Landlord and tenant — Rent review clause — Construction and effect — Lease for 20 years with five-yearly rent reviews — Material part of review clause provided for the disregard of any effect on rent of any improvement carried out by the tenants or any person deriving title under them otherwise than in pursuance of an obligation to the landlords — Two improvements, a back extension and a storage building, had in fact been carried out, not under the present lease, but under a previous lease between the same parties — By the time the present lease was executed these structures, which had not been erected under any obligation to the landlords or their predecessors in title, had become landlords’ fixtures — The question at issue was whether the effect on rent of these structures, erected as improvements before the present lease began, was to be disregarded — Held, following the decision of the Court of Appeal in Brett v Brett Essex Golf Club Ltd, that ‘improvements’ for the purpose of the rent review clause meant improvements to the demised premises — The structures here were not improvements to the demised premises; they were part of them — The Brett case was indistinguishable from the present case — Hambros Bank Executor & Trustee Co Ltd v Superdrug Stores Ltd, on which
The following
cases are referred to in this report.
Brett v Brett Essex Golf Club Ltd [1986] 1 EGLR 154; (1986) 278 EG
1476, CA
Hambros
Bank Executor & Trustee Co Ltd v Superdrug
Stores Ltd [1985] 1 EGLR 99; [1985] 274 EG 590
‘Wonderland’,
Cleethorpes, Re [1965] AC 58; [1963] 2 WLR 1426; [1963] 2 All ER 775, HL
This was an
originating summons by which the plaintiff landlords, Panther Shop Investments
Ltd, sought the court’s determination of the true construction of the part of a
rent review clause in a lease of premises at 7 Symes Avenue, Hartcliffe,
Bristol, which concerned the disregard of the effect on rent of improvements.
The defendants were the tenants of the premises, Keith Pople Ltd.
Mrs P M Lucas
(instructed by Lehrer Segal) appeared on behalf of the plaintiffs; Gordon
Bennett (instructed by Burges Salmon, of Bristol) represented the defendants.
Giving
judgment, MR JOHN MOWBRAY QC said: This originating summons raises questions
about the interpretation and effect of a rent review clause in a lease of 7 Symes
Avenue, Hartcliffe, Bristol. The lease is dated October 5 1979. It is a 20-year
lease with five-yearly rent reviews. The review clause is numbered 6. It
provides that if the rent for the next five years is not agreed it is to be
determined by an arbitrator, and I quote from clause 6:
disregarding:
(i) any effect on rent of the fact that the
Lessees or any person deriving title under them have been in occupation of the
demised premises;
(ii) any goodwill attached to the demised premises
since the commencement of the term hereby granted by reason of the carrying on
thereat of the business of the Lessees or of any person deriving title under
them; and
(iii) any effect on rent of any improvement carried
out by the Lessees or any person deriving title under them otherwise than in
pursuance of an obligation to the Lessors.
That is all I
need to read.
The parties to
the lease are the predecessor of the plaintiffs as landlord, and the defendant
company — I now read from the beginning of the lease:
hereinafter
called ‘the Lessees’ which expression shall, where the context so admits,
include their permitted assigns.
There had been
a previous lease between the same parties as the 1979 lease before me. During
the previous term the defendant company erected in 1960 a back extension, and
in 1966 a separate storage building beyond. This is referred to in the user
covenant, clause 2(9)(b), and the covenant against assignment, clause 2(18) of
the 1979 lease, as an existing part of the demised premises. It is common
ground that both erections were in existence when the 1979 lease was granted
and were by then landlord’s fixtures; also that they were erected by the
defendant company and not pursuant to any obligation to the then lessor, let
alone the present landlord.
In these
circumstances the question arises whether what I may perhaps call ‘disregard no
(iii)’ in the rent review clause requires the arbitrator to disregard buildings
erected before the lease began as an improvement within that disregard. Mrs
Lucas, for the present landlord plaintiffs, argued that the disregard does not
operate on those buildings; that would increase the rent on the review now
pending. Mr Bennett, for the tenant, argued the contrary.
I say at once
that in my view the buildings are not excluded from the valuation by disregard
(iii) because they are not improvements as the word is used in the clause. In
my view, this means improvements to the demised premises. These buildings were
not improvements to the demised premises; they were part of them.
