Landlord and tenant — Construction of agreement — Agreement providing that tenancy to continue until demised land required by landlord for road widening — Whether notice to quit was effective to determine the tenancy notwithstanding that the land was not required for road-widening purposes — Appeal from decision of Millett J that valid notice to quit had been served allowed
agreement dated December 19 1930 the London County Council (‘the LCC’) as
landlord granted a term of land fronting 263-265 Walworth Road, London SE17, to
Samuel Nathan — The agreement represented the leaseback element following the
sale of the land by Mr Nathan to the LCC — By clause 6 of the agreement the
tenancy was to continue until the land was required by the LCC for road
widening — The reversion to the term devolved first to the Greater London
Council and then to the first defendants, the London Residuary Body (‘the LRB’)
— The term of the tenancy is now held by the plaintiff, the Prudential
Assurance Co Ltd — The second to fourth defendants are the purchasers of the
reversion from the LRB — The proposal to widen the Walworth Road has never been
carried into effect — In July 1988 the LRB sold the reversion to the agreement
to the second to fourth defendants following the service under section 25 of
the Landlord and Tenant Act 1954 of a notice purporting to determine the
tenancy on December 19 1988 — By reason of the London Electricity Board being
in possession, and not the plaintiff, the notice was accepted as not being
effective under section 25 but was capable of taking effect as a common law
notice to quit if such a notice could be given — In the court below Millett J
held that a valid notice to quit had been served determining the tenancy
agreement and that the second to fourth defendants were entitled to possession
— The plaintiff appealed
do with notices to quit, which are optional notices that a landlord can decide
whether or not to give; the clause refers to an obligatory notice where the
land was required by the LCC for their statutory road-widening purposes — The
effect of the agreement was to grant a tenancy for a term of uncertain duration
limited to terminate on the land being required for road-widening purposes —
The court was faced with conflicting authorities in Lace v Chantler
and Ashburn Anstalt v Arnold — Unless the case is one in which
the uncertain duration of the term can be controlled by both parties, as in the
Ashburn Anstalt case, Lace v Chantler continues to be
binding authority that a term of uncertain duration is bad for uncertainty as
to its maximum duration — However, Mr Nathan entered into occupation and he and
his successors paid rent — Mr Nathan became a tenant under a tenancy from year
to year on such of the terms of the agreement as were consistent with such a
tenancy — There is implied into a tenancy from year to year a term enabling
either party to terminate the tenancy by six months’ notice — Clause 6 was
inconsistent with the nature of a periodic tenancy — However, the fetter
imposed by clause 6 remained — It was not open to the LRB to serve the notice
determining the tenancy because the tenancy included an implied provision
that a notice to quit may not be served until the land is required for
road-widening purposes
The following
cases are referred to in this report.
Ashburn
Anstalt v Arnold (No 2) [1989] Ch 1; [1988]
2 WLR 706; [1988] 2 All 147; (1988) 55 P&CR 137; [1988] 1 EGLR 64; [1988]
23 EG 128, CA
Doe d
Rigge v Bell (1793) 5 Term Rep 471
Lace v Chantler [1944] KB 368
Midland
Railway Co’s Agreement, Re: Clay (Charles) & Sons Ltd v British Railways Board [1971] Ch 725; [1971] 2 WLR 625;
[1971] 1 All ER 1007; (1971) 22 P&CR 360, CA
This was an
appeal by Prudential Assurance Co Ltd against a decision of Millett J given on
January 16 1991 ([1991] 1 EGLR 90; [1991] 25 EG 120) relating to a number of
questions on the true construction and effect of a memorandum of agreement
relating to land fronting 263-265 Walworth Road, London SE17. The appellant was
the tenant of the land the reversion to which had been transferred from the
first respondents, the London Residuary Body, to the second, third and fourth
respondents, Barron Investments Ltd, Alan Moss Bayes and Joan Estelle Bayes.
David
Neuberger QC and Paul de la Piquerie (instructed by the solicitor to the
Prudential Corporation plc, holding company for Prudential Assurance Co Ltd)
appeared for the appellant; and Robert Reid QC and Stephen Lloyd (instructed by
Clifford Watts Compton, for the second to fourth respondents) represented the
respondents; the first respondents did not appear and were not represented.
Giving the
first judgment at the invitation of Parker LJ, SCOTT LJ said: This is an
appeal from the judgment of Millett J, given on January 16 1991. The case
raises a short but, in my opinion, difficult point regarding the effect of a
tenancy agreement dated December 19 1930.
The parties to
the agreement were the London County Council (‘the LCC’), as landlord, and a Mr
Samuel Nathan, as tenant. The land comprised in the agreement was a small strip
of land fronting 263-265 Walworth Road. The circumstances leading up to the
agreement and constituting the factual matrix in the context of which the
agreement must be construed are described by Millett J in his judgment*:
It appears
that immediately prior to December 19 1930 Mr Nathan owned land fronting the
Walworth Road and wished to redevelop the site, or part of it, by putting up a building
upon it. The LCC, being the highway authority, contemplated the possible
widening of Walworth Road and accordingly, on December 19 1930, acquired part
of Mr Nathan’s land, consisting of the frontage of the premises to the Walworth
Road, and on December 30 1930 leased it back to Mr Nathan, together with a
right to put up a temporary building upon it . . . it appears from the internal
evidence of the document itself that the intention was that Mr Nathan should
have the right to put up a temporary building on the frontage and to occupy it
until such time as the LCC should determine to proceed with their proposal to
widen the Walworth Road, whereupon he would have to give up possession. The new
and permanent building which he intended to erect behind the temporary one
would then have a frontage to the widened Walworth Road.
