Landlord and Tenant Act 1954, section 34 — Determination of rent for new tenancy of warehouse — Proposed lease for 14 years, with 5-year rent reviews and with restriction of user to wholesale warehousing of electrical goods — Discussion of ‘comparables’ produced by each side — Analysis of similarities and differences between subject property and the nearest comparable, the next-door property — Attention drawn to the similarities, the position next door on same estate, same problems and advantages of access, similar floor area, same rent-review period with a recent review in the case of the next-door comparable — Differences were that the comparable was a new building with a modern clearspan layout; there were differences in the repairing covenants; the rent for the comparable was a reviewed rent for a sitting tenant whereas the rent to be determined for the subject property was a market rent; there was an absence of lavatories on the actual premises in the case of the subject property; and it had a restrictive user clause — It was accepted that warehousing space on a first floor was of only half the value of warehousing space on the ground floor; the comparable had no second floor by contrast with the subject property — The result of the judge’s calculations was to produce for the subject property a ground-floor rent of £2.40 per sq ft and a first-floor rent of £1.20 per sq ft — As the warehouse consisted of two floors, each of 3,590 sq ft, the resultant rent was £12,924, which the judge rounded up to £13,000
This was an
originating summons by which the plaintiffs, Newey & Eyre Ltd, made
application pursuant to Order 97, rule 6, for a new tenancy, the defendants
being the landlords, J Curtis & Son Ltd. The application related to Unit 28
on the Botley Works in Oxfordshire. The issue had been reduced to the question
of the correct level of rent payable under the proposed new tenancy.
David
Neuberger (instructed by Johnson & Co, of Birmingham) appeared on behalf of
the plaintiffs; Vivian Chapman (instructed by Challenor & Son, of Oxford)
represented the defendants.
Giving
judgment, MR E C EVANS-LOMBE QC said: The case concerns premises known as Unit
28 on the Botley Works in Oxfordshire, of which the landlords are the owners.
The property consists of two floors, each of 3,590 sq ft and is warehouse
property. I have been asked to, and it is common ground that I should, approach
this case on the basis that those two floors are clear and in particular clear
of the tenants’ office accommodation constructed by them on the ground floor.
The subject property, Unit 28, was held by the tenants under a 21-year lease
from August 1 1960. On January 14 1983 the landlords served notice on the
tenants under section 25 of the 1954 Act, and on January 15 the tenants served
a counternotice under that Act. It is now agreed that the proposed lease should
be for a period of 14 years, with five-year rent reviews, on the terms of a
draft lease which is exhibit 4 to the affidavit of John Godfrey MacDonald,
sworn on February 18 1983, and in particular I draw attention to clause 3(8) of
that draft lease, which, omitting the immaterial parts, limits the user of the
premises
as a use for
the storage, repair and wholesale warehousing of electrical goods of all sorts,
including television and radio equipment and ancillary offices in connection
with the tenants’ business as electrical wholesalers.
I also draw
attention to the provision of clause 4(1) of the draft lease which places upon
the landlords a covenant to keep the external parts, except those referred to
in clause 3(4) thereof, and the structure of the demised premises in good
repair.
The tenants
also held the next-door unit on the same estate, known as Unit 29, under a
20-year lease from December 1 1978. This also had five-year reviews. The floor
area of these premises was approximately 5,000 sq ft. It had no second floor by
comparison with Unit 28, and was also by comparison with that building only
five years old. I should have said that Unit 28, it appears, was built in the
late 1950s. In respect of Unit 29 there has recently been a rent review under
that lease by which the rent was agreed at a figure of £12,000 per annum, the
negotiations for that rental taking place in June 1983.
The issue in
this case has now been reduced to the correct level of rent payable under the
proposed new lease. The court’s power to fix such rent derives from section
34(1) of the Landlord and Tenant Act 1954, which reads as follows:
The rent
payable under a tenancy granted by order of the court under this Part of this
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 —
And there then
follow a series of disregards which it is common ground do not have any
application in the present case.
