Landlord and Tenant Act 1954, Part II — Application for new tenancy — Landlords’ application for interim rent under section 24A — Building at end of its useful life subject to serious structural defects — Problems as to length of new tenancy, rent, interim rent and cost of temporary strengthening of structure — Lease had been for a term of 21 years from 1963, with a rent of £4,250 for first seven years, rising to £5,000 during residue of term — Tenants had also to contribute, by way of additional rent, ‘a fair proportion’ (to be assessed by the lessors’ surveyor) of the cost of keeping the structure in good repair and there was a covenant by the tenants to keep the interior in good repair — The condition of the structure had deteriorated in an alarming way before the trial and temporary propping, to be followed by a more permanent steel frame, became necessary — The judge decided that the tenants were liable to bear one half of the cost of these strengthening measures so far as taking place during the currency of the lease as continued by the Act — As regards the length of the new tenancy, both parties agreed that it should be short — The judge accepted the tenants’ proposal for a term of nine months as against the landlords’ argument for a shorter period (on the ground that their capital was tied up on a site awaiting development) — The determination of rent was facilitated by the agreement of the parties that a particular ‘comparable’ was relevant — The judge arrived at a rent of £29,000 (on an annual basis) after taking account of necessary modifications in the repairing obligations and making a discount of 45% for a nine-months’ term as contrasted with the seven-year term of the comparable — The interim rent under section 24A was a matter of great difficulty — Applying the guidance given by English Exporters (London) Ltd v Eldonwall Ltd and Fawke v Viscount Chelsea, and taking account of all the circumstances, the judge determined an interim rent of £20,500
The following
cases are referred to in this report.
English
Exporters (London) Ltd v Eldonwall Ltd [1973]
Ch 415; [1973] 2 WLR 435; [1973] 1 All ER 726; (1972) 25 P&CR 379; [1973]
EGD 439; 225 EG 255 & 433
Fawke v Viscount Chelsea [1980] QB 441; [1979] 3 WLR 508; [1979] 3
All ER 568; (1979) 38 P&CR 504; [1979] EGD 146; (1979) 250 EG 855, [1979] 1
EGLR 89, CA
This was an
originating summons by which the plaintiffs, the partners of Turberville
Woodbridge, solicitors, sought a new tenancy of premises on the second and
third floors of Blair House, Vine Street, Uxbridge, of which the defendants,
Westminster Press Ltd, were the landlords.
Jonathan Gaunt
(instructed by Turberville Woodbridge, of Uxbridge) appeared on behalf of the
plaintiffs; B W T Leech (instructed by H Ellins & Co, of Hungerford,
Berkshire) represented the defendants.
Giving
judgment, JUDGE PAUL BAKER QC said: This is an application under Part II of the
Landlord and Tenant Act 1954 for a new lease of the second and third floors of
Blair House, Vine Street, Uxbridge. It is an office block built about 25 years
ago. The plaintiff tenants are solicitors carrying on their practice in those
floors; the defendants are the landlords of the premises. I have also before me
an application on the part of the landlords for an interim rent.
The main
issues that I have to consider are the length of the term to be granted and the
rent of the new lease, and also — this is perhaps even more important — I have
had to consider the amount of the interim rent.
There are a
number of unusual features in this case. It is common ground that the building,
although built only 25 years ago, has reached the end of its useful life owing
to certain inherent defects in its construction. Indeed it has to be pulled
down as soon as possible and replaced with another office building. In the
meantime it needs to be strengthened to make it secure temporarily, so another
question I have to consider is how the cost of that is to be borne.
There was another question of how it was to be strengthened, but as the
case has developed over the last six days, that issue has become clarified so
that it is now agreed as to how it is to be strengthened; but I have to deal
with the cost. Those are the issues.
The existing
lease was made on August 1 1963 between King & Hutchings Ltd, the
predecessors of the present defendants, and Tom Philip Woodbridge and John
Nicholas Woodbridge, the then senior partners of the firm; by an order to carry
on the present partners have been substituted for those original plaintiffs,
one of whom has died. I need not go into the details, since that has all been
worked out and satisfactorily arranged.
The lease was
for a term of 21 years from June 24 1963 with a rent during the first seven
years of £4,250 rising to £5,000 during the residue of the term. That was a
rent at £5,000 pa for 14 years, which became an advantageous rent. In addition
to that, there was by way of additional rent a fair proportion, to be assessed
by the surveyor of the lessors, of the amount which the lessors may have
expended in effecting and maintaining the insurance of the building; also, and
this is more important:
(2) a fair proportion to be assessed as aforesaid
of the amount which the lessors may expend pursuant to their covenant in that
behalf hereinafter contained in keeping the foundations, main walls, timbers,
structure and roof of the said building and the said parking spaces in good
repair and condition and in cleansing repairing and renewing or causing to be
cleansed repaired and renewed the sewers, drains, water courses, cables, pipes
and wires of and in the said building (except those in the demised premises)
and in redecorating the exterior . . .
