Landlord and tenant — Landlord and Tenant Act 1954 Part
In December 1992 British Railways Board granted the appellant
tenant a lease of a car park for a term expiring in August 1997. Following the
privatisation arrangements for British Railways Board, the respondent company,
a subsidiary of the board, became the competent landlord for the purposes of
the Landlord and Tenant Act 1954. On 2 October 1996 the respondent served
notice on the tenant under section 25 of the 1954 Act terminating the tenancy
on 23 August 1997; the notice stated that the landlord would oppose the grant
of a new tenancy on ground (g) of section 30(1) of the Act as it wished
to occupy the car park for the purposes of its business. In the court below, it
was held that ground (g) was satisfied and that the respondent had a
genuine intention of occupying the premises for the purposes of its business;
it was also held that the landlord satisfied the five-year period of ownership
for the purposes of section 30(2), as the landlord and the board were part of
the same group of companies. The tenant appealed that part of the decision
relating to the five-year period.
between British Railways Board and the respondent company resulted in the board
being the company whose interest must be looked at for the purposes of
determining whether the five-year requirement was satisfied. If the board’s
interest qualified, then the respondent’s interest qualified as well. The board
held a freehold prior to 30
leasehold interests; this satisfied the requirements of ownership in the way
that a succession of leasehold-only interests did in Artemiou v Procopiou
[1966] 1 QB 878. At all times from 23 August 1992, the beginning of the five‑year
period, either the board or the respondent company, which were members of the
same group, was the landlord; the respondent company was therefore entitled to
rely on ground (g).
The following cases are referred to in this report.
Artemiou v Procopiou
[1966] 1 QB 878; [1965] 3 WLR 1011; [1965] 3 All ER 539, CA
Diploma Laundry
Ltd v Surrey Timber Co Ltd [1955] 2 QB 604; [1955] 3 WLR 404; [1955]
2 All ER 922
This was an appeal by the applicant, VCS Car Park Management Ltd,
from a decision of Judge Gullick in Scarborough County Court determining a
preliminary issue in proceedings by the applicant for a new tenancy under Part
II of the Landlord and Tenant Act 1954, to which the respondent was Regional
Railways North East Ltd.
Sarah Richardson (instructed by Irwin Mitchell, of Sheffield)
appeared for the appellant; Zia Bhaloo (instructed by Vizards) represented the
respondent.
Giving the first judgment, SIR
RICHARD SCOTT V-C said: This is an appeal from the judgment
delivered on 12
point as to the operation of Part II of the Landlord and Tenant Act 1954. The
premises to which the point relates consist of a car park at Whitby station in
North Yorkshire. A lease of the car park was granted on 18 December 1992 by
British Railways Board, which at that date ran the British Rail system under
the provisions of the Transport Act 1962. The lease was granted to the
appellant before us, VCS Car Park Management Ltd (to whom I shall refer for
convenience as VCS). The lease that was granted to VCS was a six-year term
running from 24 August 1991 to 23 August 1997. As is perhaps obvious, VCS
intended to use and did use the demised premises for its business purposes,
namely as a car park serving those who used Whitby station.
The tenancy that VCS held was a tenancy to which the provisions of
Part II of the Landlord and Tenant Act 1954 applied. By 2 October 1996 the
landlord under the 18
North East Ltd (to which I shall refer for convenience as Regional Railways).
The manner in which Regional Railways had become the landlord in respect of the
lease is a somewhat convoluted one, and I shall have to devote a little time to
explaining it. Be that as it may, on 2
served notice on VCS under section 25 of the Landlord and Tenant Act 1954
terminating the tenancy on 23 August 1997. It was stated in the notice that if
VCS should apply to the court under Part II of the Act for the grant of a new
tenancy, Regional Railways would oppose it on ground (g) of section
30(1) of the Act. Let me turn to that section and that ground because it is
central to the issues that arise in this appeal.
Section 30(1) of the 1954 Act sets out the grounds on which a
landlord may oppose an application by a business tenant for a new tenancy.
Ground (g) says this:
subject as hereinafter provided, that on the termination of the
current tenancy the landlord intends to occupy the holding for the purposes, or
partly for the purposes, of a business to be carried on by him therein, or as
his residence.
