Landlord and tenant — Option to renew — Whether grant of option ultra vires local authority landlord — Whether option remained exercisable after assignment of part of term — Whether tenant entitled to exercise option
By a lease
dated November 27 1969, Dorchester Borough Council granted the appellant a term
of 22 years of land from September 29 1969. In accordance with the terms of the
lease, the appellant developed the land by the erection of six units. The units
were sublet, although five of the subleases were expressed to continue beyond
the expiry date of the 1969 headlease. In October 1990 the appellant gave
notice to the respondent authority, the statutory successors to the borough
council, to exercise an option in the 1969 headlease to renew it for a further
term of 21 years. The respondents contended that the appellant was not entitled
to exercise the option because: (1) the option was ultra vires the
respondents; (2) the option could not be exercised as the appellant had
assigned his interest to five of the six units because the terms were longer
than the headlease; and (3) the appellant was in breach of the repairing
obligations in the headlease. Chadwick J (as he then was) found in favour of
the respondents on points (1) and (2), but in favour of the appellant on (3).
The appellant appealed.
borough council ‘otherwise than for an express statutory purpose’ within the
definition of ‘corporate land’ in section 305 of the Local Government Act 1933.
It fell within either Housing Act or Highway Act purposes, and therefore
section 172(3) did not empower the borough council to dispose of the land by
the grant of the option. The grant of an option to renew is, as a matter of
ordinary language, simply not the exercise of a power to let. The power in
section 164 of the 1933 Act enabling a local authority to grant a lease,
therefore, did not give power to grant the option. If the grant of the option
had been valid, the five assignments by subletting for terms exceeding the term
of the 1969 lease did not disentitle the appellant from exercising the option.
The following
cases are referred to in this report.
Credit
Suisse v Allerdale Borough Council [1997] QB
306; [1996] 3 WLR 894; [1996] 4 All ER 129; [1996] 2 Lloyd’s Rep 241; (1996) 94
LGR 628, CA
Farrage v North Wiltshire District Council, sub nom Trustees of the
Chippenham Golf Club v North Wiltshire District Council (1991) 64
P&CR 527, CA
Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC
1; [1991] 2 WLR 372; [1991] 1 All ER 545; (1991) 89 LGR 271, HL
Milmo v Carreras [1946] KB 306
West
Middlesex Golf Club Ltd v Ealing London Borough
Council (1994) 68 P&CR 461
This was the
hearing of an appeal by the plaintiff, Michael Stretch, from a decision of
Chadwick J, who had dismissed his application by originating summons for relief
against the defendants, West Dorset District Council.
Peter Birts QC
and Stephen Rubin (instructed by Berrymans, of Southampton) appeared for the
appellant; Kirk Reynolds QC (instructed by Sharpe Pritchard) represented the
respondents.
Giving the
first judgment at the invitation of Nourse LJ, PETER GIBSON LJ said: By a lease dated November 27 1969
(the 1969 lease) between Dorchester Borough Council (Dorchester) and the
plaintiff, Michael Stretch, 1.9 acres of industrial land (the demised premises)
at Poundbury West Camp Estate (the camp) in Dorset were let to Mr Stretch for
22 years from September 29 1969. Mr Stretch covenanted to develop the demised
premises by erecting at his own expense up to six buildings within one year for
occupation for light industrial use. He developed the demised premises into six
units, though the sixth was not completed until 1976. All the units were sublet
by Mr Stretch, but the terms of five subleases entered into between September
29 1971 and May 1 1980 were expressed to continue beyond the expiry date of the
1969 lease.
By clause 5(1)
of the 1969 lease, Dorchester granted the lessee thereunder an option to renew
that lease for a further 21 years in these terms:
If the Lessee
shall be desirous of taking a lease of the said demised premises for a further
term of twenty one years from the expiration of the terms hereby granted and
shall not more than twelve months nor less than six months before the
expiration of the said terms give to the Corporation notice in writing of his
desire and if he shall have paid the rents hereby reserved and shall have
reasonably performed and observed the covenants provisions and stipulations
herein contained and on his part to be performed and observed then the
Corporation will let the said demised premises to the Lessee for the said
further term of twenty one years … at rents to be determined in the manner
provided by sub-clause (2) of this Clause and subject in all other respects to
the same covenants provisions and stipulations as are herein contained except
this Clause for renewal.