It is not in
evidence whether similar transactions were entered into with adjoining premises
on either side of the subject premises or further along Walworth Road.
*Editor’s
note: Reported at [1991] 1 EGLR 90 at p 90M.
The two
critical clauses of the agreement are clauses 1 and 6. But they are, of course,
to be construed in the context of the agreement as a whole.
The agreement
provided, so far as relevant, as follows:
1. The
Council hereby let to the Tenant and the Tenant takes from the Council the land
(hereinafter called ‘the said Land’) described in the Schedule hereto from 19th
December 1930 at the rent of £30 per annum payable quarterly on the usual
quarter days until the tenancy shall be determined as hereafter provided the
first payment calculated from the date thereof to be made on the 25th day of
March next and the last payment if need be to be apportioned up to the date of
determination of the tenancy.
2. On the
rebuilding by the Tenant of the premises nos 263 and 265 Walworth Road behind
the line of widening of that road the Council will afford to the Tenant all
facilities for the erection (subject to the provisions of the London Building
Acts and the by-laws and regulations made thereunder) on the said land of
temporary one storey shops or buildings of one storey and for the retention of
such shops or buildings as temporary structures until the Tenant shall be
required to give to the Council vacant possession of such land as hereinafter
provided.
4. The Tenant
agrees to keep the said one storey shops or buildings and the fixtures and
fittings therein in good and tenantable repair during the tenancy reasonable
wear and tear and damage by fire not due to the act default or negligence of
the tenant excepted and at the termination of the tenancy as hereinafter
provided to deliver to the Council vacant possession of the said land and to
leave such land cleared to ground level to the satisfaction of the Council.
6. The
tenancy shall continue until the said Land is required by the Council for the
purposes of the widening of Walworth Road and the street paving works rendered
necessary thereby and the Council shall give two months’ notice to the Tenant
at least prior to the day of determination when the said Land is so required
and thereupon the Tenant shall give vacant possession to the Council of the
said Land as hereinbefore provided.
7. The Tenant
shall (subject to Clause 6 hereof) in the event of holding possession of the
said Land after the determination of the tenancy or failing to clear all
materials as provided by Clause 4 hereof forfeit and pay to the Council as
liquidated and ascertained damages the sum of ten pounds for every day
possession shall be held or such material shall remain and such sum shall be
recoverable by the Council either as rent in arrear or as a debt due from the
Tenant but this condition shall not prejudice any right the Council would otherwise
have to recover or take possession of the premises.
8. The
Council may re-enter upon the said land and determine the tenancy on
non-payment of rent for fourteen days whether legally demanded or not or on
breach by the Tenant of any of the terms of this Agreement.
9. The
Council shall at its own expense when vacant possession of the said land is
given to the Council as hereinbefore provided execute all road making and
paving works but shall not be called upon to bear any part of the cost of
clearing the said land to ground level.
10. Before
any building or rebuilding on the land belonging to the Tenant and adjoining
the said land is commenced the Tenant shall give seven clear days’ notice in
writing to the valuer for the time being of the Council so that the line of
widening may be set out and agreed and the tenant shall also give to the said
valuer notice when the new building has reached pavement level.
The schedule
to the agreement described the land as ‘ALL THAT piece or plot of land situate
on the east side of Walworth Road and being part of nos 263 and 265 Walworth
Road . . . as is more particularly delineated and shown by red colour on the
plan annexed hereto’. The plan shows a line marking the eastern boundary of the
proposed widened road. The line constitutes the eastern boundary of the land
comprised in the agreement.
As is apparent
from the passage in Millett J’s judgment which I have read, the tenancy
agreement represented the leaseback element of a composite sale-and-leaseback
arrangement. The sale of the land by Mr Nathan to the LCC was, it seems,
completed on December 19 1930. It appears from the Proprietorship Register at
HM Land Registry that the LCC was registered as proprietor of the land on
January 29 1931 and that the price paid to Mr Nathan was £2,750.
I can take the
subsequent history of the land from the judgment of the learned judge*:
The interest
granted to the tenant by [the agreement] has become vested in the plaintiff,
the Prudential Assurance Co Ltd, and in 1975 it sublet the premises subject to
the memorandum of agreement, together with the freehold land behind it, to the
London Electricity Board, which is still in occupation, at a substantial rent.
The proposal
to widen the Walworth Road was never carried into effect and must, I apprehend,
have been abandoned many years ago. In the course of time the LCC’s rights and
obligations became vested in their successor body, the Greater London Council,
and a further statutory vesting occurred on the dissolution of the Greater
London Council when its property, rights and interests were vested in the first
defendant, the London Residuary Body. The LCC had, rightly or wrongly,
conceived that it was not open to them to review the rent of £30 a year for the
subject premises, which was fixed in 1930, or to determine the tenant’s
interest thereunder. The LCC and their successor, the GLC, were each the
highway authority. The London Residuary Body, however, is not a highway
authority. After taking advice they concluded that they could deal with the
reversion on the footing that the interest created by the memorandum of
agreement was terminable. Accordingly, on July 21 1988 the London Residuary
Body sold the subject land to the second, third and fourth defendants, and the
land was transferred to them by a transfer dated August 25 1988. Since that
date the reversionary interest expectant on the determination of the interest
created by the memorandum of agreement has been vested in the second, third and
fourth defendants, and of course, ever since it became vested in the London
Residuary Body it has been vested in a party other than a highway authority.