Thus the tenant
had to contribute to the cost of keeping the foundations and main walls,
timber, structure and roof of the building in good repair. Under (3) there was
to be added a fair proportion ‘assessed as aforesaid’ in keeping the lift
going, the central-heating system and in providing hot water for the
cloakrooms.
There was a
tenants’ covenant to keep the interior of the premises in good and substantial
repair and to deliver up in that condition at the end of the term. There was a
covenant as to user: the premises were not to be used without the previous
consent in writing of the lessors except as solicitors’ offices. There are the
usual qualified covenants as to assignment and underletting. Then I come to the
lessors’ covenants, which correspond to the contributions which I have
mentioned; there is a covenant to keep the premises insured against fire; then
(3) — this is the important one:
at all times
during the said term to keep the foundations, main walls and timbers, structure
and roof of the said building and the ground and first floors thereof in good
repair and condition . . .
Then there are
covenants to maintain the lift, central heating and supply of hot water. There
was a supplemental deed which dealt with car parking; nothing turns on that for
the purposes of this case or the issues that I have to decide.
That lease was
due to expire 21 years from June 24 1963, that is, at midsummer 1984. On August
24 1983 a notice under section 25 of the 1954 Act was served nominating the
date of August 2 1984 as the termination date and indicating that the landlords
would not oppose the grant of a new tenancy. The landlords were not to know
that that was an unfortunate thing to do in the events which transpired, but
that was the position then. Therefore, on the tenants serving the appropriate
counternotice, as they did in due time, and making their application to the
court for a new tenancy in due time, which they did on December 22, the tenants
became entitled as of right to a new tenancy.
On March 12
1984, which was before the notice had expired, the landlords made their application
for an interim rent. That was all straightforward, and the parties were talking
in terms of 10 years or so at a market rent. But then, because the property was
being offered for sale, or there was a suggestion that the tenants might like
to buy the property, the tenants in June 1984 instructed building surveyors and
engineers to prepare a structural report on the property. That was the first
time it came to light that there was serious trouble about
The surveyors
in the report called attention to what they thought was wrong, the high alumina
cement — although in the event that did not turn out to be very significant.
They went on:
In addition
to this, there are many defects in the building to the actual fabric which
include the roofs, which we have fully dealt with, the curtain walling and
glazing, again which gives us serious doubts as to its future dependability.
The condition of the decorations, together with the many other points that have
been raised . . . Recommendations have been made in the specialist reports on
the lift, the electrics, the central heating drainage etc and from all these
none has received a clean bill of health . . . As we previously informed you in
our brief report, we are concerned that in a building of merely 21 years of age
the deterioration in the finishing, structure, etc has been so great . . . We
are of the opinion that we cannot recommend the purchase of the freehold.
That set alarm
bells going. But before I continue with the further investigations, I should
refer to a letter sent soon after the report was received. On January 22 1985
there was a letter from Turberville Woodbridge to the landlords’ solicitors
which contains the following paragraph:
The interim
rent has we understand it been in any event agreed at the sum of £42,500 per
annum payable from August 3 1984. May we therefore suggest that we at least get
this item out of the way by Consent Application to the Court for the
determination of the interim rent so that an appropriate rent demand can be
raised and the appropriate extra rent paid by the Firm.
The landlords’
surveyors had meanwhile been inspecting the premises. There is a report of
theirs, that is, Goodman Mann Associates, in which they call attention to the
defects which had been noticed by the tenants’ surveyors, including mention of
one which turned out to be much more significant than was then realised,
namely, that wood-wool slabs had been used as permanent shuttering to the plant
room and staircase roof. They had in fact been much more widely used than that
would indicate, and the difficulty with them, as I understand it, is that they
cover up the actual basic structure, the reinforced concrete. Therefore, if
there are defects in the concrete or in the reinforcing which lead to more
rapid deterioration than properly installed reinforced concrete can be expected
to do, the deterioration will not be observed.
Goodman Mann,
having costed the works that were required to rectify the major problems as
they then saw them in the amount of £320,000, came to the conclusion that:
It is not
economically justifiable to undertake extensive repair work to this structure
at such enormous expense without achieving a compensating increase in rental
and capital value. In our view, the repairs identified will not produce a
sufficiently large improvement in the immediate or long term rental value to
make the repair costs worthwhile.
Then in their
recommendations at the end of this report they say:
We have
therefore reached the conclusion that redevelopment of the property is the only
practical solution and the existing tenancies should be brought to an end as
quickly as possible so as to enable this to take place.
That was the
first clear indication that the life of that building was at an end and that
the only practical solution was to redevelop it. That was before the full
extent of the damage had become manifest.
I have already
referred to what was being talked about as the interim rent. As to the new
lease, at that time the applicants were seeking a new tenancy for 10 years at
£51,000 if the tenant is not liable for repairs or £44,880 if the tenant was
liable to contribute to the heavy repairs. Faced with the advice from their
surveyors, the landlords then countered with a proposal for three years at
£52,500 per annum.
