Landlord and tenant — User covenant in lease — Construction — Covenant not to use premises for certain specified trades ‘but will use the demised premises’ for other stated purposes — Whether this was a positive obligation to use the premises for such purposes or merely an emphatic statement of the prohibition of uses other than those specified — Whether use ‘for the business of high-class retailers of jewellery’ covered use for storage, processing of paperwork and negotiations with suppliers to the business — Relevance of factual matrix — Appeal from decision in favour of lessees dismissed
defendants (respondents to this appeal) carried on a high-class retail
jewellery business in the foyer of two properties in Park Lane, London W1, nos
35 and 37, near the Hilton Hotel — The two properties were let under one lease
— No 37 had never been occupied by the respondents, while no 35 had been used
not as a shop but for purposes connected with their jewellery business at the
hotel, such as storage of some stock, processing of paperwork and negotiations
with suppliers — The respondents covenanted that they were not to carry on a
number of specified unacceptable businesses and activities and that they ‘will
use the demised premises either for the business of high-class retailers of
jewellery’ or for certain other specified businesses — Mr Thomas Morison QC,
sitting as a deputy judge of the Chancery Division, held that the respondent
lessees had not been guilty of the breach of covenant alleged — The lessors
appealed
impression whether the use of no 35 for the supportive activities described was
a use ‘for the business of high-class reatailers of jewellery’ within the
meaning of the covenant — The second question was whether, accepting that such
use was not in itself in breach of covenant, there was a breach involved in the
use of no 35 only, no use having been made of no 37
a high-class retailer did not begin and end at the point of sale to the
customer — It necessarily included the storage of stock used in the business,
the processing of the paperwork and meetings and negotiations with suppliers —
Premises used for these necessary purposes were used ‘for’ the business of
high-class retailers within the covenant — The judge below concluded that the
words in question were in the nature of an emphatic negative rather than a
positive instruction — (2) It was considered neither necessary nor desirable to
express a view as to whether the mandatory form of the words ‘will use the
demised premises’ indicated the imposition of a positive obligation to use the
premises for the purposes stated — The omission to make use of no 37 did not
constitute a breach of the covenant even if these words were construed to be
positive in substance — Taking no 35 and no 37 together, as two premises which
were let as a whole and must be viewed as a whole, the use of half was in all
the circumstances a sufficient use of the whole
The following
cases are referred to in this report.
Basildon
Development Corporation v Mactro Ltd [1986]
1 EGLR 137; (1985) 278 EG 406
Levermore v Jobey [1956] 1 WLR 697; [1956] 2 All ER 362, CA
Tea Trade
Properties Ltd v CIN Properties Ltd [1990] 1
EGLR 155; [1990] 22 EG 67
Westminster
City Council v Duke of Westminster [1990] 23
HLR 174
This was an
appeal by the lessors, Montross Associated Investments SA, a Panamanian
company, from the decision of Mr Thomas Morison QC, sitting as a deputy judge
of the Chancery Division, dismissing a claim by the appellants that Shlomo
Moussaieff and his wife, Alisa Moussaieff, lessees of premises at 35 and 37
Park Lane, London W1, had been in breach of a covenant in the lease of the
premises. The decision of Mr Thomas Morison QC was reported at [1990] 2 EGLR
61, [1990] 45 EG 109.
David
Neuberger QC and Miss Judith Jackson (instructed by Lewis Silkin & Co)
appeared on behalf of the appellants; Nicholas Dowding (instructed by Rabin
Leacock Lipman) represented the respondents.
Giving the
first judgment at the invitation of Parker LJ, NOURSE LJ said: This
appeal raises two short questions of construction on a user covenant in a lease
of commercial premises at 35 and 37 Park Lane, London W1. The lease was dated
September 12 1979 and was made between the freehold owners, Romulus Films Ltd
(‘Romulus’), as lessors of the one part and the defendants, Mr and Mrs Shlomo
Moussaieff, as lessees of the other part. It was for a term of 21 years from
December 25 1978 at a fixed rent of £16,485 pa. On or about January 28 1987 the
freehold reversion was acquired from Romulus by the plaintiffs, a Panamanian
company called Montross Associated Investments SA.