. . . Prior
to the auction sale, the London Residuary Body purported to serve a notice
under section 25 of the Landlord and Tenant Act 1954 determining the interest
on December 19 1988. The notice was served on March 31 1988. It would have been
a perfectly good notice if Part II of the Landlord and Tenant Act 1954 applied
to the interest. However, since the plaintiff had sublet the whole of the land
to the London Electricity Board and was not in possession of any part of it, it
is plain that the land was not within
that the notice was not effective as a section 25 notice . . .
It is also
common ground that the section 25 notice is capable of taking effect as a
common law notice to quit and was apt to terminate an ordinary yearly tenancy
if such a notice could be given by the London Residuary Body.
*Editor’s
note: Reported at [1991] 1 EGLR 90 at p 91C.
The issue in
this case is whether the section 25 notice, treated as a common law notice to
quit, was effective to determine the tenancy created under, or as a result of,
the agreement of December 19 1930.
The plaintiff,
the appellant before us and the tenant under the agreement, is the Prudential
Assurance Co Ltd. It relies on clause 6 of the agreement under which the
tenancy was expressed to continue ‘until the said Land is required by the
Council for the purposes of the widening of Walworth Road . . .’ etc. It is
common ground that the event contemplated, namely the land being required for
road-widening purposes, has not happened. So the tenancy continues.
The effective
defendants, the respondents before us, are the purchasers of the property from
the London Residuary Body. Their answer to the plaintiff’s simple reliance on
clause 6 of the agreement is a complex one.
First, it is
contended that the agreement purported to create a tenancy for a fixed term of
uncertain duration. If it did, it is submitted that the agreement cannot take
effect as a grant of that tenancy. Lace v Chantler [1944] KB 368,
where the grant of a tenancy ‘for the duration of the war’ was held bad, is
relied on.
Second, it is
contended that since Mr Nathan entered into occupation as tenant under the
December 19 1930 agreement and paid rent at the rate of £30 pa he must, if the
agreement cannot take effect as a grant for the period provided for by clause
6, be treated as holding under a periodic yearly tenancy on so much of the
terms of the agreement as are applicable to such a tenancy.
Third, it is
contended that in so far as clause 6 restricts the respective ability of the
landlord and the tenant to determine the tenancy by notice to quit, the
restriction is repugnant to the inherent nature of a periodic yearly tenancy
and is void.
Fourth, it is
contended, as an alternative to the repugnancy point, that the restrictions
imposed by clause 6 on the landlord’s right to serve a notice determining the
tenancy cannot, as a matter of construction, or alternatively implied term,
survive the transmission of the reversion to a landlord that is not the highway
authority.
On these
contentions the learned judge concluded, first, that the agreement properly
construed granted the tenant a periodic yearly tenancy and not a tenancy for a
fixed but uncertain term. He held, second, that clause 6 imposed a restriction
on the landlord’s right to serve a notice to quit terminating the periodic
tenancy, but that the restriction was not repugnant to the nature of a yearly
tenancy and was valid. He relied on and applied Re Midland Railway Co’s
Agreement [1971] Ch 725 and Ashburn Anstalt v Arnold [1989]
Ch 1*, both Court of Appeal decisions. He held also that the agreement placed
no fetter on the right of the tenant to terminate the yearly tenancy by a
notice to quit. But, finally, the learned judge held that the clause 6
restriction on the landlord’s right to serve a notice terminating the yearly
tenancy fell away once the landlord and the highway authority were different
bodies. When that state of affairs arose, clause 6, he held, ceased to have any
effect. So the defendants succeeded below. The learned judge upheld the notice
to quit that had been served by the London Residuary Body.
*Editor’s
note: Also reported at [1988] 1 EGLR 64.
In considering
the various matters that have been argued before us, the starting point must,
in my opinion, be the nature of the tenancy brought into being by, or as a
result of, the agreement of December 19 1930.
The learned
judge concluded, as I have said, that, properly construed, the agreement
granted a periodic yearly tenancy. I do not agree with that conclusion. Clause
1 of the agreement specified the date of commencement of the tenancy, December
19 1930, but not the date of termination. The letting was to continue ‘until
the tenancy shall be determined as hereafter provided’. Clause 6 contained the
termination provisions and can, for construction purposes, be broken down into
two parts. First, clause 6 provided that the tenancy ‘shall continue until the
said Land is required by the Council for the purposes of the widening of
Walworth Road . . .’. Second, clause 6 provided that ‘the Council shall give
two months’ notice to the Tenant at least prior to the day of determination
when the said land is so required . . .’. The first of these provides, in my
judgment, the intended termination date of the tenancy. The second imposes on
the council the obligation of giving two months’ prior notice of the day when
the land is so required, ie two months’ prior notice of the day when the
tenancy will come to an end.
The learned
judge construed clause 6 as modifying the landlord’s right to serve a notice to
quit. In my opinion, however, clause 6 is nothing to do with notices to quit.
Notices to quit are optional notices that the landlord can decide whether or
not to give. The notice which clause 6 is contemplating is not an optional
notice. The landlord is obliged to give the notice — ‘the Council shall give .
. .’ is the language used. Clause 6 was, in my opinion, dealing with the
duration of the tenancy. Once the land was required by the council for their
statutory road-widening purposes, the tenancy was to come to an end. But, as a
matter of machinery, the council were placed under the obligation of giving the
tenant two months’ prior notice specifying, in effect, the day when the land
would be so required.