The first
indication of the fault that has now been identified comes from the landlords’
structural engineers, the Waterman Partnership; one sees that in their addendum
structural report. That is where doubts are first expressed about the wood-wool
shuttering used throughout the building’s structural integrity. That report was
made in September 1985 and investigations proceeded throughout the ensuing
months. They were obviously very difficult investigations to carry out and
analyse, but I should notice that during the course of those investigations the
first valuation report was received from Goodman Mann, who were also instructed
on behalf of the landlords in April 1986 as valuers in addition to their role
as building surveyors. The report has been superseded by later reports. The
only reason why I refer to it here is for the final paragraph relating to the
interim rent, which says:
I consider
that this rental should be £45,000 pa.
That was Mr
Peter Barber’s report.
At this stage
I can dispose of one of the submissions made to me by Mr Leech for the
landlords in relation to the interim rent, which was that the parties had
reached an agreement. I accept that if that were proved to be so, that would
determine the matter and there would be nothing left for the court to determine
in regard to the interim rent. But, having looked at the facts and going back
to the letter of January 22 1985, it seems to me that that was nothing more
than an offer. The solicitors say:
The interim
rent has we understand it been in any event agreed . . .,
but then
suggest that it is got out of the way by a consent application. I would read
that as an offer to settle the matter at £42,500, subject to obtaining an order
from the court or in some other way formalising it. It is clear, however, that
that was not accepted by the landlords, especially having regard to the fact
that some months later they were asking for a higher interim rent in the
reports that were being put forward.
It is also
suggested that even if there was no fixed agreement about the matter, I could
use it as evidence of the true value; but I have had much more cogent and
detailed evidence as to value from Mr Barber as well as from the tenants’
valuer, Mr Alan Birch, and also the facts have become clearer since that figure
was put forward. I cannot place any weight at all on that figure as evidence of
the true rental value of the property at the material date.
Investigations
into the structure were proceeding through 1986, but matters really came to a
new phase at the beginning of November. In view of certain submissions that
were put to me by Mr Gaunt, I must look into the correspondence more closely
than I have been doing. On November 4 the landlords’ solicitors wrote to the
plaintiffs enclosing a copy of a letter that they had received from their
consulting engineers in advance of their full report of the investigations that
I have mentioned. The solicitors continue:
By reason of
this letter, we must ask you to confirm that you will either immediately vacate
the premises, or allow our client’s workmen onto the premises from 8.30 am on
Friday November 7, to erect the necessary vertical propping. We have clarified
the requirement of the propping with the Waterman Partnership, who confirm that
the third floor will require no propping, but that the second floor will
require a double banking of propping, at distances of between 4 and 5 feet.
That was of
course somewhat alarming for the solicitors, being a peremptory demand to allow
workmen to come in to erect propping at 4ft and 5 ft, which would seriously
disrupt the work that was carried on in the offices on the lower floor on which
that propping had to be installed with props every 4ft or 5 ft. Looking at the
enclosed letter from the constructional engineers, the alarm could hardly be
allayed. The letter from the Waterman Partnership confirms that they have
completed their investigations and says:
As expected,
this shows that the construction of the floor slabs throughout the property,
apart from some small isolated areas, is generally an in situ ribbed form of
construction . . . The condition of the ribs is even worse than expected with
severe loss of concrete around the reinforcement, misplaced reinforcement and
excessive voiding of the concrete ribs, and our detailed report on the
structure of the first and second floors will follow shortly. In the meantime,
however, I must express my deep concern that the upper floors of the property
continue to be in occupation by the tenants. The nature of the defects
discovered is such that I consider the occupants of the upper floors to be at
risk, and I recommend that they be informed of this situation, and the building
vacated as soon as possible. As an alternative, it would of course be possible
to introduce vertical propping thoroughout the building. However, the degree of
propping required, certainly at least to the underside of the third floor,
which we would expect to be similar in condition to the first and second
floors, would inhibit the tenants operations in this area. I would point out
that similar signs of distress in the form of longitudinal cracking along the
length of the building at the mid-span of the slabs are in evidence on all the
floors . . .
Thus the
landlords were strongly advised by their structural engineers that either the
tenants had to get out for their own safety or there had to be a system of
propping. One can understand the terms of the letter that the landlords’
solicitors wrote on November 4, and of course the matter was taken very
seriously both by the landlords and the tenants. On November 5 a meeting was
suggested between the professional advisers of both parties — the engineers and
so forth; there was a suggestion then that work would go on the ground and
first floors in advance of such a meeting. Then the parties seemed to get at
cross-purposes and there was no immediate meeting, but on November 14 the
plaintiff solicitors wrote:
We understand
that the Ridd Wood Partnership have today spoken to the Waterman Partnership in
relation to resolving the outstanding matters. . .
We are
informed that the Waterman Partnership have stated that their instructions are
limited to the following three matters and that they are not able to take the
matter any further as they are limited by those instructions.
