Landlord and tenant — Landlord and Tenant Act 1954 — Determination of rent and interim rent
defendants, in each of four applications by the plaintiffs for the grant of new
tenancies under the Landlord and Tenant Act 1954, are Sheffield City Council
and owner of two markets, Sheaf Market and Castle Market in the City of
Sheffield — Pursuant to section 25 of the 1954 Act, the defendants gave notice
determining some 384 tenancies of stalls in the two markets on March 24 1986 —
The defendants did not oppose the grant of a new tenancy to each recipient of a
notice — Four applications were selected by the parties for hearing as to the
determination of rent and interim rent as samples representative of the 384 tenancies
— The parties described the new tenancies as quarterly with a review of rents
payable not to be made until three years from the date of grant of each new
tenancy — In giving evidence on behalf of the plaintiff tenants, Mr Christopher
Tattersall FRICS asserted that the defendants were the owners of a franchise to
conduct markets within the manor of Sheffield; they therefore had a monopoly on
the supply of stalls and they must be assumed to behave reasonably by offering
stalls without the tenant’s being subject to pressure because there could be no
other supplier — He further asserted that at least 384 stalls were vacant and
available to let because they were simultaneously the subject of section 25
notices — Mr Michael Newton FRICS, in giving evidence for the defendants,
asserted that inflation would remain a factor
markets, had a right recognised by the law as entitling them to the sole right
to conduct markets within the defined area, there was no reason why that
property right should not be fully exploited by the defendants — There was no
duty to reduce the income available to the defendants from rents and other
income derived from their market franchise by increasing the number of stalls
available so as to create conditions of oversupply — The supply of stalls is
not to be assumed to be large and each stall must be considered in the context
that most other stalls are already let — The plaintiffs’ valuer had omitted to
notice that each section 25 notice also stated that the landlords would not
oppose the grant of a new tenancy — The assertion that inflation is likely to
remain was dangerously speculative now that the UK had joined the exchange rate
mechanism of the European Monetary System — In determining the interim rent as
at April 30 1986 the appropriate figure is 75% of the current rent as
determined in each case
No cases are
referred to in this report.
These were
four adjourned originating summonses and counterclaims in which Messrs
Simonite, Holmes, Simonite, and T G Thompson Ltd sought the determination of
the rent for the grant of new tenancies pursuant to Part II of the Landlord and
Tenant Act 1954 and the defendants in each case, Sheffield City Council, sought
the determination of an interim rent.
Keith Rowley
(instructed by Dibb Lupton Broomhead, of Sheffield) appeared for the
plaintiffs; David Neuberger QC and Martin Rodger (instructed by the solicitor
to Sheffield City Council) represented the defendants.
Giving
judgment, HARMAN J said: I have before me four applications by
plaintiffs for the grant of new tenancies under the Landlord and Tenant Act
1954, Part II. All four applications are by tenants whose tenancies were
determined by notices sent pursuant to section 25 of the 1954 Act which, it is
agreed, determined the former tenancies on March 24 1986. At the same time a
very large number, I was told over 380, similar tenancies were also determined
on the same date. The four applications now before the court have been selected
by agreement between the plaintiff tenants and the defendant landlords, who are
the council of the City of Sheffield, as ‘sample’ applications. I was also told
that all the section 25 notices determining all tenancies were in the form
which states that the landlords will not oppose the grant of a new tenancy to
each recipient of a notice.
The four
applications selected by the parties for hearing are intended to be ‘samples’
of the various sorts of holding so as to represent the 380-plus tenancies. All
the tenancies are of market stalls in two large covered markets built and owned
by the city council. The four applications before me are in respect of stalls
nos 219-220 in the Sheaf Market, stall no 18 in the meat and fish section of
the Castle Market, stall no 144 in the miscellaneous section on the
upper-ground floor of Castle Market and stalls nos 66-67 in the miscellaneous
section of the lower-ground floor of Castle Market.