This
construction of clause 6 is consistent with the absence of any mention in the
clause, or anywhere else in the agreement for that matter, of notices to be
served by the tenant terminating the tenancy. If the clause, properly
construed, is dealing with the termination of a tenancy granted for a term of
uncertain duration, there is no room for notices to quit. If, on the other
hand, the tenancy was a periodic yearly tenancy, one would expect to find that
the tenant could terminate the tenancy by a notice to quit. The learned judge
thought that a provision to that effect could be implied. But an implied term
enabling the tenant to serve a notice to quit would contradict the express
terms of clause 6 — ‘The tenancy shall continue . . .’ etc. A term cannot be
implied into a contract if it would contradict an express term of the contract:
see Chitty on Contracts 26th ed p 557. The judge’s approach was to
conclude from clause I that a periodic tenancy was granted and then to hold
that a right for the tenant to serve a notice to quit must be treated as
included notwithstanding clause 6. In my respectful opinion, this approach puts
the cart before the horse. I think one should read clauses 1 and 6 in the
context of the whole agreement and ask whether the clauses taken together are
more consistent with an intention to grant a tenancy for a term, albeit one of
uncertain duration, or to grant a periodic yearly tenancy. If that approach is
adopted, I do not, I confess, see how any conclusion is possible other than
that clauses 1 and 6 purported to grant a tenancy for a term of uncertain
duration.
The next
question is whether the grant of a tenancy for a term limited to terminate on
the land being required by the council for road-widening purposes is a grant
that the law will recognise. There are three Court of Appeal authorities to
which I should at this point refer.
The first is Lace
v Chantler, to which I have already referred. The case concerned the
letting of a dwelling-house at a rent of 16s 5d a week. In the rent book it was
stated, in effect although not in terms, that the tenancy was to continue for
the duration of the war. A notice to quit was served by the landlord before the
war had come to an end. The question was whether that notice was valid. The
Court of Appeal held that the grant of a tenancy for the duration of the war
was bad. But since the tenant was in occupation and paying rent on a weekly
basis he was a weekly tenant and so the notice to quit was good.
At p 370 Lord Greene
MR, with whose judgment MacKinnon LJ and Luxmoore LJ agreed, said:
The question
immediately arises whether a tenancy for the duration of the war creates a good
leasehold interest. In my opinion, it does not. A term created by a leasehold
tenancy agreement must be expressed either with certainty and specifically or
by reference to something which can, at the time when the lease takes effect,
be looked to as a certain ascertainment of what the term is meant to be. In the
present case, when this tenancy agreement took effect, the term was completely
uncertain. It was impossible to say how long the tenancy would last. Mr Sturge
in his argument has maintained that such a lease would be valid, and that, even
if the term is uncertain at its beginning when the lease takes effect, the fact
that at some future time it will be rendered certain is sufficient to make it a
good lease. In my opinion, that argument is not to be sustained.
I do not
propose to go into the authorities on the matter, but in Foa’s Landlord and
Tenant, 6th ed, p 115, the law is stated in this way, and, in my view,
correctly: ‘The habendum in a lease must point out the period during which the
enjoyment of the premises is to be had; so that the duration, as well as the
commencement of the term, must be stated. The certainty of a lease as to its
continuance must be ascertainable either by the express limitation of the
parties at the time the lease is made, or by reference to some collateral act
which may, with equal certainty, measure the continuance of it otherwise it is
void. If the term be fixed by reference to some collateral matter, such matter
must either be itself certain (eg a demise to hold for ‘as many years as A has
in the manor of B’) or capable before the lease takes effect of being rendered
so (eg for ‘as many years as C shall name’). The important words to observe in
that last phrase are the words ‘before the lease takes effect’. Then it goes
on: ‘Consequently, a lease to endure for ‘as many years as A shall live’ or ‘as
the coverture between B and C shall continue’, would not be good as a lease for
years, although the same results may be achieved in another way by making the
demise for a fixed number (ninety-nine for instance) of years determinable upon
A’s death, or the dissolution of the coverture between B and C.’ In the present case, in my opinion, this
agreement cannot take effect as a good tenancy for duration of the war.
The authority
of Lace v Chantler seems to me to make inescapable the conclusion
that a grant of a tenancy to continue until the land is required for
road-widening purposes cannot take effect as a good grant.
But Mr
Neuberger QC submitted that later Court of Appeal decisions required a
different conclusion.
In Re
Midland Railway Co’s Agreement there was an express grant of a periodic
tenancy from half-year to half-year. Clause 2 of the agreement provided, so far
as relevant, as follows:
The agreement
may be determined by either party on giving to the other three months’ notice,
such notice to be in writing and to expire at any time thereafter without
reference to the commencement of the tenancy . . . Provided that this agreement
shall not be so terminated by the company [the Midland Railway Co] until they
shall require the said premises for the purposes of their undertaking.
British
Railways Board, the successor in title to the original landlord, purported to
terminate the tenancy by serving a notice to quit. They did not require the
land for the purposes of their undertaking.
Two points
were relied on by the board. They contended that the proviso to clause 2
conflicted with the principle that for a tenancy to be valid there must be
certainty as to the maximum duration of the estate. Alternatively, they
contended that the proviso, being a fetter for a period of uncertain and
potentially unlimited duration on the landlord’s right to terminate the
periodic tenancy, was repugnant to the nature of the periodic tenancy and must
be rejected. The Court of Appeal held, on the first point, that the principle
regarding terms of uncertain duration that was applied in Lace v Chantler
did not apply to periodic tenancies.