1 That they are only to carry out the work in
respect of the support in relation to the ground and first floors.
2 That the work is to go ahead immediately and
that they are not to await details in order that the Engineers can agree what
propping is reasonably required on the two floors occupied by ourselves.
3 That they will consider as to whether or not
any amendment is required in respect of their propping when we have carried out
the works to our floors.
Some time
about this period what are known as Acrowprops were inserted on the first and
second floors. During the course of this case I was handed some observations by
the Waterman Partnership which dealt to some extent with the history of the
matter; I have no reason to suppose that they are not perfectly accurate. Among
other things it was said there that at that time a total of 58 props had been
installed on the ground floor and 33 on the first floor. The installation cost
of this propping was £1,600 in November 1986 with a total weekly hire charge of
£97.50. There is some confirmation in the correspondence that the tenants’
surveyors on December 12 did notice that Watermans had carried out a degree of
propping on the ground and first floors; therefore in November — and by
December 12 certainly — the propping was there.
In the ensuing
period between then and the commencement of this trial — and indeed during the
course of this trial — various schemes and counterschemes of propping the
tenants’ part of the premises have been put forward; some of them involved
modification of what the landlords did below, some not. But it is now agreed
that there should be a steel-frame scheme which was devised by the tenants’
structural engineers, Mr Graham Ridd of the Ridd Wood Partnership, in the
ground, first and second floors. That will take five to six weeks to make and
will take between two and four weeks to install completely. One cannot be absolutely
precise about that sort of matter, but it would seem that, assuming that it is
ordered as soon as this case is over, it will be installed before the current
lease ends; that is because under section 64 of the 1954 Act the existing lease
goes on for three months beyond the time of the disposal of the proceedings.
Assuming there is no appeal, that gives four months, because there are four
weeks to allow for the appeal and three months for the extra period; so that
within those four months, which is a total of 16 or 17 weeks, it will be
possible to put in that ribbed scheme and strengthen the building in that
fashion. The estimated cost of that is of the order of some £20,000 to £21,000;
that includes certain finishings that are required to the basic steelwork in
the solicitors’ offices. That would totally replace the Acrowpropping on the
ground and first floors and thereby put an end to the hire charge.
One of the
matters that I am asked to determine is how those costs should be borne. It is
manifest that the costs have to be borne, if they occur during the currency of
the existing lease, in accordance with the covenants in the lease which I have
read out. The covenants in the lease require:
a fair
proportion [of the costs in question] to be assessed by the surveyor of the
lessors,
but it is
agreed between the parties that I should indicate the proportion that should be
assessed. I am satisfied that I do have power to do so.
The plaintiffs
accept that they have to pay for half of those costs. It is easy to see why
they make that admission: they are occupying half the usable accommodation —
two out of the four floors — and although some of the propping will not be on
their part of the premises, nevertheless they will get the benefit of it by
having the entire structure supported.
The defendants
have submitted — although I do not think too strenuously — that the whole costs
should be borne by the tenants. The sole basis on which they could say that is
that the plaintiffs are now the only occupants of the property; the whole
building has to be supported, and half of the building is in the possession of
the landlords. In my judgment, I see no grounds for placing the total cost of
that on the tenants simply because the landlords cannot use, or do not choose
to use, the half of which they have the vacant possession. I will declare in
due course that the proper proportion is half and half.
The other
point on this that I have to deal with is the temporary hire charges which have
been going on since November, as I have described, or early December and will
continue to go on until the new scheme is installed replacing the propping.
There we have, according to the surveyors, the original installation costs and
a hire charge of £97.50 per week. I am not concerned to find the precise
amounts. I am simply concerned with the proportion of them to be borne by the
tenants.
The plaintiffs
on this say that it was a waste of money to have put that temporary propping
in; the engineers should have got together in November 1986 and devised a
sensible, permanent scheme — ‘permanent’ in the context of a scheme that will
go for the rest of the life of the building, short though it is. It is also
said that the landlords have aggravated the position by taking totally
unnecessary forfeiture proceedings, as they did, in order to force an entry by
serving a section 146 notice and following it up by threats of proceedings
which, I am told, were compromised. For those reasons, it is said that the
landlords have incurred this expense totally unnecessarily and should be left
to bear the whole of that cost. I have some sympathy with that, but, in my
judgment, it overlooks the fact that it is the defendants who are responsible
for the maintenance of the structure. Their responsibilities do not depend on
the agreement of the tenants, and when they get advice, such as they did in
October — I read out the letters — something has to be done quickly. What was
done may have been too hasty, but I remind myself that the letter from
Watermans states that the situation was even worse than expected and was sent
on ahead of the full and detailed report because of the urgency of the matter.
