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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Metropolitan Police District, Receiver For The v Palacegate Properties Ltd [2000] EWCA Civ 33 (9 February 2000)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2000/33.html
Cite as: [2000] 13 EG 187, [2001] Ch 131, (2000) 80 P &CR 32, [2000] 3 WLR 519, [2000] L &TR 358, [2000] 1 EGLR 63, [2000] EWCA Civ 33, [2000] 3 All ER 663

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Case No: CCRTF 1999/0986/2

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CENTRAL LONDON COUNTY COURT (HIS HONOUR JUDGE WILLIAM BARNETT QC)

Royal Courts of Justice
Strand, London, WC2A 2LL
9 February 2000


B e f o r e :
LORD JUSTICE PILL
LORD JUSTICE MUMMERY
and
SIR RONALD WATERHOUSE


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The Receiver for the Metropolitan Police District

Appellant

-- v --



Palacegate Properties Ltd

Respondent


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(Transcript of the Handed Down Judgment of
Smith Bernal Reporting Limited, 180 Fleet Street
London EC4A 2HD
Tel No: 0171 421 4040, Fax No: 0171 831 8838
Official Shorthand Writers to the Court)
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Mr Kim Lewison QC and Mr Edward Cole (instructed by Winckworth Sherwood) appeared for the appellant

Mr Stephen Jourdan (instructed by Jay Benning & Peltz) appeared for the respondent

Judgment
As Approved by the Court
Crown Copyright ©

9 February 2000
JUDGMENT

LORD JUSTICE PILL:
This is an appeal against the judgment of His Honour Judge William Barnett QC sitting at the Central London County Court on 30 July 1999 whereby the judge held that a lease of commercial premises executed on 12 May 1993 was not excluded from the security of tenure provisions of the Landlord and Tenant Act 1954, ("the 1954 Act") Part II, by an order made at the Mayor's and City of London Court under section 38(4)(a) of the Act on 23 April 1993.
The facts and section 38(4)(a) of the 1954 Act
The Receiver for the Metropolitan Police District ("the landlord") is the freehold owner of land adjoining the Roundhouse at Primrose Hill, Chalk Farm Road, London. The land is held as a possible site for a new court or for police purposes. Pending the emergence of a scheme, the land has been occupied on tenancies or licences. The disputed lease to Palacegate Properties Ltd ("the tenant") was for five years and allowed the tenant to use the land as a car park and for the storage of vehicles and materials used in connection with the Roundhouse.
The parties made a joint application to the Court under section 38(4)(a) of the Act. As originally enacted, section 38 provided that "any agreement relating to a tenancy to which this Part of this Act applies ... shall be void in so far as it purports to preclude the tenant from making an application or request under this Part of this Act ... ." Part II is entitled "Security of Tenure for Business, Professional and Other Tenants" and provides in sections 24 to 28 and other sections for the continuation of business tenancies and a procedure for the renewal of tenancies.
Section 38(1) of the Act was amended by the Law of Property Act 1969, section 5, so as to provide circumstances in which agreements under the section are not void. Section 38(4) provides:
"The court may --
(a) on the joint application of the persons who will be the landlord and the tenant in relation to a tenancy to be granted for a term of years certain which will be a tenancy to which this Part of this Act applies, authorise an agreement excluding in relation to that tenancy the provisions of sections 24 to 28 of this Act; and
(b) on the joint application of the persons who are the landlord and the tenant in relation to a tenancy to which this Part of this Act applies, authorise an agreement for the surrender of the tenancy on such date or in such circumstances as may be specified in the agreement and on such terms (if any) as may be so specified;
if the agreement is contained in or endorsed on the instrument creating the tenancy or such other instrument as the court may specify; and an agreement contained in or endorsed on an instrument in pursuance of an authorisation given under the subsection shall be valid notwithstanding anything in the preceding provisions of this section."