On October 4
1990 Mr Stretch gave notice to exercise that option. By then the defendants,
West Dorset District Council (West Dorset), had succeeded to Dorchester
pursuant to an order made under Schedule 3 to the Local Government Act 1972.
West Dorset took the point that Mr Stretch was not entitled to exercise the
option. So Mr Stretch took out an originating summons seeking declarations
against West Dorset that he was entitled to, and had validly exercised, the
option and was entitled to the grant of a further term of 21 years and an order
for specific performance or damages in lieu.
In resisting
Mr Stretch’s claims, West Dorset took three points: (1) the option was ultra
vires Dorchester; (2) the option was not capable of being exercised by Mr
Stretch on October 4 1990 because, by granting five subleases for terms greater
than the term of the 1969 lease, he had assigned his interest in the units the
subject of those five subleases; and (3) Mr Stretch was in breach of the
repairing covenants in the 1969 lease. The trial judge, Chadwick J, found in
favour of West Dorset on points (1) and (2) and in favour of Mr Stretch on
point (3). The judge therefore struck out the originating summons.
Mr Stretch now
appeals on points (1) and (2), on both of which he needs to succeed if the
appeal is to be allowed. West Dorset do not challenge the judge’s decision on
point (3).
1. Ultra vires
The judge
held, and it is not now disputed, that although Dorchester were a borough
incorporated by Royal Charter with a historical capacity at law to make the
same dispositions of their property as a natural person, the effect of the
Municipal Corporations Acts and the Local Government Act 1933 (the 1933 Act) is
that Dorchester could only make dispositions of their property through the
exercise of powers conferred by statute on them. Accordingly, a disposition
that Dorchester had no statutory power to make is invalid not only as against
the ratepayers but also as against the person seeking to derive title under it,
even though it is a disposition that a natural person could have made.
Mr Stretch,
however, submitted that Dorchester had statutory power to grant an option under
a number of provisions, only two of which are now relied on in this appeal: one
is section 164 of the 1933 Act and the other is section 172(3) of that Act. On
section 164 the judge held that he was bound by the decision of this court in Trustees
of the Chippenham Golf Club v North Wiltshire District Council
(1991) 64 P&CR 527 to hold that although Dorchester had power to let land
under section 164, that power did not include a power to grant an option to
renew a lease. On section 172(3) the judge held, first, that that section would
prima facie empower Dorchester, with the consent of the minister, to
dispose of ‘corporate land’ by the grant of an option to renew a lease; but,
second, that it had not been shown to his satisfaction that the demised
premises were corporate land. That first holding is not challenged before us.
Section
172(3)
I shall start
with that subsection first as Mr Peter Birts QC, for Mr Stretch, in his
submissions, placed primary emphasis on this point. Section 172(1) deals with
lettings, and subsection (2) deals with renewals, of leases of corporate land.
Subsection (3) is in the following terms:
Where the
council of a borough desire to dispose of corporate land otherwise than as aforesaid,
they may, with the consent of the Minister, dispose of the land either by way
of sale, exchange, mortgage, charge, demise, lease or otherwise, in such manner
and on such terms and subject to such conditions, including conditions as to
the investment of capital money arising from the transaction, as the Minister
may approve.
It is common
ground that Dorchester were the council of a borough. The term ‘corporate land’
is defined in section 305 as follows:
‘Corporate’
land means land belonging to, or held in trust for, or to be acquired by or
held in trust for, a municipal corporation otherwise than for an express
statutory purpose.
Land is
defined to include any interest in land and any easement or right in or over
land. It is common ground that Dorchester were a municipal corporation.
The question
is whether the demised premises at the time of the grant of the option were
corporate land by being land ‘belonging to … [Dorchester] otherwise than for an
express statutory purpose’. This is largely a factual question. The judge said
that the camp, of which the demised premises formed a part, was conveyed to
Dorchester by the Secretary of State for War by a conveyance dated October 25
1961. That conveyance contained a recital that Dorchester were purchasing the
camp in pursuance of the powers conferred on them by the Housing Act 1957 and
for the purposes of Part V of that Act.
