Update: landlord and tenant

Estate management

In Shah v Colvia Management Co [2008] EWCA Civ 195, Colvia was the management company of a large industrial estate that had significant parking areas. The leases of the units on the estate gave the tenants the right to use the car parks on the estate, subject to compliance with such reasonable rules and regulations prescribed from time to time by Colvia. However, the estate was very congested and regularly there were shortages of parking spaces. Mr Shah ran six car repair businesses on the estate from units he leased. At some stage, the local authority began to levy commercial rates on the parking areas. Colvia made various attempts to recover this levy from the tenants of the estate but eventually decided on a scheme that involved the banning of overnight parking unless a fee was paid. The scheme was approved of by a majority of the tenants on the estate. Because of the nature of his business, Mr Shah would have been the tenant hardest hit by the levy and therefore sought to have it declared by the court as unreasonable.

The court considered the decision of International Drilling Fluids v Louisville Investments (Uxbridge) [1986] Ch 513, and said that it was for the party asserting that the scheme was unreasonable to prove that it was. In order to prove this, the court said, it had to be shown that the basis on which the decision to implement the scheme was founded was not one that a reasonable landlord or management company could have adopted in the circumstances. The court said that, on the evidence, it was not established that the scheme was unreasonable. The parking situation on the estate needed regulation; an overnight ban on parking was not an unreasonable method of achieving that.

Service charges

In Leonora Investment Company v Mott Macdonald [2008] EWHC 139 (QB), the lease of an office building allowed the landlord to make on-account quarterly demands for service charge during the service charge year. At year end, the landlord was required to prepare and send to the tenant a statement of the actual cost of providing services and then there was to be a reconciling payment either by the tenant to the landlord or vice versa. The landlord made the on-account demands and these were duly paid by the tenant. Shortly after the end of the service charge year, the landlord sent to the tenant a further invoice for £260,000 as a 'contribution for redecoration etc'.

Subsequently, a final schedule of expenditure was produced which erroneously omitted the cost of the redecoration works and, as a consequence, a reconciliation was produced that showed the tenant to be in credit with regards its service charge payments. The tenant refused to pay the invoice and the landlord brought proceedings.

The tenant claimed that it had complied with its obligations under the service charge and was not liable to pay the invoice. The tenant further argued that the landlord was only entitled to produce one end-of-year statement and reconciliation demand, which it had done.

Therefore, revised statements or demands could not be produced. The court held that the tenant was not liable to pay as the invoice was not in compliance with the scheme set out in the lease. However, the court said that it was clear that an error had been made by the landlord and that it was open to the landlord to correct that error and produce a revised statement and reconciliation demand.

Rent reviews

In McDonalds Real Estate v Arundel Corporation [2008] EWHC 377 (Ch), the lease of a drive-thru restaurant provided for the rent to be reviewed on the basis that the building on the site was not restaurant but a 'modern single storey warehouse comprising 20,000 net usable square feet of which 15 per cent in area were usable as ancillary offices and constructed to a high standard'. A dispute arose as to the method of assessing the rent. The tenant contended that the wording required that both the physical structure and the use be that of a warehouse. The landlord contended that the word 'warehouse' merely described the physical entity and said nothing about the use to which that physical entity might be put.

The court considered the state of the warehouse and the retail warehouse markets on the date the lease was granted in an attempt to ascertain the intentions of the parties at that time. It also considered the planning background. It found that, in referring to a 'warehouse', all the draftsman was doing was describing a building type. Further, it said that, applying the presumption of reality, it was to be presumed that the warehouse had planning permission for warehouse use. However, the prospect of obtaining planning permission for use of the building for retail purposes could be taken into account in the valuation.

Alienation

In Royal Bank of Scotland v Victoria Street (No. 3) [2008] EWHC 579 (Ch), the lease of bank premises contained a covenant on the part of the tenant not to assign or underlet without the written consent of the landlord, such consent not to be unreasonable withheld in the case of respectable and responsible assignee or subtenant. The bank became surplus to the tenant's requirements so the tenant sought from the landlord consent to assign the lease to a recently incorporated asset management company. A three-month rent deposit was offered as security and the tenant said in its request letter that it would provide references for the proposed assignee's directors. Two months after the request for consent, the landlord wrote refusing consent on the basis that the assignee was newly incorporated. The tenant issued an application for summary judgment for a declaration that the landlord had unreasonably withheld consent to the proposed assignment.

