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United Kingdom Upper Tribunal (Lands Chamber)
You are here: BAILII >> Databases >> United Kingdom Upper Tribunal (Lands Chamber) >> Obichukwu v London Borough Of Enfield [2015] UKUT 64 (LC) (16 February 2015)
URL: http://www.bailii.org/uk/cases/UKUT/LC/2015/64.html
Cite as: [2015] UKUT 64 (LC)
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UPPER TRIBUNAL (LANDS CHAMBER)
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UT Neutral citation number: [2015] UKUT 64 (LC)
UTLC Case Number: ACQ/142/2012
TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
COMPENSATION – PRELIMINARY ISSUE – lease of commercial premises granted by Acquiring Authority – negotiations for surrender of lease - lessee returning keys to premises before CPO confirmed or negotiations concluded – expectation of further negotiations to settle compensation - surrender by operation of law – whether legitimate expectation of compensation
IN THE MATTER OF A NOTICE OF REFERENCE
BETWEEN MRS PATRICIA OBICHUKWU Claimant
and
THE MAYOR AND BURGESSES OF THE Acquiring LONDON BOROUGH OF ENFIELD Authority
Re: 74A Fore Street
Edmonton
London N18 2SL
Before: Martin Rodger QC, Deputy President
Sitting at the Royal Courts of Justice, London WC2A 2LL
on 13-14 January 2015
Mr A.C. Emeka of Graceland, solicitors, for the claimant
Mr Rory Clarke instructed by the Borough Solicitor, for the acquiring authority
© CROWN COPYRIGHT 2015
The following cases are referred to in this decision:
Walford v Miles [1992] 2 AC 128
Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104
Sable v QFS Scaffolding Ltd [2010] L & TR 30
Relvok Properties v Dixon (1973) 25 P & CR 1
Artworld Financial Corp v Safaryan [2009] L & TR 20
R v North and East Devon Health Authority, ex p. Coughlan [2001] QB 213
Salvation Army Trustee Co Ltd v West Yorkshire Metropolitan County Council (1980) 41 P & CR 179
Christos v Secretary of State for Transport [2004] 1 EGLR 5
Attorney-General of Hong Kong v Humphreys Estate (Queens Gardens) Ltd [1987] 1 AC 114
DECISION
Introduction
1. From 1997 until 2011 the claimant, Mrs Patricia Obichukwu, ran a small grocery business specialising in the sale of African foodstuffs, from a shop at 74A Fore Street, Edmonton, in the London Borough of Enfield. The claimant’s premises, which she held under successive leases granted to her by the respondent, were located in a retail parade adjoining the base of the Highmead Tower, a block of 61 flats in the most deprived ward in the respondent’s borough.
2. In 2005 the respondent began removing its residential tenants from the Highmead Tower with a view to its demolition and redevelopment. In 2009 it opened negotiation with its commercial tenants, including the claimant, for the acquisition of their various leasehold interests in the 14 shops at 68 to 90 Fore Street which, being located at the base of the Tower, would be affected by the proposed redevelopment. At about the same time the respondent began preparations for the compulsory acquisition of the commercial leases in case the intended negotiations should not prove successful.
3. On 2 August 2012 the claimant referred a claim for compensation to the Tribunal. Her claim was described as arising out of the compulsory purchase of her lease of the premises at 74A Fore Street pursuant to the London Borough of Enfield (Highmead) Compulsory Purchase Order 2011 (“the CPO”). In response to the claim the respondent asserted that the claimant’s leasehold interest had not been compulsorily acquired. The respondent acknowledged that the claimant’s premises had been included in the CPO, which was confirmed (after a public inquiry) on 12 June 2012. It denied liability to pay compensation because, by that date, the claimant had already surrendered her lease voluntarily by handing over the keys of the premises which were accepted by the respondent on 14 February 2012.
4. The claimant’s pleaded case, as it appears in an amended statement of case dated 28 November 2013, is that on the day of the public inquiry she withdrew her objection to the CPO and promised to deliver possession of the premises to the respondent on condition that the respondent would pay her compensation.
5. The Tribunal directed the trial of preliminary issues to determine whether the claimant has an entitlement to compensation.
The facts
6. At the hearing of the preliminary issues evidence was given by the claimant and by three officers of the respondent: Mr Bruce McRobie, a Principal Development Surveyor in the respondent’s property services team, Ms Izabella Grogan, the senior solicitor responsible for all legal work in connection with the CPO, and Mr Peter George, the respondent’s project manager with responsibility for the Highmead redevelopment project.
7. With the exception of one incident there was little disagreement between the witnesses over the facts, most of which were clear from documents. The single exception concerned what was said in a conversation which took place on 7 February 2012 in the corridor outside the hearing room on the day of the public inquiry. I accept the account of what was said on that occasion given by the claimant in her oral evidence.
8. The claimant first took a lease of her shop in 1997. The original letting was for 6 years but when it came to be renewed in 2003 the respondent suggested that a longer term would give the claimant greater security in her business. The claimant agreed and on 28 May 2003 the respondent granted her a new lease of the shop for a term of 20 years at an initial rent of £6,200 rising to £7,000 in 2004. The rent was subject to review with effect from 1 January 2007, with the new rent to be determined by an independent expert in the event of the parties being unable to agree.
9. The claimant conducted her business through the medium of two limited companies, Nikem Enterprise Ltd and Best Produce International (UK) Ltd. From about 2010 she sought to expand her interests into consultancy and training for producers of foodstuffs in West Africa seeking to import goods for sale in the UK.
10. In about 2005 the respondent decided to sell the Highmead Tower to a commercial developer and began to re-house the tenants of flats in the Tower. The proposed sale eventually came to nothing, but the claimant was aware of it and was concerned at the effect it might have on her business. In January 2007, and again in November of the same year, the claimant asked the respondent to open negotiations to settle the rent review due under her lease with effect from 1 January 2007. The respondent refused, preferring to leave the negotiation to the eventual purchaser of its interest; the respondent’s decision left the claimant in a state of uncertainty over the rent she would eventually be expected to pay. In the face of the respondent’s refusal to negotiate the claimant could herself have applied for the appointment of an independent expert, but she was probably unaware of that right and, in any event, she did not exercise it.