In those circumstances the attitude of the landlords — an attitude which was
criticised — in my judgment was justified. They were justified in the situation
as they then saw it in ordering the propping of the lower floors as soon as
possible as, in effect, a safety net. It seems to me a responsible attitude to
do that, and, after all, it has taken some time for the best scheme to emerge
from a number of schemes which the engineers have put forward. I would not
accede to the submission that the cost of the propping and the hire charges
should fall solely on the landlords. I do accept that perhaps the period of the
hire could have been cut down, but in the very alarming situation that
presented itself to the landlords then, it seems to me that I should not try to
make detailed allowances, but simply say that in my judgment the proper
proportion is half and half, so that half the cost of this propping, both
temporary and final, falls to be borne by the tenants. Therefore at this stage
I can deal with those aspects of the amended originating summonses.
I propose,
therefore, looking at the plaintiffs’ originating summons which covers these
parts of the case, to declare that the defendants are obliged to provide the
propping to the underside of the first, second and third floors; I shall
declare that, it having now been agreed, the Ridd Wood scheme as explained in
this court by Mr Ridd is the appropriate scheme; if necessary, I shall make an
order under para (c), although the parties may wish to consider whether the
plaintiffs should be allowed, as they are apparently willing to, to execute the
scheme. As to the determination of the cost of the scheme and how it is to be
borne, I shall say that it is half and half, including the temporary propping.
Now I must
move to the new lease. The issues here are the length of term and the amount of
the rent. Dealing with them in that order, the tenants now accept that the term
has to be very short; the proposal of the tenants is that they should have a
new lease which expires on April 29 1988 — that is about 13 months away. The
present lease, for reasons I have described, cannot end before August, so in effect
we are talking about a period of nine months or less. The landlords, on the
other hand, when this case started were asking for as short a lease as
possible; indeed they suggested that it should be only one month, but on
examination it is manifest that the lease realistically cannot be shorter than
six months, owing to the operation of section 25 of the Act; as I see it — it
has not been argued to the contrary — the necessary six months’ notice cannot
be served before the new lease has begun. There is thus a difference between
the parties of only two or three months.
On that point
I have had a good deal of evidence. The tenants called evidence as to the state
of their negotiations; they have supplemented it by the evidence both of their
valuer, Mr Neil Gardham, to inform me what alternative accommodations are
available in the area, and of Mr Barber, who has given some assistance on this
aspect of the case. I do not propose to deal with all that in very great
detail, having regard to the very small compass in which this dispute lies. I
approach it in the same way as both counsel did: one looks at this from the
point of view of the tenants and the landlords. I would simply say that, as
regards the tenants’ point of view, the following points are the major ones.
First, the
tenants have been actively engaged in looking for other
evidence. Second it is their misfortune, not their fault, as Mr Gaunt put it,
that they find themselves in this predicament; they could reasonably have
expected to stay where they were for some considerable time, whether as lessees
or as freeholders. Third, they point out — and I accept — that if it were known
in Uxbridge through the profession and among estate agents that they had a very
short term in which to get out, it would very seriously prejudice negotiations;
as it is colloquially put, they would be ‘over a barrel’. Fourth,
realistically, if the present negotiations do not come to anything, they need
nine months to identify premises and conduct reasonable negotiations for them.
Those seem to be the major points on the part of the tenants.
The position
of the landlords is that they have got their capital tied up in a site awaiting
development; they have also pointed out — it is supported by the evidence —
that there are premises currently available — certain empty floors in buildings
— into which the tenants should go even though they are not ideal for the
tenants’ purposes and indeed may result in the tenants having to move again
fairly shortly.
Weighing these
matters up, I much prefer the tenants’ position for these reasons. First, the
landlords have no crystallised scheme for redevelopment; the only positive step
they have taken is to procure outline planning permission in July 1986 for a
new office block. Not having taken that further, it is unlikely that they will
be seriously hampered in their development plans by the two to three months’
delay which this will involve. If only six months is granted, it was pointed
out — it seemed incontrovertible — that the tenants could make an application
for a new lease and prolong the period anyway under section 64 to the desired
end. If, on the other hand, nine months is given on their proposal, they are
less likely to make the application, and in any event, assuming the notice to
be served on the nine months’ tenancy as soon as possible, the application will
come on at the same time as that relating to the six months’ tenancy, because
the time for the application is regulated by the date of the service of the
notice, not by the date of the termination of the lease. Overall in the
particular circumstances, it seems to me not reasonable that the tenants should
be forced to take what is immediately available, but should have some time to
complete their current negotiations or look for other suitable premises. Also,
as was pointed out to me, the shorter term would operate to the landlords’
disadvantage as regards rent, because a six months’ term would normally command
in valuers’ terms a lower annual rate of rent than a nine months’ term.
Therefore I propose, as far as that aspect of the case is concerned, to make a
declaration under para 7(1) of the amended summons for a term limited to expire
on April 29 1988, subject to an option enabling the tenants to determine the
term earlier upon giving three months’ written notice to the landlords. I have
assumed that the landlords have no objection to that option being included in
my order.