At p 732D
Russell LJ (as he then was), giving the judgment of the court, said:
Now it
appears to us that that decision is confined to a case in which that which was
purported to be done was simply to create a leasehold interest for a single and
uncertain period. The applicability of this matter of certainty to a periodic
tenancy was not under consideration. If Lace v Chantler had been
a case in which there was simply a periodic tenancy with a proviso that the
landlord would not give notice during the continuance of the war, this court
might not have concluded that such an agreement, which would of course have
left the tenant free to determine on notice at any time, was inoperative to
create a leasehold. There is nothing in the reasoning of the judgments to lead
to the necessary conclusion that such must have been so.
If you have
an ordinary case of a periodic tenancy (for example, a yearly tenancy), it is
plain that in one sense at least it is uncertain at the outset what will be the
maximum duration of the term created, which term grows year by year as a single
term springing from the original grant. It cannot be predicated that in no
circumstances will it exceed, for example, 50 years; there is no previously
ascertained maximum duration for the term; its duration will depend upon the
time that will elapse before either party gives notice of determination. The
simple statement of the law that the maximum duration of a term must be
certainly known in advance of its taking effect cannot therefore have direct
reference to periodic tenancies.
He declined to
extend the uncertainty of term principle to periodic tenancies. He said, at p
733C:
. . . we are
persuaded that, there being no authority to prevent us, it is preferable as a
matter of justice to hold parties to their clearly expressed bargain rather
than to introduce for the first time in 1971 an extension of a doctrine of land
law so as to deny the efficacy of that bargain.
He then turned
to the second point, the repugnancy point, and said at p 733F:
Our instinct,
as previously indicated, is to give effect if possible to the bargain made by
the parties. It may well be that if in a periodic tenancy an attempt was made
to prevent the lessor ever determining the tenancy, that would be so
inconsistent with the stated bargain that either a greater estate must be found
to have been constituted or the attempt must be rejected as repugnant. But short
of that we see no reason why an express curb on the power to determine which
the common law would confer upon the lessor should be rejected as repugnant to
the nature of the leasehold interest granted. In Breams Property Investment
Co Ltd v Stroulger [1948] 2 KB 1, a curb on the lessors for three
years unless they required the premises for their own use was upheld in this
court, notwithstanding the earlier cases of Warner v Browne
(1807) 8 East 165 and Cheshire Lines Committee v Lewis & Co
(1880) 50 LJ QB 121. It follows that in a periodic tenancy a similar curb for
10, 20 or 50 years should not be rejected as repugnant to the concept of a
periodic tenancy: and once the argument based on uncertainty is rejected we see
no distinction in the present case.
Russell LJ
ended his judgment with the following reservation: ‘We say nothing as to the
situation which might arise in law should the defendants sell the reversion to
another, when it might be arguable that the proviso would be no longer
relevant.’
The Midland
Railway Co’s case is authority for two propositions. First, the uncertainty
of term principle that was applied in Lace v Chantler does not
apply to periodic tenancies. Second, a fetter in a periodic tenancy of the
right of one or other party to serve a notice determining the tenancy is not to
be rejected as repugnant to the nature of the periodic tenancy if the fetter
falls short of preventing the party from ever determining the tenancy. The fact
that the fetter is of uncertain and of potentially unlimited duration is not
enough for it to be rejected on the ground of repugnancy. These propositions
are, in my opinion, binding on us. If they are unsatisfactory or are wrong, the
correction must come from the House of Lords or from Parliament.
Finally, there
is Ashburn Anstalt v Arnold. That case concerned an agreement for
the sale of a lease. The agreement dated February 28 1973 provided under clause
5 that:
From and
after completion Arnold & Co [the purchaser] shall be at liberty to remain
at the property as licensee . . . until 29th September 1973 without payment of
rent or any other fee to Matlodge Ltd [the vendor] save that Arnold & Co
shall pay all outgoings as long as it is in occupation of the property. From
and after 29th September 1973 Arnold & Co shall be entitled as licensee to
remain at the property . . . on the like terms save that it can be required by
Matlodge Ltd to give possession on not less than one quarter’s notice in
writing upon Matlodge Ltd certifying that it is ready at the expiration of such
notice forthwith to proceed with the development of the property . . .
involving, inter alia, the demolition of the property.
Ashburn
Anstalt was the successor in title of Matlodge Ltd to the freehold and in
October 1985 served on Arnold & Co a notice to quit. The issue for decision
was whether the 1973 agreement under which Arnold & Co remained in
occupation was binding upon Ashburn Anstalt. The judgment of the court was
given by Fox LJ and he dealt first with the question whether Arnold & Co
was a mere licensee or a leaseholder. He referred to the authorities and
concluded that the reservation of a rent was not necessary for the creation of
a tenancy. He then said at p 10:
There remains
the question of the existence of a term. It is the plaintiff’s case that clause
5 created no term sufficiently identifiable to be capable of recognition by the
law and that no tenancy was created. For that, the plaintiff relies on Lace
v Chantler . . .