The court held that the provisions of s 19(1) of the Landlord and Tenant Act 1927 Act were imported into the lease. Though the letter referred to the provision of further references, contrary to the landlord's contentions, time did begin to run for consideration of the request for consent from the date the letter was received, and time ended when the landlord refused consent. The court further held that there was no obligation on the landlord to seek the promised further information from the tenant; it was entitled to make a decision on the information provided. As the tenant could not establish that the landlord had no real prospect of resisting its claim for a declaration, the summary judgement application failed.

The decision of the High Court in Prudential Assurance Co. v Ayres (reported in Solicitors Journal on 13 July 2007) has been overturned by the Court of Appeal ([2008] EWCA Civ 52). To recap, an original tenant to a lease, on assigning the lease, guaranteed performance of its terms by the incoming assignee partnership. Thereafter, the landlord and the assignee partnership entered into a separate deed which provided that the liability of the original tenant under the lease and any authorised guarantee agreement should be limited to the assets of the assignee partnership and not extend to the personal assets of the individual partners. Subsequently, the assignee partnership became insolvent leaving a substantial level of rent unpaid and the landlord claimed against the original tenant. The original tenant claimed the benefit of the deed. The landlord countered by arguing that the original tenant was not a party to the deed and could not take the benefit of it.

The High Court was of the view that the operation of the Contract (Rights of Third Parties) Act 1999 enabled the original tenant to take advantage of the deed. The Court of Appeal has recently decided, however, that the deed did not purport to confer a benefit on the original tenant. It merely purported to limit the landlord's rights against the individual partners of the assignee partnership. Thus, no question arose as to the operation of the 1999 Act.

Forfeiture

In Greenwood Reversions v World Environmental Foundation [2008] EWCA Civ 47, following a dispute between a landlord and a tenant, the tenant stopped paying rent, service charge and insurance. The landlord commenced court proceedings and obtained judgement against the tenant for the arrears. The landlord then obtained an interim charging order in respect of the property. In an attempt to avoid the imposition of final charging order, the tenant assigned the lease of the property to a company with which he had a connection. That assignment did not have the requisite consent of the landlord who placed a stop on demands so none were sent to the company. Subsequently, further arrears of rent and service charge accrued. The landlord wrote to the original tenant demanding that all arrears, both pre- and post-assignment, be paid. When the original tenant failed to pay, the landlord forfeited the lease. The original tenant and the assignee company argued that the landlord had waived its right to forfeit the lease through its demands. The court held, however, that no unequivocal demand for rent have been made and certainly none from the tenant, the assignee company. Thus, the lease was forfeit.

Business tenancies

In Fowles v Heathrow Airport [2008] EWHC 219 (Ch), a tenant of site carried on a number of commercial activities. Those activities had been, and continued to be, the subject of a dispute between the tenant and various planning authorities. Several enforcement notices had been served on the tenant. The landlord served a notice under s 25 of the Landlord and Tenant Act 1954 terminating the tenancy and stating that the grant of a new tenancy would be opposed on the ground set out in section 30(1)(c), that is the tenant not be granting a new tenancy in view of substantial breaches by him of his obligations under the current tenancy or for other reasons connected with the tenant's use and management of the holding.

It was common ground, on the basis of the decision in Turner & Bell v Searles (Stanford-Le-Hope) [1977] 33 P&CR 208, that, if the tenant's use of the property amounted to the commission of a criminal offence, then the court should not order the grant of a new tenancy to him either because the court should not order parties to enter into an illegal contract or because an illegal use was a reason connected with the tenant's use and management of the property and would be a clear reason why the tenant 'ought not' be granted a new tenancy. The court reviewed the tenant's activities and concluded that the vast majority of the uses were planning breaches that constituted the commission of continuing criminal offences. Thus, the landlord was held to have made out its ground of opposition.

In Picture Warehouse v Cornhill Investments [2008] EWHC 45 (QBD), a tenant had a lease of business premises and also a licence to park outside the premises contained in a separate document. At the time the lease came up for renewal, the tenant was experiencing difficulties parking and sought to formalise the parking position by having its right to park included within the new lease. The landlord refused to agree this and the matter was referred to the court for determination as a preliminary issue.

The tenant argued that parking should be incorporated in the new lease by virtue of either s 32(3) or s 35(1) of the 1954 Act. It was held that, with regards to s 32(3), as the tenant's parking rights were outside the lease, they were outside that subsection. As for s 35(1), that subsection was said to give the court a discretion to incorporate the right (though not to enlarge the tenant's holding by the creation of a right that had not previously been enjoyed) but the court chose not to exercise that discretion.