I turn to the
amount of the rent. The terms of the tenancy have some bearing on this, but
there is no real controversy about it; therefore I can look at once at the
tenants’ proposals as regards terms, which are in para 7(3) of the originating
summons, as amended. They suggest that the lease be modified by omitting clause
2(4) — that is the covenant as to interior repairs — in the new lease of nine
months. That seems to some extent academic, because, whether there is a
repairing covenant or not, nothing could be recovered by the landlords under that,
having regard to their development plans. If it is left in, there are no
damages; if it is left out, there is no liability. I see no objection to that
going out.
Then there is
a substitute for clause 3, which is the landlords’ covenant to secure the structure
of the premises. What is proposed is a lesser obligation simply to keep the
structure and roof in a safe condition, a wind and watertight covenant. There
is the consequential adjustment of the service charge and a modification of the
car-parking arrangements; nothing has turned on that; it is agreed that the
car-parking arrangements should be altered. Those are the terms. The important
matter is that the repairing obligation is much modified: there is no interior
repairing and a much modified external repairing covenant.
I have been
assisted in assessing the new rent by the evidence of the respective valuers of
the parties, Mr Alan Birch [ARICS] of Proffitt & Gough [of Watford] for the
plaintiffs and Mr Peter Barber [FRICS FRVA] of Goodman Mann Associates [of
London SW1] for the defendants. Between these two gentlemen there is a good
deal of common ground. It is a great help to me that they have agreed on a
comparable figure. There are sufficient details of it in Mr Birch’s first
report in what he calls ‘Comparable Evidence Sheet 16’. That refers to another
office block in the area, Armstrong House, 3 Chequers Square, Uxbridge; that is
a large office block of 40,000 sq ft — I am concerned here with 6,000 sq ft —
on five floors. That had a 21-year lease from midsummer 1970, subject to review
at June 24 1984. It is near enough the same date as that stated in the section
25 notice in this case. It was on full insuring and repairing terms, to be used
as offices; the rent review agreed £360,000 per annum exclusive, that is to
say, £8.86 per sq ft for the remaining seven years.
For the actual
valuations I need to turn from that report to the later submission by Mr Birch
which is to be found in Bundle B, p 52 and called ‘Valuation Sheet 3′ and the
corresponding valuation sheet 3 in Mr Barber’s second report. These valuers
have started from the figure of £8.75; that is a slight advantage to the
tenants from the comparable, in that the comparable was £8.86. They proceeded
then to apply that figure of £8.75 to the 6,000 sq ft with adjustments. The
adjustments are to take account of the lack of an internal repairing covenant —
that of course is an adjustment which benefits the landlords and there is a
reflection benefiting the landlords in the rent — and an adjustment for the
loss of amenity due to the propping in one of the tenants’ floors; that leads
to an adjustment benefiting the tenants in regard to rent. Because it is common
ground I need not go through the particulars of it, but one arrives at a figure
in round terms of £53,700; that is evening out certain small discrepancies —
there is an arithmetical mistake and a point where they take a percentage off
different figures. But I do not propose to go into that; I will take the figure
which is agreed between the two of £53,700. I think that will be fair in this
context.
That figure
was on the basis that there was no repairing obligation on the part of the
tenants because the propping, which is the major item of repair, will have been
done before these leases start. But there is some requirement to repair
inasmuch as the landlords undertake to keep the premises wind and watertight,
and the tenants are obliged to contribute towards that cost. That was accepted
by Mr Barber as justifying a decrease of £1,000 a year from the rent to deal
with those contingencies. The rent therefore comes down to £52,700, at which
point we come to the major item of disagreement between these surveyors. The
issue between the valuers is as to the amount which one should discount for the
nine-months’ term as opposed to the seven-year term for the comparable.
Mr Birch says
it should be 50% and Mr Barber says it should be 30%. In his evidence Mr Barber
appeared to think there was very little difference between three years — which
is a very common period of review — and seven years. It follows that his 30%
would be directed almost exclusively, although not entirely, to the difference
between the three years and the nine months with the added drawback of the nine
months that there is no prospect of any security of tenure, whereas on a
standard three-year review period there is always the prospect of another three
years, a new lease under the 1954 Act or a further review period or something
of that sort. His 30% was directed towards those two factors, the difference
between three years and nine months and the fact that in this particular case
the nine months is unaccompanied by any prospect of any security.
In
cross-examination he had difficulty in sustaining the position that there was
no difference whatever between three years and seven years, and indeed conceded
that there might be something of the order of 7 1/2 to 15%. It is true that in
re-examination he stressed the stability of the rents of the older properties,
as this must be classed and as, I think, Armstrong House must be classed, as
against new and modern properties, of which apparently there is a plethora in
Uxbridge. To some extent that position of his is borne out by the ready
acceptance of both valuers of the 1984 comparable for the 1987 valuation, which
is what we are engaged in at the moment. But all the same, despite those
matters, it seems to me that he is mistaken in not allowing more for that
difference between seven and three years and that Mr Birch is right to allow
something in respect of that period as well as the other. Doing the best I can,
having regard to those features of the evidence that I have just mentioned and
the stability of rents at the moment in Uxbridge, I would take a figure of 45%
in relation to this matter, which I think would work out on £52,700 at £28,985.