The judge
referred to a minute (the minute) dated June 5 1962 of Dorchester’s Finance and
Rating Committee containing a recommendation that Dorchester adopted at a
meeting of the council on June 12 1962. The judge held that the purposes of
Part V of the Housing Act 1959, for which the camp was acquired, were ‘an
express statutory purpose’. That is not now in dispute. The judge continued:
In these
circumstances, it is impossible to be satisfied that the land known as
Poundbury West Camp was corporate land within the definition in section 305 of
the Local Government Act 1933. The evidence shows that the land was acquired by
the borough for an express statutory purpose in 1961, namely for
172(3) of the 1933 Act can have no application.
Mr Birts
criticises this part of the judgment. He says that the judge overlooked or
disregarded the evidence of Mr Muir, the senior solicitor employed by West
Dorset, who, in the course of the hearing, swore an affidavit and gave oral
evidence. Mr Muir exhibited the conveyance of October 25 1961 and said that the
demised premises were within the camp purchased in 1961. The camp was of 28.1
acres compared with the 5.34 acres of an area known as ‘the central area’
referred to in the minute and the 1.9 acres of the demised premises.
Mr Muir
exhibited a copy of the minute, which was in this form:
poundbury west camp
appropriation of land and buildings for
highways depot purposes.
88. The Town
Clerk reminded the Committee that the whole of Poundbury West Camp was
purchased for Housing Acts purposes but that the central area, including certain
of the buildings thereon, is now proposed to be used for Highways Depot
purposes; the remaining buildings, being surplus to immediate requirements, to
be let temporarily for storage purposes, etc.
The Town
Clerk reported that as two of such surplus buildings have now been let on
Leases for terms of five years the question of the appropriation of the
above-mentioned central area must now be determined. A plan showing edged in
pink such central area with all the buildings thereon was submitted to the Committee.
It was further reported that this question of this appropriation has already
been considered, and an expression of opinion given, by the Housing and
Highways Committees and that the matter is now before the Finance Committee for
final consideration for a formal recommendation thereon to the Council.
After
considering the views of the Housing Committee and the Highways Committee it
was Resolved to recommend:–
That in
accordance with the powers contained in Section 23 of the Town and Country
Planning Act, 1959 the land forming the above-mentioned central area of
Poundbury West Camp and comprising 5.34 acres (with the buildings standing
thereon), as shown on the plan submitted, be appropriated for Highways Depot
purposes; and that the financial adjustment to be made in the respective
Accounts under the provisions of Section 24 of the said Act be on the basis of
the purchase price paid by the Council for the land and buildings, viz,
£1,000 per acre for the land and £5,000 in respect of the said buildings; and
that application be made to the Minister of Housing and Local Government for
his approval of the foregoing financial adjustment.
Mr Muir also
exhibited a letter dated July 6 1992 from the Ministry of Housing and Local
Government to Dorchester, which conveyed the minister’s direction that the
housing revenue account should be credited with an amount equal to the value of
the land and buildings appropriated. In cross-examination Mr Muir was asked
about the plan by which the central area of the camp was identified. He said
that the plan was lost.
The minute was
the subject of close examination by counsel in argument before us, in
particular in relation to which buildings were or were not included in the
central area. But the position seems to me tolerably clear. The camp was
acquired for Housing Act purposes, but there was a proposal that the central
area with certain buildings on it was now to be used for highways depot
purposes. Other buildings, part of the central area but surplus to immediate
requirement, were to be let temporarily for purposes such as storage, and two
of those surplus buildings had already been let for five years. The town clerk
wanted the question determined for what purpose the central area was to be
held. The recommendation was that the whole of the central area with the
buildings standing thereon (including the two let for five years and the other
buildings surplus to immediate requirement) was to be appropriated for highways
depot purposes. For my part, I regard it as irrelevant that some buildings were
not to be used immediately for highways depot purposes. It is plain that, once
the appropriation to those purposes was made, the central area belonged to
Dorchester for those purposes.