That is the
ground on which the Court of Appeal recently decided in Brett v Brett
Essex Golf Club Ltd (1986) 278 EG 1476.*
I refer especially to the middle of the left-hand column on p 1483,
where Slade LJ, with whose judgment Croom-Johnson LJ and Sir John Megaw agreed,
said that in the clause before him ‘improvements’ must mean improvements to the
demised premises.
*Editor’s
note: See also [1986] 1 EGLR 154 at p 158 (H).
Mr Bennett for
the tenant argued that I should distinguish the Brett case because the clause
there was drafted by incorporating the three similar disregards in section 34
of the Landlord and Tenant Act 1954, and those in turn had to be interpreted
with regard to the whole of that Act, including the definition of ‘the holding’
in section 23. In the course of his able address, which lost nothing by its
concision but rather gained from it, he pointed out quite rightly that the
Court of Appeal in the Brett case relied on the speech of Lord Morris of
Borthy-Gest in the House of Lords in the ‘Wonderland’, Cleethorpes case
[1965] AC 58 at p 74. That was a case on section 34 of the Act as it then
stood, and Lord Morris referred to ‘the holding’. But as I understand Slade LJ,
he was not bringing into the interpretation of the lease any influence from
provisions of the Act which were not incorporated into it. At the top of p 1481
he said that the incorporated words should be construed in the context of the
lease, not the Act; and at p 1483 he said that the reference in the Act to ‘the
holding’ must be read in the lease as if it were a reference to the demised
premises.
In my view,
then, I can take the conclusion of Slade LJ about the meaning of ‘improvements’
in the lease before the Court of Appeal as directly helpful in interpreting the
same word in the lease before me. If I can add this without disrespect, I would
think without any such guidance that inherent in the meaning of the word
‘improvements’ in a lease is the sense of an alteration to the premises
demised, rather than an existing part of them. And putting the word ‘any’ in
front of it does not extend its meaning. Things that are not improvements are
not any kind of improvements.
Mr Bennett
relied strongly on Hambros Bank Executor & Trustee Co Ltd v Superdrug
Stores Ltd [1985] 1 EGLR 99, where Scott J held that shopfitting works
carried out by the tenant just before the lease was granted were an improvement
carried out by the tenant, required to be disregarded on any rent review. About
this case Slade LJ in Brett simply said that it was plainly distinguishable on
its facts. That is at the bottom of the left-hand column of (1986) 278 EG 1483†
. It is equally distinguishable here.
† Editor’s
note: See also [1986] 1 EGLR 154 at p 158 (L).
Scott J found
the approach of the landlord, in his case, to verge on the unconscionable. I
will not read the passages from his judgment, but they are both on p 101 of the
report, one in the lower part of the left-hand column and the other towards the
bottom of the right. There is nothing like that here, so Scott J’s decision
would fall to be distinguished on the facts in the present case. I notice, too,
that the argument about the meaning of ‘improvements’ does not seem to have
been addressed to Scott J. I think there may have been reasons of discretion
and tact for that.
In the present
case there is no such strong factual matrix as there was in Scott J’s. The
parties here may have agreed the starting rent on the footing that the
buildings were to be disregarded. I make no finding about that. But assuming
they did, it was only what the 1954 Act, as by then amended, required, and an
originating summons had been issued under the Act. The buildings were erected,
one 18 and the other 24 years, before the first review. The period under the
Act as now amended after which an improvement falls out of disregard is 21
years. For these reasons I am not applying the decision of Scott J.
I had better
end by entering my own disregard. I have read and considered the correspondence
of 1977 and 1978 which is exhibited to one of the affidavits before me, but I
say nothing more about the circumstances surrounding the grant of the 1979
lease. One reason is that I do not need to. The other is that I am anxious not
to say anything which might prejudge any proceedings to rectify the lease which
might be brought by the tenant, as mentioned in evidence. Nothing I have said
should be taken as reflecting one way or the other on the questions of
intention and so forth which might arise in such proceedings.
For the
reasons I have given I will make the two declarations sought in the originating
summons, subject only to any discussion there may be about the precise terms.
The judge
made a declaration that upon the true construction of the lease the
improvements in question did not fall to be disregarded for the purpose of the
rent review clause. The summons was transferred to Bristol District Registry
for the purpose of a counterclaim for rectification of the lease. Plaintiffs
were awarded costs, but the order was stayed upon the defendants’ undertaking
to pursue the counterclaim with all due diligence.
