England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
(MR MICHAEL HARVEY QC)

		Royal Courts of Justice Strand London, WC2A 2LL
		1 December 2005

1. LORD JUSTICE CHADWICK: This is an appeal from an order made on 20 May 2005 by Mr Michael Harvey QC, sitting as a Deputy Judge of the High Court in the Queen's Bench Division in proceedings brought under Part II of the Landlord and Tenant Act 1954 in respect of a tenancy of land and premises forming part of Long Run Farm, Bishops Hull, Taunton.
2. The land and premises are held under a lease granted on 28 March 1985 and made between David John Shute as landlord and the Territorial Auxillary and Voluntary Reserve for West Wessex as tenant. The property is described in the lease as

"part of Long Run Farm, Bishops Hull, Taunton, in the County of Somerset, being the south eastern portion of a field marked 205 on the Ordinance Survey map and which for identification purposes only is delineated and edged pink on the plan annexed hereto, together with the store and tiled roofed stall erected on the south east of the property..."

It is common ground that in that context the word "store" is almost certainly a mistranscription of the word "stone". There has been a stone and tiled roof stall on the property at the south-east corner for many years.

3. The property was demised for a term of seven years from 25 March 1984 at an annual rent of £200 payable in advance. The demised land is situated in central Taunton, or just on the outskirts. To the south of it there is a residential housing development in Wellington Road and a large superstore with an adjoining car park in Castle Street. To the north of the demised land, and separated from it by an earth flood bund, there is agricultural land, farmed as part of Long Run Farm, Bishops Hull.
4. It is common ground, also, that the tenancy under the 1985 lease is one to which Part II of the Landlord and Tenant Act 1954 applies - that is to say, it is a tenancy where the property comprised in the tenancy is or includes premises which are occupied by the tenant and are so occupied for the purposes of a business carried on by him or for those and other purposes (see section 23(1) of the 1954 Act).
5. The judge found - and it is not in dispute - that there are six buildings or structures on the property. In addition to the stone shed or stall - which, by the date of the trial, did not have a tiled roof but a corrugated asbestos roof and to which the judge referred as "unit 4" - there were two large huts (units 1 and 2), a portacabin (unit 3), a simple wooden garden shed (unit 5) and a sectional pre-cast concrete building with a felt-covered roof (unit 6). Those buildings are occupied by the tenant, now known as the Wessex Reserve Forces and Cadets Association, for the purposes of training cadets in the Air Training Corps. That that was the purpose for which the tenancy was granted in 1985 is confirmed by Clause 2(c) of the lease, which is in these terms:

"The tenant hereby agrees with the landlord as follows:-

(c) not to use the huts which have now been erected on the land by the Air Ministry other than as Headquarters for an A.T.C. Wing and/or Squadron and in any case not to use the huts on the land aforesaid for any purpose so as to be a nuisance or annoyance to the Landlord in the use and enjoyment of his adjoining land or to the owners or occupiers of houses in Wellington Road Taunton and will at all times prevent any trespass on the adjoining land of the Landlord by Army or Air Force personnel and will not erect any further huts or buildings on the lands let without the Landlord's consent in writing first obtained."

Further confirmation (if it be needed) is found in clause 2(l) - which requires the tenant to use the land exclusively for the purposes of the Air Training Corps.

6. Clause 2(g) of the lease requires the tenant to clear the land at the termination of the tenancy. The clause is in these terms:

"The tenant hereby agrees with the landlord as follows:-

(g) on the termination of the tenancy to remove all buildings and other erections and works including the bank constructed on the said land and all paths and other conveniences and restore the land to the condition in which it was when taken over by the Air Ministry (and as shown in the Schedule of Conditions agreed to at that time) and in particular to restore and make good the stone and tile roof at the entrance and the bridge over the stream with its gate and wing fence."

It is not at all clear - at least not clear to me - how the tenant can restore the stone and tiled roof of the stall near to the entrance if the stall is one of the buildings which the tenant is required to remove under clause 2(g). The explanation, I suspect, is that the stall was on the land when originally taken over by the Air Ministry many years ago; and it may be that the position would be made clear by the schedule of conditions which were agreed at that time. But it appears that that schedule is no longer available. It is unnecessary - for reasons which I shall explain in due course - to decide whether or not the stall is amongst the buildings which the tenant is required to remove under clause 2(g). It is clear that the tenant is required to remove all the other buildings under that clause.