The main
problem lies in identifying the location of the central area. If the demised
premises are outside the central area, then there is no dispute that the
demised premises are held for an express statutory purpose and so are not
corporate land, and Mr Stretch cannot rely on section 172(3) as giving statutory
power to Dorchester to grant the option over it. If the demised premises lie
within the central area, then prima facie they, like the rest of the
central area, were appropriated for highways depot purposes, and the question
is whether those purposes are an express statutory purpose. Mr Birts says that
they are not. Mr Kirk Reynolds QC, for West Dorset, says that they are. Mr
Reynolds raises the possibility that the demised premises lie partly within and
partly outside the central area and says that in that event there could be no
question of the partial validity of the grant of an option, which by common
consent could only be exercised over the whole of the demised premises, if it
was exercisable at all.
Mr Birts
submits that the judge ought to have found that West Dorset did not prove what
they had set out to prove, that is to say that the demised premises belonged to
Dorchester for an express statutory purpose and so were not corporate land, and
that section 172(3) was therefore not available to Dorchester when granting the
option. Mr Birts argues that the judge wrongly placed the onus on Mr Stretch to
prove that the demised premises were corporate land. Mr Reynolds does not
dispute that the onus was on Dorchester. I, too, agree and therefore respectfully
disagree with the judge in finding against Mr Stretch on that basis.
Mr Reynolds at
one stage boldly submitted that the judge had in fact held that the demised
premises lay outside the central area. I think it plain that he made no such
finding, being content to rely on the burden of proof. Nevertheless, is there
evidence from which this court could conclude where the central area was and,
in particular, whether the demised premises lay outside it in whole or in part?
Mr Reynolds has invited comparison between the plan attached to the conveyance
of October 25 1961 and the plan attached to the lease. Because of the situation
on both plans of certain buildings not apparently included in the demised
premises and because of the use in the minute of the words ‘central area’,
which would not appear to be appropriate in relation to the demised premises,
which abut the south-eastern boundary of the camp, he submits that this court
can reach a conclusion on the balance of probabilities. But the factual basis
for identifying precisely where the central area lay was never established at
the trial and I do not think it would be right for this court to speculate. In
particular, I do not know the configuration of the central area in the absence
of the plan referred to in the minute. In these circumstances, I cannot find
that the demised premises were either in whole or in part within or outside the
central area.
That leaves
the question of whether highways depot purposes fall within the statutory
phrase ‘an express statutory purpose’. By section 221 of the Highways Act 1959,
a local highway authority had power to acquire land that, in their opinion, was
required for the provision of any buildings or facilities needed for the
purposes of the authority’s function as a highway authority. It is not disputed
that Dorchester were the highway authority and it is plain from the minute that
the highways committee had considered the proposal that the central area should
be appropriated to highways depot purposes.
Mr Birts
points to the absence of any express reference in the minute to any statutory
provision relating to highways depot purposes, in contrast to the references to
the Housing Acts and to sections 23 and 24 of the Town and Country Planning Act
1959 that appear in the minute. He submits that highways depot purposes are
simply too vague to constitute an express statutory purpose, and he emphasises
the singular indefinite article. He says that if, on looking at the minute, one
cannot see the chapter and verse of the statutory purpose for which the land
was to be appropriated, that purpose was not an express statutory purpose. He
argues that ‘express’ means ‘stated’ or ‘definite’. I would not disagree with
the suggestion that ‘express’ does have those connotations. But I cannot accept
that an appropriation of land for an express statutory purpose requires the
statutory provision to be expressly stated. That would be to introduce a degree
of formalism inappropriate to local government minutes. What must be seen is
that the stated purpose is a statutory purpose.
It seems plain
to me that highways depot purposes constitute a proper statutory purpose of a
highway authority. The purpose for which the land was to be appropriated under
the powers conferred on
Country Planning Act 1959 had to be one for which Dorchester were authorised to
acquire land, and section 221 of the Highways Act 1959 is the obvious section
that gave them that authority. Highways depot purposes are a specific purpose
within section 221. Accordingly, I reach the conclusion that it matters not
whether the demised premises in whole or in part fell within the central area
and belonged to Dorchester for highways depot purposes or fell outside the
central area and belonged to Dorchester for Housing Act purposes. Either way,
the land was not corporate land. Accordingly, I would agree with the judge,
though for the different reasons that I have given, that section 172(3) did not
empower Dorchester to grant the option.