11. On 16 December 2009, no purchaser having been found, the respondent’s Cabinet approved a report recommending the demolition of the Tower. By that time only 2 of the 61 residential tenants remained and the prolonged uncertainty over the future of the Tower had led to a deterioration in its appearance and an increase in vandalism and burglary in the vicinity.
12. Mr McRobie was appointed project manager for the Highmead demolition project; working under him were Mr George and Mr Michael Bennett, who has subsequently left the respondent. Mr George drafted a briefing paper and a Q&A document for use by the respondent’s staff who would undertake negotiations with the commercial tenants of the premises at the base of the Tower.
13. The claimant’s shop was one of three which were closest to the Tower itself and most immediately affected by the proposed demolition and she was visited by Mr George and Mr Bennett on 17 December 2009, the day after the Cabinet resolution. They told the claimant that her shop would have to close but that she would be compensated by the respondent. Mr McRobie’s evidence was that his staff was briefed to inform the retailers that the respondent wished to obtain vacant possession of their premises by reaching an amicable settlement, but that as a precautionary measure it was the respondent’s intention to make a CPO. The claimant’s own account of her first meeting with Mr Bennett and Mr George was consistent with that general message.
14. The claimant was visited for a second time by Mr Bennett on 7 January 2010. The only evidence I have about that meeting is from the claimant, but I accept her account. The claimant struck me as an entirely honest witness. She demonstrated a grasp of detail and an impressive memory. She was clearly upset by the approach taken by Mr Bennett and she wrote a letter of complaint to the respondent shortly after her second meeting with him. The thrust of her complaint, and of her evidence, was that Mr Bennett had sought to bully her into accepting an offer of £50,000, a figure which she rejected. Mr Bennett told her that if she would not agree to that sum he would walk away, the offer would be withdrawn, and the amount of compensation which the respondent would pay would be settled by the Lands Tribunal. Mr Bennett also told the claimant that if she did not agree to the sum offered the respondent would send a surveyor to inspect the premises and would require her to carry out repairs which would force her out; the outstanding rent review would also be initiated and a CPO would be made.
15. Having twice rebuffed the claimant’s attempts to make progress with the rent review the respondent finally instructed an external surveyor who gave notice on 12 March 2010 of a proposal to increase the rent from £7,000 to £16,300 backdated to 1 January 2007. Whether that step was taken in direct response to the claimant’s refusal to accept the offer made by Mr Bennett on 7 January 2010 or whether it would have been taken in any event is not clear. The rent review did not progress smoothly, but the details are not material to these proceedings. It is sufficient to record that the claimant objected to the expert appointed by the President of the RICS and has refused to recognise his determination, eventually published on 23 September 2011, which fixed the new rent at £12,500 a year.
16. The CPO was made by the respondent on 1 August 2011 and was submitted to the Secretary of State for confirmation. When she received notice of the CPO the claimant appears to have believed that, as a person whose premises were to be acquired, it was either necessary or prudent for her to object to the confirmation of the CPO in order to protect her entitlement to compensation. In her oral evidence the claimant said that the purpose of her objection was to register her right to compensation with the Secretary of State. At that stage the claimant was unrepresented and she had no experience of the statutory procedures for compulsory purchase and there is no evidence that these were explained to her by the respondent. It was clear to me from her evidence that the claimant did not understand the function of the public inquiry which was eventually scheduled to take place on 7 February 2012.
17. Following the January 2010 meeting between the claimant and Mr Bennett, and the subsequent instigation of the 2007 rent review, little progress appears to have been made in negotiations over compensation for the acquisition of the claimant’s lease. Mr Bennett left his post with the respondent early in 2011 and Mr McRobie took over responsibility for the negotiations. On 17 March 2011, in an e-mail headed “without prejudice and subject to contract” he wrote offering the claimant the sum of £80,000 less any amounts found to be owing for outstanding rent on completion of the rent review. Payment of the proposed compensation would be made on completion of a deed of surrender. The respondent’s estimate of the compensation figure net of rent arrears was £43,000, a figure which Mr McRobie offered on 25 March 2011 (the offer assumed that the rent review would be resolved at the figure proposed by the respondent). The claimant rejected both figures and initially proposed a settlement sum of £100,000 with no further liability for rent or rates. By 21 April 2011 she was prepared to accept £80,000, with no further liability for rent, but this approach was rejected by Mr McRobie on 5 May 2011.
18. By April 2011 the respondent’s contractors had begun stripping out Highmead Tower in preparation for its demolition. The claimant understood that the work involved the removal of asbestos (it was not suggested to her that she was mistaken in that belief) and she was concerned that the work and the condition of the building might cause further damage to her business. In June 2011 the claimant stopped paying rent, in protest, so she informed me, at the damage done to her business and the lack of progress in negotiations, rather than because of an inability to pay (although I note that arrears already existed by that date, which the claimant attributed to damage to her business arising out of the CPO). It is clear from the e-mail exchanges passing between the parties that by this time the claimant was under considerable strain. The publication of the independent expert’s determination of the 2007 rent review, which came on 23 September 2011, added further pressure. On 16 November 2011 the respondent’s Chief Executive informed her that a demand for rent arrears of £27,375 would be served within 7 days, in addition to the sum of £5690 which had accumulated as a result of her withholding rent. The demand for immediate payment of the arrears, coupled with the impending public inquiry, prompted the claimant, for the first time, to seek legal advice in November 2011.
19. The claimant’s solicitor wrote to the respondent on 24 November 2011 stating that he had been informed by the claimant that “the Council has acquired the subject property pursuant to a Compulsory Purchase Order”. That was not yet the case but the letter appears to reflect the claimant’s understanding (and, at that stage at least, that of her solicitor) that the respondent had already acquired the lease of 74A Fore Street and that all that remained to be done was for the negotiation of compensation to be completed and for the claimant to give up possession. It was made clear in the same letter that the claimant was “not contending against the Council’s power of compulsory purchase” although she continued to object to the appointment of the independent expert.
