Strand, London, WC2A 2LL
B e f o r e :
| Edwards & Walkden (Norfolk) Limited & ors
|- and -
|The Mayor and Commonalty and Citizens of the City of London
Martin Rodger QC & Joseph Ollech (instructed by Field Fisher Waterhouse LLP) for the Defendants
Hearing dates: 14/6/12 21/6/12
Crown Copyright ©
Mr Justice Sales :
i) Issue 1: Whether the tenants are entitled to have their rents reduced on account of income received by the City from any parts of the East and West Market buildings and the Poultry Market building of the London Central Markets in the City of London used for non-Market purposes (including income from the car park and offices let for non-Market purposes i.e. from the commercial offices let to commercial tenants); and
ii) Issue 2: Whether the rents to be fixed by the Court should be an all-inclusive rent (consisting of the maximum recoverable rent, service charge and uniform business rates for each unit) as under the existing leases or exclusive with the tenant's contribution to services covered by a separate service charge. (In fact, there is some variation in the position under the existing leases which I explain in greater detail below).
"Each party shall be at liberty to adduce (for the purpose of [Issue 2]) the report of one expert valuation witness on the parties' respective contentions (in broad terms) concerning the effect upon the rent of there being an inclusive or exclusive figure. The intention of such evidence being to provide the Court with an indication of the range of views of the experts, but not for the Court finally to determine rental values."
The legal framework under the 1954 Act
"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 history of the Market and its legal basis
"Whereas the present existing Markets for the Sale of Meat and Poultry and other Provisions in the City of London are small and confined, and inadequate to supply the Wants of the rapidly increasing Population of the Metropolis: And whereas it is expedient that larger and more convenient Markets should be provided, and that proper Approaches should be made thereto: And whereas Part of the Site of Smithfield, formerly used as a Cattle and Sheep Market, is conveniently situated and adapted for such new Markets: And whereas the Mayor, Aldermen, and Commons of the City of London, in Common Council assembled, are willing to provide such Markets, and to cause proper Approaches to be made thereto: And whereas Her Majesty in right of Her Crown and the Mayor and Commonalty and Citizens of the City of London respectively claim to be entitled to or interested in the ancient Site of Smithfield Market, and Her Majesty is willing, and the Mayor and Commonalty and Citizens have agreed, that such Provisions as are herein-after contained should be made for keeping open the Part of the ancient Site of Smithfield Market which is not otherwise expressly appropriated for the Purposes of this Act, and for appropriating the Residue of the said ancient Site in manner herein-after provided; but the same cannot be effected without the Aid and Authority of Parliament: May it therefore please Your Majesty that it may be enacted [etc]."
"8. And whereas a Plan of Smithfield Market Place, showing the Alterations and Improvements authorized by this Act, has been deposited at the Office of Land Revenue Records and Inrolments, and has been signed by the Keeper of such Records and Inrolments: Be it enacted, That the Part of Smithfield Market Place which is coloured Red on the same Plan shall be for ever reserved and appropriated as an open public Place, subject to the Use of the same as a Market for the Sale of Hay and Straw in Carts or Waggons, and no Building or Erection shall at any Time be erected or made thereon (other than a Fountain and Dwarf Walls with Iron Rails, not exceeding in the whole Four Feet Six Inches in Height, at the Sides of the proposed Entrance to a Goods Stations, as shown on the same Plan, which proposed Entrance shall not be used for Railway Passengers); and the Parts of the said Market Place which are respectively coloured Green and Blue on such Plan shall be appropriated as or as an Addition to and shall be thrown into the adjoining public Streets; and the Land coloured Brown, Purple and Yellow on the said Plan shall be appropriated and used for the Purposes mentioned in the Ninth and Tenth Sections of this Act, and for no other Use or Purpose, and a Copy of such Plan shall be deposited at the Office of the Clerk of the Peace for the City of London with the other Documents referred to in this Act: Provided always, that nothing contained in this Act or appearing on the said Plan shall, subject to the Provisions of this Act, affect or prejudice any Estate, Right, or Interest of the Queen's Majesty, or of the said Mayor, Commonalty, and Citizens, to the whole or any Part of the Land coloured respectively Purple, Yellow and Blue on such Plan, it being alleged by the said Mayor, Commonalty and Citizens that such Land does not form Part of the ancient Site of Smithfield.
