England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM MR. JUSTICE FOSTER

		Royal Courts of Justice
		5th November 1971

LORD JUSTICE RUSSELL: This appeal from Mr. Justice Foster raises the question whether the terms of a lease are such as to create a perpetually renewable lease, and consequently by force of the Law of Property Act, 1922, confers upon the tenant a 2,000 year term.

The lease in question is dated 6th May, 1963. One Hopkins was the lessor and the defendant Owen the lessee. It was for a term of five years from 1st January, 1963, at a rent of £10 yearly payable in advance in one sum of £50. The premises were an area of 4,800 square feet in an industrial area in Caerphilly. Owen had been previously lessee of the property from Hopkins under a succession of leases in similar terms, and in 1957 had sublet the premises to the plaintiff at a weekly rental of 30s. In 1966 the plaintiff bought the freehold of the premises; and the plaintiff contends that on the expiration of the five year term it is no longer since January 1968 liable to pay the 30s weekly rental to the defendant. The defendant admittedly had at least an option for another five years from January, 1968, but had failed to give due notice exercising that option: but the defendant contends that the lease of 1963 was perpetually renewable, in which case notice was not necessary because of the 2,000 year term.

I add that there is a secondary point that arises if there was no perpetually renewable lease and therefore no 2,000 year term, because of a payment of £50 by way of rent for a period after January, 1968, apparently accepted as such by the plaintiff. This may prevent the plaintiff in any event from contending that it ceased to be the lessee of the defendant at 30s weekly in January 1968: but that point is in any event not now for decision.

The 1963 lease contained a number of covenants, provisos and conditions which do not I think call for special notice. I am not sure at what stage in the history of the Hopkins to Owen leases a shed was erected on the premises by Owen, but presumably it was before 1957) thus justifying a weekly rent of 30s. charged in the subletting by Owen to the plaintiff.

The crucial clause is 4(3) which was in the following terms:

"The landlord hereby covenants with the tenant as follows: (3) That the landlord will on the written request of the tenant made six months before the expiration of the term hereby created and if there shall not at the time of such request be any existing breach or non-observance of any of the covenants on the part of the tenant hereinbefore contained at the expense of the tenant grant to him a lease of the said demised land for the further term hereby granted at the same rent and containing the like covenants and provisos as are herein contained (including an option to renew such lease for the further term of five years at the expiration thereof) the tenant on the execution of such renewed lease to execute a counterpart thereof".

Here then is the short point. When the time comes for the grant of the second five year term, is that grant to include clause 4(3) including the parenthesis? In that case we have a perpetually renewable lease. Or is it to include clause 4(3) without the parenthesis or an option in some other terms, in which case there is provision in the 1963 lease for three periods of five years and no more.

The approach to the question whether a lease is perpetually renewable is not in doubt. The language used must plainly lead to that result: though the fact that an argument is capable of being sustained at some length against that result does not of course suffice.

As a matter of history, when a covenant by a lessor conferred a right to renewal of the lease, the new grant to contain the same or the like covenants and provisos as were contained in the lease, the courts refused to give literal effect to that language, which if taken literally would mean that the second lease would contain the same covenant (or option) to renew, totidem verbis, and so on perpetually. The reference to the same covenants was construed as not including the option covenant itself. This limited the tenant's right to one renewal. In order therefore to make it plain that the covenants to be contained in the second lease (to be granted under the exercise of the option to renew) were to include also the covenant to renew, draftsmen were accustomed to insert phrases such as "including this covenant", so as to achieve a perpetually renewable lease. As I have indicated, if they did not do this, the second lease would not contain any option clause.

The operation of the words of inclusion was not limited to requiring the second lease to contain a covenant to renew once more only, which would have been the outcome if the words of inclusion had been omitted in the second lease. This was because the words of inclusion could not properly be construed as requiring the second lease to contain the same covenants other than the covenant to renew but additionally to include an option to renew once more only - a total of three terms. The words of inclusion defined or explained what was meant by "the same covenants", that is to say, as including the covenant to renew. Consequently in the second lease, in order to comply with the words of definition or explanation, the covenants referred to therein to be contained in the second lease must contain the same wording including the inclusion.