20. In its reply to the claimant’s solicitors on 19 December 2011 the respondent explained that it had not yet acquired the claimant’s property and noted the claimant’s position in relation to the power of compulsory purchase. The respondent threatened to forfeit the claimant’s lease unless she paid the arrears of rent and her contribution to the fees of the independent expert, together exceeding £35,000, within 14 days. In describing the accumulation of arrears as “entirely unacceptable to the Council” the respondent appears at that stage to have lost sight of the fact that, for reasons of its own convenience, it had rebuffed the claimant’s attempts to reach agreement on the rent review in 2007. On 16 January the threat of forfeiture was repeated, in a letter which was not sent or copied to the claimant’s solicitor, and which warned that the respondent might instruct bailiffs to exercise its right of peaceful re-entry if £38,836 was not paid within 7 days.
21. The public inquiry to consider objections to the CPO was due to convene on 7 February 2012. Once the claimant’s solicitor had made clear in his letter of 24 November that she did not resist the CPO it might have been expected that further negotiations would take place, but the tone of the respondent’s letter of 19 December was combative. The response from the claimant’s solicitor on 12 January 2012 was hardly more constructive; although the claimant’s solicitor said she had been advised to resume payments of rent, he inexplicably suggested that “it will be better to wait for the outcome of the Public Inquiry before proceeding with the negotiations”.
22. On 16 January 2012 the respondent served its evidence for the public inquiry in the form of a witness statement by Mr McRobie. By that stage only four of the leases in the parade were yet to acquire by the respondent, and the claimant was one of only two remaining objectors to the CPO. In paragraph 3.10 of his statement Mr McRobie stated unequivocally that the respondent remained willing to negotiate a settlement with the claimant for the purchase of her leasehold interest in 74A Fore Street. The claimant has placed considerable weight on that statement in these proceedings.
23. On 26 January 2012 the respondent reiterated its threat of forfeiture by peaceable re-entry but invited the claimant’s solicitor to put forward a proposal of settlement, taking into account the arrears of rent, by close of business on 31 January (with a weekend intervening). Although that tight timescale was not adhered to, the claimant’s solicitor did make her position clear in a reply to the proof of evidence of Mr McRobie which was sent to the respondent on 6 February, the day before the public inquiry. The document included a summary of the accounts of the two businesses she carried on by the claimant from the premises and reiterated that she did not oppose confirmation of the CPO and was concerned only with the issue of compensation. It complained of the slow progress of negotiations, the inadequacy of the offers made by the respondent and the continuing threats of forfeiture. Referring specifically to paragraph 3.10 of Mr McRobie’s statement the document confirmed that the claimant was also willing to negotiate a settlement of her entitlement to compensation for the compulsory acquisition of her leasehold interest and for the disturbance of her businesses. A figure of £203,173 was suggested as adequate compensation and the document concluded with a request to the respondent to negotiate and settle the matter amicably.
24. When the public inquiry was opened by the inspector, the claimant’s solicitor explained that her objection to the CPO was being withdrawn. It appears that the respondent’s representatives were unaware of the 6 February document until being provided with a copy in the hearing room. There were no other objectors by that time and the inspector suggested that the parties leave the room and see if they could reach agreement on the costs of the inquiry.
25. A discussion then took place outside the hearing room. The claimant and her solicitor, Mr Emeka, both participated, as did Mr McRobie, Ms Grogan and Mr George, as well as counsel instructed on behalf of the respondent. In the claimant’s amended statement of claim, drafted and signed by Mr Emeka, the following account of what occurred appears:
“6. The Claimant raised an objection to the Compulsory Purchase Order but was advised by her solicitor to withdraw her objection and ask for compensation. Consequently, she withdrew her objection on the day of the Public Inquiry and promised to deliver possession to the Council on the condition that the Council would pay adequate compensation to her based on the evidence presented to the Public Inquiry by Mr Bruce McRobie for the Council at paragraph 3.10 of his proof of evidence that the Council was willing to negotiate a settlement with her. …
7. …Therefore, at the Public Inquiry, the Claimant agreed to withdraw her objection and allow the Council to carry on with their project and demolition process on the condition that the Council would negotiate a settlement with her as stated in Mr McRobie’s proof of Evidence.
8. … When the Public Inquiry Inspector, Mr Tim Wood, asked both parties to go and discuss about the cost associated with the sitting, Ms Isabella Grogan for the Council made it clear to the Claimant and her Solicitor that the compensation issue would go to the Lands Tribunal if the parties failed to reach an amicable settlement.”
26. At a preliminary stage of these proceedings the Tribunal made it clear to Mr Emeka that if he wished to give evidence of the discussion on 7 February 2012 it would be necessary for him to provide a witness statement and make himself available for cross examination on it. He chose not to do so and the only evidence given in support of the claimant’s case was her own. In a short witness statement dated 17 March 2014 the claimant formally adopted her amended statement of case as her evidence and added that the respondent had agreed with her that if they failed to settle her compensation claim amicably “the option would be to refer the matter to the Lands Tribunal to determine the compensation claim”. Her decision to give up the keys of the premises on 14 February 2012 was “based on their promise to negotiate with me and settle my compensation claim”.
27. In her oral evidence the claimant gave a fuller account of what had occurred. The inspector had made it clear at the start of the inquiry that he was not dealing with issues of compensation, and I suspect that that was the first occasion on which the claimant had appreciated the scope of the inquiry. When the parties were sent outside to discuss costs all of the respondent’s officers had been present. After they had conducted a discussion amongst themselves Ms Grogan told the claimant that the respondent’s costs were around £7,000 but that they were prepared to accept £5,000. The claimant responded that the CPO had destroyed her business and had prevented her from developing it as she had intended and that, as a result, she had no money to pay such a sum. Ms Grogan said that if the figure for costs was agreed the respondent would give the claimant a form to sign which would mean that the costs would be deducted from her compensation. Mr Emeka then made a counter-offer of a contribution of £1,000 towards the respondent’s costs, but this was refused. Ms Grogan then said that if the parties could not agree on the amount of compensation payable to the claimant the figure would be referred to the tribunal.
