rent
falling to be determined under that section had to be determined as at the same
date as an interim rent to be determined under section 24A because the latter
is usually taken as a percentage reduction of the former. Furthermore, he
submits that there would be commercial difficulties in determining the rent at
any other date than the date of termination specified in the section 25 notice
and that if the rent fell to be fixed at some date in the future by reference
to the operation of section 64 there would be very great uncertainty in knowing
at what date the market should be regarded, since the date to be determined by
section 64 would, of necessity, remain unascertained until it had actually
happened.
These
submissions have, I think, a certain amount of attraction about them, but I am
not persuaded that the proper date for determination of the rent is the date
upon which the tenancy comes to an end as specified in section 25. Section 34
requires the rent to be ascertained as being that at which the holding might
reasonably be expected to be let in the open market by a willing lessor, there
being disregarded various matters set out in section 34(1). The tenancy in
respect of which that rent falls to be determined is one which under the
provisions of the Act is not to commence until after the date of the hearing.
In these circumstances, it appears to me to be very likely, upon the reading of
the words in the section, that the notice thereto is contemplating that the
market will be regarded as at the date of the hearing. But there is this
consideration to be borne in mind that, since the tenancy is not to commence
until a date after the date of the hearing, it would be likely that the
provisions should contemplate that the court would take into account changes
which might be reasonably expected to take place between the date of the
hearing and the date when the term commences. It seems to me to be prima
facie unlikely that the section requires the court to determine the rent as
at the date which may be long past if there be the possibility that in the
meantime circumstances may have radically changed so that what was a reasonable
rent as at the date specified at the termination of the tenancy in the section
25 notice may no longer be a reasonable rent at the date of the hearing.
There is no
direct authority on it, but in the case heard by Megarry J, as he then was, in
1972, English Exporters (London) Ltd v Eldonwall Ltd [1973] 1 Ch
415, there fell to be considered certain questions as to the principles to be
applied in determining the interim rent on an application under section 24A. In
the course of dealing with that matter, Megarry J also determined the
substantive rent to be paid in respect of the new tenancy, and in dealing with
that it is evident from the report that his determination proceeded on the
footing that the witnesses, whose evidence was heard as to the duration of the
lease, were giving evidence, as at the date of the hearing, relevant to a
tenancy which was to begin at a future date, the parties there being agreed as
to the date at which the tenancy should commence. Having referred to those
difficulties, as he did, at p 419, Megarry J says at p 431:
A
determination under section 34 alone is necessarily prospective, fixing a new
rent as from the future commencement of the new tenancy, whereas a
determination under section 24A will usually, if not always, be in some degree
retrospective, applying in part to a period that has already run.
and then he
goes on to consider the section 24A point.
He then says:
The facts
that section 34 is prospective, and that under section 24A(3) there is a
hypothetical yearly tenancy, seem to me to provide sufficient grounds for
holding that the values to be applied should be those existing when the interim
period begins to run.
There appears
to have been no argument in that case as to the date at which the section 34
determination should be considered or, to put it another way, as to the
appropriate date for the purposes of the section 34 determination, but the
clear statement made by Megarry J in the passage which I have read that a
determination under section 34 alone is necessarily prospective appears to me
to indicate clearly the view, which accords with my own, that under section 34
what falls to be done is to ascertain what would be the rent at which the
premises might reasonably be expected to be let in the open market as at the
date when the tenancy is going to commence. If that be so, then it is submitted
on behalf of the landlords that the result of that is that because of section
64 and the uncertainty introduced by that section as to when the tenancy will
commence (having regard to the possibility that the proceedings may not be
determined at the hearing at first instance but may then go to appeal) that
uncertainty introduces a complication which renders this mode of approach to
section 34 highly impracticable.
I do not
accept that that result follows. The duty of the court in determining the rent
under section 34 appears to me to be to determine the rent under that section
as at the date of the hearing, but having regard to such evidence as there may
be that indicates that any changes may have to be taken into account, being
changes that the evidence shows are likely to occur between the date of the
hearing and the date when, assuming that the court’s order stands as it is made
by the court, the new tenancy will commence. That will be the period of three
months from the date of the hearing, plus any time that falls to be allowed
under section 64(2) for an appeal being instituted. The court cannot, it seems
to me, reasonably determine the rent for the purposes
indefinite and unascertained period. The duty of the court is to determine the
rent as at the date of the hearing, but it must do so having regard to what is
the likely date of the commencement of the tenancy. Accordingly, I must reject
the submission made on behalf of the landlords that the proper date to have
regard to for the purpose of section 34 is October 14 1975 and I hold that the
date is that which I indicated.
Mr Slowe
relied upon the decision of the Court of Appeal in Lawrence Frederick Ltd
v Freeman, Hardy & Willis Ltd [1959] 3 All ER 77, where the question
arose as to whether the period of five years referred to in section 30(2) of
the Act had fallen to be ascertained by reference to the date of termination specified
in section 25, or the date of termination of the tenancy, as ascertained in
accordance with section 64, and he submitted that the practical difficulties
that were there elaborated in the judgment of Romer LJ of applying section 64
to the provisions of section 30(2) were practical difficulties which were
equally applicable if the provisions of section 64 were regarded for the
purpose of determining the date at which the rent fell to be ascertained under
section 34 of the Act. I do not think that the conclusion follows. The period
of five years referred to in section 30(2) is a period ending with the
termination of the current tenancy. The practical difficulties that arise from
construing that reference to the termination of the current tenancy by the application
of section 64 are not, by any means, the same practical difficulties as arise
by the process of having regard to section 64 and its effect upon the date of
the commencement of the new tenancy in relation to the question of when the
rent shall be determined under section 34 of the Act.
Accordingly,
in my judgment, the proper date for the purposes of determination under section
34 is the date of the hearing but having regard to matters which can reasonably
be expected to happen between that date and the date when the term is to be
expected to commence, if the order made at the hearing takes effect in the
usual course, in so far as these events subsequent to the date of the hearing
have a hearing upon determination of the question: At what rent the premises
might reasonably be expected to be let in the open market by a willing lessor
for a term commencing at that date of commencement.
The costs of
these preliminary issues were reserved to be dealt with at the end of the
hearing of the action.