7. The judge found as a fact that units 3, 5 and 6 - the portacabin, the wooden garden shed and the sectional pre-cast building - were chattels. There is no challenge to that finding. He found also that the two large huts - units 1 and 2 - were tenant's fixtures. There is now no challenge to that finding; the tenant having decided not to pursue its contention (advanced by respondent's notice) that the judge ought to have found those units to be chattels also. The judge found that whether or not the tenant was required to remove units 1, 2, 3, 5 and 6 from the land under clause 2(g) on termination of the tenancy, it would have been entitled, and would have chosen, to do so: "entitled", because they were either chattels or tenant's fixtures and "chosen" because he was satisfied that, on the evidence, those units were re-usable by the tenant for training or other purposes on other sites which it occupied. There is no appeal from that finding.
8. But for the provisions in section 24(1) of the 1954 Act, the contractual term of the tenancy would have expired on 24 March 1991. But section 24(1) of the Act had the effect that a tenancy to which Part II applied could not come to an end unless terminated in accordance with the provisions of that part of the Act. So the tenancy granted in 1985 continued beyond 24 March 1991; and still continues, until brought to an end in accordance with Part II of the 1954 Act. The tenant has remained in occupation of the property demised by the 1985 lease for the whole period since March 1991.
9. A tenancy to which Part II of the 1954 Act applies can be brought to an end by the landlord by the service of a notice under section 25(1) of that Act; but, on service of a notice under section 25 the tenancy continues pending disposal of the application to the court which the tenant is then entitled to make - see the proviso to section 25(1), the provisions of Part IV of the Act and, in particular, section 64(1)(a).
10. In the present case notice under section 25 of the 1954 Act was served on behalf of the landlords (named therein as MEJ, AJ and EP White) on 10 February 2004. They were the successors in title to Mr Shute, the original grantor; and they were the owners of Long Run Farm, which they farmed in partnership. It seems that Mr AJ White had died on 28 June 2003, some seven-and-a-half months before the service of the notice; but it is not suggested that the notice was invalid in that respect.
11. On service of a notice under section 25 of the 1954 Act the tenant became entitled to apply to the court for an order that the landlords grant a new tenancy: see section 24(1)(a). The section 25 notice in this case contained - as it needed to do if any application by the tenant under section 24(1)(a) was to be opposed - a statement of grounds upon which such opposition would be founded: see section 25(6) and (7).
12. The ground stated in the notice of 10 February 2004 was that the landlords would rely on paragraph (f) of section 30(1) of the Act. Section 30(1) is in these terms, so far as material:

"The grounds on which a landlord may oppose an application under section 24(1) of this Act... are such of the following grounds as may be stated in the landlord's notice under section twenty-five of this Act ...

(f) that on the termination of the current tenancy the landlord intends to demolish or reconstruct the premises comprised in the holding or a substantial part of those premises or to carry out substantial work of construction on the holding or part thereof and that he could not reasonably do so without obtaining possession of the holding."

Paragraph (g) is in these terms:

"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."

It may be noted that in the present case the landlord does not rely on the ground in paragraph (g). The grant of a new tenancy is not opposed on the ground that the landlords intend to occupy the holding for the purposes of a farming business which they carry on at Long Run Farm.

13. The tenant applied for a new tenancy by a claim form issued on 22 May 2004. It set out its grounds, including its proposals for the terms on which the new tenancy should be granted. Those proposals were that the property to be demised by the new tenancy would be the same as the property already demised by the 1985 lease; that the rent would be £400 a year; that the term of the tenancy would be seven years, with no provision for rent review; and other terms would be as shown on the schedule which, for present purposes, effectively reflects the terms in the present lease.
14. The landlords acknowledged service and served a defence to that claim. They relied on the ground in paragraph (f), but if the tenant was to have a new tenancy they proposed different terms. Those terms were that there be a lease for seven years with a break clause, and otherwise in the form of a modern commercial lease, including provision for, but not limited to, the inclusion of an authorised guarantee agreement.
15. The question whether or not the landlords had made out a ground under paragraph (f) was directed to be tried as a preliminary issue with - I think - the agreement of both parties. It was that preliminary issue that came before Mr Michael Harvey in May 2005.
16. The judge had first to address the question whether the various buildings on the land were chattels or tenant's fixtures. He decided that question in the way that I have already indicated. As I have said, there is no challenge to that decision. That decision made it necessary for him to decide whether, given that that was the status of the buildings, the landlords had made out their intention to demolish, under paragraph (f) of section 30(1).
17. It is important to have in mind that there are three limbs to paragraph (f) of section 30(1) of the Act: (i) the landlord may show that he intends to demolish the premises comprised in the holding; or (ii) he may show that he intends to reconstruct a substantial part of the premises comprised in the holding; or (iii) he may show that he intends to carry out substantial work construction on the holding or part thereof. Further, he would show that whichever of those three courses he intends to adopt, he could not reasonably carry out that intention without obtaining possession of the holding.
18. In the present case the landlords did not rely on an intention to reconstruct the buildings that are now there; nor did they rely on an intention to carry out some other substantial work of construction. The landlords relied only on an intention to demolish the buildings comprised in the holding; and they asserted that they could not reasonably carry out that intention without obtaining possession of the holding.
19. Section 30(1)(f) of the 1954 Act needs to be read with section 31A of that same Act. Section 31A(1) is in these terms, so far as material:

"Where the landlord opposes an application under section 24(1) of this Act on the ground specified in paragraph (f) of section 30(1) of this Act the court shall not hold that the landlord could not reasonably carry out the demolition, reconstruction or work of construction intended without obtaining possession of the holding if -

(a) the tenant agrees to the inclusion in the terms of the new tenancy of terms giving the landlord access and other facilities for carrying out the work intended and, given that access and those facilities, the landlord could reasonably carry out the work without obtaining possession of the holding and without interfering to a substantial extent or for a substantial time with the use of the holding for the purposes of the business carried on by the tenant..."

So that, in deciding whether a landlord, who has made good his intention to demolish, has also satisfied the requirement in section 30(1) that he could not do so without obtaining possession the court must have regard to the willingness of the tenant to agree to the inclusion, in the terms of any new tenancy, of terms which enable the landlord to have the access and facilities he needs without actually having possession.

20. The tenant's case before the judge - in so far as it is material in the context of this appeal - was that the landlords could not make out an intention to demolish the premises comprised in the holding if the position was that, at the termination of the current tenancy there would be no buildings on the holding; or, if there were any buildings, the only building would be the stone stall near to the entrance.
21. That submission was based on a line of authority of which a convenient summary may be found in the judgment of Upjohn LJ (read by Diplock LJ) in Gregson v Cyril Lord Limited [1963] 1 WLR 41 at pages 45 and 46. Upjohn LJ said this:

"The question whether the landlords intend to occupy the premises is primarily one of fact, but the authorities establish that to prove such an intention, the landlords must prove two things. First, a genuine bona fide intention on the part of the landlords that they intend to occupy the premises for their own purposes. So far as this head is concerned, it is not in dispute that the landlords are genuinely intending to occupy the premises for their own purposes. The landlords already occupy 70 per cent to 80 per cent of the whole building and obviously, on the evidence, genuinely require to occupy this extra half floor to house some of their senior executives and their staff.

Secondly, the landlords must prove that in point of possibility they have a reasonable prospect of being able to bring about this occupation by their own act of volition. This is established by Asquith LJ's well-known observations in Cunliffe v Goodman, where he said: 'An "intention" to my mind connotes a state of affairs which the party 'intending' - I will call him X - does more than merely contemplate: it connotes a state of affairs which, on the contrary, he decides, so far as in him lies, to bring about, and which, in point of possibility, he has a reasonable prospect of being able to bring about by his own act of volition.'"

As Uphohn LJ went on to observe, those observations were approved in terms by Viscount Simonds in Betty's Cafés Limited v Phillips Furnishing Stores Limited [1959] AC 20 at 34.

22. In the present case there is not much doubt that the landlords established by evidence an intention, if at the termination of the current tenancy - and absent the grant of a new tenancy - they received the land back with the buildings on it they would demolish those buildings. The difficulty for the landlords - as the judge appreciated - was that they could not have an intention to demolish buildings which were not going to be on the land when the time came for carrying out that intention. So that, if the land will not have buildings on it at the end of the current tenancy, then the landlords cannot realistically be said to have an intention to demolish those buildings. The building will not be available for demolition; because they will not be there.
23. The landlords' intention, as it seems to me, has to be tested on the hypothesis that, when the tenancy comes to an end there will be no new tenancy. Testing the matter as the judge did - correctly in my view - by asking what will be the position in this case if, when the current tenancy comes to an end, there is no grant of a new tenancy, the answer is not in doubt. There will be no buildings on the land at the end of the current tenancy because the tenant will have complied with its obligation under clause 2(g) of the lease. It will have done so, not only because as an organ of the Ministry of Defence it may be expected to comply with its obligations and to be in a position to do so, but because, in this case, the tenant has an incentive to do so. The huts, the portacabin and the garden shed can be removed. On the evidence which the judge accepted, they would be of sufficient value if they were removed to make it worthwhile for the tenant to remove them and transport them to some other site. So that, on the evidence that was before the judge, the position was that - with the possible exception of the stone stall - there would be no buildings on the land in relation to which the landlord could give effect to their professed intention.
24. In relation to the stone stall the position, as it seems to me, is this. First, it may be that the obligation in clause 2(g) of the lease actually requires the tenant to remove the stone stall, or demolish it and remove the debris. The tenant is content to do that, if that is the obligation which the 1985 lease required of it. Second, the tenant is, in fact, quite content to do that, even if that is not an obligation imposed on it by the 1985 lease if that is what the landlords want. Third, it is not at all clear that the landlord would need possession of the demised land in order to carry out the work of demolishing the stone stall, which is at the entrance to the land. That is because access to the stone stall could be obtained conveniently from the road without the need to go onto the rest of the land. Fourth, that if there were any difficulty in gaining access, the tenant is content to agree to the inclusion in any new lease of a provision that the landlord shall have access and the facilities needed for the purpose of demolishing the stone stall; so bring into effect the provisions of section 31A, which require the court to hold that, with such a term included in the new tenancy, it could not be satisfied that demolition could not be carried out without obtaining possession.
25. So for those reasons the judge was able to hold that the landlord had not made out the only ground on which it relied - that is to say, the ground under paragraph (f) of section 30(1) in respect of demolition. Accordingly, he declared that the ground of opposition was not made out and the proceedings must go forward to the next stage.
26. It is necessary, therefore, to have in mind what the next stage will be under the statutory provisions. Section 29 of the 1954 Act provides:

"(1) Subject to the provisions of this Act, on an application under section 24(1) ... the court shall make an order for the grant of a new tenancy and accordingly for the termination of the current tenancy immediately before the commencement of the new tenancy."

So that the current tenancy continues until the point at which it is replaced by a new tenancy.

27. The circumstances in which the court is not to make an order for a new tenancy are those set out in section 30(1), to which I have already referred. That is made plain by section 31(1) of the Act; which provides that, if a landlord opposes an application under section 24(1) on grounds on which he is entitled to oppose it in accordance with section 30 and establishes any of those grounds to the satisfaction of the court, the court shall not make an order for the grant of a new tenancy.
28. The provisions of sections 29 and 31 make it clear that there is no discretion to be exercised. Either the landlord makes out the grounds of opposition, in which case the court must not order the grant of a new tenancy; or the landlord fails to make out those grounds of opposition, in which case the court shall order the grant of a new tenancy.
29. The following provisions of the Act then set out the terms and content of the new tenancy. In the present context section 32(3) is of importance:

"Where the current tenancy includes rights enjoyed by the tenant in connection with the holding, those rights shall be included in a tenancy ordered to be granted under section twenty-nine of this Act [except as otherwise agreed between the landlord and the tenant or, in default of such agreement, determined by the court]."

Section 33 prescribes what the duration of the new tenancy shall be; and section 34 what the rent under the tenancy shall be.

30. Section 35(1) of the 1954 Act makes provision for the other terms of the new tenancy. It is in these terms:

"(1) The terms of a tenancy granted by order of the court under this Part of this Act (other than terms as to the duration thereof and as to the rent payable thereunder) shall be such as may be agreed between the landlord and the tenant or as, in default of such agreement, may be determined by the court; and in determining those terms the court shall have regard to the terms of the current tenancy and to all relevant circumstances."

The effect of that provision, read with section 29, is that, if the landlord has failed to make out a grant of opposition under section 30(1), the court must order the grant of a new tenancy; but, when deciding what the terms of the new tenancy are to be, the court must have regard to the terms of the current tenancy and to all relevant circumstances. In particular the court must have regard to the requirement, in section 32(3), that the rights enjoyed by the tenant in connection with the holding are to be included in any new tenancy.

31. It follows that it will be a matter for the court, on further consideration of the application for a new tenancy made in the present proceedings to decide whether any new tenancy will or will not permit the maintenance and use of buildings on the property demised for the purposes of carrying on Air Training Corps activities. That is a matter on which, for my part, I express no view at all.
32. But even if, on the grant of a new tenancy, the court were to take the view that the tenant should be required to demolish the buildings which were on the land at the end of the old tenancy and not to erect any new buildings, the tenant would still be entitled (if it wished) to have a grant of the holding on those terms. A tenancy on those terms might or might not be of value to the Association. The tenant is not obliged to take the new tenancy on the terms which the court dictates. It has a choice, exercisable within a short period of some 14 days, not to take a tenancy on those terms. So that it is impossible to say - even if the grant of a new tenancy required the removal of the buildings - that the right to have a new tenancy on those terms would not be a valuable right. It is a right conferred by Parliament on this tenant and for which it should not be deprived without cause.
33. For the reasons that I have indicated, I think the judge was right to take the view that the landlords had not made out the ground of opposition on which they relied. Accordingly I would dismiss this appeal.
34. LORD JUSTICE MOORE-BICK: I agree and there is nothing that I wish to add.
35. SIR CHRISTOPHER STAUGHTON: I agree.

(Appeal dismissed; Appellant to pay the Respondent's costs of the appeal; but those costs are not to include the costs of the respondent's notice, which are to be set-off against the costs of the appeal).