9. It shall be lawful for the Mayor, Aldermen, and Commons and they are hereby authorized to appropriate for the Purposes of this Act that Part of the ancient Site of Smithfield Market which is situate on the North Side of Long Lane, or any Part of such Site, and to erect, build, construct, and maintain on the Site so appropriated, or on any Part thereof, and on the Land by this Act authorized to be taken, a Market House and Market Place, or Market Houses or Market Places, for the Exposure and Sale of Meat and Poultry and other Provisions, in the Situation delineated on the Maps and Plans so deposited as aforesaid, together with such Houses, Shops, Stalls, Standings, Sheds, Buildings, Works, and Conveniences for the Purposes of the said Markets, and for the Accommodation of Persons resorting thereto, as they the Mayor, Aldermen and Commons may think necessary, all which said Market Houses and Market Places shall be deemed to be Public Markets."
The parties agree that these provisions provide the legal basis for the City to operate the Market and to carry out works of construction and modification, and that section 8 has the effect of restricting the permissible user of the parts of the site coloured brown, purple and yellow on the plan to Market purposes. This is relevant to the resolution of Issue 1, because parts of the site coloured brown, purple and yellow on the plan fall within the land occupied by the West Market building, which has the car park below it and which was developed in the 1990s to include commercial offices above the market areas.
"It shall be lawful for the Mayor, Aldermen, and Commons and they are hereby authorized and empowered to appropriate the whole or any Part of the underground Surface beneath the intended Market or Market Places, and the Buildings belonging thereto, and beneath so much of the Roads or Streets surrounding the said Market and Market Places as are to be purchased or taken under the Powers of this Act, for the Purpose of a Railway Station or Railway Terminus, with Lifts and Hoists communicating with the said Market and Market Places, to be used by any Railway Company, or any Persons desirous of constructing a Railway or Railways to such Market or Market Places, and to enter into any Contract or Agreement with any Railway Company or Persons for the Excavation, Building, and Erection of such Railway Station or Terminus, and of the Approaches thereto, and for the Lease of the same, at such Rent and upon such Terms and Conditions as shall be mutually agreed upon: Provided always, that the Station or Terminus shall not be used as a Passenger Station, except in connexion with the Market and for Market Purposes."
"14. The Ground and Soil of the Roads or Streets immediately surrounding or intersecting the said Market, and formed or made under the Powers of this Act, other than the Ground and Soil of such Roads and Streets as are coloured on the said Plan deposited at the Office of Land Revenue Records and Enrolments, and the Fee Simple and Inheritance thereof, shall be and are hereby vested in the Mayor, Commonalty and Citizens of the City of London; and the whole of the said Roads or Streets shall be under the Care, Management, Control, and Jurisdiction of and shall be paved, repaired, cleansed, lighted, and watched by and at the Expense of the Mayor, Aldermen, and Commons.
15. In case any Lands which shall be purchased and cleared by virtue of this Act shall not be wanted for the Site of the said Market, and shall not be laid into the Streets to be made, widened, or improved under the Authority of this Act, it shall be lawful for the Mayor, Aldermen, and Commons to appropriate the same to any other Purpose which they may think proper or expedient: Provided that it shall not be lawful for the Mayor, Aldermen, and Commons to appropriate any Part of the said Market House, except the underground Surface thereof, to any other than Market Purposes."
"26. It shall be lawful for the Mayor, Aldermen, and Commons from Time to Time to demise and lease all or any of the Houses, Shops, Stalls, Standings, Sheds, Buildings, and Conveniences which may be provided under the Authority of this Act, and which in their Opinion may properly be exclusively occupied, for any Term or Number of Years not exceeding Twenty-one Years, and to demise and lease any House or Building which may be erected on any Land acquired under the Authority of this Act, and which may not be wanted for the Purpose of constructing the said Market, and also all or any Part of such Land, for any Term or Number of Years not exceeding Eighty Years, every Lease which may be granted under the Authority of this Act to take effect in possession, or within Three Months from the Time of granting the same."