In the present case, the point about residence clearly does not
apply. The stated intention was that Regional Railways wanted to occupy the car
park for the purposes of a business to be carried on by Regional Railways.
Subsection (2) of section 30 provides that:
The landlord shall not be entitled to oppose an application on the
ground specified in paragraph (g) of the last foregoing subsection if
the interest of the landlord, or an interest which has merged in that interest
and but for the merger would be the interest of the landlord, was purchased or
created after the beginning of the period of five years which ends with the
termination of the current tenancy, and at all times since the purchase or
creation thereof the
description specified in subsection (1) of section twenty-three of this Act.
The five-year period runs back to 23 August 1992. In order to rely
on ground (g), Regional Railways had to show that its interest in the
premises was not one that had been, for the purposes of subsection (2),
purchased or created after the beginning of the period of five years ending
with the termination of the current tenancy, namely 23 August 1992.
I should refer also to section 42 of the 1954 Act, which deals with
the position where members of the same group of companies are involved in the
creation or purchase of the interest of the landlord. Subsection (1) says that:
(1) For the purposes of this section two bodies corporate shall be
taken to be members of a group if and only if one is a subsidiary of the other
or both are subsidiaries of a third body corporate.
In this subsection ‘subsidiary’ has [the meaning given by section
736 of the Companies Act 1985].
(3) Where the landlord’s interest is held by a member of a group —
(a) …
(b) the reference in subsection (2) of [section 30] to the
purchase or creation of any interest shall be construed as a reference to a
purchase from or creation by a person other than a member of the group.
Finally, I think I should refer to section 44 of the Act, which
defines the meaning of landlord. It says that in the Act the expression ‘the
landlord’:
means the person (whether or not he is the immediate landlord) who
is the owner of that interest in the property comprised in the relevant tenancy
which for the time being fulfils the following conditions, that is to say —
(a) that it is an interest in reversion expectant (whether
immediately or not) on the termination of the relevant tenancy, and
(b) that it is either the fee simple or a tenancy which
will not come to an end within fourteen months by effluxion of time and, if it
is such a tenancy, that no notice has been given by virtue of which it will
come to an end within fourteen months or any further time by which it may be
continued by section 36(2) or section 64 of this Act,
and is not itself in reversion expectant (whether immediately or
not) on an interest which fulfils those conditions.
I must now turn to the manner in which Regional Railways became the
landlord under the 18 December 1992 lease. These arrangements were part of the
consequence of the privatisation of the railways for which provision was made
by the Railways Act 1993. A number of steps were taken in pursuance of the
object of that Act. If, as I mention them one by one in their chronological
order, they seem convoluted and without explanation, I can offer no excuse. I
have no doubt that they were all intended to promote the object of the Act, but
I do not wish to be asked to explain how that was so.
On 30 March 1994 the Secretary of State, in exercise of his power
under the Act, directed British Railways Board (the board) to transfer to a new
company, Railtrack, the undertaking of the board. Railtrack was a company
incorporated by statute. All the shares in Railtrack were initially held by the
Secretary of State but later, after the preliminary arrangements had been made,
were sold to the public. So, on 30 March 1994, the Secretary of State gave the
direction to which I have, in broad terms, referred. On the same day a transfer
scheme was signed by the board and by Railtrack. The transfer scheme effected,
as from a date to be fixed by the Secretary of State, the transfer of the board’s
undertaking to Railtrack. The property transferred included the Whitby station
car park.
Under clause 14 of the transfer scheme, the board and Railtrack
agreed to enter into a lease that became known as ‘the global lease’. The date
fixed by the Secretary of State for the transfer scheme to take effect was 1
April 1994. So, on 1 April 1994, the transfer to Railtrack of the car park,
along with all the board’s other property, took place. On the same date the
global lease was granted by Railtrack to the board. The global lease was a
leaseback to the board of all the property comprised in the transfer, including
Whitby station and the car park, for a term of five years from 1 April 1994 to
1 April 1999. The effect, therefore, of the transfer followed by the leaseback
was, vis-à-vis the car park, and I am concerned with nothing else, that the
board had gone from being a freeholder to being a leaseholder under a five-year
lease. Vis-à-vis the car park, the global lease was a reversionary lease. The
board, lessee under the global lease, became, as it had been as freeholder, the
landlord under the 18 December 1992 lease to VCS.