Section
164
That provision
is in these terms:
A local
authority may let any land which they may possess —
(a)
with the consent of the Minister, for any term;
(b)
without the consent of the Minister, for a term not exceeding seven years.
It is common
ground that Dorchester were such a local authority. It is convenient at this
point to read section 165 as well:
A local
authority may, with the consent of the Minister, —
(a)
sell any land which they may possess and which is not required
for the
purpose for which it was acquired or is being used; or
(b)
exchange any land which they may possess for any other land,
either with
or without paying or receiving any money for equality of exchange.
The judge held
that, while there was no evidence that the consent of the minister to the grant
of the 1969 lease, including the option, was sought and obtained, section 29 of
the Town and Country Planning Act 1959 rendered that consent unnecessary. That
too is not challenged.
The short
question that is raised by section 164 is whether the power to let includes a
power to grant an option to renew. That question has been considered in two
cases.
The first is
the Chippenham case. That case was concerned with the question of
whether section 165, giving, as it does, a local authority power to sell land,
included power to grant in a lease an option to purchase the reversion. It was
argued in this court that an option to purchase should be regarded as a
contract of sale conditional upon the exercise of the option by the lessee and
that, just as a power of sale carries with it a power to enter into a
conditional contract of sale, so a power of sale carries with it a power to
grant an option to purchase. Scott LJ, with whom Woolf and Neill LJJ agreed, rejected
that argument, saying at p531:
In my
judgment the grant of an option to purchase is no more apt to be described as a
sale than an option to take a lease can be described as a lease. A very special
context indeed would be required before a power to sell could be construed as
including a power to grant an option. There is, in my opinion, no context in
the Local Government Act 1933 which justifies treating the power to sell
conferred by section 165 as authorising anything other than a contract of sale.
It was also
argued that the letting power in section 164 included the power to grant an
option to purchase as it was a provision frequently found in leases and so an
integral part of letting. That, too, Scott LJ rejected, saying at p532:
The power of
local authorities to dispose of interests in land is to be found, so far as the
1933 Act is concerned, in sections 164 and 165. These sections enable local
authorities to lease, to sell and exchange land. They do not authorise any
other type of disposition of land. The power of local authorities to enter into
covenants normally to be found in leases is not in point.
Accordingly,
Scott LJ held that the grant of the option was authorised neither by section
164 nor by section 165 and was ultra vires the local authority.
The second
case directly raised the question of whether a local authority had power by
section 164 to grant an option in a lease to renew. In West Middlesex Golf
Club Ltd v Ealing London Borough Council (1994) 68 P&CR 461 Mr
Roger Kaye QC, sitting as a deputy High Court judge, held that section 164 did
not give that power. Before us Mr Birts adopts the arguments unsuccessfully
advanced to the deputy judge by counsel for the golf club, Mr David Neuberger
QC, as he then was. I have to say that I have some difficulty with parts of the
deputy judge’s reasoning, in particular at p473 where, erroneously, he appears
to have thought that section 305 of the 1933 Act expressly included in a sale
an agreement for sale, and I have doubts as to whether he was correct to hold
that section 164 only contemplates a letting intended to take immediate effect
in possession. Certainly, Scott LJ thought it might well be right that a sale
was made for the purposes of section 165 when a contract for sale was entered
into (see the Chippenham case at p530) and it may well be that a power
to let includes a power to contract to let, even if the letting is not to take
immediate effect in possession. I also do not think that the Chippenham
case was, in strictness, binding on the deputy judge, as the remarks of Scott
LJ that I have cited, so far as they related to an option to renew and to
whether section 164 authorised the disposition of land in the form of an option
to renew, seem to me to be obiter. A similar criticism could be made of
the judgment of Chadwick J, who agreed with the deputy judge.
Mr Birts
followed Mr Neuberger’s submissions to the deputy judge in contending that an
option to renew differed significantly from an option to purchase: whereas in
the latter case the relationship of landlord and tenant is destroyed on the
exercise of the option, in the former case on the exercise of the option that
relationship continues. That is true; but there are also strong similarities
between the two types of option. In particular, the exercise of each option
gives the lessee exercising the option a new estate in the premises of which he
is the lessee. Moreover, the grant of each type of option takes out of the land
bank of the local authority property that they would be free to deal with at
the end of the original term of the lease in whatever way they chose. Instead,
the grant leaves the future disposition of that property at the end of the
original term in the hands of the lessee. The local authority are committed by
such grant if valid. It would be extraordinary if the grant of an option to
purchase was not within section 165, but the grant of an option to renew was
within section 164.