28. The respondent’s officers had less specific memories of the conversation but Ms Grogan, in particular, disputed the claimant’s account. Mr McRobie confirmed the essence of the claimant’s recollection: the discussion had been brief; an offer had been made by the respondent to accept £5,000, to be deducted from the claimant’s compensation settlement and had been countered by an offer of £1,000 by Mr Emeka, which was refused. Although he could not recall Ms Grogan mentioning the Lands Tribunal he would not have been surprised if she had done so. There had been no discussion on that occasion of a deal for the claimant to give up her lease. Ms Grogan did not recall any mention of compensation, or that the costs of the inquiry could be deducted from the claimant’s compensation, and indeed she strongly refuted the suggestion that she had mentioned compensation at all. Mr George also remembered no discussion of compensation.
29. I am satisfied that the claimant’s account of the conversation on 7 February is accurate and, in particular, that the subject of compensation was discussed, but only as a source of funds from which the claimant’s liability for the costs of the inquiry could eventually be deducted. It is understandable that neither Ms Grogan nor Mr George should recall that detail, but I am satisfied by the evidence of the claimant and Mr McRobie that the expectation of both sides was that compensation would eventually be paid to the claimant for her lease, that that expectation was confirmed by the discussion and that it was explained by Ms Grogan that if agreement could not be reached the amount of compensation would be determined by the Tribunal.
30. The discussion went no further than that. The claimant did not suggest in her evidence that the withdrawal of her objection to confirmation of the CPO was made conditional on the continuation of negotiations over compensation, nor that there was any express agreement between the parties that if she withdrew then negotiations would continue. The sequence of events, and the clear acceptance of the CPO in her solicitor’s letter of 24 November and in the reply statement of 6 February, were inconsistent with any such agreement or condition.
31. On the other hand the claimant undoubtedly expected that negotiations would continue, and took at face value the statement in paragraph 3.10 of Mr McRobie’s witness statement to that effect. In her mind she had been the last obstacle to the respondent taking possession of the whole of the building and continuing with the final stages of demolition, and her abandonment of her opposition meant that the respondent would now have the premises back and would compensate her.
32. The respondent’s officers also expected that negotiations would now resume and were surprised by the course which the claimant took less than a week after the inquiry. On 13 February 2012 the claimant wrote to Mr George and Mr McRobie under the heading “74A Fore Street … Compulsory Purchase Order”; the letter was marked as having been copied to the claimant’s solicitor. Its substance was as follows:
“I am writing to inform you that after a careful thought, I have come to the following conclusions:
1. For nearly 2 years and 2 months since the council notified me of their intention to acquire my business premises, my business development was stopped and my finances seriously affected. This also has affected the delivery of my recent contracts … [some details followed]…
2. Each day that I continue to open the shop now meant incurring more debts and also I have defaulted on my loan payment to the bank which was why I took longer lease in the first instance. This is because I am no longer making any money from the business as council’s compulsory purchase action has seriously ruined my business.
3. In addition, the overwhelming anxiety of losing almost 15 years of hard work has also brought health challenges to me as the pressure of not being able to deliver my contracts, losing my livelihood and owing the bank massive debt has taken toll on me.
4. I have also in the last 2 months being awarded 3 different framework awards for EU programme delivery in Africa and yet I have nowhere to deliver them from and this is causing me more sorrow. I have attached the letters of confirmation for your info.
Shop keys
In view of the above and especially with recent health challenges, I have decided to hand over the keys of this premises to the council by Tuesday 14th February 2012. I will travel outside the country on that day and has asked my husband to deliver that to you Mr Peter George alternatively you can let us know if you want to collect it from the shop and what time.
Arrears
Regarding the rent arrears, shortly after my return on 21st February 2012, I will communicate to you via my solicitor on how I plan to clear the rent arrears up to the day the keys were handed back to you.”
33. On the following day the claimant’s husband visited the respondent’s offices and handed the keys of the premises to Mr George, and confirmed that the claimant would contact him about the collection of items stored at the premises. No other subject was discussed on that occasion.
34. On 24 February the respondent wrote to the claimant’s solicitor with an inventory of goods left at the shop requiring that they be collected unless the claimant was willing for the respondent to dispose of them. On 29 February receipt of that letter was acknowledged by Mr Emeka (now from a different firm of solicitors), informing the respondent that his new firm had been instructed to take over conduct of “this matter” and requesting that future correspondence be directed to them. The matter referred to was made clear by the heading of the letter “Compulsory Acquisition – 74A Fore Street”. On 20 March 2012, Mr Emeka wrote informing the respondent that the claimant had nowhere to store the items left at the premises, and raising the question of compensation, suggesting that the sum of £185,000 less the arrears of rent would be acceptable.
35. On 4 April 2012 the respondent replied in unattractively bellicose terms for a public authority which, as it by then appreciated, had secured the termination of a long lease without a penny of compensation yet having been paid. As far as the respondent was concerned it had “treated the return of the keys as a surrender of the lease as an alternative to forfeiture” and it no longer had any liability to compensate the claimant.
36. Although no internal communications have been requested by the claimant or disclosed by the respondent I accept that, taking her letter of 13 February 2012 at face value, Mr George and Mr McRobie believed that the claimant had simply given up her lease without first securing agreement on the amount of compensation she would receive. I think it unlikely that when he accepted the claimant’s tender of the keys Mr George appreciated the consequences for her claim to compensation.