A draft of the lease was submitted to the District Judge when application was made on 23 April 1993. Gaps were left in the draft for the date of the lease, the date for commencement of the term and the date of the proposed exclusion order. The draft lease reserved a rent of £22,000 a year but made no express provision for the dates upon which the rent was to be paid.
The parties appeared before the District Judge by solicitors and the District Judge made the following order:
"UPON THE JOINT APPLICATION of the Applicants IT IS ORDERED pursuant to Section 38(4) of the Landlord and Tenant Act 1954 (as amended by Section 5 of the Law of Property Act 1969) that the Applicants be authorised to enter into an agreement to exclude the provisions of Sections 24-28 (inclusive) of the Landlord and Tenant Act 1954 in the form of Clause 4(6) to be contained in a Lease of the above described property intended to be granted by the First Applicant as Landlord to the Second Applicant as Tenant a draft whereof is annexed to the Originating Application and to exclude the said provisions."
On 12 May 1993, the lease was completed in the form of the draft, with the blanks filled in and an alteration (not said to be material for present purposes) to the address of the registered office of the tenant.
It is common ground that under the written agreement in draft and as executed, rent was payable, by implication of law, annually in arrear. However, it is also common ground that at all times the agreement was that the rent would be payable quarterly in advance. Solicitors for both parties gave evidence to that effect at the trial. On 7 May 1993, Mr Owston, the landlord's solicitor, wrote a letter to Mr Peltz, the tenant's solicitor, recording that they had agreed that the rent would be paid quarterly in advance, and for present purposes that can be treated as a term of the lease.
On 12 February 1998, the tenant served a request for a new tenancy under section 26 of the 1954 Act. It was thereby asserted that the tenant was entitled to security of tenure and a new lease pursuant to the Act. The tenant commenced proceedings for the grant of a new tenancy. The landlord commenced proceedings for possession on the ground that the lease had ended and the tenant was trespassing. The actions were consolidated and the judge agreed to try preliminary issues which are the subject of this appeal.
It should be added that by a respondent's notice, it is submitted that, on its true construction, the lease created a term for five years and thereafter from year to year. It is submitted that, for that reason, it is not a term of years certain for the purposes of section 38(4) of the Act. It is also submitted that the term of five years was in any event subject to break clauses and was not for that reason a term of years certain.
The submissions on section 38(4)(a)
The argument for the tenant, which succeeded before the judge, was that reliance can only be placed by the landlord on section 38(4) when the lease is in the same terms as the draft placed before the judge. The judge held:
"what one cannot do is to alter the terms as authorised by the court. You could, it seems to me, if you want to and if the court would do it, authorise an agreements to be entered into merely referring to the bare bones of the agreement: in other words, identifying the tenancy, identifying the rent and identifying the period. It may well be that the court could say that as long as those terms are in an agreement, the parties could decide for themselves what they wanted to do. But that would then be what the court authorises. Here I am quite satisfied that the document which was authorised by the court was an entirely different agreement to the one that was entered into, namely the difference between an agreement where the rent was to be paid annually in arrear, which anyone reading it who knew about these things would think to be the situation, as opposed to one where the rent was to be paid quarterly in advance."
The judge had previously referred to the draft before the District Judge when the order pursuant to section 38(4) had been made as "the lease ... approved by the Court" and stated that the Court giving the section 38(4) approval "has to have matters before it which it expressly authorises and that is why it normally is the lease itself". The judge drew an analogy with approval by the Court of infant settlements in personal injury cases.
In seeking to uphold the judge's finding, Mr Jourdan relies upon the words "in relation to that tenancy" in section 38(4)(a). The protection for tenants which the section contemplates can be provided only if, when authority is given, the court has the actual terms of the proposed lease before it. The tenant must know what he is giving up in relation to a specific tenancy and in relation to the tenancy as a whole.
For the landlord, Mr Lewison QC, contrasts the brevity of section 38(4) with the detailed procedure laid down in sections 24 to 36 in the different situation in which a new tenancy is under consideration. He submits that the judge was wrong to regard the procedure in section 38(4) as an approval by the court of a lease. What the court is doing is authorising, on the joint application of the parties, an agreement excluding the provisions of sections 24 to 28 of the Act. That approval does not require an analysis of the terms of the lease. If the approval is given, the lease need not be in the same terms as the draft before the judge. The judge needs only to know, when giving an authorisation under section 38(4)(a), the matters specified in the paragraph, that is the identity of the persons who will be landlord and tenant, the identity of the premises to be demised, that the lease is to be for a term of years certain within the meaning of that term in the section and that the agreement is "contained in or endorsed on the instrument creating the tenancy or such other instrument as the court may specify".