The background
to the dispute between the plaintiffs and the defendants and the course which
it has taken are fully recounted in the careful judgment in the court below,
which is reported at [1990] 2 EGLR 61. The Vice-Chancellor had ordered the
trial of the following question:
Whether there
has been a breach of clause 2(17) of the lease dated September 12 1979.
On June 25 1990
Mr Thomas Morison QC, sitting as a deputy judge of the Chancery Division,
decided that there had not. The plaintiffs now appeal to this court.
Among the
facts admitted or found by the learned judge were these. The defendants have
for many years been carrying on business as high-class retailers of jewellery
in shop premises in the foyer of the Hilton Hotel, a short distance from the
demised premises, through a private company of which they are the sole
directors and shareholders, called London Hilton Jewellers Ltd. Between 1971
and 1977 the demised premises were let to other tenants under separate leases
for use as a restaurant and coffee shop respectively. In the latter year, after
disputes with the chairman of Romulus, Sir John Woolf, the tenants indicated
that they would like to assign their leases. Sir John, who was on friendly
terms with the defendants and a reasonably frequent visitor to their shop in
the Hilton Hotel, introduced them to the premises. In due course planning
permissions for changes of use were obtained; deeds of licence and variation
giving Romulus’ consent to the assignment of the leases and the changes of use
were executed; and the leases were assigned to another private company owned
and controlled by the defendants. The lease of no 35 was assigned on October 31
1977 and the lease of no 37 on December 5 1978. Thereafter Romulus and the
defendants negotiated for a new, single lease of the two premises together,
those negotiations resulting in the lease of September 12 1979 with which we
are concerned. It is agreed that both premises were then unoccupied and,
moreover, that they had been unoccupied since the dates on which the previous leases
had respectively been assigned. There was also evidence, which appears to have
been accepted by the judge, that the cost of making the premises into retail
outlets would amount to over £200,000. We have been told that the floor areas
of the two premises are exactly the same, being 671 sq ft in each case.
The material
provisions of the lease are these. By clause 1 the lessor demised unto the
lessees:
ALL THOSE the
lock up shops situate at and known as 35 and 37 Park Lane on the lower ground
floor of the building known as 3 Curzon Place TOGETHER with the basement stores
immediately below the same and the storerooms at the foot of the staircases to
the rear of the said shops . . .
The lessees’
covenants are contained in clause 2, subclause (17) of which is in these terms:
NOT during
the continuance of the term hereby granted to carry on or to permit or suffer
to be carried on upon the demised premises or any part
or retailer of fried fish or onions or use or permit to be used the same
premises or any part thereof as offices or rooms for betting or wagering or
carrying on or permit to be carried on in the premises any other trade business
or calling whatsoever that shall be adjudged by the Lessors to be noisy noisome
noxious or offensive or that shall be hurtful or prejudicial or constitute a
nuisance or annoyance to any other tenant or tenants of the Lessors or a public
nuisance and will without prejudice to the generality of the foregoing not
suffer or permit the escape of cooking smells from the premises or use or allow
the premises or any part thereof to be used for frying onions but will use the
demised premises either for the business of high-class retailers of jewellery and/or
antiques and/or luxury goods and/or a travel agency or a recognised Bank the
authorised name of which includes the word ‘Bank’.
It will be
observed that that subclause falls into two parts, the first of which is
negative in form and the second, which starts with the words ‘but will use’,
positive in form. Clause 2(13) contains an absolute covenant by the lessees
against assigning, underletting, parting with or sharing possession of the
whole or any part of the demised premises.
The use which
the defendants have made of the demised premises since the grant of the lease
was described by the judge at p 4G of the transcript:*
The
defendants have never occupied any part of no 37. No 35 has never been used as
a retail shop as such, but it has been used for the benefit of the jewellery
business carried on by the defendants through Hilton Jewellers at the hotel
shop, in a number of different ways. In the first place some of Hilton
Jewellers’ stock is kept at no 35, thus easing a space problem at the hotel
shop; second the defendants have put a desk and filing cabinets in no 35 so
that the paperwork generated by Hilton Jewellers can be processed there, either
by one of the two defendants themselves or by one of their staff from the hotel
shop; third, where the occasion demands, suppliers of items for the hotel shop
are sometimes directed to no 35, it being thought prudent not to carry on
negotiations with sellers while engaged in selling items to customers at the
hotel shop.