Nor can I
accept Mr Birts’ submission that the grant of an option is like the reletting
that is implicit in a power to let. The difference is that the decision to
relet is taken at the time when the term of the existing lease expires or is
about to expire. The grant of the option to renew was made 22 years before the
original term expired. Parliament might well have thought in 1933 that it was
inappropriate for local authorities to fetter themselves in advance in that
way.
Mr Birts
further submitted that an option to renew is such a common feature of long
commercial leases that parliament could not have intended that leases
containing an option to renew should be ultra vires the local authority.
He suggested that commercial men in 1933 would be surprised that the power to
let did not include a power to grant an option. He said that, in so far as
Scott LJ regarded an option to renew as indistinguishable from an option to
purchase, that observation was per incuriam.
I have no way
of telling what commercial men in 1933 would have thought, nor would I regard
that as the right test in construing section 164. To describe Scott LJ’s obiter
observations as per incuriam seems to me to be a misnomer on any
footing. But, for my part, I respectfully agree with the observations of Scott
LJ and with the conclusions that were reached by the deputy judge. The grant of
an option to renew is, as a matter of ordinary language, simply not the
exercise of a power to let. The fact that many commercial leases contain
options to renew cannot import into the statutory power to let a power to grant
an option.
For these
reasons I would hold that section 164 did not give the power to grant the
option in the present case.
Accordingly,
in my judgment, the grant was ultra vires Dorchester and the appeal on
this ground fails.
2. Assignment
The conclusion
that I have reached on the ultra vires point renders it unnecessary to
decide the assignment point. But as we have heard full argument on it, I shall
express my views briefly.
It was the
contention of West Dorset, both before us and before the judge, that the fact
that Mr Stretch had granted subleases of five of the six units for terms that
exceeded the term under the 1969 lease meant that the subleases took effect as
assignments and that on October 4 1990, when Mr Stretch purported to exercise
the option, it had ceased to be exercisable. That contention found favour with
the judge. He said that the effect was that Mr Stretch was lessee only of that
part of the demised premises, which comprised unit 11, that had been sublet for
a term shorter than the term of the 1969.
The judge then
considered four possible consequences of the assignments of part of the demised
premises: (1) the assignee of each part has the benefit of the option to renew;
(2) the assignees of the assigned parts plus the original lessee acting
together could exercise the option; (3) the original lessee, whether or not he
retained any part of the demised premises, could exercise the option in
relation to the whole; or (4) the option is no longer exercisable by anyone. He
rejected the first possibility, because the option was one to take a lease of
the whole premises. He also rejected the second for similar reasons and because
none of the sublessees was entitled to give an effective notice in respect of
his own part or in respect of the whole and the benefit of the option had not
been assigned to him. Neither of those conclusions of the judge is challenged.
On the third
possibility the judge said that, having regard to the terms of the 1969 lease,
that was not the intention of the parties. He continued:
The
qualification, to which the corporation’s obligation to grant a new lease is
made subject, is that:
‘… he [the
lessee] shall have paid the rents hereby reserved and shall have reasonably
performed and observed the covenants, provisions and stipulations herein
contained and on his part to be performed and observed …’
The purpose
of that qualification, as it seems to me, is not simply to ensure that no new
lease need be granted unless the rents have been paid and the covenants
performed and observed under the existing lease; but to ensure that the person
to whom the new lease is to be granted is a person whom it is reasonable to
require the landlord to accept as a tenant for a further term of 21 years. It
is the record of the option holder as tenant that is relevant to the grant
to him of a new lease. The landlord could not have intended to bind himself to
renew the relationship of landlord and tenant with an original lessee who might
have ceased to be his tenant many years before the date when the option was
exercised. It seems to me, therefore, that the option contained in subclause
5(1) of this lease is intended to be exercised only by someone who is in fact a
lessee at the time when the option comes to be exercised and is not intended to
operate in gross so as to be exercisable as a matter of contract after the
original lessee has parted with any estate or interest. If the option is not
exercisable in gross as a matter of contract, then it seems to me that it is
not saved by the fact that the original lessee retains some part of the demised
premises.