37. In her oral evidence the claimant told me that she had expected negotiations over compensation to continue after she handed back the keys of her shop. She had not mentioned the subject of compensation in her letter of 13 February 2012 because she was awaiting an answer from the respondent to her proposal, made in the document presented to the public inquiry, that she would accept £203,173. I accept that evidence. I am satisfied that, as far as the claimant was concerned, she believed that her entitlement was to compensation for the taking of her lease by compulsion and that, except in relation to timing, there was no voluntary element in her handing back of the premises. In my judgment her letter needs to be read in the context of what she understood were continuing negotiations; it was, after all, headed “Compulsory Purchase Order” and was addressed to the two members of the respondent’s staff with whom the claimant had been negotiating (and not to the other departments with whom she had recently corresponded concerning rent arrears and complaints of maladministration). Despite the absence from the letter of any further proposal, I believe it was intended to emphasise what the claimant had lost, as well as to arrange for the handing over of her keys.
38. Whatever Mr McRobie and Mr George thought of the motivation and effect of the claimant’s actions it must have been clear to the respondent within weeks of the keys being handed over that the claimant had not abandoned her efforts to reach agreement on compensation. That was apparent from Mr Emeka’s letter of 29 February 2012 saying that he had been instructed in the matter of compulsory acquisition of the premises, and from his letter of 20 March 2012 proposing a specific figure. Despite understanding that the claimant had made a mistake, the respondent persisted in its refusal to discuss the issue of compensation any further.
39. Mr Clarke submitted on behalf of the respondent that the proper inference to draw from the sequence of events I have described was that the claimant had consciously given up her lease and with it the right to compensation, and that to suggest that she had made a mistake or did not intend the consequences of her actions was disrespectful to her. I do not agree. I am quite satisfied that the claimant had no intention of abandoning her right to compensation, a right which the respondent had never previously questioned and which it had valued as being worth £80,000. I am sure that had the claimant understood that her right was conditional on further procedural steps being taken by the respondent after the public inquiry she would waited; had she appreciated that by an unconditional surrender of her lease she would have put her right to compensation at risk she would have persevered. The claimant would have been shocked at any suggestion that, by giving the respondent what it had sought by negotiation for more than two years, she would jeopardise her entitlement to fair compensation.
40. The CPO was confirmed by the Secretary of State on 12 June 2012 and the respondent sent a copy to the claimant at the premises. In the form in which it was originally drafted the CPO had identified the claimant as a qualifying person whose interest it was proposed to purchase. It was confirmed in the same form, no modification having been sought by the respondent after 13 February to reflect the change in the claimant’s status. On 26 June Ms Grogan sent a further copy to the claimant, by e-mail, informing her that the order had been posted to her at 74A Fore Street “but as you no longer occupy the premises, I wanted to ensure you received notification of the order”. Thereafter the respondent continued to press the claimant for payment of the arrears of rent and costs of the independent expert’s determination until this reference was commenced in August 2012.
The preliminary issues
41. The respondent’s position is that it is entitled to take advantage of the claimant’s actions in voluntarily surrendering her lease, no matter how misguided and ill-advised they may have been, and to refuse her compensation on the basis that there has been no compulsory acquisition of any interest in land belonging to her. The claimant’s position has been presented by Mr Emeka in a variety of rather diffuse ways, but fundamentally is that the claimant did not abandon her entitlement to compensation and that, having encouraged her to believe that negotiations would continue over the amount of compensation she would receive, it would be unjust for the respondent to refuse to pay for the lease which she gave up.
42. The respondent originally applied to strike out the reference on the grounds that it was bound to fail but, as the facts remained in dispute at that stage, the Tribunal directed the determination of the following issues
(1) Whether the terms on which the Claimant surrendered the lease of 74A Fore Street (including any implied terms) preserved a right for her to claim compensation, such compensation to be determined by the Tribunal in the event that it could not be agreed.
(2) Whether the respondent’s conduct had created a legitimate expectation on the part of the claimant, from which the respondent may not now resile, that the claimant would remain entitled to compensation for the compulsory acquisition of her lease if she voluntarily surrendered that lease.
(3) Whether the consequence of such legitimate expectation, if established, were that the claimant would be entitled to compensation as if her lease had been compulsorily acquired.
Issue 1 – agreement and surrender by operation of law
43. The first of these preliminary issues is conveniently addressed in two parts which correspond broadly to the way in which Mr Emeka put the claimant’s case. I will consider first the claim that there was an agreement for the payment of compensation, before turning to the suggestion that an entitlement to compensation was preserved on the surrender of the lease.
44. It is common ground that the claimant handed over the keys to the premises and that these were accepted by the respondent before the CPO was confirmed. Mr Emeka argued that the claimant was entitled to compensation simply because she was named in the schedule to the CPO as a qualifying person under s.12, Acquisition of Land Act 1981, but that is clearly not so. The schedule simply recorded those whose interests the respondent was permitted to purchase and did not require that interests which had already been terminated should be the subject of compensation where no purchase was now necessary.
45. It is also common ground that no notice to treat was served on the claimant which would have enabled her to refer the question of compensation to the Tribunal under section 6 of the Compulsory Purchase Act 1965. In those circumstances the claimant relies on there having been an agreement for the payment of compensation (and would presumably argue that the Tribunal has jurisdiction by the consent of the parties).
46. Mr Emeka first submitted that there was a binding agreement by the respondent to pay compensation. This agreement was to be implied out of the unequivocal statements contained in the material submitted by both parties to the public inquiry (specifically, paragraph 3.10 of Mr McRobie’s witness statement and the claimant’s reply) and by what had been said in the corridor outside the hearing room on 7 February 2012. The substance of the agreement was that the claimant would give up possession of the premises on the basis that the respondent would continue to negotiate over her entitlement to compensation; if the parties could not reach agreement the amount of compensation to which the claimant was entitled would be referred to the Tribunal.
47. Mr Clarke, for the respondent, submitted that although by section 3 of the Compulsory Purchase Act 1965 the respondent was empowered to reach agreement with the owner of an interest in land for its acquisition without the need to exercise powers of compulsory purchase, any such agreement was governed by the general law applicable to the sale and purchase of interests in land.