Assuming that that arithmetic is correct, I would round that at £29,000 for the
new rent as an annual figure.
Now I have to
deal with the interim rent; that has caused great difficulties. The position is
regulated by section 24A of the Landlord
this case. I will begin by reading subsections (1) and (2):
The landlord
of a tenancy to which this Part of this Act applies may —
(a) if he has given notice under section 25 of
this Act to terminate the tenancy; or
(b) if the tenant has made a request for a new
tenancy in accordance with section 26 of this Act;
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 . . . and the court may
determine a rent accordingly.
(2) A rent determined in proceedings under this
section shall be deemed to be the rent payable under the tenancy from the date
on which the proceedings were commenced or the date specified in the landlord’s
notice or the tenant’s request, whichever is the later-.
in this case it
is the latter date, the date specified in the landlords’ notice, ie August 2
1984, which is the material date at which the rent is to run. The main
subsection requires the court
To determine a
rent which it would be reasonable for the tenant to pay while the tenancy
continues . . .
If that were
all there was to it, there would be a great deal to be said for the view that
the rent should be the same for the interim term as for the nine months’ term.
After all, as I have already noticed, a 1984 comparable has been used. It
should even be a little higher, because the rent for the new lease was based on
a nine months’ term and we are looking at some three years which have elapsed
since 1984 to the hearing of this case. A rent thus fixed would allow for the
cost of the propping as and when it occurred.
That
essentially, I think, was the approach of Mr Barber, and it has a great deal to
be said for it as a matter of fairness. Indeed I think it could persuasively be
said that it would be the ‘rent it would be reasonable for the tenant to pay’
in those circumstances. But I do not dwell on it, because the court, as has
been said in one of the authorities, is not given a roving commission to
consider every fact which bears on that reasonableness. In fact the court is
very circumscribed and given precise guidance as to how it has to approach this
problem. I have to go on to subsection (3):
In
determining a rent under this section the court shall have regard to the rent
payable under the terms of the tenancy, but otherwise subsections (1) and (2)
of section 34 of this Act shall apply to the determination as they would apply
to the determination of a rent under that section if a new tenancy from year to
year of the whole of the property comprised in the tenancy were granted to the
tenant by order of the court.
Section 34 is
the section governing the determination of the rent of new tenancies:
The rent . .
. shall be such as may be agreed between the landlord and tenant or as, in
default of such agreement, may be determined by the court to be that at which,
having regard to the terms of the tenancy (other than those relating to rent),
the holding might reasonably be expected to be let in the open market by a
willing lessor, there being disregarded —
certain
well-known factors.
It would seem
that one has to take first of all the existing lease with its covenants so far
as they are compatible with a yearly tenancy. Second, one has to determine the
rent as for a new yearly tenancy under a lease with those covenants as at the
beginning of the interim period, that is to say, August 2 1984.
I shall now
consider the authorities, the two cases to which I have been referred. I refer
to the judgment of Megarry J, as he then was, in English Exporters (London)
Ltd v Eldonwall Ltd [1973] Ch 415 and the decision of the Court of Appeal
in Fawke v Viscount Chelsea [1980] QB 441. One derives from that
this proposition, that one has regard to the actual state and condition of the
premises at the beginning of the interim period, whether they were known or
appreciated or not.
In that connection
Mr Leech has called my attention to two — as he submitted — inconsistent
passages in the judgment of Goff LJ in the latter case. The first passage
supports what I have just propounded as a proposition and is on p 452D-E:
I do not see
anything in section 24A which requires the court, in determining what rent it
is reasonable for the tenant to pay, albeit by reference to a hypothetical
letting to shut its eyes to known facts.
Then he called
my attention to a passage on p 456B, where the learned lord justice said this:
I do not
think that the judge was entitled to take into account the fact that in the
events which happened the tenant was in fact able to carry on his practice in
reasonable comfort, since that became known only after the relevant date, as at
which the valuation has to be made, but he was entitled and bound to take into
account the condition in which, assisted by a view, he found the premises to
have been at the commencement of the interim period.
If there were
inconsistency in those passages, I should have to live with it, because it is
not part of my function to correct the decisions of the Court of Appeal. But,
with respect to Mr Leech, I do not see any inconsistency in those passages.
What is required, in my judgment, of the valuer is that he should be a skilled
investigator and discern the facts that are then present, although they may not
have been manifested in actual history — the facts as to the defects in the
premises, for example, to take the condition I have here. He is required to
discern those facts that are lying about waiting to be discovered, but he is
not to be a prophet; he is not to be there and to know as at August 1984 that
in fact the tenant will be there for three years. In that I accept Mr Gaunt’s
proposition that he put before me, that it is not permissible to take in to
account the fact that the tenant has been able to carry on his practice in
reasonable comfort, since that became known only after the relevant date.