In the course
of the argument before me, there was brought to the court’s attention
comparables by both the plaintiffs and the defendants. The plaintiffs’
comparables consisted of three properties: firstly Unit 29 itself, which I have
just described; secondly, 128 Bullingdon Road, in Oxford; and, thirdly, 55 St
Thomas’s Street, in Oxford. Having heard the evidence adduced on both sides as
to nos 128 and 55 and having seen a plan of those premises, I take the view
that neither no 128 nor no 55 assist me at all in coming to a view on the
proper rent chargeable in respect of Unit 28. Both those properties are situate
in different areas of Oxford and are of a general state of repair and layout
which renders them, in my view, not comparable to Unit 28.
The defendants
put before me a list of comparables, nine in all. These comparables consist in
fact, with two exceptions, of a series of subdivisions of a large 17,000-sq ft
unit on the estate which some two years ago was subdivided into a number of
sub-units. The two exceptions to that are, firstly, Unit 19 on the estate, a
very modern unit recently constructed and let, of rather less than 3,000 sq ft;
and some bungalow offices, again recently let. It seems to me that the bungalow
offices are of no assistance in the calculation which I must make. I also take
the view, for reasons which I will dilate on later in this judgment, that the
rental agreement made in respect of Unit 19 was somewhat of a special case.
The one
surviving comparable of the defendants, which was put forward by them as their
best comparable, is Unit 29, and I propose to deal with this comparable and
apply it as far as possible in the calculation of the rent appropriate to Unit
28. The similarities between that unit and Unit 28, and the reasons why the
agreement made in respect of this property assists me are as follows. It is, of
course, on the same estate; it is next door. On that estate it has exactly
similar problems and advantages of access to it as those appertaining to the
subject property. I am prepared to treat it as of similar floor area. It is
accepted on all sides that warehousing space on a first floor is of only half
the value of warehousing space on the ground floor, and when I suggested to Mr
Neuberger that it was, therefore, reasonable to treat Unit 28 as if it
consisted of rather more than 5,000 sq ft of ground-floor space, he did not
demur from that approach. The rent-review period under the leases is precisely
the same in each case, five years. The same agents negotiated the rent between
the same parties. Finally, the rent has been recently reviewed, the
negotiations taking place in June 1983. Neither of the surveyors called by the
landlords or the tenants was prepared to advance definite evidence that the
rent market had varied significantly since that date in respect of a property
such as this.
I now set out
the differences which will have to be accounted for in applying the rent agreed
on this property to Unit 28. Firstly, this is a new building, some five years
old, by comparison with Unit 28, which was put up in the late 1950s, as I have
said. Secondly, it has a modern clearspan layout, by comparison with the
subject property which, because it has two floors, has a row of six stanchions
to support that floor; it has a lift-space which has to have space left round
it and stairs which again have to have space left round them. Thirdly, the
lease upon which Unit 29 is let contains a full repairing covenant. Fourthly,
the user clause in this lease is very much more liberal than the user clause
contained in the lease of the subject property. The user clause in the case of
Unit 29 does not restrict the use of the property to the business currently
being carried on by the tenant. Fifthly, by comparison with Unit 28, and for
historical reasons, there are lavatories and ablution facilities comprised in
the demise of Unit 29 of which there are none in Unit 28. It appears that by
agreement between the landlords and the tenants a short time ago the lavatory
facilities attached to Unit 28 were demolished and an annex (which I will call
‘the lavatory annex’) was constructed between units 28 and 29, producing a
triangular-shaped abutment. In that annex was constructed a lavatory block
sufficiently large to cope with the work force in both units 28 and 29. It was,
therefore, larger than that required by Unit 29. There is access to it from
both buildings. The lavatory complex occupies approximately half the annex and
would seem to preclude any form of commercial use for that annex at all. The
annex was constructed at the request of the tenants, and the construction was
financed roughly 50-50 between the landlords and the tenants.