48. The general law requires certain formalities to be observed in the surrender of leases. To be effective an express surrender is required by section 52(1), Law of Property Act 1925, to be by deed, but a surrender by operation of law is exempt from this requirement by section 52(2)(c). Moreover, by section 2, Law of Property (Miscellaneous Provisions Act) 1989, a contract for the sale or disposition of an interest in land (which includes an agreement for the surrender of a lease) can only be made in writing and only by incorporating all of the terms which the parties have expressly agreed in one document (or, where there is an exchange, in two documents) which must be signed by or on behalf of both parties to the contract. A contract for the surrender of a tenancy to which Part II of the Landlord and Tenant Act 1954 applied (a business tenancy) was void by virtue of section 38(1) of that Act unless authorised by the court. In this case, Mr Clarke submitted, there had been no prior agreement for the surrender of the claimant’s lease, so there was nothing to which the statutory requirements could apply, but even if the exchanges between the parties could be construed as amounting to an agreement, such agreement would be of no legal effect because it failed to satisfy these statutory formalities.
49. I am satisfied that Mr Clarke is correct in his primary submission that there was no express agreement between the parties for the surrender of the claimant’s lease in return for a commitment to negotiate compensation or submit the issue to the Tribunal. Although the claimant’s amended statement of case appeared to allege such an agreement, and Mr Emeka argued in favour of it, I have concluded that there was no discussion of a surrender at the public inquiry and the claimant’s withdrawal of her objection to the CPO was not consideration for a commitment by the respondent to pay compensation. The claimant had, in effect, withdrawn her objection in her solicitor’s letter of 24 November 2011 which stated unequivocally that she was “not contending against the Council’s power of compulsory purchase” and that position was repeated in the reply to Mr McRobie’s witness statement despatched on the day before the public inquiry.
50. There was, no doubt, an expectation that the claimant’s lease would be terminated, but the parties agreed nothing about timing or the mechanism by which that would be achieved. Quite how the claimant thought that her lease would come to an end is unclear; at an earlier stage she had mistakenly believed that the necessary steps had already been taken, but I do not know whether she had become any better informed by the time of the public inquiry. As for the respondent’s officers, to the extent that they thought specifically about the procedure, they assumed that there would either be further negotiation leading to an express surrender of the lease (the objective towards which they had been working since December 2009) or, once the CPO had been confirmed, that notice to treat would be given to the claimant and the respondent would take entry by agreement or in the exercise of its powers under section 11, Compulsory Purchase Act 1965. I am satisfied that nothing occurred on 7 February 2012 which any objective observer would understand as being intended to have contractual effect.
51. Even if there had been an express or implied agreement for the surrender of the lease it could not have had contractual effect. All previous negotiations had been subject to contract, which prevented the parties from becoming bound by what they might say in informal settings. No writing satisfying s.2 of the 1989 Act came into existence, nor was there prior approval by the court satisfying section 38 of the 1954 Act (the lease having been granted before 1 June 2004 when the introduction of section 38A permitted agreements to surrender in certain circumstances). Mr Emeka’s characterisation of the agreement as an agreement to negotiate creates an additional layer of difficulty. In Walford v Miles [1992] 2 AC 128 the House of Lords held that a promise to continue negotiations was unenforceable. A bare agreement to negotiate lacks the certainty required for it to be enforced as a contract.
52. In Emirates Trading Agency LLC v Prime Mineral Exports Private Ltd [2014] EWHC 2104 Teare J held that a time limited obligation in a commercial contract to seek to resolve a dispute in good faith before it could be submitted to arbitration was enforceable. Walford v Miles was distinguished on grounds which are not available in this case: the agreement took the form of a dispute resolution clause in a binding contract which had already begun to be performed, so the public policy in enforcing such obligations in order to avoid litigation was engaged and, additionally, the obligation to negotiate was for a short and limited period only.
53. For these reasons the claimant’s lease did not come to an end pursuant to a contract. There was not, and could not have been, an enforceable agreement between the parties that, in return either for withdrawing her objection to the CPO or surrendering her lease, the respondent would negotiate with the claimant and, in the event of their failure to agree, would submit the dispute for determination by the Tribunal.
54. As the claimant’s lease did not come to an end by agreement, and it has not been suggested that it continues in existence, how was it terminated? The answer is clearly that the claimant’s lease was terminated by an implied surrender, or surrender by operation of law. It is necessary to consider the basis of such a surrender and whether it leaves open the opportunity, in the circumstances of this case, for the claimant to pursue a claim for compensation.
55. The legal doctrine of surrender by operation of law or implied surrender (there is no distinction) has evolved to address the relatively common situation where both parties have proceeded on the basis that a lease has come to an end but have omitted to take the formal steps required by the law for an effective surrender. As explained in Woodfall’s Law of Landlord and Tenant at paragraph 17.018:
“The term surrender by operation of law is applied to cases where the owner of a particular estate has been a party to some act the validity of which he is afterwards estopped from disputing, and which would not be valid if his particular estate had continued to exist. There the law treats the doing of such act as constituting a surrender. This principle does not depend on the actual intention of the parties but on estoppel.”
56. The paradigm case is that of a tenant who hands back the keys to the premises which are accepted by the landlord who subsequently goes into possession or re-lets the premises. The absence of formalities (a deed) prevents the parties’ actions from having contractual effect, but an unqualified delivery and acceptance of possession is so inconsistent with the continuation of the tenancy that the law treats it as having been surrendered and bars either party from asserting its continued existence.
57. It has repeatedly been held to be of the utmost importance that the acts relied on as giving rise to a surrender by operation of law must be unequivocal (see Woodfall at paragraph 17.020). The mere acceptance of keys is sometimes not sufficient in itself (for example where it is only for short time and in anticipation that negotiations for the grant of a new lease to a guarantor will be completed: Sable v QFS Scaffolding Ltd [2010] L & TR 30); sometimes even taking possession may be regarded as insufficient (for example where it is done to secure the premises after the tenant has disappeared: Relvok Properties v Dixon (1973) 25 P & CR 1). The test is whether the totality of the conduct relied on is so inconsistent with the continuation of the lease or tenancy that it could only be justified as being lawful if the tenancy had come to an end.