On 14 September 1995 the Secretary of State made another direction
under section 85 of the Railways Act 1993. This time he directed the board to
transfer to Railtrack the property comprised in the global lease, which had
been granted some 18 months previously. Again, the transfer was to take effect
on a date to be specified by the Secretary of State. On the same day,
14
premises comprised in the global lease. But at the same time, under a clause in
the transfer, the board and Railtrack agreed to enter into another lease
(called for convenience ‘the global station lease’). The Secretary of State
specified 17 September for this new scheme to take effect. So, on that date the
global lease was transferred by the board to Railtrack. The effect was a
surrender. And, on the same day, Railtrack granted the board the global station
lease. The premises comprised in the global station lease included Whitby
station and the car park. This lease granted a term that ran from
17
second reversionary lease, the first reversionary lease having been
surrendered. Under the global station lease, the board remained the landlord
under the 18 December 1992 lease.
On 8 December 1995 the board surrendered to Railtrack the premises
comprised in the global station lease. But on the same day Railtrack granted
yet another lease to the board of premises that included Whitby station and the
car park. The term of this lease ran from 8 December 1995 to 31 March 2001.
This was, vis-à-vis the Whitby station car park, a new reversionary lease. On the
same day, pursuant to another transfer scheme that had been directed by the
Secretary of State, the board’s interest under this new lease (I will call it
the Whitby station lease) was transferred to Regional Railways. The date fixed
by the Secretary of State for the transfer to come into effect was 10 December.
So, as from 10 December, Regional Railways became the lessee under the Whitby
station lease and, accordingly, the landlord under the lease of 18 December
1992. The term of the Whitby station lease was expressed to continue until 31
March 2001. It follows that Regional Railways qualifies as landlord in respect
of the 1992 lease for the purposes of the 1954 Act. The residue of its term
after the expiry of that lease was longer than 14 months.
Finally, on 2 March 1997, yet another lease of Whitby station and
the car park was granted by Railtrack to Regional Railways. The term of this
lease runs from 2
the grant of the second lease, while the Whitby station lease still had some
four years or so to run, I do not know. It perhaps does not matter. This, too,
was a reversionary lease vis-à-vis the 18 December 1992 lease of the car park.
One of the requirements of the 1954 Act, if an objection under ground
(g) is to be made good, is that the landlord must have a genuine
intention of occupying the premises for the purposes of his business or, as the
case may be, as his residence. This was a matter that was in issue before the
judge below. He resolved the issue in favour of Regional Railways. There is no
appeal on that point. It stands established, therefore, that Regional Railways
has the requisite intention of occupying the car park for the purposes of its
own business. But, as appears from section 30(2), which I have read, a ground (g)
objection can only be maintained by a landlord whose interest was not purchased
or created within the five years preceding the expiry of the term in question.
It has been submitted by Miss Sarah Richardson, counsel for VCS (the appellant
before us), that Regional Railways’ interest was created only in 1995; that is
to say, well within the five-year period. But the transfer of the Whitby
station lease by the board to Regional Railways was a transfer by Regional
Railways’ own holding company. They were members of the same group for the
purposes of section 42(3)(b) of the Act. It follows that that transfer
does not matter, so far as qualifying under section 30(2) is concerned.
In my judgment, the corporate relationship between the board and
Regional Railways results, in effect, in the board being the company whose
interest must be looked at for the purpose of determining whether the five-year
requirement is satisfied. If the board’s interest qualifies for section 30(2)
purposes, then it seems to me that the interest of Regional Railways qualifies
as well.