"37. The Tolls which may be received by the Mayor, Aldermen, and Commons under Schedule (A.), by virtue of this Act, together with the Rent which shall be received by them from any Railway Company for the Use of the underground Station, or Terminus thereto, shall be applied in the first place in defraying the Cost and Expenses of collecting and receiving the said Tolls and Rent, and in the next place in Payment of the Interest and Principal of the Monies expended in the Purchase or Acquisition of Land for the Site of the said intended Market and Market Places, and of the Roads or Streets surrounding or intersecting or approaching the same, and in making the several Improvements in this Act authorized or required to be made; and when all such Principal Monies shall have been repaid, with all Interest which shall from Time to Time or at any Time have accrued in respect thereof, the Tolls in Schedule (A.) by this Act authorized to be taken shall cease and determine, unless Parliament shall in the meantime otherwise direct, and the Rents and other Monies which shall be received for the Use of the said Railway Station or Terminus shall be applied towards the Maintenance and Improvement of the said Market and Market Places; and in case the Tolls which may be received by the Mayor, Aldermen, and Commons under Schedule (A.), by virtue of this Act, together with the Rent which shall be received by them from any Railway Company for the Use of the underground Station or Terminus, shall at any Time be insufficient to defray the Costs and Expense of collecting and receiving the said Tolls and Rent, and the Interest of the Monies which may be borrowed on the Credit thereof, the Deficiency shall be made good by the Mayor, Commonalty and Citizens out of their own Monies, and such Sums of Money as may be paid and advanced by them for the Purposes aforesaid shall be repaid to them, with Interest after the Rate of Four per Centum per Annum from the Time of advancing the same out of any future Tolls or Rent which may be received by them."
The effect of this section was modified by section 11 of the City of London (Various Powers) Act 1956, which provided that the tolls should continue after repayment of the principal and interest referred to in section 37 of the 1860 Act, and should be applied by the City "after defraying the cost and expenses of collecting and receiving the same towards the maintenance of the meat and poultry market and subject thereto shall be credited to the city's cash."
"40. The Mayor, Aldermen, and Commons shall cause Books to be provided and kept, and full and correct Accounts to be entered therein of all Monies which may be raised or borrowed upon the Credit of the Tolls by the Mayor, Aldermen, and Commons, under the Authority of this Act, for the Purchase of Land, and for effecting the said Improvements, and of all Rent received from any Railway Company or other Persons for the Use of the underground Station or Terminus, and of all Tolls and other Monies received under Schedule (A.) to reasonable Charges of such Distress and Sale: Provided always, that nothing herein contained shall extend to prevent the Mayor, Aldermen, and Commons from suing for and recovering in any Court of Record any Sum of Money which shall become payable to them for or in respect of any such Toll or Payment as aforesaid, if Default be made in Payment thereof."
"Upon service by the Landlords of notice to terminate this Lease under Section 25 Landlord and Tenant Act 1954 or upon service by the Tenant of a request for a new lease under Section 26 Landlord and Tenant Act 1954 then the parties shall enter into negotiations to determine whether this Lease shall be renewed on an all inclusive rent or on a separate rent and service charge and in the event that agreement is not reached then the parties shall apply to Court in accordance with the Landlord and Tenant Act 1954 in respect thereof."
This provision was included as a way of recognising that the dispute between the parties regarding the appropriate payment structure to govern the tenancies under which stalls and shops in the East Market and West Market were to be held continued, notwithstanding the grant of the 2001 leases, and was to be treated as "parked" for the duration of those leases but with each side being at liberty to revive the argument when the time came to consider renewal of the tenancies under those leases.
"The parties hereto certify that there is no Agreement for Lease to which this Lease gives effect."
I infer that the tenants wished to include this provision in order to emphasise that the 2001 leases should not be regarded as the product of the 1994 agreements, which had contemplated that the payment structure would take the form of a rent and service charge from 2000 onward.
Issue 1: analysis
Issue 2: analysis
The East Market and the West Market
"From these sections I deduce three general propositions. (1) It is clear from section 34 that, in contrast to the enactments relating to residential property, Parliament did not intend, apart from certain limitations to protect the tenant from the operation of market forces in the determination of rent. (2) In contrast to the determination of rent, it is the court and not the market forces which, with one vital qualification, has an almost complete discretion as to the other terms of the tenancy (which, of course in turn must exercise a decisive influence on the market rent to be ascertained under section 34). And (3) in deciding the terms of the new tenancy, as to which its discretion is otherwise not expressly fettered, the court must start by "having regard to" the terms of the current tenancy, which ex hypothesi must either have been originally the subject of agreement between the parties, or themselves the result of a previous determination by the court in earlier proceedings for renewal.
