Landlord and tenant — Landlord and Tenant Act 1954 — Break notice — Whether landlord entitled to have rent review during continuation tenancy
By a lease
dated April 15 1981 the appellant tenant was granted a term of 20 years from
September 29 1980 of business premises at a rent which was subject to an
upwards-only review in, inter alia, 1990 and 1995. The reviewed rent was
to be determined on the assumption that the premises were being let for a term
equal to the length of the term of the actual lease. On November 17 1989 the
respondent landlord served notice to determine the term in accordance with the
provisions of a break clause for redevelopment purposes and served a notice to
determine under section 25 of the Landlord and Tenant Act 1954 relying on para
(f) of section 30 of the Act. In the court below the landlord obtained a
declaration that it was entitled to operate the rent review clause. The tenant
appealed.
The expression ‘the term’ in the rent review clause could not be construed as
meaning during the continuation of the tenancy under Part II of the 1954 Act.
The landlord was not entitled to operate the rent review clause.
The following
case is referred to in this report.
Scholl
Manufacturing Co Ltd v Clifton (Slim-line) Ltd
[1967] Ch 41; [1966] 3 WLR 575; [1966] 3 All ER 16, CA; affirming [1966]
Ch 298; [1966] 2 WLR 902; [1966] 1 All ER 993
This was an
appeal by the tenant, Hilary Willison, from the decision of Mr Assistant Recorder
Uff QC whereby he made certain declarations in proceedings by the landlord,
Cheverell Estates Ltd, in relation to an application by the tenant for a new
tenancy under Part II of the Landlord and Tenant Act 1954.
Richard Moshi
(instructed by Sidney Torrance & Co) appeared for the tenant; David Brook
(instructed by Speechly Bircham) represented the landlord.
Giving
judgment, Balcombe LJ said: This is an appeal by the tenant
from a decision of Mr Assistant Recorder Uff QC given in Central London County
Court on July 21 1994 whereby he made two declarations. In order to understand
the nature of the declarations that he made and the point which arises on this
appeal, I must give certain basic facts.
On April 15
1981 the predecessors in title of the present respondent (‘the landlord’ or
‘the lessor’) granted a lease of 38 Monmouth Street, London WC2, to the
appellant tenant. The lease started with a number of definition clauses which
defined the lessor, the lessee, the premises. Then come these definitions:
‘the term’:
Twenty years commencing on 29th September 1980 (determinable earlier); ‘the
rent’: Eight thousand pounds per annum or such other amount as is payable as
rent from time to time hereunder; ‘the review dates’: 29th September in the
years 1985, 1990 and 1995.
The next
definition I need to refer to is:
‘the earliest
date of determination’: (see clause 4 (7)) 29th September 1985.
Then there is
the usual demise.
Clause 2
contains a series of covenants by the lessee with the lessor. I need to refer
to one or two only to make the points which arise in this case:
2 The Lessee
hereby covenants with the Lessor …
(2) To pay to
the Lessor on demand in each year during the term in sum … equivalent to the
amount which the Lessor shall from time to time pay by way of premium for
keeping the premises insured …
(3) To pay
all rates, taxes charges assessments and outgoings whatsoever during the term
assessed or charged in respect of the premises …
There are
other references to the term, in particular in the ‘repairing’ covenants and
the ‘painting’ covenants.
I turn to
clause 3, which contains the lessor’s covenants. Clause 3(1) is the usual
covenant for quiet enjoyment:
The Lessor
hereby covenants with the Lessee as follows:
(1) That the
Lessee paying the rent and observing and performing the several lessee’s
covenants and stipulations herein contained shall peaceably hold and enjoy the
premises during the term without any interruption by the Lessor …
Clause 4
contains a series of provisos. Clause 4(6) is a ‘rent review’ clause which I
must give in some detail:
6(a) From
each review date until as the case may be either the next review date or the
end of the term the Lessee shall pay to the Lessor in each year rent (in this
clause referred to as ‘the new rent’) being whichever is the greater of the sum
equal to the rent payable immediately prior thereto or a sum equal to the
annual rack rental value at the review date in question of the premises determined
in accordance with this clause.