Now in the present case the brackets make it abundantly plain that the parties are explaining that "the same or like covenants and provisos" is a phrase intended to embrace an option. That is to say that the covenants and provisos contained in the first lease which the first lease requires the second lease to contain are not to be construed as a reference to those covenants and provisos other than an option to renew, but as a reference to all those covenants including an option to renew. But what covenant in the first lease (to be repeated in the second) can be regarded as such except clause 4(3)? The second lease must contain the clause 4(3) covenant. When the clause 4(3) covenant speaks of "the like covenants and conditions" it defines them as including an option to renew. If the words of clause 4(3) are repeated in the second lease without the words in parenthesis the second lease will not be carrying out the requirement of the first lease: it will not be granting an option for a further lease containing "the like covenants as defined".

It was argued that if this was intended the draftsman would have used the well known phrase "(including this covenant)". It is true that he might have done so, and that on this view he may be accused of verbosity. But on the other view the draftsman would be guilty of including the option in the like covenants when he simply meant the second lease to contain an option to renew, and further of failing adequately to define the terms and conditions for the exercise of this independent second and last option.

In my judgment the only reasonable construction of the language of clause 4(3) is such as to lead to a perpetually renewable lease, and accordingly in my view the appeal fails.

LORD JUSTICE SACHS: The question for determination in this appeal is whether the lease of the 6th May, 1963, is upon a proper construction of clause 4(3) a perpetually renewable lease. That clause, so far as relevant, reads

"That the landlord will on the written request of the tenant made six months before the expiration of the term hereby created … at the expense of the tenant grant to him a lease of the said demised land for the further term of five years from the expiration of the said term hereby granted at the same rent and containing the like covenants and provisos as are herein contained (including an option to renew such lease for the further term of five years at the expiration thereof)".

I, too underline the words in brackets. It is trite to say that when construing a document such as a lease it is the prime purpose of the courts to seek to adopt a meaning that conforms to the intentions of the parties. Not even the most impeccable conveyancing logic, however neatly expressed, can convince me that in the instant case it was the mutual intention of the parties that the lease should be perpetually renewable. So far as the landlord is concerned it seems to me highly unlikely that he really intended that this particular lease could or should be "for ever". My doubts on this question of intention extend also to the tenant - for I would acquit him of any intent to lay a trap through the operation of the words enclosed in the brackets, which we know to have been added to the draft at the very last moment by his solicitors. It is difficult indeed at any rate so far as I am concerned to think that two business men would be talking in terms of five years if both -or indeed either - of them truly meant that a lease should be granted which went on ad infinitum.

Were I in a position to give effect to the views just expressed that would result in the landlord succeeding in this appeal: but it is necessary to consider whether the authorities which were so fully and so helpfully cited to us permit such a result.

An examination of the relevant decisions discloses an area of law in which the courts have manoeuvred themselves into an unhappy position. On the one hand in judgment after judgment, for instance, Baynham's case, 3 Vesey, page 295 (1796) at page 298, Moore v. Foley (1801) 6 Vesey, page 232 at pages 235 and 236, and Swinburne v Milburn, 9 Appeal Cases, page 844 at page 850, it has been proclaimed that the courts lean against holding that a lease is to that extent renewable. On the other hand, by strict adherence to precedent relating to the phrase "including the present covenant" when following a covenant conferring a right to a rental or the like covenants and provisos as are contained in the first lease, they appear to have bound themselves to hold that the use of a certain set of words (to which I will refer as "the formula") causes the lease to be perpetually renewable, even when no layman -at least if he has some elementary knowledge of business -would dream of granting such a lease and if aware of the meaning of the technical effect of the particular phraseology would almost certainly be aghast at its devastating effect and refuse to sign. One reason for the courts so binding themselves is said to be that the formula is one the effect of which is well known to trained conveyancers, and that this is advantageous, however much of a trap it may constitute for others.

As already mentioned, the prime purpose of the courts when construing a lease is to interpret it according to the true intentions of the parties. Already 20 years ago judicial unease at having to determine those intentions in cases of the instant type by a blinkered approach is reflected in the judgments in Parkus v. Greenwood, both at first instance (1950 Chancery Division, page 33) and on appeal (1950 Chancery Division, page 644). At first instance it fell to Mr. Justice Harman, as he then was, to discuss the decision reached in Green v. Palmer (1944 1 Chancery, page 328). There Mr. Justice Uthwatt had declined to hold that the formula produced a perpetually renewable lease when the original tenancy had been for six months and related to furnished premises. In his judgment Mr. Justice Harman not unnaturally said (at page 37) of that earlier case:

"That was an instance of a six monthly furnished tenancy and the improbability that the parties had thought of creating a 2,000 years term was very high".