The judge held that the board’s interest did qualify. He noted that
the board had been the freeholder before the transactions brought about by the
Railways Act 1993 were entered into. The board was the freeholder before 30
March 1994. There was never thereafter a time when, so far as the Whitby
station car park was concerned, the board did not have a leasehold interest in
the premises, until the time when the Whitby station lease was transferred to
Regional Railways on 8 December 1995. The board’s interest varied. It began as
a freehold; it then became a lease under the global lease; it then was
translated into a lease under the global station lease; and finally it became a
lease under the Whitby station lease. There is Court of Appeal authority for
the proposition that the interest of a landlord that consists of a series of
successive leases, the earliest of which is outside the requisite five-year
period, enables the landlord to claim an interest qualifying under section
30(2). The case is Artemiou v Procopiou [1966] 1 QB 878F.
Danckwerts LJ, in his judgment at p885, referred to the object of section
30(2). He said this:
The object of the subsection is clearly to prevent exploitation of
tenants by landlords who acquire the reversion with the object of forthwith
evicting a tenant on the expiration of his tenancy.
He then observed that in a case where the landlord had obtained
successive tenancies going back over a period exceeding the requisite five
years, there was no mischief at which the prevention of which the subsection
was aimed. He expressed his conclusion at p888D. He said:
The provision — that is section 30(2) — cannot have been intended
to defeat landlords who have been landlords of the holding for a long period,
even if their title has been renewed within the last five years. There is a
perfectly reasonable construction available which avoids such an unfortunate
result.
In my view, ‘the interest of the landlord’ means the interest of
the landlord in the holding from the time when it originally arose by purchase
or creation. This construction covers equally an interest of a landlord under
one long period by one lease or under a series of leases. In my opinion this
construction makes sense and the other construction does not.
This was a view accepted, also, by the other members of the court.
Miss Richardson has pointed out, rightly, that the judgment was
dealing with a series of successive leases. It was not dealing with a situation
where the landlord claiming the relevant interest began as a freeholder and
then became a leaseholder with successive leases. The question of the addition
of a freehold to a leasehold was not considered by the Court of Appeal in Artemiou
v Procopiou. But the court’s reasoning, in accepting that a series of
leasehold terms under successive leases would qualify, provided the cumulative
interests had been held for the requisite five years, applies equally, in my
opinion, to a case where the person claiming the interest starts as a
freeholder and then becomes a leaseholder. The mischief at which the Act is
aimed is not offended by allowing such a person to object to the grant of a new
tenancy under ground (g). For the same reason as the Court of Appeal in Artemiou
v Procopiou was prepared to allow, as a matter of construction, an
interest held under successive leases to qualify, so, in my judgment, we should
allow an interest held first as a freehold and then under a lease or successive
leases to qualify.
Miss Richardson referred, in arguing that this result was wrong, to
an earlier Court of Appeal decision, Diploma Laundry Ltd v Surrey
Timber Co Ltd [1955] 2 QB 604. This, too, was a case in which section 30(2)
of the 1954 Act was in point. The landlord objecting to the grant of the new
tenancy on ground (g) had purchased the freehold reversion of the
premises and had then let them to another company for a term that was due to
expire at or about the time of expiry of the term of the tenant from whom possession
was being sought. The landlord had taken a surrender of that tenancy so that,
at the time when the landlord was objecting on ground (g), the landlord
simply had a freehold, the surrendered lease having gone. The surrender, of
course, took place within the five-year period. The Court of Appeal held that
the landlord was entitled to rely on ground (g). Lord Evershed MR said
at p611 that for the purposes of section 30(2):
one has to consider at the date of the application who are the
landlords or the possible qualifiers as landlords, and what their interests
then are.
This language, suggested Miss Richardson, does not permit a
freehold interest that the landlord had earlier enjoyed to be added to the
leasehold interest held by the landlord at the expiry of the tenancy in
question.
In my opinion, however, there is nowhere to be found in the Diploma
Laundry case any expression of principle that is opposed to the recognition
of the board’s interest in the present case. The Court of Appeal was not
considering the case of a freehold followed by successive leases any more than
the Court of Appeal in Artemiou v Procopiou was considering that
point. As I have said, it seems to me that the reasoning in Artemiou v Procopiou
supports allowing an interest that consists of freehold plus successive leases
to qualify under section 30(2). I can see nothing in the reasoning in Diploma
Laundry that runs the other way. Accordingly, in my view, if the board had
been the landlord at the time of the section 25 notice and the application for
a new tenancy, the board would have been entitled, by virtue of its interest
first as freeholder and then under successive leases, to object on ground (g).