I now turn to
the sixth difference. The rent agreed in June 1983 in respect of Unit 29 was,
of course, a reviewed rent, agreed between a landlord and a sitting tenant,
whereas I must attempt to arrive at a rent obtainable in the open market. The
rent agreed in respect of Unit 29 was £12,000. When that is reduced to the rent
per sq ft of floor area of the property there is a conflict on what the proper
figure should be. The tenants contend that it should be £2.34 per sq ft, the
landlords contend it should be £2.48. The reason for the difference is that the
tenants in their calculation take in the floor area of the lavatory annex,
whereas the landlords do not. In my view, on this issue the landlords are
right. It seems to make no sense, if one is seeking to calculate a rental by
square footage, that one should bring into that calculation square footage
which as a result of the tenants’ own requests and actions has no commercial
usage at all. Accordingly, the base rent should be treated as being that which
results from the landlords’ calculations, namely £2.48 per sq ft.
It is common
ground that a reviewed rent agreed between an existing tenant and a landlord is
in general lower than a rent negotiated in the open market. Neither side
adduced any evidence as to how much of a discount there usually is in such
circumstances. It seems to me that if I am to apply Unit 29 as a comparable, I
have first to come up with some figure which represents this discount. Looking
at the defendants’ schedule of comparables, there appears to be a rough base
rental of the order of £2.50 to £2.51 per sq ft. Those figures arrive from the
lettings of the various subdivisions of Unit 15. Standing out from that was the
letting of Unit 19, which was let on September 1 1983 at a rent of £2.51, but
with the addition of a premium of £3,000, and I should say that that letting
was for a period of 15 years with three-year rent reviews. I received a certain
amount of evidence as to the nature of that letting. These are the first
tenants of a brand-new set of premises. It appears that the transaction was
something of a special transaction. The lease contains an upwards-only review
clause, and I think it is of note that, whereas it is possible to absorb the
premium so as to make it represent annual rent, thereby converting the rental
figure from £2.51 per sq ft to £2.84 per sq ft, when one is dealing with an upwards-only
rent review provision the impact of a bargain of £2.51 per sq ft with a premium
is entirely different from a bargain with £2.84 per sq ft straight rental. I,
therefore, take the view that there is evidence before me which justifies my
coming to the conclusion that the approximate estate rental figure for premises
that are not brand new is of the order of £2.50 to £2.51.
Unit 29, of
course, is much newer than Unit 15 or the subdivisions of that unit, although
those subdivisions were produced as a result of a conversion of those premises
some two years ago. They none the less remain a conversion. It seems to me that
I would be justified, doing the best I can, to come to the conclusion that the
rental that would have been charged or arrived at in respect of Unit 29, had
this been a fresh letting as opposed to a review, would have been £2.55 per sq
ft. This reflects the greater modernity of Unit 29 and also the somewhat better
vehicle access which it has compared with the Unit 15 conversions.
It was pressed
upon me that there is a break in the demand for warehouse lettings, which takes
place at approximately 3,000 sq ft, and that demand for warehouses of less than
that is in fact greater than warehouse space in units greater than that and
that, accordingly, it would be justified to discount rent for units of greater
than 3,000 sq ft. I am not satisfied that any evidence was brought to the court
which justified the court in taking such a view. I accordingly take the view
that no discount is necessary where one is comparing rents for premises of
approximately 3,000 sq ft and those of approximately 5,000 sq ft. It may well
be, and I think there was some evidence of this, that for very much larger
units a lower rent per sq ft is usually obtained. But as between those
relatively small units no evidence was produced which justifies a differential.
I now come to
consider what adjustments should be made to the rent of £2.55 per sq ft, which
I think would be the proper rent for Unit 29, if it had been negotiated in the
open market, if one is looking for the appropriate rent for Unit 28.