*Editor’s note:
Also reported at [1990] 2 EGLR 61 at p 63F
Thus no 37 has
never been used at all and no 35, although it has been used, has not been used
as a retail shop. It has been used for the storage of some of the stock and for
the processing of the paperwork of the business of the London Hilton Jewellers
Ltd and sometimes for negotiations with suppliers to that business. The first
question which we have to decide is whether that use is use ‘for the business
of high-class retailers of jewellery’ within the second part of clause 2(17) of
the lease.
In both courts
there has been some debate as to the extent of the factual matrix which can be
taken into account for the purpose of construing the lease. On a broad view of
the matter, I think it possible that all the facts to which I have referred as
having been admitted, found or agreed would be admissible for this purpose,
including the terms of the two deeds of licence and variation, being deeds to
which both Romulus and the defendants’ other private company were parties.
However, the judge said that he had put aside from consideration any of those
facts, save that the defendants had a retail jewellery business not far from
the demised premises which were empty and had been empty for some months at the
date when the lease was granted. He made it clear that his construction of the
lease would have been the same whatever the extent of the admissible factual
matrix might have been.
As to the
first question, the judge was of the view that the premises could be used
either as shop premises for the business specified in the second part of clause
2(17) or for the purposes of those specified businesses carried on elsewhere.
In seeking to dissuade us from that view, Mr Neuberger, for the plaintiffs, had
relied on a number of matters, including the reference in the parcels to ‘lock
up shops’ and the facts, first, that the premises both had shop fronts, second,
that use as shops was the natural use to make of them and, third, that you
would not expect commercial premises in this part of Park Lane to be used for
storage and administration as opposed to luxury shops. He has also pointed to
the oddity, if the defendants’ construction is correct, of permitting the
premises to be used for storage and processing of paperwork in connection with
a retail business, while prohibiting those uses in connection with a wholesale
business. Turning more closely to the wording of clause 2(17), he argues that
various of the expressions used in the first part confirm his construction of
the second part.
Mr Dowding,
for the defendants, argues that the business of a high-class retailer of
jewellery does not begin and end at the point of sale to the customer. As is
demonstrated by this case, it can include the storage of stock to be used in
the business, the processing of the paperwork of the business and negotiations
with suppliers to the business. If premises are used for those purposes, they
are used ‘for’ the business of high-class retailers of jewellery within the
second part of clause 2(17).
The question
is one of impression. In my judgment, the argument of Mr Dowding is correct.
None of the other provisions of the lease or the other matters on which Mr
Neuberger relies can overcome the clear effect of the words which the parties
have used. Like the judge, in arriving at that conclusion I do not rely on the
factual matrix, although I observe that whatever its admissible extent may be,
it cannot detract from, and can only confirm, the result which follows from a
true construction of the words themselves.
The second
question arises in this way. Given that the defendants’ use of the demised
premises has not, of its nature, been in breach of clause 2(17), has such a
breach nevertheless been caused by the limited extent of their use, that is to
say by the use of no 35 only? It has
throughout been accepted that in order to answer that question it is helpful to
start by asking whether the second part of clause 2(17), which opens with the
words ‘but will use the demised premises etc’ is positive in substance as well
as in form.
As to that,
the judge was of the view that the second part of clause 2(17) was not
sufficiently clear as to create a positive obligation to use the premises for
one of the specified businesses. He thought, adopting the words of Hoffmann J
in Tea Trade Properties Ltd v CIN Properties Ltd [1990] 1 EGLR
155 at p 157J, that it was ‘simply an emphatic statement of the prohibition on
uses other than that specified’. In support of his argument to the contrary, Mr
Neuberger relied on the decisions of this court in Levermore v Jobey
[1956] 1 WLR 697 and Basildon Development Corporation v Mactro Ltd
[1986] 1 EGLR 137 and more especially on the very recent decision of Harman J
in Westminster City Council v Duke of Westminster [1990] 23 HLR
174.
Although each
of those three decisions is for one reason or another distinguishable from the
present case, it is certainly possible that the second part of clause 2(17) is
positive in substance as well as in form. For my part, I think it neither
necessary nor desirable to express a view on that point. That is because the
omission to use no 37 cannot, in my view, constitute a breach of clause 2(17)
even if the second part of it is positive in substance.
