Henry Smith’s Charity Trustees v Hemmings

Rent Act 1977 — Appeal from judge’s decision on a case stated on questions of law raised by a rent assessment committee in the course of proceedings before them — Whether certain improvements fell to be disregarded by the committee in assessing a fair rent on the ground that they had been carried out ‘by the tenant under the regulated tenancy or any predecessor in title of his’ within the meaning of section 70(3)(b) of the Act of 1977 — Meaning of ‘predecessor in title’ — Phrase must mean in the context ‘predecessor in title to the interest of the tenant in the premises’ — In the present case the appellant was the assignee of a lease which had been granted to the person who carried out the improvements, but the improvements had not been carried out by that person while he was a tenant under that lease — At the time when the improvements were carried out his old lease had ended and the new one which was assigned to the appellant had not yet begun — He was in occupation in pursuance of an agreement by which he was to carry out improvements and, conditionally on their completion, he was to be granted a new lease for a further term — He did not qualify as an equitable lessee under the doctrine of Walsh v Lonsdale or otherwise — Also, although the term of the new lease was expressed to commence before the date when the improvements were completed, the date of execution was later — Leases ‘lie in grant’: Roberts v Church Commissioners for England — Judge correct in holding that the improvements did not fall to be disregarded in assessing a fair rent — Appeal dismissed This was an appeal by the tenant from a decision of McNeill J on a case stated by a rent assessment committee under the Tribunals and Inquiries Act 1971, section 13(2), and RSC Order 56, rule 7. The appellant was David Hemmings and the respondents to the present appeal were the Trustees of Henry Smith’s Charity. The application under the case stated procedure had been made by the trustees. The parties had agreed that the case should be stated, a procedure rarely used in the course of rent assessment. The hearing before the committee was adjourned pending the answers received from the court on the questions of law and had remained adjourned pending the outcome of the present appeal. The subject property was 94 Onslow Gardens, London SW7, previously known as 23 Ensor Mews. The proceedings before McNeill J were reported at (1981) 260 EG 178, [1981] 2 EGLR 90. Paul Hampton (instructed by Gasquet, Metcalfe & Walton) appeared on behalf of the appellant; Paul de la Piquerie (instructed by Warrens) represented the respondents. Giving judgment, WALLER LJ said: This is an appeal from a decision of McNeill J giving the opinion of the High Court on a special case stated by a committee of the London Rent Assessment Panel. It is not necessary to repeat all the facts which are set out in the stated case and summarised in the judgment of McNeill J. The respondents were the landlords who had granted a lease on November 3 1953 of a dwelling-house formerly known as 23 Ensor Mews and now known as 94 Onslow Gardens. On January 14 1971 a Mr Ludovici took an assignment of the residue of the lease, and the residue was some five months. He had approval for some repairs and alterations to be done, and after further negotiations, on June 17 1971, he made an agreement with the landlords to do certain alterations and repairs, including adding a storey. It was a term of that agreement that when those alterations and repairs were completed to the landlords’ satisfaction, they would enter into a lease with him which, in draft form, had been exhibited to that agreement. The work was done and approved, and on July 31 1972 the landlords granted Mr Ludovici a lease, the term being from March 25 1971 until a date in 1982, with a rent review at any time after the seventh year. On May 12 1976 the lease was assigned to the appellant and on March 25 1978 there was a request by the landlords for a review of the rent. Since this property was a regulated tenancy by virtue of the provisions of the Counter-Inflation Act 1973, the provisions of section 70 of the Rent Act 1977 apply to the determination of a fair rent. In determining what is a ‘fair rent’ by section 70(3) ‘There shall be disregarded . . .’ and paragraph (b) ‘. . . any improvement carried out, otherwise than in pursuance of the terms of the tenancy, by the tenant under the regulated tenancy or any predecessor in title of his’. I do not need to quote the question posed by the rent assessment committee in full; the question which McNeill J had to answer was whether improvements made after the end of the 1953 lease, and before the granting of the lease on July 31 1972, were improvements made by a predecessor in title of the tenant of the regulated tenancy. We were referred to section 25 of the Landlord and Tenant Act 1927, which contains, for the purposes of that Act, a definition of ‘predecessor in title’, which reads: The expression ‘predecessor in title’ in relation to a tenant or landlord means any person through whom the tenant or landlord has derived title, whether by assignment, by will, by intestacy, or by operation of law. There was also a definition in Pasmore v Whitbread & Co Ltd [1953] 2 QB 226. In the course of the judgment of Denning LJ (as he then was) he said, at p 229: ‘It seems to me that there is no escape from what is the plain meaning of the phrase ‘predecessors in title’, that it must mean the predecessors in title to the interest of the tenant in the premises.’ Mr Hampton, on behalf of the tenant, submitted that there was sufficient nexus between Mr Ludovici’s work during the alterations, and his status as tenant under the relevant lease, for him to be covered by the phrase ‘predecessor in title’ and he cited the case of Corsini v Montague Burton Ltd [1953] 2 QB 126 and Pelosi v Newcastle Brewery (Nottingham) Ltd (1982) 43 P&CR 18. But I do not find anything in them helpful to that submission. In my judgment the expression ‘tenant under the regulated tenancy’ refers to the tenancy which was granted on July 31 1972. Furthermore, although the term was said to commence in 1971, I accept Mr de la Piquerie’s submission that all leases lie in grant and cannot be made retrospective (see, for example, Roberts v Church Commissioners for England [1972] 1 QB 278). Accordingly, the tenancy which afterwards became the regulated tenancy began on July 31 1972 and not before. There was a difference of opinion at the Bar as to the status of Mr Ludovici while doing these alterations, but it is beyond dispute that he was not a tenant under the relevant lease, that is to say, the lease of July 31 1972, at that time. After that date, Mr Ludovici was a predecessor in title of the appellant under the relevant tenancy, but since he did not carry out any improvements during the currency of the relevant tenancy, they are not within the purview of section 70(3)(b) of the Rent Act 1977 because improvements were not carried out by any predecessor in title of the appellant. Mr Ludovici did not become a predecessor in title until July 31 1972 and no relevant improvements were carried out after that date. 95 So in my judgment the decision of McNeill J was right, that the alterations and additions were not carried out by a predecessor in title of the tenant, and I would dismiss the appeal. I have set out, briefly, my reasons for doing so because of the submissions of Mr Hampton. I would otherwise have been content to adopt the judgment of McNeill J, with which I entirely agree. SLADE LJ said: I agree that this appeal should be dismissed, but, particularly having regard to the interesting arguments which we have heard, I will attempt, shortly, to state my reasons in my own words. The appellant, Mr Hemmings, himself did not carry out the relevant improvements. If therefore he is to take advantage of section 70(3)(b) of the Rent Act 1977 he has to show that (1) the improvements were carried out by a predecessor in title of his, within the meaning of that subsection; (2) that they were done otherwise than in pursuance of the terms of the tenancy. Only if he can show these two things can he establish that section 70(3)(b) causes the improvements to be disregarded for the purposes of determining the fair rent payable in respect of the premises. In my opinion he falls at the first hurdle. It is first necessary to consider what is the meaning of the phrase ‘a predecessor in title of his’ in the context of section 70(3)(b), the phrase itself not being defined in the 1977 Act. It is in my opinion quite plain that this phrase, on its proper construction, is not wide enough to comprehend any and every person who at any time has had some interest in the premises. It must, I think, mean ‘predecessor in title to the interest of the tenant in the premises’. This was the meaning ascribed to the phrase by Denning LJ (as he then was) in the context of section 4(1) of the Landlord and Tenant Act 1927 in Pasmore v Whitbread & Co Ltd [1953] 2 QB 226 at p 229, which has already been referred to by Waller LJ. Although Mr de la Piquerie pointed out that the section of the Act of 1927 was concerned with compensation with regard to business premises, and that section 25(1) of that Act contains an express definition of the phrase ‘predecessor in title’, both he and Mr Hampton were content, for the purpose of the argument of the present appeal, to accept the meaning ascribed to the phrase by Denning LJ. Accordingly, when one seeks to decide whether the relevant improvements were carried out by a predecessor in title of the appellant for the purpose of applying section 70(3)(b), the only possible relevant predecessors in title can be persons who are predecessors in title of the appellant in respect of his particular interest in the premises, that is to say the lease of July 31 1972. As it happens, Mr Ludovici, who did the work, is a predecessor in title of the appellant in the sense that he was the original lessee under the lease of 1972, and the appellant is now the assignee of this lease. However, notwithstanding this point, which naturally featured in the forefront of Mr Hampton’s argument for the appellant, there remains what I consider to be an insuperable difficulty in his way. The learned judge took the point succinctly in two sentences, which I will quote: The respondent’s title to and interest in the premises is the lease of July 31 1972, assigned to him on May 12 1976. Unless therefore Mr Ludovici carried out the improvements whilst tenant under that lease, he was not, and could not for the purposes of section 70(3)(b) be the respondent’s predecessor in title. I agree with this statement of the legal position; the crucial words in it are, of course, ‘whilst tenant under that lease’. It cannot, in my view, suffice for the appellant merely to say that Mr Ludovici has, in the events which have happened since doing the works, become a predecessor in title of his and that the works were effected by Mr Ludovici. The appellant has to show that they were carried out by Mr Ludovici at a time while he was a predecessor in title of the appellant, in the relevant sense which I have already mentioned. A limit of time of this nature is, in my view, necessarily implicit in the subsection. A contrary conclusion would, I think, lead to ludicrous results which the legislature cannot conceivably have contended. It would, for example, have