As can be seen
from the above short identifications the four stalls are from four differing
parts of the two markets. Each is intended to be representative of the general
run of stalls in the respective parts of the markets. I am asked to determine
the proper amount of rent payable for each of these four stalls with the intent
that from those determinations appropriate figures for new rents under the 1954
Act can be worked out without all the remaining 380 or thereabouts applications
each having to come before a court for determination. Consequently the evidence
before me concentrates very little on the proper rent payable for each of the
four particular stalls before the court and much more upon general surveys of
rents payable in the two markets, or more precisely in each of the four
identified sections of the two markets. The parties’ agreement and the emphasis
of the evidence are made notwithstanding that the evidence agrees that the
actual attractiveness of particular stalls within each section varies according
to its position in the section. Both sides apparently accept that it is in each
of their interests to have a uniform level of assessment of basic rent payable
for a stall within each of the four identified sections.
This agreement
is made notwithstanding that the evidence for both sides agrees that not only
the individual position of a particular stall within a section will affect its
attraction to a tenant and therefore the rent that it would command in a true
open market but also that the permitted trade to be carried on at a particular
stall will carry a different level of profitability from that of another trade
at the next-door stall. It must in common sense follow that in a true open
market the particular trade permitted would affect the level of rent which a
tenant would be prepared to pay for the tenancy of that stall with that
permitted user. Thus, two important factors which the court would have
considered in deciding what would be the rent properly payable for a particular
stall upon the statutory hypothesis provided by the 1954 Act are deliberately
and by agreement of both sides excluded from the court’s consideration of the
rents which are to be determined upon these four applications. This agreement,
and its consequent effect upon the evidence given before me, has made these
applications extremely difficult to decide and makes the reasoning to support
the decisions more difficult to follow through on a logical path.
The task of
reaching a logical decision is made even more difficult by the nature of the
tenancies under consideration and of the new tenancies which the city council
landlords are prepared to grant. Both landlords and tenants describe the
tenancies as quarterly tenancies but which the landlords can determine only by
six months’ notice. That is, of course, one of the inevitable effects on any
business tenancy of the 1954 Act, since no section 25 notice can take effect in
less than six months, but it is unusual to find the legal result expressed as
the parties’ agreement and makes the description ‘a quarterly tenancy’
seriously inapt.
The new
tenancies intended to be granted to applicants under the 380-plus section 25
notices are to be quarterly tenancies determinable by the landlords on six
months’ notice, but in addition a review of rents payable under the new
tenancies will not be made until three years from the date of grant of each new
tenancy. It seems to me that
each tenant of a three-year term but with a proviso enabling the tenant to
determine the tenancy by one quarter’s notice. As a matter of experience the
rent commanded by the grant of a three-year term is greater than the rent
commanded by a quarterly tenancy; that remains the fact even when the so-called
quarterly tenancy cannot be determined by the landlords on less than two
quarters’ notice. In my judgment, confused descriptions of the subject-matter
for consideration lead to confused formulation of reasoning about the
subject-matter.
One further
difficulty of obtaining useful evidence upon which to base the determination of
rent is caused by the fact that many, probably most, of the existing tenancies
in the markets are assignable and all four of the plaintiff applicants before
me hold tenancies which permit assignment. But more recently the city council
have changed the form of their standard tenancy agreement to include in new
lettings an absolute prohibition against assignment. Naturally the rent
commanded by the grant of a tenancy with the right to assign will be greater
than the rent commanded on the grant of a non-assignable tenancy. This obvious
fact makes evidence as to levels of rent payable on the grant of new tenancies
by the city council substantially less reliable as a comparable from which to
assess the rent for these four tenants.