At this stage
Mr Neuberger relies primarily on the general proposition that to hold that a
use of half only of the premises is a sufficient compliance with a positive
obligation to use them in a specified manner is to stultify the purpose of the
obligation. He also relies on the three references in the first part of clause
2(17) to the demised premises ‘or any part thereof’ in contrast to the
reference to ‘the demised premises’ in the second part, which shows, he says,
that the positive obligation extends to the whole and not merely to half.
Having taking
full account of Mr Neuberger’s submissions, I can express my own view of the
second question by adopting what the judge himself said when dealing with it at
p 12E-F:*
. . . If the
clause is positive, then I do not consider that clear enough words have been
used to require a user of the whole of the premises. In my judgment, even on
this basis, the user of no 35 constitutes a sufficiently substantial user of
the whole, so that the bystander would say that the demised premises were being
used by the defendants for the business of a high-class retailer of jewellery
being carried on at the Hilton Hotel. If the remaining part of the premises
were used for the sale of doughnuts, then one might readily conclude that the
premises were not being used for the business of retail jewellers. A relatively
insignificant other user would not alter the character of the prime use. The
line would have to be drawn on the facts of each case.
I would
emphasise that the two premises, having been let as a whole, must be viewed as
a whole without regard to their physical separation. Viewing them thus and
taking account of the nature of the use which may be made of them, I agree with
the judge that a use of half is, in all the circumstances of this case, a
sufficient use of the whole.
For these
reasons I would dismiss this appeal and affirm the decision of the judge.
BUTLER-SLOSS
LJ agreed with the decision and reasons given by
Nourse LJ and did not add anything.
Also agreeing,
PARKER LJ said: Although the drafting of clause
high-class retailers of jewellery’ etc becomes clear when one considers the
subject-matter of the lease, namely the lock-up shops themselves, the basement
storerooms beneath and the storerooms at the foot of the staircases to the rear
of the shops. These together form ‘the demised premises’. Suppose that the
tenants had in fact used both of the shops as retail shops, one set of
storerooms for stock, another for commercial office work and packaging and the
third for interviewing and negotiating with suppliers, could it possibly be
said that any part of the premises was not being used ‘for the business of
high-class retailers of jewellery’? In
my judgment, the answer must plainly be ‘no’. The entirety of the premises
would be being used for the purposes of that business. If for any reason the
tenants found that it would be more profitable to run the business by using one
only of the shops for retail selling and the other for increased storage space
the same would apply. It would also apply if for, say, security reasons they
decided that retail selling should be done in the storerooms and the remaining
operations necessary for the running of the business in the shops. Could it
then make any difference if the tenants already had other premises, perhaps no
33, in which they were conducting retail selling together with the ancillary
operations but wished to devote the whole of such other premises to retail
selling and conduct the ancillary operations in nos 35 and 37? I think not. It would be a single business
and nos 33, 35 and 37 would all be being used for that business.
As to the
question whether the second part of the clause is positive in substance, I find
it hard to suppose that, when a series of negative covenants are followed by
the words ‘but will use’, the intention was merely to create an emphatic
negative. The change of language is marked, it is positive in form and I am not
convinced that any good reason exists for holding that the substance is
different from the form. Like Nourse LJ, however, I find it unnecessary to
reach any conclusion on the point. It is, in my view, clear that, even if
positive, the obligation cannot have been to use every part of the demised
premises for one of the specified businesses. If, for example, having for a
time used the whole of the demised premises for one of the specified businesses,
the tenants were forced owing to a fall in trade to contract into part only it
could not, as it seems to me, be said that they had ceased to use the premises
for that business any more than someone ceases to use a large house as a
dwelling-house if he locks up all of the rooms except one bedroom, the kitchen,
one of the three reception rooms and the bath and toilet.
In the present
case, assuming a positive covenant, I accept that there must be use for one of
the specified businesses of such part of the premises as would enable an
ordinary person to answer the question ‘For what are the premises being
used?’ with the reply ‘For the business
of a high-class retailer’. There may be borderline cases, but on the facts of
this case I am satisfied that a sufficient part of the premises was and is
being used for the specified business to require an affirmative answer to such
an inquiry.
For these
additional reasons, I, too, would dismiss this appeal.
The appeal
was dismissed with costs.