Clause 4(6)(b)
provides for the possibility of the new rent being agreed in writing between
the lessor and the lessee or, in default of such agreement, being determined by
an independent surveyor acting either as an arbitrator or an expert at the
discretion of the lessor.
Clause 4(6)(c)
provides:
The annual
rack rental value shall be ascertained on the assumption that the premises
being let with vacant possession by a willing lessor to a willing lessee on the
open market without payment of a premium upon the terms of this lease (other
than the rent reserved and the term) and on the assumption
(i) that the
Lessee’s covenants have been fully complied with and
(ii) of a
term equal to the length of term of this lease but commencing on the review
date with rent reviews at similar intervals to the reviews of this lease but
disregarding …
and certain
matters are to be disregarded which I do not think it necessary for me to refer
to here. I need not refer to any of the remaining subparagraphs of subclause
(6) of clause 4.
Clause 4(7) is
a break clause in the following terms:
If at any
time during the term the Lessor desires to demolish or reconstruct the premises
or any substantial part thereof or to carry out substantial work of
construction or improvement on the premises or the site thereof then the Lessor
may determine the term by giving to the Lessee not less than six months notice
in writing in that behalf expiring not before the earliest date for
determination and upon the expiration of such notice the term shall thereupon
determine …
There are no
further provisions of the lease to which I need refer. On November 17 1989 the
landlord, by its solicitors, gave notice to the tenant in the following terms:
We …
— and the name
and address of the solicitors is given —
hereby give you notice
in accordance with Clause 4(7) of your Lease dated 15 April 1981 … that the
Lessor desires to demolish or reconstruct the premises or any substantial part
thereof or to carry out substantial work of construction or improvement on them
or the site and the term granted by the said Lease is therefore to determine on
18th May 1990.
At one time
there was a dispute between the parties as to whether that notice was effective
and at different times during this litigation the parties’ views have varied.
For present purposes it is common ground — because this was so decided by the
judge below and no point has been taken on it in this court — that that notice
was effective according to its tenor, subject only to the effect upon it of the
provisions of Part II of the Landlord and Tenant Act 1954.
On the same
day the landlord gave to the tenant a notice under section 25 of the Landlord
and Tenant Act 1954 terminating the tenancy on May 19 1990 and stating in the
notice that it would oppose any application to the court for the grant of a new
tenancy on the grounds mentioned in para (f) of section 30 of the Act,
which is that on the termination of the current tenancy the landlord intended
to demolish or reconstruct and needed the same for that purpose. The tenant in
due course applied for the grant of a new tenancy under the 1954 Act and that
application remains to be determined.
One of the
issues before the learned assistant recorder and the sole issue before us on
this appeal is whether in the events which have happened, namely the giving of
the notice under the break clause on November 17 1989 and the effect of the
provisions of the 1954 Act, the rent review clause, is still operative.
I go first to
the provisions of the Landlord and Tenant Act 1954. Section 24 of that Act
provides that:
(1) A tenancy
to which this Part of this Act applies shall not come to an end unless
terminated in accordance with the provisions of this Part of this Act; and,
subject to the provisions of section 29 of this Act, the tenant under such a
tenancy may apply to the court for a new tenancy
— then (a)
which is the relevant paragraph in this case —
(a) if
the landlord has given notice under section 25 of this Act to terminate the
tenancy …
Section 24A,
which was introduced later by amendment, provides that:
(1) The
landlord of a tenancy to which this Part of the Act applies may —
(a) if
he had given notice under section 25 of this Act to terminate the tenancy; …
apply to the
court to determine a rent which it would be reasonable for the tenant to pay
while the tenancy continues by virtue of section 24 of this Act, and the court
may determine a rent accordingly.