58. In my judgment the acts of both parties in this case had the necessary unequivocal quality.
59. It was clear from the claimant’s letter that, whatever she may have thought about compensation, she wished to bring her lease to an end by returning the keys to the respondent. Taken together with the statement in the claimant’s letter of 13 February 2012 that “I will communicate to you via my solicitor on how I plan to clear the rent arrears up to the day the keys were handed back to you”, the proposal to return the keys of was not capable of any other meaning especially after it was put into effect. At no stage of this reference has the claimant suggested that the lease survived the handing back of the keys.
60. The respondent’s actions were equally unequivocal. Not only did Mr George accept the keys but the respondent used them to secure the premises, and on 24 February it wrote to the claimant’s solicitors enclosing notice under section 41 of the Local Government (Miscellaneous Provisions) Act 1982, giving one month for the claimant to collect her goods stored in the premises by arrangement with the respondent’s managing agent. It was clear from that letter, if there had been any doubt, that the respondent regarded the claimant as no longer being entitled to retain her goods on the premises and was proceeding on the basis that the contents were now in its possession.
61. Mr Emeka submitted that it was unfair or inequitable for the respondent to rely on the handing back of the keys without making good the claimant’s expectation that there would be further negotiations and an opportunity for her to have her entitlement to compensation determined by the Tribunal. There are two answers to that submission.
62. The first is that even if it were right that the respondent could not rely on the surrender of the lease, on its own that would not advance the claimant’s case. It is no part of that case that the lease was not surrendered, or that the respondent should be required now to serve notice to treat on the claimant. The claimant’s case is that she already has an entitlement to compensation for the acquisition of her lease which was completed in February 2012.
63. Secondly, although the doctrine of surrender by operation of law is said to be based on estoppel, its impact is confined to the relationship of landlord and tenant and is limited. The termination of a lease by such a surrender does not provide an opportunity for the Tribunal to investigate the behaviour of the parties generally or to require that they act in a manner which the Tribunal considers would be fair. No additional consideration of how the surrender ought to operate on the consciences of the parties is required or permissible.
64. The limited scope of the doctrine of surrender by operation of law has been the subject of comment by the Court of Appeal on two recent occasions.
65. In Artworld Financial Corp v Safaryan [2009] L & TR 20 the tenants of a very substantial London house let at a rent of £390,000 a year moved out and handed back the keys to their landlord after their complaints about the condition of the house had not resulted in repairs being carried out. When the landlord sued for the following quarter’s rent the tenant contended that the lease had been surrendered by operation of law when the landlord accepted the keys and allowed a third party to make use of the house for a short period. The landlord protested that, given the sums involved and the relative insignificance of the acts relied on, to treat them as giving rise to a surrender would be draconian and unfair. At [28] Dyson LJ noted references in some of the authorities to the circumstances having to be such as to render it “inequitable” for the landlord or tenant to dispute that the tenancy had ceased, but he accepted a submission that those references did not import inequity as a separate requirement and that the doctrine was not based on conscience. Commenting on this analysis in the Court of Appeal in Sable v QFS Scaffolding Ltd [2010] L & TR 30, at [13] Morgan J explained that if there has been an unequivocal offering and taking of possession, then it will be inequitable, without more, for one party to deny that the tenancy has ended by surrender.
66. The mechanism by which the lease was terminated therefore provides no basis on which the claimant can insist on the respondent accepting her entitlement to submit a claim for compensation to the Tribunal, and the first of the preliminary issues must be answered in the respondent’s favour.
Issue 2 – legitimate expectation
67. The second preliminary issue is whether the respondent’s conduct created a legitimate expectation on the part of the claimant that negotiations over the amount of compensation she would receive would continue (and would be resolved, if necessary, by the Tribunal) so that it would amount to an abuse of power for the respondent now to behave in such a way as to frustrate the expectation. If the answer to that question is affirmative, the third issue will be for the Tribunal to consider the consequences of such a conclusion for this reference.
68. Mr Emeka submitted that where a public authority makes a promise or an express or implied representation to a person, which that person relies on in changing their position to their detriment, the public authority should not be permitted to resile from its promise or representation.
69. Mr Emeka relied on R v North and East Devon Health Authority, ex p. Coughlan [2001] QB 213 in which a local health authority had promised the disabled applicant a home for life in a care home which it subsequently decided to close. Lord Woolf MR recorded at [52] that it had been common ground throughout the proceedings that, in public law, the health authority could break its promise to Miss Coughlan if, and only if, an overriding public interest required it, and that while the initial judgment on that question had to be reached by the health authority, it could be impugned if improperly reached. He then considered the court’s role where the promise related to how the authority would behave in the future when exercising a statutory function. It was common round that the promise could not simply be ignored, but:
“56. What is still the subject of some controversy is the court’s role when a member of the public, as a result of a promise or other conduct, has a legitimate expectation that he will be treated in one way and the public body wishes to treat him or her in a different way. Here the starting point has to be to ask what in the circumstances the member of the public could legitimately expect. … This can involve a detailed examination of the precise terms of the promise or representation made, the circumstances in which the promise was made and the nature of the statutory or other discretion.
57. There are at least three possible outcomes. (a) The court may decide that the public authority is only required to bear in mind its previous policy or other representation, giving it the weight it thinks right, but no more, before deciding whether to change course. Here the court is confined to reviewing the decision on Wednesbury grounds….. (b) On the other hand the court may decide that the promise or practice induces a legitimate expectation of, for example, being consulted before a particular decision is taken. Here it is uncontentious that the court itself will require the opportunity for consultation to be given unless there is an overriding reason to resile from it …. (c) Where the court considers that a lawful promise or practice has induced a legitimate expectation of a benefit which is substantive, not simply procedural, authority now establishes that here too the court will in a proper case decide whether to frustrate the expectation is so unfair that to take a new and different course will amount to an abuse of power. Here, once the legitimacy of the expectation is established, the court will have the task of weighing the requirements of fairness against any overriding interest relied upon for the change of policy.