Regional Railways, a member of the same group as the board, acquired its
interest by a transfer from the board. In my judgment, Regional Railways is
entitled to claim the same protection by virtue of the same interest that the
board would have been entitled to rely on.
There is a further consideration, however, that I would mention. At
the time when the transfers by Railtrack and surrenders back to Railtrack took
place, Railtrack was not a company the shares in which were owned by members of
the public. It was a company the shares in which were all owned by the
Secretary of State. We have been told that the Secretary of State owned all the
shares until privatisation on 20 May 1996. So Railtrack was a company the
shares of which were owned by the Crown. The board, under the Transport Act
1962, was established as a body corporate. It does not have shareholders. Its
members are the members of its board. All the members of its board are
appointed by the Secretary of State. It is an emanation of the Crown, just as
much as Railtrack is an emanation of the Crown.
Section 42 of the 1954 Act, in describing who are to be treated as
‘members of the same group of companies’ and who are to be treated as
subsidiaries, is directed particularly at ordinary Companies Act companies. The
definition of ‘a subsidiary’ in
section 736 of the Companies Act 1985 has three possible qualifying limbs:
(1) A company is a ‘subsidiary’ of another company, its ‘holding
company’ if that other company —
(a) holds a majority of the voting rights in it, or
(b) is a member of it and has the right to appoint or
remove a majority of its board of directors, or
(c) is a member of it and controls alone, pursuant to an
agreement with other shareholders or members, a majority of the voting rights
in it,
or if it is a subsidiary of a company which is itself a subsidiary
of that other company.
So far as the board is concerned, the Crown is not strictly
speaking a member of it, although it is, in my opinion, properly to be regarded
as an emanation of the Crown. The Secretary of State appoints the directors.
The Secretary of State can direct what it is to do. The Secretary of State,
through that control, controls the decisions that the board may from time to
time make. There is, to my mind, as close a connection between the board and
Railtrack in its pre-privatisation state as there is between members of groups
that do fall within the section 736 definition. I would have found it very odd
indeed, and unsatisfactory, if the result of this litigation had been obliged
to treat Railtrack and the board as separate independent companies, which they
evidently were not when any of these transfers took place. Whether it would be
right to conclude that Railtrack, in its pre-privatisation state,
and the board should be treated, for section 42 purposes, as if they were
members of the same group is a question that we do not need to decide. If it
had been necessary, I would have tried my best to have produced that result. In
the event, however, I do not think it is necessary to do so.
I think the judge came to the right conclusion for the right
reasons and I would dismiss this appeal.
SWINTON THOMAS LJ
agreed and did not add anything.
Agreeing, ROBERT WALKER
LJ said: I also agree and add a few words of my own. The
reorganisation of the railways provided for in Part II of the Railways Act
1993, in preparation for privatisation, seems to have been carried out by a
series of schemes and conveyancing manoeuvres of Byzantine complexity. The
documentation for those schemes was prepared by prestigious city solicitors but
it is simply not possible, in the light of unaided reason, to discern the
strategy or the commercial purposes behind successive steps. It is a matter of
regret that this court has not been given much help (nor, I think, was the
judge given much help) in understanding those obscurities. It does therefore
take some time to discern the real issue in the case, but once it is discerned
it is a fairly short point. It is clear that at all times since 23 August 1992
(the beginning of the relevant five-year period) either British Railways Board
or Regional Railways, which were members of the same group, was the landlord
for the purposes of Part II of the 1954 Act, by virtue of owning either the
freehold or some reversionary leasehold interest (as described by my lord) in
the car park. The acquisition of the leasehold interest in December 1995 was
not therefore within the mischief of section 30(2) of the 1954 Act as
identified by this court in Artemiou v Procopiou. The decision in this case
involves a modest extension of that case. But, in my judgment, the judge was
right in making that extension.
Appeal dismissed.