If the facts
as to the condition, which are now known and have been known since
October-November 1986, were known in August 1984, as they could have been, then
one would have the position in August 1984 that immediate propping was
necessary to secure the building at an estimated cost of £20,000, of which half
the costs falls to be paid by the tenants. Accordingly, the tenants would allow
for that in their rent and the landlords would have to concede it. Taking the
figure of £29,000, which is the new rent figure based on the same comparable,
it may be right that there should be some addition to that figure because we
are talking now about a yearly tenancy as opposed to a nine months’ tenancy;
also there may be some adjustments for the fact that in the interim lease there
is an internal repairing covenant. That, however, I would discount, having
regard to the facts that I have to take account of, that there was to be
immediate propping, indicating that there is virtually no security of tenure
and that, even in 1984 — knowing those facts — the building was doomed so that
there would be no liability under the internal repairing covenant, and that
would be obvious. Nevertheless, there will be some in respect of the longer
term because, even with those facts, there is at least a year to be had instead
of nine months and therefore perhaps a higher rate might be paid, but it is
only one year.
But there is a
certain liability for the propping. Having listened to these valuers — I think
Mr Birch would make a deduction of 45% in respect of the yearly tenancy as
against 50% for the nine months — I would propose, doing the best I can, to
write up that rent from £29,000 by an extra £1,500 to £30,500. But there has to
be deducted from that the figure of £10,000 as the contribution to the
propping, therefore the interim rent on that basis comes to £20,500.
The final
matter I have to have regard to is the existing rent under section 24A. It is
well established, both by reading the section and by the authorities to which I
have referred, that in addition under subsection (3) I have to have regard to
the rent payable under the tenancies, but otherwise the test is that in section
34. In section 34 in regard to new tenancies one does not have regard to the
covenants as to rent in the existing tenancy.
As to that
matter, there is some guidance, particularly in the judgment of Megarry J in
the English Exporters case (supra), to which I must refer. He
says at p 429C:
In making the
determination [under 24A] subsection (3) lays down two separate requirements:
(a) the court must ‘have regard’ to the existing rent . . . and (b) in other
respects . . . apply section 34 . . .
Then at p
429E:
(5) Having thus applied section 34 in the
specified manner required by the concluding words of section 24A(3), the
opening words of that subsection come into play and impose a positive
requirement to ‘have regard’ to the rent payable on the existing tenancy. (6)
That positive requirement forms no part of the process of ascertaining the
market rent in the specified manner: it is a separate and independent requirement,
emphasised by the words ‘but otherwise’ in section 24A(3). It is therefore to
be applied in all cases and not merely those envisaged in the Regis case
[Regis Property Co Ltd v Lewis & Peat Ltd [1970] Ch 695] . .
. namely, those in which the rent under the existing tenancy throws some light
on the market rent.
In other parts
of the judgment the provision has been described as a sort of cushion against
the effect of too great a change from the existing rent into the new rent,
which may be very considerably higher. Another possible reason for the
provision, which was referred to by the learned judge on p 425, is that once
the court has ordered a new tenancy to be granted and has fixed the rent,
under section
36(2), the tenant can within 14 days require the court to revoke the order, as,
for instance, he may well wish to do if the rent has been fixed at
a level far above what he can afford to pay; yet in the case of an interim rent
the Act provides the tenant with no such means of escape.
That approach
of the learned judge won the approval, albeit obiter, of Goff LJ in the Fawke
case at p 451F. In those circumstances it would be presumptuous of me to
add my approval to it; I accept the approach of Megarry J and conclude my
reading of his decision by seeing the way he applied it in that case. I am
turning now to p 433H:
I doubt if
the two elements of market rent and existing rent are intended to be given
equal weight. Section 24A(3) provides that section 34 ‘shall apply’ to the
determination in the manner stated, and merely requires the court to ‘have
regard’ to the existing rent. I think the process envisaged is not that of
striking a balance between two factors of equal weight, but is that of applying
one factor, namely, the market rent, and where appropriate, suitably tempering
it by reference to the existing rent. On the facts before me —
then he goes
into it.
I would draw
the inference from that passage that in a suitable case one has regard to the
rent, but one does not necessarily have to make any adjustments as a result. He
said:
I do not
think that much of a case for tempering the market rent by any very substantial
amount has been made out; there is some case, but not much. What then is the
right figure . . .
One does have
regard to it, but with the weight from zero to perhaps predominant in a
continuous line. Looking at this case, it seems to me that the tenants do not
need a cushion. They were offering, as we have seen, over £40,000 in January
1985. The figure of £5,000 was an old rent — I think it had stood for 14 years
in times of great inflation. Then, although the rent has been seriously reduced
for the cost of the propping in regard to one year, nevertheless, owing to the
way the sections work, that reduced rent will apply for the three years, albeit
that the propping is going to be paid for only once. In all those
circumstances, I do not think I am required to reduce the rent further.
Accordingly, I propose to fix the interim rent at the figure I mentioned a few
moments ago, £20,500.
The
defendants were ordered to pay the plaintiffs one half of their costs.