The evidence
given before me consisted of three individual witnesses called by the plaintiff
tenants. First, they called Mrs Holmes, the stallholder of stalls nos 219-220
in Sheaf Market, who carries on a haberdashery business there and is president
of the Market Traders Association. She had acquired another stall, no 218,
immediately adjoining her present stalls, in March 1990. The assignor from whom
she acquired the tenancy had held at least three other stalls as well as no
218. Mrs Holmes paid no premium on the assignment but agreed to indemnify the
assignor against rent and rates including any increased rent. Mrs Holmes had
also some little time ago acquired a tenancy of stall no 237 by tender to the
city council at a rent of £1,000 per quarter but was not granted by the city council
the same user for stall no 237, haberdashery, as she normally carried on. She
failed to make stall no 237 a success and had determined the tenancy. She was
not cross-examined.
The plaintiffs
also called Mr Carter, the tenant of stalls nos 106 and 107. He had traded from
those stalls for about six years and had paid a premium of £25,000 for the
goodwill and fixtures and fittings of the business carried on by his
predecessor in those stalls. The goodwill included the trading name under which
the business had been and continued to be conducted. At the same time, Mr
Carter assigned the tenancy he then held of stall no 110, together with the
goodwill built up by his trading in that stall under his own name, for a
premium also of £25,000. He told me that his purchaser continued now to trade
at stall no 110 under Mr Carter’s name. Mr Carter also told me that in the
autumn of 1990 he tried to sell his present stalls with his present handbag
business but although he had had two inquiries he had no serious offer. He was
asked in cross-examination the price he had been asking and answered £20,000
plus stock at valuation. I found his evidence perfectly reliable.
The plaintiffs
also called Mr Harrington, who held three stalls in Castle Market, nos 187, 188
and 189. His business was selling men’s and boys’ clothing. His family had long
connection with that market, his father having been one of the first tenants
when the market hall was built. Mr Harrington had held several other stalls,
all in what was called in the evidence phase V of the markets. He agreed in
cross-examination that none of the four stalls with which this case is directly
concerned is in phase V and that phase V was regarded by market traders as the
least attractive part of all the market halls. He had failed to make a success
of stall no 199, which he acquired for a premium of £6,000, and eventually,
after failing to sell the business, he surrendered that lease to the city
council. Mr Harrington told me that his trading conditions, both turnover and
profit, had deteriorated in each of the last two years. I found Mr Harrington a
convincing witness.
The bulk of
the evidence called was expert evidence. The plaintiffs called Mr Christopher
Tattersall, a Fellow of the Royal Institution of Chartered Surveyors, qualified
in 1967 after a degree in estate management, who has since 1986 been senior
partner in his firm. He lives and practises in Sheffield and has had
substantial experience of advising on stall rents in these markets and also
other markets. He had had long negotiations with the expert witness called by
the city council before me in an endeavour to agree figures for the various
rents. Both sides’ expert witnesses are obviously very well qualified, both
generally and in respect to these particular holdings, and naturally the
professional integrity and personal honesty of neither was challenged.
The expert
called on behalf of the city council was Mr Thomas Michael Newton; his paper
qualifications were very similar to those of Mr Tattersall and similarly
impressive. Mr Newton’s experience was a little wider than that of Mr
Tattersall, since he spent five years after becoming an ARICS in practice in
the City of London and three years in Nottingham. However, since about 1963 Mr
Newton has practised in Sheffield as a partner in a local firm. In 1987 eight
regional partnerships amalgamated to form the large commercial consultant
surveyors under the name Lambert Smith Hampton. Mr Newton is the third senior
listed Fellow of the Royal Institution of Chartered Surveyors in the very long
list of partners printed on his proof.
I will comment
on the parts of the evidence of each surveyor which seemed to me to be
challenged where either the challenge seemed to weaken the evidence or seemed
to confirm it. Mr Tattersall showed that the city council are the owners of a
franchise to conduct markets within the manor of Sheffield by acquisition from
one of the Dukes of Norfolk. Mr Tattersall in para 2.3300 onward of his proof
characterised the ownership as conferring a monopoly on the city council. He
asserted at para 2.3306 that for the city council to retain their monopoly
imposed a duty to operate that monopoly to the benefit of the citizens and at
para 2.3309 that the city council as landlords must be assumed to behave
reasonably by offering stalls without the tenant’s being subject to pressure
because there could be no other supply of the market stalls than from the city
council. He referred (para 2.3310) to ‘abuse of monopoly position’. Finally, at
paras 2.3318 and 2.3319 he doubts the value of evidence from actual
transactions on the ground that the city council have a monopoly power and use
that power to maximise profit.