A certain amount of discussion took place in argument as to the meaning of "having regard to" in section 35. Despite the fact that the phrase has only just been used by the draftsman of section 34 in an almost mandatory sense, I do not in any way suggest that the court is intended, or should in any way attempt to bind the parties to the terms of the current tenancy in any permanent form. But I do believe that the court must begin by considering the terms of the current tenancy, that the burden of persuading the court to impose a change in those terms against the will of either party must rest on the party proposing the change, and that the change proposed must, in the circumstances of the case, be fair and reasonable, and should take into account, amongst other things, the comparatively weak negotiating position of a sitting tenant requiring renewal, particularly in conditions of scarcity, and the general purpose of the Act which is to protect the business interests of the tenant so far as they are affected by the approaching termination of the current lease, in particular as regards his security of tenure. I derive this view from the structure, purpose, and words of the Act itself. But, if I required confirmation of it, I would find it in the passages cited to us in argument from the judgment of Denning L.J. in Gold v. Brighton Corporation  1 W.L.R. 1291 , 1294 and of Widgery L.J. in Cardshops Ltd. v. Davies  1 W.L.R. 591, 596 (also cited with approval by Shaw L.J. in the instant case). The point is also emphasised by the decision in Charles Clements (London) Ltd. v. Rank City Wall Ltd. (1978) 246 E.G. 739, where the court rejected an attempt by the landlord as a means of raising the rent to force on a tenant a relaxation of a covenant limiting user which would have been of no value to the particular tenant, and Aldwych Club Ltd. v. Copthall Property Co. Ltd. (1962) 185 E.G. 219 where the court rejected an attempt by the tenant to narrow the permitted user with a view to reducing the rent.
A further point which was canvassed in argument, and with which I agree, is that the discretion of the court to accept or reject terms not in the current lease is not limited to the security of tenure of the tenant even in the extended sense referred to by Denning L.J. in Gold v. Brighton Corporation  1 W.L.R. 1291 . There must, in my view, be a good reason based in the absence of agreement on essential fairness for the court to impose a new term not in the current lease by either party on the other against his will. Any other conclusion would in my view be inconsistent with the terms of the section. But, subject to this, the discretion of the court is of the widest possible kind, having regard to the almost infinitely varying circumstances of individual leases, properties, businesses and parties involved in business tenancies all over the country."
"The Act, in the portion (Part II) of it which deals with business tenancies, is in the main a discretionary Act, giving wide powers to the judge to grant and settle the terms on which the business tenant is to have a new lease. This applies particularly to sections 33 and 34, which relate to the duration of the tenancy and the rent. The crucial section, for present purposes, is section 35 which relates to the terms of the tenancy, other than terms as to duration and rent. This section contains a mandatory guideline or direction to "have regard to" the terms of the current tenancy and to all relevant circumstances. The words "have regard to" are elastic: they compel something between an obligation to reproduce existing terms and an unfettered right to substitute others. They impose an onus upon a party seeking to introduce new, or substituted, or modified terms, to justify the change, with reasons appearing sufficient to the court (see Gold v. Brighton Corporation  1 W.L.R. 1291, 1294 - on "strong and cogent evidence" per Denning L.J., Cardshops Ltd. v. Davies  1 W.L.R. 591, 596 per Widgery L.J.).
If such reasons are shown, then the court, applying the words "all relevant circumstances," may consider giving effect to them: there is certainly no intention shown to freeze, or in the metaphor used by learned counsel, to "petrify" the terms of the lease. In some cases, especially where the lease is an old one, many of its terms may be out of date, or unsuitable in relation to the new term to be granted. If so or for other good reasons shown, the court has power to order a modification by changing an existing term or introducing a new one (e.g. a break clause, cf. Adams v. Green (1978) 247 E.G. 49). Before doing so it will consider any objections by the tenant, and where there is an insoluble conflict, will decide according to fairness and justice.
The landlord's case for a shift of the burdens as I have indicated rests upon two broad foundations. The first is that such a shift is, for quite genuine and respectable reasons, in the interest of the landlord. I accept this; I think that it is shown by evidence that in the present and foreseeable state of the property market, a freehold interest in commercial property, at least in London, commands a higher price if let on "clear leases" - i.e. leases in which the tenants bear all the costs and risks of repairing, maintaining and running the building of which their demised premises form part, so that the rent payable reaches the landlord clear of all expenses and overheads. Thus the landlord demonstrates a genuine interest in departing from the existing terms of the lease. Secondly, the landlord asserts that new leases of property, such as that with which we are concerned, are now granted and accepted by tenants as "clear leases." This too is supported by the evidence. But, in my opinion, though a relevant circumstance it is not decisive. There is no obligation, under section 35 of the Act, to make the new terms conform with market practice, if to do so would be unfair to the tenant. and there is no inherent necessity why the terms on which existing leases are to be renewed should be dictated by those of fresh bargains which tenants may feel themselves obliged to accept. The court has to compare the advantage desired by the landlord with the detriment to be suffered by the tenants and to consider whether any monetary compensation offered against that detriment ought fairly to be imposed upon the tenants in exchange for the acceptance of that detriment. That money is not necessarily fair compensation for a change in existing rights is obvious in itself and is well recognised by the law in relation, for example, to compulsory acquisition and to the granting of damages instead of an injunction.