Accordingly,
he held that the fourth possibility was the correct one. The effect of the
assignments was that the option ceased to be exercisable at all.
Mr Birts
challenges the judge’s reasoning on two grounds: first, as a matter of
construction of the 1969 lease, it was not the intention of the parties to it
that Mr Stretch’s option to renew should be lost in those circumstances; and,
second, upon the first subletting for an excessive term, as a matter of law:
(a) the reversion as to that unit was not assigned to the sublessee or assignee
absolutely so as to lose the option; (b) the option to renew was not severed;
and (c) the option was not lost. On his second submission he points out that no
authority has been cited where the lease for a term equal to or greater than
the sublessor’s own term contained an option to renew.
It is
unnecessary to deal with this second submission as I am content to assume that
the general rule confirmed in Milmo v Carreras [1946] KB 306
applies, so that the excessive subleases were assignments of the term of the
1969 lease and of the covenants running with the land in respect of the units
that were the subject of those subleases. But it is the case both that Mr
Stretch retained the reversion to one unit, the term of which expired during
the term of the 1969 lease, and that Mr Stretch never assigned the option to
renew.
On the
question of construction I am not able to agree with the judge’s reasoning. He
had rightly stated that, of his four possibilities, which was correct depended
on, inter alia, the true construction of the 1969 lease. In construing
it, I would take account of the fact that the 1969 lease is a building lease
requiring Mr Stretch to bear the burden of erecting up to six buildings. True it
is that only a peppercorn rent was reserved for the first year, with a fixed
but increasing rent every seven years thereafter, but the original term was
comparatively short for building leases, giving him a mere 21 more years in
which to recoup his expenditure and make a profit. Objectively, it can be seen
that the option to renew was an important right for a person undertaking the
building obligations that Mr Stretch did.
The judge
rightly had regard to the definition of the lessee as including, where the
context admitted, the successors in title of Mr Stretch, and he also had regard
to clause 3(xv) of the covenants entered into by Mr Stretch ‘for himself and
his permitted assigns’. Clause 3(xv) was in this form:
not to assign underlet
charge or part with the possession of the said demised premises or any part
thereof without first obtaining the written consent of the Corporation which
consent shall not be unreasonably withheld in the case of a respectable and
responsible assignee or subtenant.
Para (xvii)
also referred to an ‘assignment transfer or underlease … of the said demised
premises or any part thereof’.
The judge
correctly appreciated that the parties to the 1969 lease must have contemplated
that, by the time the option came to be exercised, parts of the demised
premises might have been assigned. It would be remarkable if Mr Stretch, as the
original lessee, who had never assigned the option nor the whole of the term in
all the demised premises, had lost the capacity to exercise the option in circumstances
that both parties had foreseen. The judge thought the condition attached to the
exercise of the option compelled such a result because it was the record of the
option-holder as tenant that was relevant to the grant of a new lease. But Mr
Stretch remained liable on all the covenants in the 1969 lease, notwithstanding
the assignments, and could be judged on his performance. Indeed, West Dorset
unsuccessfully sought to argue before the judge that Mr Stretch did not satisfy
the condition in clause 5(1) because of his failure to observe the covenants in
the 1969 lease.
On the facts
of this case, Mr Reynolds does not suggest that the context of clause 5(1)
allowed the five assignee sublessees to be ‘the lessee’ in place of, or
together with, Mr Stretch and to exercise the option. Mr Reynolds says that the
lessee in clause 5(1) means the person in whom the entire estate in the demised
premises is vested. But why should not clause 5(1) operate in accordance with
its terms to allow Mr Stretch to exercise the option? For my part, I can see no
sufficient reason. There is academic support for such a view. Professor
Barnsley, in his book Land Options, said at p189:
So far as the
original lessee is concerned, it is not thought that severance operates to
destroy his right to renew. Because of privity of contract he ought, it seems,
to be entitled to claim a renewed lease of the entirety of the premises,
assuming he is still the lessee of part at the time of exercise.