Finally, I
mention section 64 which provides:
In any case
where —
(a) a
notice to terminate a tenancy has been given under … Part II of this Act … and
(b) an
application to the court has been made under the said … Part II … and
(c)
apart from this section the effect of the notice … would be to terminate the
tenancy before the expiration of the period of three months beginning with the
date on which the application is finally disposed of,
the effect of
the notice shall be to terminate the tenancy at the expiration of the said
period of three months and not at any other time.
Subsection (2)
of that section makes provision for determining when a section is finally
disposed of.
There have
been a number of cases upon the effect of giving a contractual notice under the
Act and what effect that has on the contractual rights, as between the parties,
in the light of the statutory provisions for the continuation of the tenancy.
For present purposes, I think it is sufficient if I refer to the decision of
this court in Scholl Manufacturing Co Ltd v Clifton (Slim-line) Ltd [1967]
Ch 41 and part of the judgment of Diplock LJ starting at p51F where he
describes the effect of the contractual provisions of a break clause in a lease
and the statutory provisions under the Act:
A tenancy
with a break clause is a tenancy for a term of years certain within the meaning
of the Act but, until the latest date at which notice may be given subject to
the break clause, it is also one which, apart from the Act, could be brought to
an end by a notice to quit given by the landlords. By serving a notice in
accordance with the provisions of the break clause, but not in the prescribed
form, the landlords converted it into a tenancy for a term of years certain
expiring upon the earlier date specified in the break clause, but the Act
itself prevents such a notice from bringing the tenancy to an end. It will
continue thereafter by virtue of the Act until brought to an end by notice in
the prescribed form appropriate to a tenancy for a term of years certain
expiring at that earlier date.
I am happy to
accept that as a clear definition of the relevant law and of the effect of the
Act on this tenancy.
For my part, I
do not find it necessary to refer to any of the other cases which have been
cited to us this morning.
The issue on
this appeal, which in the end is a short point but not entirely an easy one, is
what is the effect on the rent review clause in this particular case, of what
has happened by virtue of the notices to which I have referred and the Act. One
thing is clear — that at the moment this tenancy is still continuing but,
nevertheless, the break clause operated according to its tenor and the
contractual term the parties had agreed expired on May 18 1990.
The parties
throughout the lease have used the words ‘the term’. Prima facie one
would have expected them to have meant the particular definition they gave to
it at the beginning of the lease, namely 20 years commencing on September 29
1980 (determinable earlier); where it had been determined earlier, they meant a
term expiring on May 18 1990. Nevertheless, it is clear that the phrase ‘the
term’ as used in certain clauses of the lease should and must be construed as
meaning during the continuation of the tenancy because the clause to which I
have referred already — for example clause 2(2), to pay to the lessor during
the term the insurance moneys or to pay rates, taxes, etc charged on the
premises during the term and possibly more, particularly the landlord’s
covenant for quiet enjoyment which provides for the tenant to hold and enjoy
the premises during the term without any interruption — must be intended to
mean during the continuation of the tenancy hereby created; as might be
paraphrased during the subsistence of the relationship of landlord and tenant
between the parties.
The real
question is can or should the words ‘the term’ be given that extended meaning
in the context of the rent review clause in clause 6(a)? I start with the
approach that one would normally give the phrase the meaning which the parties
had themselves expressly given it. I have already indicated that that would
suggest, in the circumstances of this case, a term which expired on May 18
1990. What makes me clear in my mind that that is the meaning which is to be given
to the phrase in the context of the rent review clause, is the provision of
subpara (c)(ii) of the rent review clause. That, if I may remind myself, is the
provision which provides that the rent, when the rent review clause is
operated, is to be ascertained on the assumption that there is to be left a
term equal to the length of term of this lease but commencing on the review
date.