Mr Lewison referred to Friends Provident Life Office v British Railways Board [1996] 1 All ER 336 where it was held in this court that in construing a deed of variation of a lease the court would give effect to the intention of the parties unless it was compelled by the nature of the changes made to hold that the effect of the deed was to bring about a surrender and regrant by operation of law. Such an effect would only occur where the variation affected the legal estate and either increased the extent of the premises demised or the term for which they were held.
Mr Lewison argues, by analogy, that a deed of variation the effect of which is to make the rent payable quarterly in advance, instead of annually in arrear, would not prevent the lease being the same one before and after the variation. For the purposes of section 38(4) it should be treated as the same lease. Mr Jourdan understandably submits that, if the analogy is a good one, it must involve an acceptance that a change in the extent of the premises demised or the term for which they are held would make the lease a different one, a submission which Mr Lewison is not prepared to accept. Mr Lewison submits that he is concerned only to establish that the change in the present case, which does not go either to the extent of the premises or the term, is immaterial. The issue raised does, however, with respect, require the court to adopt a principled approach to section 38(4). Mr Lewison's submission as to the principle governing the operation of the section is that the court giving authority is not concerned with the fairness of the bargain or whether it is fair to have an exclusion clause. The court is concerned only with whether there is an informed consent to the exclusion of protection. As long as a tenant knows that he is giving up protection with respect to the proposed tenancy, the parties may thereafter agree such terms as they see fit.
Conclusion on section 38(4)(a)
I agree with Mr Lewison that the court hearing the joint application is neither empowered nor entitled to consider the fairness of the bargain, as such, which the parties propose to make. The subsection is not intended to empower the court to dictate to the parties to a lease what the terms of the lease should be. Had Parliament intended, under section 38(4), a court to investigate the fairness of bargains a more specific and detailed procedure would have been laid down. Such a procedure has been laid down, when a protected tenant requests a new tenancy, in Part II of the Act, including sections 33 to 35. I accept that the purpose of section 38(4)(a) is to enable to court to satisfy itself that the prospective tenant understands that he is foregoing the protection of section 24 to 28 of the Act. However, effect must be given to the words "in relation to that tenancy" in the subsection. Attractive though it may be, in terms of freedom of contract, to limit the effect of the subsection in the manner advocated by Mr Lewison, I do not consider that a section which provides that an agreement to waive protection needs the sanction of the court gives a green light to a landlord to make wholesale changes to the draft tenancy submitted to the court when approval was sought. The words "that tenancy" in section 38(4)(a) require its terms to bear a substantial similarity to that before the court when authority was given. In particular, changes material to the need for protection may nullify the authority granted. For example, the length of the term would be a material consideration in the case of a lease which contemplated substantial capital expenditure by the tenant. A court authorising an agreement excluding protection would be expected to make greater enquiry as to the proposed tenant's consent if the term is a short one than if the term is a long one and a change which substantially shortens the term would be material. A court may be expected to satisfy itself that the prospective tenant knows what he is giving up and the extent of the enquiry will depend on the terms proposed. It follows that a change in the terms may be a relevant factor for the purposes of section 38(4)(a).
I do not find the Friends Provident principle helpful to a consideration of section 38(4) and Mr Lewison does not need to rely on it. In my view, analysis of section 38(4) and its purpose need not involve consideration of the distinction between when a lease is varied and when there is a surrender and regrant.
Mr Jourdan frankly accepts that there is no merit in this tenant being permitted to resile from an agreement freely made on the ground that the draft lease before the court giving approval had the effect of inaccurately providing for what the parties had agreed as to the dates on which rent was payable. The fact that the draft before the court was in this respect different from the terms of the lease does not invalidate the authorised agreement by which the provisions of sections 24 to 28 were excluded. I would have reached the same conclusion even had the agreement that rent was payable in advance been made subsequent to the court approval. In the present context, that could have had no bearing upon whether or not the court should grant authority. The court is concerned with whether the tenant understands he is giving up protection. Whether the rent is payable in advance or in arrears has in present circumstances no bearing whatever upon that function.