All this part
of Mr Tattersall’s evidence is, in my judgment, founded on an unsound premise
that in some way the city council, because they owned the market franchise,
owed an extra duty as landlords to their market tenants. The city council are
the owners of an item of incorporeal property which they acquired by purchase.
That right is recognised by the law as entitling the city council to the sole
right to conduct markets within the defined area. There is no reason why that
property right should not be fully exploited by the city council. Of course the
city council will have regard to the interest of all the electors within the
corporation’s boundaries and in that sense they will consider what is for the
greatest benefit of the city of Sheffield. But the city council have no duty to
reduce the income available to the city council from rents and other income
derived from their market franchise by increasing the number of stalls
available so as to create conditions of over-supply. Nor can the city council
be under any duty to permit others to infringe the franchise by opening markets
within the area where the city council are entitled to a monopoly so as to
allow others to increase the supply of stalls and so reduce the price in rent
of the city council’s stalls. The general law imposes no duty on an owner of
property (and a market franchise is obviously property) to do other than deal
honestly with those who wish to use that property or part of it. I reject Mr
Tattersall’s evidence on this part of his proof.
Mr Tattersall
also asserted in his proof of evidence (para 2.231), first, and with classic
correctitude, that the price (he wrote ‘value’, but in my judgment he must have
meant ‘price’, since ‘value’ involves other than pure economic questions) of
all commodities, including stalls in a market hall, is governed by supply and
demand. But he added in the same paragraph that the state of supply was taken
by him to be ‘at least 384 Stalls [were] vacant and to let’. In response to a
question from me, Mr Tattersall said that that did not mean that he envisaged a
huge, echoing, vacant market hall with 384 stalls vacant. In my judgment, it
was difficult to understand the words in his proof ‘vacant and to let’ otherwise,
but the evidence clearly is that he did not envisage the 384 stalls as vacant
and available. Mr Tattersall asserted that he meant that 384 stalls are
simultaneously the subject of section 25 notices terminating each of the
tenancies. He seemed to omit to notice that each section 25 notice also stated
that the landlords would not oppose the grant of a new tenancy. In my judgment,
the ‘supply’ of stalls is not to be assumed to be large and each stall must be
considered in the context that most other stalls are already let.
Mr
Tattersall’s proof dealt with tendered rents at para 3.400
only, guide to true open market rents. Mr Newton deals more shortly with
tendered rents starting in the course of his para 7.1 with an analysis at para
7.8. In my judgment, both valuers are correct in regarding the tendered rents
available as evidence in this case as a very unsatisfactory basis upon which to
reach a figure for a true open market rent.
In addition to
that difficulty it is clear that in putting in a bid on a tender the person
making the bid has to consider ‘what are the premises worth to me?’. If for
some reason of his own the person making the bid had a particular desire or
need for those premises he (or she) may bid well above the true open market
price so as to be sure of a good chance of obtaining the premises. I say only
‘a good chance’ because in the city council’s, as in most other, tender
processes, the tenders are invited upon the condition that the city council are
not bound to accept the highest (or any) tender and the actual examples show
several cases where a tender was accepted by the city council which was not the
top bid. It is commonly accepted that the true open market price for an object
is most objectively assessed at auction. There the successful bidder has to top
all other bidders by the relevant sized ‘step’ in the bidding process. But it
is notorious that successful bidders at auction frequently say ‘I would have gone
higher if I had had to’. The true open market price of the premises or other
subject of the auction was below the ‘value to me’ for that bidder.