Fox LJ cited
the passage from Lord Greene’s judgment which I have cited, and commented that:
The ambit of
the decision in Lace v Chantler was limited by the further
decision of this court in Re Midland Railway Co’s Agreement
and gave his
attention to that case. He then, after citing passages from the judgment of
Russell LJ, said at p 11:
So far as Lace
v Chantler is concerned, the present case, it seems to us, is
distinguishable. In Lace v Chantler the duration of the war could
not be predicted and there was no provision for either party to bring the
tenancy to an end before the war ended and that event might be very hard to
pinpoint. In the present case the arrangement, so far as Matlodge was
concerned, would continue until Matlodge determined it by giving not less than
a quarter’s notice upon Matlodge giving the required certificate. The event
entitling Matlodge to give the certificate might not, of course, occur. But the
same applies to the qualifying event for the giving of the landlord’s notice in
the Midland Railway Co’s Agreement.
Fox LJ then noted
that Arnold & Co were free under the terms of clause 5 of the agreement to
bring the arrangement to an end and continued at p 12:
The result,
in our opinion, is that the arrangement could be brought to an end by both
parties in circumstances which are free from uncertainty in the sense that
there would be no doubt whether the determining event had happened. The vice of
uncertainty in relation to the duration of a term is that the parties do not
know where they stand. Put another way the court does not know what to enforce.
That is not the position here. It seems to us, therefore, that as in the Midland
Railway Co’s Agreement there is no reason why the court should not hold the
parties to their agreement. That is so even though the tenancy is (or may not
be) an ordinary periodic tenancy. The rights of the parties are no more subject
to uncertainty than those in the Midland Railway case. We do not see why
the mere absence of a formula referring to a periodic tenancy or occupancy
should alter the position.
I have cited
extensively from the Ashburn Anstalt case for two
provisions in clause 6 of the agreement in the present case are
indistinguishable from the termination provisions in clause 5 of the Ashburn
Anstalt case; second, because I find very great difficulty in following how
the conclusions in the Ashburn Anstalt case can be reconciled with Lace
v Chantler, an authority binding on the court in Ashburn Anstalt
as on us.
The uncertainty
that Lord Greene regarded as fatal in Lace v Chantler was an
uncertainty as to the maximum duration of a term. His citation from Foa’s
Landlord and Tenant makes that clear. Thus a grant for a term to continue
until Britain wins the Davis Cup would be bad. But there would be nothing the
matter with a grant for 99 years terminable if within that period Britain wins
the Davis Cup. This principle of law was applied by Lord Greene in Lace
v Chantler and was recognised by Russell LJ in the Midland Railway
Co’s case: see pp 731A to 732B. But in the Midland Railway Co’s case
it was held that the principle did not apply to periodic tenancies.
In the Ashburn
Anstalt case it was held that clause 5 of the agreement in question
produced a tenancy and not merely a licence. It is difficult to see how the
tenancy could have been a periodic tenancy. It is true, as Fox LJ noted, that a
term of years need not be accompanied by a reservation of rent. It is, however,
very difficult to conceive of a periodic tenancy without a reservation of rent.
Even if such an interest could be created by express words, there were no words
in clause 5 that could have been treated as creating a periodic tenancy. The
right of occupancy was simply to continue until terminated in the manner and on
the event specified in the clause. Under clause 5 the right of occupancy was,
in effect, to continue until two events occurred. First, Matlodge had to
certify that it was ready to proceed with the development of the property;
second, Matlodge had to serve a quarter’s notice in writing. The term would not
come to an end until both these events had happened. Fox LJ recognised (at p
11H) that the first might never happen. The fact that the parties would know
whether the second event had or had not happened could not, I would have
thought, remedy the inherent uncertainty of duration of a term that depended
upon both events happening. And while the Midland Railway Co’s case was
authority for the proposition that an uncertainty as to when a party to a
periodic tenancy could serve a notice terminating the tenancy was not fatal to
the efficacy of the provision creating that uncertainty, the case could not, in
view of Lace v Chantler, be treated as authority, except in
periodic tenancy cases, for the proposition that an uncertainty as to the
maximum duration of a term was acceptable. The answer, I would respectfully
have thought, to the question posed by Fox LJ in the last sentence of the
passage from his judgment which I have cited is that, in the absence of a periodic
tenancy, the principle recognised and applied in Lace v Chantler
strikes down the uncertain term.
We are, in my
opinion, faced with conflicting authorities in Lace v Chantler
and the Ashburn Anstalt case. Both bind us. I have already commented
that I can see no solid ground of distinction between the present case and Lace
v Chantler. In both, the maximum duration of the tenancy purported to be
granted was uncertain. In neither was a periodic tenancy granted. Is there a
valid ground of distinction between the present case and the Ashburn Anstalt
case? I think there is, although I do
not pretend to find it very satisfactory. In clause 5 of the Ashburn Anstalt
agreement the tenancy (as the court found there to be) was expressed to be
terminable ‘on not less than one quarter’s notice upon Matlodge certifying that
it is ready at the expiration of such notice forthwith to proceed with the
development . . .’ etc. This double event could be brought about or not brought
about by Matlodge as it might choose. It need consult no interests but its own.
If it wanted to get rid of the tenant (as the court found Arnold & Co to
be) it could prepare to proceed with the development, certify accordingly and
serve the quarter’s notice on the tenant. Or it could choose to leave the
tenant and the tenancy in place. Clause 6 of the December 19 1930 agreement in
the present case does not permit the termination of the tenancy to be subject
to the will of the landlord in the same way. The tenancy is to continue until
the land is required by the council for road-widening purposes. Whether the
land is or is not so required and the time at which it is so required are
matters which depend upon the proper performance by the council of their
statutory duties as highway authority. The arrival of ‘the day of
determination’ cannot be governed and controlled by the council simply
according to their private interests and wishes. I repeat what I have already
said regarding the second part of clause 6. The service by the council of the
two months’ prior notice is a matter of obligation — ‘shall give . . .’ — and
not a matter of choice.