Term of years certain
By a respondent's notice the tenant submits that the court had no jurisdiction on 23 April 1993 to authorise the agreement because the tenancy was not to be granted "for a term of years certain". Reliance is placed upon the admitted presence of a break clause or clauses in the lease.
There is no definition of the expression "term of years certain" in the interpretation section (section 69) of the 1954 Act. The researches of counsel have not discovered any clear authority as to the meaning of the expression at common law. Section 205(1)(xxvii) of the Law of Property Act 1925 provides that a "term of years absolute" means "a term of years ... either certain or liable to determination by notice, re-entry, operation of law, or by a provision for cesser on redemption or in any other event (other than the dropping of a life, or the determination of a determinable life interest); ... ." While the definition does distinguish "certain" from "liable to termination by notice", it does not appear to me to throw light on the meaning of the expression in the 1954 Act, of which it is a creature.
Mr Jourdan accepts it is clear that in other sections in the 1954 Act a "term of years certain" does include leases subject to break clauses. However he submits that it should bear a different meaning in section 38(4) because of the legislative purpose of that subsection. It seeks to prevent the withdrawal of protection in cases where the tenant does not know, in advance, the period during which he would be guaranteed the right to remain in the property, provided he paid the rent and performed his obligations. The principle of consistency should not be permitted to subvert the policy of the subsection. Parliamentary draftsmen do sometimes make mistakes (R v Lynsey [1995] 3 All ER 641). Parliament cannot have intended that protection was capable of being given up when, by reason of a break clause, there could be an early termination of a lease and termination at a time impossible to predict. In section 38(4) the expression meant a fixed term.
Reference was made to Scholl Mfg Co Ltd v Clifton (Slim-Line) Ltd [1967] Ch 41. The case turned on whether a landlord could exercise a right to break a lease by serving a notice under section 25 of the Act (Termination of tenancy by the landlord) and the present point did not arise for decision. In a recital of facts at the beginning of his judgment, Harman LJ referred to the date of expiry of the lease and added that "this, however, was not a term certain because" of the break clause. In his judgment (p 49) Diplock LJ stated:
"Under the common law, apart from surrender or forfeiture, a tenancy may come to an end by effluxion of time, if for a term of years certain, or by notice given by the tenant to the landlord or by the landlord to the tenant, if a periodic tenancy, or a tenancy for a term of years certain subject to a break clause."
Winn LJ agreed with both judgments but added that had there been any need he would have tried to deal with the matter "on the same lines as Diplock LJ has followed and to have expressed the same views as those he has expressed".
Mr Lewison relies upon the speech of Lord Templeman in Prudential Assurance Co Ltd v London Residuary Body [1992] 2 AC 386. It was concerned with a memorandum of agreement which provided that "the tenancy shall continue until the ... land is required by the Council for the purpose of the widening of" the highway. The lease purportedly created under that memorandum, being for an uncertain period, was void and the land was held on a yearly tenancy created by virtue of the tenant's possession and payment of yearly rent.
Lord Templeman referred to section 1(1) of the Validation of War-time Leases Act 1944 which provided that an agreement which purported to grant a tenancy for the duration of the war "shall have effect as if granted or provided for the grant of a tenancy for a term of 10 years, subject to a right exercisable either by the landlord or the tenant to determine the tenancy, if the war ends before the expiration of that term, by at least one month's notice in writing given after the end of the war; ..." Lord Templeman stated that Parliament had granted "the fixed and certain term which the agreements between the parties lacked in the case of tenancies for the duration of the war". Lord Templeman added, at p 395A:
"A lease can be made for five years subject to the tenant's right to determine if the war ends before the expiry of five years. A lease can be made from year to year subject to a fetter on the right of the landlord to determine the lease before the expiry of five years unless the war ends. Both leases are valid because they create a determinable certain term of five years."
I accept the reservations of Mr Jourdan, first, that Lord Templeman uses the expression "certain term of five years" and not "term of years certain" and, second, the submission on the policy of section 38(4), but both Lord Templeman in Prudential and Diplock LJ in Scholl find no inconsistency between the certainty of a term and the presence in the lease of a break clause. If Harman LJ in Scholl was using the expression "term certain" as a term of art, I would respectfully prefer the opinion of Diplock LJ.