In addition,
all the tenders for stalls since 1986, which were the only ones referred to
before me, were for non-assignable tenancies of market stalls. Thus the
difficulty of assessing by how much the value of an assignable tenancy exceeded
that of a non-assignable tenancy was added to the natural unreliability of
tender bids as true evidence of open market prices. In the result I conclude
that the tender evidence before me is of very limited value and I have merely
had it in the very back of my mind in trying to assess the figures.
Mr Newton, as
expert witness for the city council, asserted (para 8.1.5) that it seemed
‘inevitable that inflation is likely to remain with us’. That view seems to me
to be dangerously speculative in the new economic circumstances imposed by the
UK having joined the exchange rate mechanism of the European Monetary System.
On all sides the country is told that the purpose of that political step was to
prevent the tendency to inflation historically displayed over the past 40 years
in this country and to tie this country to the monetary tendencies of the
German Bundesbank so as to ensure that in future inflation will be minimal.
Whether that objective will be achieved is obviously uncertain, but so also is
the prospect of continued inflation. Mr Newton’s evidence is based, no doubt,
on the universal experience of all of us whose adult lives have covered the
past 30 years, but times may be changing.
Each witness
gives elaborate reasons at great length showing how he has reached his
conclusion as to the proper open market rent for these four stalls. Each is an
honest, experienced and skilled valuer. Since both are human neither is
infallible. In the end, as Mr Tattersall says at para 4.410, the conclusion is
a matter of judgment. I have to form an opinion as to whose judgment I believe
is more reliable and in the end, having read and reread the very extensive
proofs, considered my notes of cross-examination and, above all, formed a
judgment from my observations of each of these two gentlemen in the witness
box, I consider that Mr Newton’s judgment is the more reliable. I do, however,
consider that Mr Harrington’s evidence as to falling turnover and profits over
both the past two years and Mr Carter’s evidence of inability to sell his
stall, show that the market is suffering. I also consider that no assessment
should be based simply on a belief in future inflation. I have therefore
reduced Mr Newton’s valuation by what, in my judgment, is the appropriate
fraction of one-tenth.
I thus decide
that the appropriate figures for the open market rents of the plaintiffs’
stalls are as follows:
|
(a) |
stalls nos |
£7,064 pa |
|
(b) |
stall no |
£8,568 pa |
|
(c) |
stalls nos |
£13,990 pa |
|
(d) |
stall no 144, miscellaneous section, upper-ground floor, Castle |
£7,466 pa |
Finally, I have to consider four applications by the city council
for an interim rent for each stall. These are to take effect from April 30
1986, as I was told by counsel. Mr Tattersall does not deal in his proof with
interim rents, but he was asked questions about his opinion in
cross-examination. He asserted that 70% of the figures for rent given in his
proof would represent the 1986 open market rent of each stall if let on an
annual tenancy. Mr Newton dealt with interim rents in his proof. He said in
cross-examination that if the open market rents today were the same amount as
the figures he had provided as the rents obtainable in 1986 then he still stood
by his 1986 valuations. On the basis that, in his professional judgment, rents
today are higher than in 1986, I found that part of Mr Newton’s evidence
difficult to accept. Mr Newton’s valuation in his proof was that 1986 rents
should be fixed at 80% of the current rent. I am not satisfied that that is
entirely justified and, in my judgment, the appropriate figure is 75% of the
current rent as I have determined it.
I therefore
fix the interim rents as follows:
|
(a) |
stalls nos |
£5,305.50 |
|
(b) |
stall no |
£6,425.25 |
|
(c) |
stalls nos |
£10,492.50 |
|
(d) |
stall no 144 |
£5,599.50 pa |
I realise that in the real world it is most unlikely that open
market rents would be fixed at figures involving pence per annum, but these
figures are inevitably somewhat arbitrary, since they are entirely
retrospective and are based on scanty evidence which in both valuers’ evidence
was simply based on a proportion of current rents. Such an exercise is likely
to produce slightly unreal figures, but, in my judgment, the figures represent
a proper determination of this question on the evidence available to me in
these four cases.