It may well be
that an original lessee who assigns all his interest, apart from the option, in
respect of the whole of the demised premises ceases to be the lessee within the
meaning of that term in the 1969 lease and so is unable to exercise the option.
But that is not this case.
Accordingly, I
would hold that, if the grant of the option had been valid, the five
assignments by subletting for excessive terms did not disentitle Mr Stretch
from exercising the option as he did.
But for the
reasons already given, I would dismiss this appeal. I do so with little satisfaction.
It seems to me unjust that when public bodies misconstrue their own powers to
enter into commercial transactions with unsuspecting members of the public,
those bodies should be allowed to take advantage of their own errors to escape
from the
illegality of their own action is an unattractive stance for them to adopt. It
is the more striking when, as in this case, the transaction in question is as
mundane as a building lease; and the local authority, by taking the point
against the member of the public with whom they or their predecessor
contracted, thereby rob that member of the public of part of the consideration
for entering into the lease. I venture to repeat what I said in Credit
Suisse v Allerdale Borough Council [1997] QB 306 at p344:
As a matter
of policy, there is much to be said for the view that a citizen who contracts
in good faith with a governmental body should not have to bear the risk that
the contract may be beyond the legal powers of that body.
But that local
authorities can successfully assert the invalidity of their own action is well
established: see, for example, Hazell v Hammersmith and Fulham London
Borough Council [1992] 2 AC 1, as well as more recent cases like Credit
Suisse. It may be scant comfort for Mr Stretch, but I have considerable
sympathy for him in the result.
OTTON LJ agreed
and did not add anything.
Agreeing, NOURSE LJ said: On the decisive
question, while I too greatly regret the result to which it leads, there can,
in my view, be no doubt that on November 27 1969, when the lease to Mr Stretch
was granted, the land comprised in it did not belong to Dorchester ‘otherwise
than for an express statutory purpose’ within the definition of corporate land
in section 305 of the Local Government Act 1933.
It is now
accepted, on behalf of Mr Stretch, that when Poundbury West Camp was conveyed
to Dorchester on October 25 1961 it was acquired by them for the purposes of
Part V of the Housing Act 1957, being an express statutory purpose within the
definition. On June 5 1962 Dorchester’s finance and rating committee resolved
to recommend to the full council that the land forming the central area of the
camp and comprising 5.34 acres ‘be appropriated for Highways Depot purposes’.
That recommendation was adopted by the council on June 12 1962. It is not
suggested that the appropriation was not validly made pursuant to section 163
of the 1933 Act as amended by section 23 of the Town and Country Planning Act 1959.
On the assumption, favourable to Mr Stretch, that the 1.9 acres comprised in
his lease were wholly contained within the central area thus appropriated, the
question is whether the highways depot purposes for which it thereafter
belonged to Dorchester were an express statutory purpose within the definition.
Mr Birts’
well-sustained argument notwithstanding, that question can only be answered in
the affirmative. Dorchester, in addition to being the local housing authority,
were also the local highway authority. In that capacity they were subject to
the provisions of the Highways Act 1959, section 221 of which authorised them
to acquire, and thus to hold, land required for the provision of any buildings
or facilities needed for the purposes of their functions as a highway
authority. The provision of a highways depot was clearly within the powers so
conferred on them. Thus, from June 12 1962 onwards they held the land for a
different purpose to that for which they had held it before, but indisputably
for another statutory purpose.
On that
footing, the only point left is whether it was an ‘express’ statutory purpose.
I incline to the view that that word is the equivalent of ‘designated’ and is
used in order to distinguish the land referred to from land held generally or
for no designated purpose. If that is right, I would think it beyond argument
that the recommendation, when approved by the council, appropriated the land
for a designated purpose. At times, however, Mr Birts’ argument has tended
towards suggesting that ‘express’ is the equivalent of ‘specific’, which
perhaps has a rather narrower connotation. If that is right, I equally think
that highways depot purposes were, within the wide context of a local highway
authority’s responsibilities under the 1959 Act, a sufficiently specific
purpose to satisfy the definition. Certainly, they were no less specific than
the purposes of Part V of the Housing Act 1957.
For these
reasons, as well as for those given by Peter Gibson LJ, with which I am in
complete agreement, I too would dismiss this appeal.
Appeal
dismissed.