58. The court having decided which of the categories is appropriate, the court’s role in the case of the second and third categories is different from that in the first. In the case of the first, the court is restricted to reviewing the decision on conventional grounds. The test will be rationality and whether the public body has given proper weight to the implications of not fulfilling the promise. In the case of the second category the court’s task is the conventional one of determining whether the decision was procedurally fair. In the case of the third, the court has when necessary to determine whether there is a sufficient overriding interest to justify a departure from what has been previously promised.”
70. Mr Emeka submitted that the statement in paragraph 3.10 of Mr McRobie’s witness statement that the respondent “remains willing to negotiate a settlement with Mrs Obichukwu for the purchase of the leasehold interest in the property at 74A Fore Street” amounted to a promise of negotiations. The claimant had relied on that promise by surrendering the lease in the belief that the parties would resolve the compensation claim by a negotiated settlement, and the respondent should not be allowed to resile from its promise to negotiate.
71. Mr Emeka also referred to the decision of Woolf J in Salvation Army Trustee Co Ltd v West Yorkshire Metropolitan County Council (1980) 41 P & CR 179 which he said was similar to this case. A local authority was found to be bound by an estoppel to acquire the claimant’s premises as a result of unqualified representations that it would be taken for a road widening scheme in reliance on which the Salvation Army had moved out and purchased replacement premises. In Christos v Secretary of State for Transport [2004] 1 EGLR 5, at [45] Mummery LJ commented that:
“As Sedley LJ observed in the course of argument, if those facts were to occur today, it is likely that the same outcome would result from the application of the public law doctrine of legitimate expectation on a judicial review of the lawfulness of the actions of the acquiring authority.”
72. For the respondent Mr Clarke submitted that the only representation the respondent had made was that it was willing to continue to negotiate for the purchase of the claimant’s lease. The statement in Mr McRobie’s written evidence to the public inquiry had been true at the time it was made and on the day of the inquiry itself. The respondent had done nothing to defeat or disappoint the claimant’s expectations that negotiations would continue for the purchase of her lease, but, when the claimant surrendered the lease voluntarily and without any prior arrangement the basis of the intended negotiations was removed.
73. I have considerable sympathy for the claimant, who surrendered her lease in the mistaken belief that she would remain entitled to compensation. It might be said that the respondent’s decision to hold the claimant to the consequences of her mistake is harsh and opportunistic; after all, the voluntary surrender secured possession of the premises for the respondent, which was the purpose of the CPO and the object for which it had been negotiating for more than two years. The respondent’s justification of its actions by reference to the arrears of rent which had accumulated since June 2011 and its suggestion that it had the right to forfeit the lease in any event do not make its approach any less unattractive. The respondent’s own policy of delaying the rent review for more than three years had directly contributed to the magnitude of the arrears by the time of the surrender. I have no doubt that the emptying of the Tower of its residents, the deterioration of the immediate environment, the closure of adjoining shops in the parade, and the commencement of stripping out works nine months before the public inquiry, all adversely affected the claimant’s business and made the payment of the arrears as a lump sum unaffordable. The same deterioration in her business, if shown to have been caused by the respondent’s scheme, would have been reflected in the compensation to which the claimant would have become entitled if she had delayed her departure until after a notice to treat was served on her.
74. Nonetheless, whatever may be said about the approach taken by the respondent, I do not think it amounts to an abuse of power. I accept Mr Clarke’s submission that, put at its highest, the only representation the respondent made was of its willingness to negotiate a price for the purchase or surrender of the lease. There was no enforceable promise to pay compensation and no bargain was struck which could bind the respondent to make a payment in any event. The negotiations themselves were at all times subject to contract and because of the claimant’s own decision to hand back the keys, made at a time when she had access to legal advice, there ceased to be any lease for the respondent to purchase. Thereafter there was nothing abusive in the respondent’s refusal to acquiesce in an assumption, contrary to the true facts, that the lease had come to an end as a result of the exercise of its powers of compulsory purchase.
75. The compensation code is intended to be self contained and to operate according to its own defined procedures. No example was cited to me of the use of the public law doctrine of legitimate expectation, or the private law of estoppel, to create an entitlement to pursue a claim for compensation where the statutory procedures have clearly not been implemented. The Salvation Army case is distinguishable on the grounds that in this case there was no unqualified representation that the claimant’s lease would be acquired by agreement as the negotiations were conducted subject to contract; the absence of that qualification was critical to the existence of the estoppel found by Woolf J (see the explanation given by Lord Templeman in Attorney-General of Hong Kong v Humphreys Estate (Queens Gardens) Ltd [1987] 1 AC 114 at 126-127).
76. I am therefore satisfied that the public law doctrine of legitimate expectation is of no assistance to the claimant in this reference. It is therefore unnecessary for me to consider the third issue or Mr Clarke’s contention that, even if the respondent’s conduct had been abusive, the claimant could only obtain a remedy by proceedings for judicial review, and that the Tribunal would have no jurisdiction to give effect to her expectation in this reference for compensation.
Conclusion
77. For these reasons the claimant is not entitled to compensation and the reference is dismissed. I cannot disguise my extreme discomfort at this conclusion. In the public interest the respondent was empowered to acquire Mrs Obichukwu’s lease in exchange for fair compensation; it negotiated with her in the expectation of that power and eventually secured her capitulation to its purpose; for the respondent then to take such merciless advantage of her limited understanding of the process of acquisition, to accept her surrender and to leave her with nothing, is to my mind manifestly unfair. I cannot see how the public interest is advanced by this outcome, which, on the contrary, is liable to bring the regime of compulsory purchase into disrepute.
78. This decision is final on all issues other than the costs of the reference. A letter inviting submissions on costs accompanies the decision.
Martin Rodger QC
Deputy President
16 February 2015