Landlord and tenant – Lease providing for pre-emption right in favour of defendant landlord – Defendant claiming right of pre-emption at price equal to original premium for lease – Whether claimants entitled to demand full market value – Claim allowed
In 1999, the defendant granted a lease of a retirement apartment in the grounds of a nursing home to an elderly couple (the lessees). The lease was for a term of 99 years from 1997 and provided for the payment of a premium of £57,500, rent of £50 pa and a service charge. Clause 3(10)(b) provided that if the lessees wished to dispose of the lease, they should first serve a disposal notice upon the defendant, offering to dispose of it in the defendant’s favour.
The lessees died in 2002 and 2003 respectively. The claimants, as their executors, obtained a market appraisal of the value of the lease, and were advised to seek offers in the region of £165,000. They then purported to give notice to the defendant, under clause 3(10) of the lease, offering to sell the lease back to it for that amount. However, the defendant took the view that, on the proper construction of clause 3(10), it was entitled to have the lease offered to it at the same price as the premium paid for the lease by the lessees.
The claimants applied to the court for a ruling on the proper construction of the right of pre-emption. They argued that, on its true construction, any increase in the value of the lease after the date upon which it was entered into was allocated to them so that, should the defendant choose not to purchase the lease at the full current market value, they were entitled to sell it on the open market.
Held: The claim was allowed.
On the proper construction of clause 3(10)(b), the lessee was entitled to the benefit of the substantial rise in the market value of the lease since the premium had been paid when the lease was granted. Accordingly, any price that the lessee chose could be stipulated in a contract tendered under the right of pre-emption. It did not have to be the same as, or less than, the original premium for the lease: Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 986 applied.
It would be unusual for a pre-emption clause to allocate the entire increase in the market value of a lease purchased for a substantial premium to the benefit of the lessor rather than the lessee. The parties would not normally be expected to have intended such a result unless it was indicated by clear language.
In the present case, nothing indicated that, when purchasing the 99-year lease, the lessees would or could have intended anything other than that they should acquire a capital asset that could potentially appreciate in value for their benefit and the benefit of their estate. Moreover, the language of clause 3(10)(b), read as a whole, was not sufficiently clear to produce the unusual result for which the defendant contended.
Michael Bowmer (instructed by Stephens & Scown, of Exeter) appeared for the claimants; Martin Rodger QC (instructed by JSP Solicitors, of Lincoln) appeared for the defendant.
Eileen O’Grady, barrister