In Lace
v Chantler the bringing to the end of the uncertainty of duration of the
term was not within the control of either landlord or tenant. In the Ashburn
Anstalt case the tenancy, as it was held to be, could have been brought to
an end by the tenant at any time and could have been brought to an end by the
landlord upon the occurrence of an event that it was within the power of the
landlord to control. In the present case, the tenancy granted by clauses 1 and
6 of the agreement could not, on my construction, have been brought to an end
by the tenant (it is not to the point that the tenant would be unlikely to want
to do so) and, upon the occurrence of an event over which the landlord had, qua
landlord, no control, would come to an end whether or not the landlord so
wished.
In my
judgment, the present case is governed by the authority of Lace v Chantler.
Unless the case is one in which the uncertain duration of the term can be
controlled by both parties, as in the Ashburn Anstalt case, Lace
v Chantler continues, in my opinion, to be a binding authority.
For the
reasons I have given I conclude that the tenancy purported to be granted by
clauses 1 and 6 of the agreement is bad for uncertainty as to its maximum
duration.
Mr Nathan
entered into occupation as tenant under the terms of the agreement. He and his
successors have paid the rent required by the agreement. The rent has been
accepted by the successive landlords. In these circumstances it is accepted
that, the tenancy which the agreement purported to grant being bad, Mr Nathan
became a tenant under a tenancy from year to year on such of the terms of the
agreement as were consistent with such a tenancy: see Doe d Rigge v Bell
(1793) 5 Term Rep 471 where Lord Kenyon CJ said:
Though the
agreement be void by the Statute of Frauds as to the duration of the lease, it
must regulate the terms on which the tenancy subsists in other respects as to
the rent, the time of the year when the tenant is to quit etc.
In the
ordinary way, if the parties have not agreed, expressly or impliedly, anything
to the contrary, there will be implied into a tenancy from year to year a term
enabling either party to terminate the tenancy by six months’ notice expiring
at the end of a year of the tenancy. Mr Reid submits that such a term should be
implied into the tenancy from year to year to which Mr Nathan became entitled.
If that is right then the notice to quit served by the LRB was valid.
Mr Neuberger,
on the other hand, contends that the substance of clause 6, or so much thereof
as is consistent with a tenancy from year to year, should be implied as a
fetter on the right of the landlord to serve notice terminating the tenancy. He
submits that a fetter preventing the landlord from serving a notice to quit
until such time as the land is required by the highway authority for
road-widening purposes should be an implied term of the tenancy from year to
year.
In my
judgment, the approach to what terms should or should not be implied into the
tenancy from year to year is no different from the approach to what terms
should be implied into contracts generally. The tenancy from year to year is
implied by law from the circumstances that the tenant has entered into
occupation and paid rent under an agreement for a tenancy that the law will not
recognise. But the law does not, in my judgment, presume to add to the tenancy
terms to which the parties would never at the time have agreed or to prevent
the addition to the tenancy of terms to which, if the parties had directed
their minds to the matter, they would plainly have agreed.
The approach
to what should or should not be implied must be an objective one. The
intentions of the parties must be objectively ascertained from the words that
they have used and the surrounding circumstances. In Chitty on Contracts,
26th ed p 554 the test is stated thus:
The court
will be prepared to imply a term if there arises from the language of the
contract itself, and the circumstances under which it is entered into, an
inference that the parties must have intended the stipulation in question. An
implication of this nature may be made in two situations: first, where it is
necessary to give business efficacy to the contract, and secondly, where the
term implied represents the obvious, but unexpressed, intention of the parties.
These two criteria overlap and, in many cases, have been applied cumulatively.
Both, however, depend upon the presumed intention of the parties.
That passage
from Chitty, in my opinion, succinctly and correctly expresses the
approach that should be adopted in considering what terms should be implied
into Mr Nathan’s tenancy from year to year.
Clause 6 of
the agreement of December 19 1930 cannot, as it stands, be treated as a term of
the tenancy from year to year. It is, in my opinion, inconsistent with the
nature of a periodic tenancy in that it precludes both the landlord and the
tenant from terminating the tenancy by notice to quit. If the parties, the LCC
and Mr Nathan, had been asked in December 1990 whether Mr Nathan should be free
to terminate the tenancy by an ordinary six months’ notice to quit, they would
have been astonished by the question but would, I am sure, have answered that
if he wanted to do so, of course he could. But if the parties had been asked
whether it should be open to the landlord to terminate the tenancy by a six
months’ notice to quit, they would have been equally astonished but would, in
my opinion, at once have replied that the landlord could do no such thing. If
asked in what circumstances, if at all, the landlord should be able to serve a
notice to quit, the obvious answer they would have given would have been that
the landlord could serve notice to quit if the land were required for road-widening
purposes.
The background
to the December 19 1930 agreement as well as its actual terms make it certain,
in my opinion, that these are the answers that would have been given. Prior to
the sale-and-leaseback transaction, Mr Nathan had owned a commercial site with
a frontage to Walworth Road. The LCC, the highway authority, was contemplating
the widening of Walworth Road. To facilitate its arrangements in that regard it
agreed with Mr Nathan to purchase from him the strip of his land that it would
need for the road widening but to lease the land back to him until the land
should be required for that purpose. The LCC would have been astonished and Mr
Nathan would have been horrified by the suggestion that the LCC or a successor
in title could serve notice on Mr Nathan terminating his tenancy, depriving his
site of its road frontage and leaving access to the site to be obtained only by
means of a back alley. Clause 6 of the agreement shows the intention of the
parties that Mr Nathan should not have to give up his tenancy until the land
was required for the widening of Walworth Road. The implied tenancy from year
to year should, in my judgment, incorporate a corresponding fetter on the right
of the landlord to terminate that tenancy.