Anyone who is
trying to assess a rent for commercial premises must have certain parameters to
go by. One would have thought it must be virtually impossible to assess the
rent appropriate for a tenancy which might continue indefinitely because there
is not even, as there would be with a periodical tenancy or a tenancy at will,
a specific requirement for one party or the other to determine it. It seems to
me clear in the context of this provision that what was being contemplated by
the parties was a rent review clause which could be operated during the
contractual term of the lease. If the lease went its full term, that is 20 years,
expiring on September 29 2000, there would be no problem. But once the
contractual term was determined earlier than that, I can find no scope within
the wording of the rent review clause for its operation. If one were to try and
substitute in this case the alternative meaning which I suggested might be
given to the words ‘the term’ in the earlier clauses, such as the covenant for
quiet enjoyment, namely during the subsistence of the relationship of landlord
and tenant, one would have to translate clause (c)(ii) as providing for a term
equal to the period during which the relationship of landlord and tenant
continued to subsist. And at the beginning of clause 6(a) the rent review
clause would be operable until, as the case may be, either the next review date
or the end of the period during which the relationship of landlord and tenant
continued to subsist.
Even Mr David
Brook, for the landlord, does not suggest that the clause has that meaning. He
submits that in the context of the rent review clause the parties were
referring only to the fixed term of the lease and were not considering the
possibility that it might be determined earlier or continued later. If they had
wanted to — there is
the tenant — they could have defined the term as including the contractual term
and any period of holding over or extension or continuance of the contractual
term whether by statute or common law. They did not choose to do so and, in my
judgment, the only sensible meaning to give to the word ‘term’ within the rent
review clause in its context is the meaning which the parties themselves chose
to give it by their own definition clause at the beginning of the lease, namely
20 years commencing on September 29 1980 determinable earlier. Since in this
case the term was determined earlier, then, in my judgment, there is nothing
left upon which the rent review clause can now operate, even though there is a
continuing tenancy on which some other clauses in the lease, which use the word
‘term’, can indeed operate.
It will become
apparent in a moment that I disagree with what the learned judge said; he dealt
with this point quite shortly towards the end of his judgment. He rejected Mr
Moshi’s contention and he said:
First the
term as defined in the lease is stated to be ’20 years commencing on 29th
September 1980 determinable earlier’.
Then comes
this sentence:
It is clear
that the term as stated is not shortened for contractual purposes by invoking
clause 4(7).
I have to say
that not only do I not understand why it should be clear that the term is not
shortened: in my judgment, for the reasons which I have attempted to give, it
is the opposite which, if not clear, can be arrived at by the process I have
attempted.
The actual
declarations which the judge made were as follows. The first declaration about
which there is now no contest was that the lease dated April 15 1981 was
determined by the first defendant’s (the landlord’s) notices dated November 17
1989, but that the tenancy continues in force pursuant to the Landlord and
Tenant Act 1954 until a new lease is granted. That declaration is not
challenged.
The second
declaration is:
…
notwithstanding (i), the landlord has the right to invoke the rent review
clause and has done so. The appointment of the arbitrator is therefore valid.
For the
reasons I have attempted to give, in my view, that second declaration was
wrong.
I would allow this
appeal and discharge the second declaration.
I should add
that I do not think that this decision, which is not merely particular to the
rent review clause in this case, but on the peculiar facts of this case, is
likely to cause any general problems.
Section 24A of
the 1954 Act gives ample opportunity for a landlord to have an interim rent
fixed by reference to market rents determined during the continuation of the
tenancy until the matter is finally decided by the court. It is only because of
the peculiar history of this case, which I have not gone into in any detail,
which includes the reversal of the positions taken by the landlord and the
tenant at one time because each then found it convenient to argue a different
way, that it may be advantageous for the landlord to seek to operate the rent
review clause rather than have an interim rent determined under section 24A.
That depends partly on the question of dates, partly on what has happened to
the commercial market in the interval.
I have no
particular qualms that the decision which I am minded to give is going to have
disastrous repercussions. Even if it were, and as I say I do not think so, I
have come firmly to the conclusion I have upon the construction of this lease,
in the circumstances mentioned. So to conclude, I would allow this appeal and
discharge the second declaration in the order dated July 21 1994.
Otton and Aldous LJJ agreed and did not add
anything.
Appeal
allowed.