left it open to the appellant to claim the benefit of the subsection even if, as it so happened, the work had been done by Mr Ludovici 50 years ago, long before the lease of 1972 had been granted or was ever in contemplation. Mr Hampton (I think wisely) did not go so far as to contend this. He submitted, however, that improvements could be treated as having been carried out by a predecessor in title of a tenant within the meaning of section 70(3)(b) even though works had been done before the commencement of the relevant tenancy, provided only there existed what he termed a ‘sufficient nexus’ between (i) the interest of the alleged predecessor in the premises at the time when he did the work and (ii) the relevant tenancy. On the particular facts of the present case, he submitted, a sufficient nexus of this kind does exist, having regard to the particular circumstances which existed when the work was done by Mr Ludovici. These circumstances have been referred to by Waller LJ in his judgment. It is fair to say that at the time when the work was done the lease of 1972, though not yet executed, was in the contemplation of both parties, since Mr Ludovici had entered into an agreement with the respondents which both obliged him to do the work and entitled him to the grant of a lease when the work was done. In my judgment, however, what I may call the ‘sufficient nexus test’ is far too uncertain in its import to be applied to the subsection for the purpose of construing it. The only way to make sense of the subsection in the present context is to read it, as did the learned judge, by holding that it required the appellant, if he is to take advantage of it, to show that inter alia Mr Ludovici carried out the improvements while a tenant to the lease of 1972. As I have already indicated, it is, in my opinion, implicit in section 70(3)(b) that the only improvements there referred to are those carried out during the subsistence of the relevant tenancy. Further support for this conclusion is to be derived from the phrase ‘otherwise than in pursuance of the terms of the tenancy’ which appears in the subsection, and by reference to what one may suppose to have been the legislative purpose of the subsection. It cannot conceivably have been the purpose of the legislature that a tenant should be able to claim the benefit of that subsection in respect of improvements carried out before the relevant tenancy was granted and before there was any enforceable agreement to grant it. I would leave open the question as to the position of improvements carried out during the period between the making of any such agreement and the actual grant of the tenancy, as to which difficult questions might arise. If then, as is my view, the appellant, to succeed on this appeal, has to show that Mr Ludovici carried out the improvements at a time while he was a tenant under the lease of 1972, it is plain he cannot discharge this onus on the facts. The relevant improvements had been substantially completed prior to May 24 1972. Until Mr Ludovici had carried them out, he would have had no right even to obtain specific performance of the agreement for the grant of a lease to him. Accordingly, he could not successfully have invoked the doctrine of Walsh v Lonsdale so as to claim that the works done before May 24 1972 were done under the lease of July 1972. Since all leases lie in grant, the fact that the term under that lease was thereby expressed to begin on March 25 1971 could not itself have operated to have made Mr Ludovici retrospectively a tenant before the grant of the lease. In these circumstances there is no way in which the appellant can show that the works were done by Mr Ludovici while a tenant under the lease of 1972 and thus bring the case within section 70(3)(b). I would add that Mr Hampton addressed certain submissions to the court in relation to the merits of the appellant’s claim, but with due respect to these submissions, I can attach little importance to them. In this context it is perhaps worth mentioning that, but for the national economic difficulties which happened to follow the grant of the lease of 1972 and which led to the passing of the Counter-Inflation Act 1973, the tenancy, as the judge pointed out, would never have become a ‘regulated tenancy’ at all. There would thus have been no possible question of the appellant’s being in a position to rely on section 70(3)(b) of the Act of 1973 for present purposes. In broad terms, as in many cases dealing with landlord and tenant legislation, one cannot in my view fairly say that the merits favour one side more than another. The case simply involves a bare question of law and the construction of the words of the subsection. I would agree with Waller LJ and with McNeill J in the conclusions which they reached and, for the reasons which I have given, I would dismiss this appeal. Agreeing, SIR SEBAG SHAW said: Section 70(3)(b) applies only to improvements carried out by a tenant, and one must therefore have the conjunction of those two factors; an existing tenant and an improvement in the course of the tenancy, and effected by the tenant. Without the occurrence of those two things, the subsection does not apply. 96 In the end the critical issue in this case is whether Mr Ludovici, at the material time when the improvements were effected, was a tenant or not. It is quite clear that he was not for the reasons which have been stated by my Lords. The improvements were carried out under some collateral arrangement in contemplation of becoming a tenant and not at the time when he was one. In those circumstances section 70(3)(b) does not begin to apply. I agree that the appeal must be dismissed. The appeal was dismissed with costs.