He made a similar observation with regard to the lease he was himself considering, which was for three years with a renewal covenant for a further three years phrased in a way that accorded with the formula, saying:

"It is said that the plaintiff as assignee of the term of three years has got a term not of three years but of 2,000 years in the property. One may start with this: if that be the result in law, it was not contemplated by the parties when they made the original agreement, for it is clear that persons wishing to create a term of 2,000 years are very unlikely to do it by creating a term of three years with a right to renew".

This view he implemented by holding that the use of the formula in relation to that lease did not result in it being perpetually renewable.

On appeal his judgment was reversed and that of Mr. Justice Uthwatt was in substance disapproved. The Master of the Rolls (Lord Evershed) however, at the outset of his judgment, said at page 647:

"The judge came to the conclusion that there was sufficient material to be found in the language of the document (and the intention of the parties which he discerned from the document) to avoid a conclusion which plainly, I think, he felt to involve almost an absurdity; and I confess that I feel sympathy with him"

Having referred later in his judgment to the formula as a long established "matter of conveyancing machinery" and having related that logical march of case law which my Lord, Lord Justice Russell, has so clearly recited, he spoke at page 652 of the inclination of judges "to avoid a result which on the face of it would appear unlikely to have been contemplated by the parties". He spoke specifically of Green v. Palmer as being a case where that inclination would have been even stronger than in the one with which he was dealings. None the less, despite the qualms thus expressed, he felt bound to come to the conclusion that the lease was "having regard to the formula a perpetually renewable lease". In essence it was held that on the issue of the intentions of the parties the law had become the prisoner of the machinery.

The judicial unease of 1950 is, so far as I am concerned, by now increased by two factors. Firstly, more and more leases over the two succeeding decades have tended to come frompens not fully trained in the art of conveyancing. Secondly, over the same period the value of the pound sterling has been decreasing rapidly, thus making it even more unlikely that a man of business in the course of a normal transaction would knowingly part "for ever" with his rights over land in return for a static rent. Moreover, when residential property is concerned a landlord could indeed now find himself in the position of having to relinquish a freehold when the document which he signed appeared on the face of it to be a lease for relatively short periods of years.

In those circumstances I, too, have great sympathy with the line of approach adopted by Mr, Justice Uthwatt and Mr, Justice Harman. I could wish that the courts had followed the apparent preference of Lord FitzGerald Swinburne v. Milburn (9 Appeal Cases at page 855) for confining interpretations of perpetual renewability to leases where words such as "for ever" or "from time to time for ever hereafter" or some equivalent were used in the relevant document. This approach would have avoided that sort of path by which good logic can on occasion make bad law, and would have been in accord with the aphorism that at times "logic is only the art of going wrong with confidence".

Having, however, examined the authorities, I feel bound in this court to say that the matter is concluded by them in that the words in brackets, as inserted at the last moment, have in law the same effect as those considered in Parkus v. Greenwood.

I may add that until towards the very end of Mr. Walton's submissions, when for the first time it emerged that there were those brackets round the relevant words, I was disposed to say - and doubt if I was alone in my disposition - that this was a case in which it would be possible not to extend the decision in that case to phraseology which might be distinguished from that in the fettering formula: however, whilst I feel the force of Mr. Griffiths' submission that it is unfortunate that a case may turn to any material extent upon the existence or non-existence of brackets, I yet feel unable to do other than concur in the dismissal of this appeal.

LORD JUSTICE STAMP: I agree, for the reasons given by Lord Justice Russell, that it is clear from the terms of the lease that when the time came for the grant of the second five year term the new grant was to include the provisions of clause 4(3), including the parenthesis. I share the view expressed by Mr. Justice Foster that the case cannot be distinguished from Parkus v. Greenwood. In the absence of some statutory provision requiring or enabling the court to disregard the clear expression of the parties' intention it must follow that the lease was expressed to be perpetually renewable and so conferred upon the tenant a 2,000 year term.

One of the purposes of the Law of Property Act, 1922, in converting a purported perpetually renewable lease into a long term of years, was according to the learned editors of Wolstenholme & Cherry's Conveyancing Statutes 12th edition volume 1, page 100 to discourage the creation of such leases and to the extent that it has not done so this is a matter for the legislature.

I, too, would dismiss the appeal.

MR, WALTON: My Lords, I would ask your Lordships to dismiss the appeal with costs.

LORD JUSTICE RUSSELL: You cannot resist that, can you, Mr. Moseley?

MR. MOSELEY: No, my Lord.

(Appeal dismissed with costs).