There can be no doubt in my opinion that this detriment is real and serious. Considering only the obligation to bear a proportion of the cost of maintaining and repairing the exterior and common parts of the building, to impose this upon the tenants is something which they may most reasonably resist. They risk incurring a liability which is unpredictable and which may, in the event of a structural defect, be very great. They have no power of precautionary inspection or survey, since they only have access to part of the building. They have no means of verifying that work for which they are charged was necessary at the time, or was truly repair and not improvement, the cost of which ought not to be put on the tenants, nor of controlling what work has been done or how it has been done. As tenants, carrying on a solicitor's business, they have no staff capable of performing these tasks, whereas the landlord, as a large property company with an interest in over 200 buildings in the City of London, has. If work can be ordered and effected by persons, other than those who have to bear the cost, risks of extravagance and misdirection of effort may be created. The same separation of responsibility necessitates a system of charging by certificate and of preventing challenges, except in rare cases, which is of its nature onerous and prejudicial.
The character of the two parties' interests in the land - the landlord's an indefinite one by freehold, the tenants' a limited one over a comparatively short period, even though capable of renewal if the tenant so wishes, is such as to call for the assumption of long term risks by the former: his benefit too is long term and will not, according to the evidence, emerge till the 1990's. Transference of these rights to the leaseholders, accompanied, as is inevitable, by separation of control, creates a risk disproportionate to their interest. If it is reasonable for the landlord to wish to get rid of these risks in exchange for a fixed payment (reduction in rent) it must be equally, or indeed more, reasonable for the tenants to wish, against receipt of that reduction, to avoid assuming it. The tenants are being asked to bear all the risks of property management, a business which they have not chosen, being management by others in the interest of those others. The present distribution of burdens is that freely and contractually agreed upon so recently as in 1972. To recast it involves a serious departure from the terms of the current lease. In my opinion, a court which has to have regard to the terms of the current lease ought not to sanction such a departure, and such other circumstances as should fairly be taken into account - the landlord's wishes and the increasing acceptance by others, in different situations, of clear leases - are insufficient to give grounds for so doing."
"The witnesses called in the county court included two technical witnesses called on behalf of Mr. Hyams and one called on behalf of Titan Properties Ltd., and in cross-examination each of the witnesses called on behalf of Mr. Hyams agreed that the modern practice in relation to service charges was to make the tenant liable for a proportion of the total costs incurred by the landlord in respect of the provision of services proportional to that part of the building occupied by the tenant; it was established in evidence that the proportion of the building which Mr. Hyams occupied was in fact one-ninth of the building. It was also established that the cost of providing the services for the year 196970 was £1,443, one-ninth of which would be approximately £150 a year. It is, I think, evident that the reason for this new practice which was recognised by the witnesses is that in an age of rapidly fluctuating and increasing prices it is a fairer arrangement between landlord and tenant that the tenant should pay a proportion of the cost year by year than that an arbitrary figure should be fixed at the inception of the lease to continue in force throughout, the term as the amount payable in respect of services."
"It is quite clear that in the conditions which have been over recent years prevailing as regards increases required on expenditure on services the charges for those services should, when questions arise under the Landlord and Tenant Act 1954, normally be separated from the rent itself. It is equally clear that it is necessary that when a new lease is granted, at any rate where the service charge is not merely minimal, there should be inserted in the lease a formula of the type referred to by Buckley L.J.; the simple reason for this is that in no other way can one obtain an appropriate measure of fairness as between landlord and tenant. To try and fix for these somewhat unpredictable increasesand I mean, of course, "unpredictable" as regards percentageover a period of some five years a fixed mean sum is an exercise which is bound to result in unfairness to one side or the other."
The main group of Poultry Market tenancies
Units 207 and 221 in the Poultry Market
i) Issue 1: "No". The tenants are not entitled to have their rents under the new tenancies reduced on account of income received by the City from letting any of the commercial offices or from the car park;
ii) Issue 2: The rents to be set under the new tenancies to be ordered by the court under the 1954 Act in relation to all the properties reviewed in this judgment should be exclusive rents with the tenants' contribution to services covered by a separate service charge.