It was common
ground between the parties that there should be an adjustment to the Unit 29
rent to take account of the fact that Unit 29 was on a full repairing covenant,
whereas Unit 28 was on a landlord’s repairing covenant; and it was common
ground that that adjustment should be effected by adding 5% to the rent. It was
contended that the age of Unit 28 made the burden of the interior decorating
obligation of the tenants more severe than that for a modern building. I do not
think that any evidence was brought to this court which justified this being
treated as a substantial, additional burden, and I accordingly take the figure
of Mr Thomas (the landlords’ surveyor) of 1% as an appropriate deduction or
reducing of the rent figure to take account of this. The third matter was the
general appearance of the premises and the layout. I have already described how
the layout of the ground floor of Unit 28 contained six stanchions and other
obstructions, and the fact that it was on two floors, and was an old building
and perhaps not appearing to be in its first youth. I propose to deal with
general appearance and layout as one matter. It was conceded on behalf of the
landlords that there should be some reduction in respect of this. I do not take
the view that the disadvantage flowing from these matters is anything like as
serious as that which the tenants’ surveyor suggested; and, accordingly, I
again take Mr Thomas’ figure of a 5% reduction to take this into account.
Fourthly, the absence of lavatories from Unit 28. It is clearly a disadvantage
to warehouse premises that they do not contain lavatories which can serve the
persons working in the warehouse. It is a disadvantage if those premises are
treated, as they must be treated, as separate premises, even though lavatories
are in fact available next door. Accordingly, prima facie, one would
think that there should be a reduction in the rent by comparison with premises
which have such accommodation. However, in the present case the comparable is
Unit 29 where, at the request of the tenants, lavatory accommodation to
accommodate both those working in Unit 29 and Unit 28 was constructed.
Furthermore, it was constructed in an annex built on to Unit 29, which is
comprised in the lease of those premises and which might otherwise have been
used for commercial purposes. It effectively neutralises that annex. It seems
to me, therefore, that if one is going through the process of comparing Unit 28
and Unit 29, these two factors cancel each other out and there should be no
adjustment of the rent of Unit 29 to take into account the absence of lavatories
in Unit 28.
Finally, I
turn to consider the impact of the difference in the user clauses between these
two properties. The respective surveyors on either side gave widely differing
answers to the question of what the appropriate reduction in this case should
be. On the one hand, Mr R D Gough [ARICS, partner, Chesshire Gibson & Co]
suggested it should be as much as 20%. On the other hand, Mr E D J Thomas
[FRICS, partner, Adkin] for the landlords suggested it should be only 5%. On
behalf of the landlords it was urged upon me that there was no indication from
any of the evidence of lettings on the estate, where a variety of restrictive
clauses (including clauses such as the one in the draft lease) have been agreed
and imposed, that the presence or absence of such restrictions had any effect
whatsoever on the rent. I cannot take quite that view, but equally I do not
think that there is any evidence which justifies the court in reducing
substantially the rent when comparing it with Unit 29. I accordingly take Mr Thomas’
figure of 5% as the appropriate deduction. According to my calculations, the
resulting reductions and increases cancel each other out at a net reduction of
6% on the figure of £2.55, which is approximately and to the nearest penny 15
pence per sq ft. This throws up a ground-floor rent for Unit 28 of £2.40 per sq
ft, and applying the rule, which is common ground, that first-floor
accommodation should be half that of the ground-floor accommodation, this
throws up a rent per sq ft for the first floor of £1.20 per sq ft. Calculating
those figures out against the floor area, it throws up a figure of £12,924,
which I propose to round up to a figure of £13,000 per annum; and it is
accordingly that figure which, in the exercise of the power conferred me by section
34 of the 1954 Act, I fix as the rent applicable to Unit 28.
Accordingly, I
propose to order that the rent for Unit 29 should be a rent of £13,000 per
annum.
The lease, in
a form to be agreed, was to be for 14 years from the statutory starting date,
with five-year breaks. The interim rent was to be 75% of the rent now
determined by the judge. No order was made as to costs.