In my judgment, the presence of a break clause does not prevent the term being a term of years certain for the purposes of section 38(4) of the Act. The term must be construed in the context of the Act. Section 69(1) defines "notice to quit" as meaning a notice to terminate a tenancy (whether a periodical tenancy or a tenancy for a term of years certain) given in accordance with the provisions (whether express or implied) of that tenancy. In the context of a term of years certain, the only notice to quit which can be given is a notice exercising a right to break. The statutory meaning of notice to quit covers a notice exercising a break clause and clearly contemplates that a fixed term tenancy determinable by such a notice is still a "term of years certain". On the same basis, as Mr Jourdan accepts, the expression "term of years certain" must include a tenancy subject to break clauses in other sections of the Act: sections 24(3), 26(1), 27(1), 27(2) and 33. There is a strong presumption that it bears the same meaning in section 38(4) of the Act. That meaning is consistent with the use of the word "certain" in the other cases to which I have referred. That sense is not in my judgment proscribed by assigning to the subsection a statutory purpose which in my judgment cannot be assumed.
Mr Jourdan also referred to Garston v Scottish Widows' Fund and Life Assurance Society [1998] 3 All ER 596. That case turned upon the construction of the proviso to section 26(2) of the Act (Tenant's request for a new tenancy) and whether the proviso contemplates "one relevant date only in respect of a given tenancy". It was held that it did and that the relevant date in the case of a lease for a term of years was the date on which the lease would have come to an end by effluxion of time. The right to request a new tenancy when the tenancy "could be brought to an end by notice to quit given by the tenant" was held not to apply to a lease for a term of years. That is not inconsistent with a lease containing a break clause being for a term of years certain.
Construction of lease
Mr Jourdan makes the further submission that, on its true construction, the lease created a term of five years and thereafter from year to year and, as such, was not for a term of years certain. The landlord contends that the lease created a fixed term of five years commencing on 23 April 1993 and ending on 22 April 1998. The habendum provides:
"To hold the same unto the tenant for the term of five years commencing on 23rd day of April one thousand and ninety three ("the Term") and thereafter determinable by six months prior written notice on the part of the landlord taking effect at any time after 1st June 1995 as hereinafter provided ... ."
Clause 4(5) provides:
"The landlord or the tenant shall be entitled to determine the term hereby granted by giving to the other party hereto not less than six months notice in writing expiring at any time after 25th December 1994 whereupon this lease shall absolutely determine but without prejudice to any claim that the parties hereto may have in respect of any antecedent debt or obligation."
Mr Jourdan submits that if the landlord had a right under clause 4(5) to determine the term on six months notice taking effect at any time after 25 December 1994, he would not need a separate right to determine the term on six months notice taking effect at any time after 1 June 1995. On that footing, the clause 1 right would be otiose. If the lease did create a tenancy for five years and thereafter from year to year, it was not for a "term of years certain" (Nicholls v Kinsey (1994) 69 P & CR 438).
Given that an ambiguity must be construed in the tenant's favour (Dickson v St Aubyn [1944] 1 All ER 470), it is submitted that the landlord's right in clause 1 should be construed as applying after the expiry of the term of five years, with the tenancy continuing as a yearly tenancy unless and until terminated by notice to quit. The word "thereafter" in clause 1 means after the expiry of "the term of five years".
I do not accept that submission. The court must try to give effect to the intention of the parties as expressed in the lease. Clause 1 contemplates written notice being given after 1st June 1995, which is well within the five year term. That being so, the word "thereafter" refers not to a time after the term of five years but a date after 23rd April 1993. The presence of a separate right to terminate in clause 4(5) does not go to defeat that construction.
In my judgment the judge was correct upon the two points raised in the respondent's notice and his conclusion that the tenant enjoyed the protection of sections 24 to 28 of the 1954 Act cannot be upheld on the grounds raised in the respondent's notice. For the reasons given earlier in this judgment, however, I would allow the appeal and hold that the lease expired by effluxion of time on 22 April 1998 and that the landlord is entitled to possession.
LORD JUSTICE MUMMERY:
I agree
SIR RONALD WATERHOUSE:
I also agree.
Order:
1. Appeal allowed with costs here and below.
2. Declarations made by the judge as set out in paragraph 1 of the Notice of Appeal set aside.
3. Order for possession against the defendant's judgment for damages for trespass and interest to be assessed.
4. Leave to appeal refused.
5. Stay on terms: Any petition to be submitted to House of Lords within 28 days and the petition to be pursued diligently thereafter by the respondents.
6. Rent payable as from today's date at the rate of £22,000 annually, payable monthly in advance.

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