The Re
Midland Railway Co’s case is authority, binding on us, for the proposition
that the fetter to which I have referred would not be repugnant to the inherent
nature of a periodic tenancy and would be valid.
The parties
did not contemplate in December 1930 that the time might come when the landlord
under the tenancy was not the highway authority. Otherwise they would in the
agreement have catered for that contingency. If they had been asked what, in
that event, the position would be, their answer would, in my opinion, have been
that the fetter would continue to bind the successor landlord until the land
should be required by the highway authority for road-widening purposes.
Accordingly, I
would treat the tenancy from year to year as incorporating an implied term that
the tenancy would be determinable by a six months’ tenant’s notice to quit
expiring at the end of a year of the tenancy or by a two months’ landlord’s
notice to quit in the event that the land was required by the highway authority
for the road-widening purposes described in clause 6.
The learned
judge, who, as I have said, treated the agreement as granting a tenancy from
year to year and treated clause 6 as a contractual fetter on the power of the
LCC to serve a notice to quit determining the tenancy, concluded that the
clause 6 fetter was limited to the period during which the landlord and highway
authority were one and the same. I think this conclusion must have been reached
via an implied term route rather than as a matter of construction of the actual
language of clause 6, but, whichever the route, I would respectfully dissent
from the conclusion. I think the ‘obvious but unexpressed’ intention of the
parties, in the event that the landlord and highway authority were no longer
one and the same, would have been that the fetter could continue until the
highway authority required the land for the road-widening purposes.
A final
question debated before us has been whether the event, on which the landlord’s
right to serve a notice to quit depends, ie the land being required for
road-widening purposes, can never now happen and, if it can never happen, what
is the effect on that state of affairs?
If the event
can never happen, the fetter becomes not simply of uncertain duration, which
the court in the Re Midland Railway Co’s case held did not matter, but
absolute. As at present advised, I think that at that point the fetter would
become repugnant to the nature of the periodic tenancy and would cease to be
effective. I can see no objection in principle to a fetter being initially
valid but becoming, by subsequent events, repugnant and ineffective. But this
point need not be finally decided in the present case because there is no
evidence that justifies the conclusion that the land will never be required for
road-widening purposes.
In my
judgment, it was not open to the LRB to serve notice determining the tenancy
under which the Prudential, as successor in title to Mr Nathan, held the land
comprised in the December 19 1930 agreement. The tenancy from year to year
under which the land is held includes, in my judgment, an implied provision
that notice to quit may not be served by the landlord until the land is
required for road-widening purposes. That provision, on the authority of the Re
Midland Railway Co’s case, is valid and effective.
I would allow
the appeal.
Agreeing, PARKER
LJ said: I add a contribution of my own only because we are differing from
the learned judge and I do so with some diffidence.
I begin with
the judgment of the court in the Re Midland Railway Co’s case which made
clear that, in the absence of authority to prevent us from so doing, we should
if possible give effect to the bargain between the parties.
I, therefore,
begin by a consideration of the terms of, and surrounding circumstances at the
time of, the 1930 agreement.
It is clear
from its terms that the intention of the parties was (1) that Mr Nathan should,
or at least should be able to, build on his retained land a new building which
would have a frontage on to the widened Walworth Road as then contemplated; (2)
that, pending such widening, he should be entitled to build on the leased-back
land one-storey shops or buildings which would front on to the then existing
Walworth Road; (3) that he should retain them until that land was required for
road widening; (4) that he was to have two months’ notice of the date when it
was so required and in that two months was to remove the building and clear the
site to ground level. If he failed to do so within that time he was to pay £10
per day until he had done so. All this is clear from the terms of the agreement
itself and is reinforced by the physical conditions of the site. What was
clearly not contemplated was that the tenant should ever be left with a new
building with no frontage on to the existing Walworth Road and with no interest
in the land between that building and such road.
In my view,
there is no possible way of so construing the agreement as constituting a
periodic tenancy subject to six months’ notice on either side, or so as to
produce the result that the council could either (1) abandon any plan of road
widening and give notice of either six months or two months or (2) by
alienating the land to a third party, whether a highway authority or not,
thereby give their successors a right to give either a six or a two months’
notice. In any of such cases the tenant, having built on the retained land so
as to have a frontage on to the proposed widened road and built shops on the
tenanted land with a frontage on to the existing road, would find himself in a
position quite clearly contrary to the common intention of both parties. He
would have no frontage on to any road.
If the above
is right, it does not, in my view, matter whether the original agreement was
bad, on the basis of Lace v Chantler and there must be implied a
yearly tenancy, or was good. In either case the landlord could not, in my view,
give notice until the widening of Walworth Road became impossible, as for
example if it ceased to exist. To hold otherwise would defeat the common
intention of the parties. I agree, however, with Scott LJ that the original
lease was bad for the reasons he gives. For the reasons given by him and for
the additional reasons which I have set out I, too, would, as I have said,
allow this appeal.
McCOWAN LJ agreed and did not add anything.
Appeal
allowed with costs.
