Basingstoke and Deane Borough Council v Host Group Ltd
|England & Wales
|LORD JUSTICE SLADE,LORD JUSTICE NICHOLLS
|03 November 1987
|Judgment citation (vLex)
| EWCA Civ J1103-8
|Court of Appeal (Civil Division)
|03 November 1987
 EWCA Civ J1103-8
Lord Justice Slade
Lord Justice Glidewell
Lord Justice Nicholls
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(HIS HONOUR JUDGE MICKLEM)
Royal Courts of Justice
MR W. J. MOWBRAY, Q.C., and MR W. D. C. POULTON, instructed by Messrs Dixon Ward & Co., appeared for the Appellants (Defendants).
MR T. L. G. CULLEN, Q.C., and MISS H. E. WILLIAMSON, instructed by D. R. Hudson, Esq., Director of Legal and Estates Services, Basingstoke & Deane Borough Council, appeared for the Respondents (Plaintiffs).
I will ask Lord Justice Nicholls to deliver the judgment of the court.
This is the judgment of the court on an appeal concerning the ground rent payable for the Pig and Whistle public house at Brighton Hill, Basingstoke, Hants. The appeal, which is brought by the defendant tenant, The Host Group Limited, from a decision of His Honour Judge Micklem sitting as a judge of the Chancery Division on 18th April 1986, raises a question of construction of a rent review provision in a lease.
The lease is dated 22nd November 1982. The landlord was then, and still is, the Borough Council of Basingstoke and Deane. The original tenant was Chef and Brewer Limited, to whose interest the present tenant succeeded by assignment. The lease was a long lease. It was for a term of 99 years from a date, 12th November 1979, which was just over three years before the date borne by the lease. The lease was expressed to be granted:
"In consideration of the expense incurred by the Lessee in the erection of the premises hereinafter mentioned on the plot of land hereby demised and of the rent and covenants on the part of the Lessee hereinafter reserved and contained".
The property demised consisted of a plot of land, of about one-third of an acre in extent, identified on a plan as "public house site", together with the buildings thereon. There were appurtenant rights and exceptions and reservations we need not describe. The rent was payable quarterly in advance, from 12th November 1979. The initial rent was £12,251 per annum. This was subject to review, upwards only, at five-yearly intervals throughout the term of the lease.
The rent review provisions were detailed. Shortly stated, the rent for successive five-year periods was to be as agreed in writing by 11th November 1984 or successive fifth anniversaries of that date. Failing agreement by such dates the rent for each review period was to be:
"the then reasonable current ground rental value of the demised premises which shall be fixed or assessed in accordance with the provisions of sub-paragraph (vii) of this sub-clause by an independent valuer".
We need not refer to the provisions in the lease concerning the appointment of the valuer or the conduct of the valuation, save to note that the valuer was to act as an expert and not as an arbitrator. Paragraph (B)(vii) in the first proviso to clause 1 is the crucial provision, and it provided:
"The reasonable then current ground rental value shall be the rental value of the demised premises computed on the following basis:—
"(a) that the demised premises are available at the date of assessment for letting for a term equal to the unexpired portion of the term hereby granted or a term of twenty years (whichever shall be the greater) with rent reviews at five yearly intervals as herein contained
"(b) that the demised premises are a bare site only clear of all buildings but not so as to permit consideration of a claim for a reduced rent or rent free period during the development of the demised premises as might otherwise be reasonably claimed if the premises were in fact clear of all buildings
"(c) that there shall be disregarded:—
(i) any effect on rent of the fact that the Lessee has been in occupation of the demised premises
(ii) any goodwill attached to the demised premises by reason of the carrying on thereat of the business of the Lessee
(iii) any addition to the value of the demised premises attributable to any Justices' On—licence".
It is on the proper construction of this paragraph (vii) that the case turns. The first review date, 12th November 1984, came and went without the parties reaching agreement on the amount of the rent payable for the next five years. Furthermore, the parties were unable to reach agreement on the basis on which the valuer should proceed in making his assessment. On 13th December 1985 the landlord commenced these proceedings. The landlord issued an originating summons raising two questions. The first question was whether, when assessing the "reasonable then current ground rental value of the demised premises", the valuer should do so on the basis that the premises were available at the date of assessment for letting on the terms and conditions of a hypothetical lease containing (a) such terms and conditions as the valuer regards as reasonable for a lease of a bare site for development at the relevant date or (b) the same terms and conditions as the original lease. The landlord contended for alternative (a), the tenant for alternative (b). The judge found in favour of the landlord, which meant that the second question then arose: whether the assessment was to be made on the footing that the bare site was available for development (a) only as a public house or (b) for any lawful use. The judge decided in favour of alternative (b), as contended by the landlord.
The evidence before the judge consisted of little more than the lease itself. There was no evidence of any special circumstances surrounding the execution of the lease. The court was left to draw such relevant inferences as it could from the terms of the lease. One of the inferences which the judge drew was that, as recited, the original tenant had built the public house buildings on the landlord's site, at its own expense, before the lease was granted. Neither party disputed that inference. The judge further inferred, in our view correctly, that whilst one purpose of this rent review clause was to protect the landlord from inflation, another purpose, shown by the choice of a bare site clear of all buildings as the basis on which the valuer was to proceed, was to protect the tenant who had erected the buildings at its expense. The judge observed, and we agree, that the purpose underlying the choice of this clause appeared to be that the landlord and the tenant should share further increases in the value of the developed site on a fair basis.
In deciding question 1 the judge first rejected a submission made for the tenant that there was a general presumption that a valuer must have regard to the terms of the existing lease unless the lease otherwise requires either expressly or by implication. The judge said he would have been surprised to find any such general presumption, and he did not consider that the authorities to which he was referred supported the tenant's proposition. The judge then considered the rent review provision in this lease. One factor which weighed heavily with him was that many of the covenants in the lease would be quite inappropriate in the hypothetical lease of a bare site. The covenants in question are some of the tenant's covenants contained in clause 2. These covenants, in sub-clauses numbered from (i) to (xxx), were in a form unexceptional in a long lease of a public house. We refer to some of them: to pay rates; to keep the demised premises in good repair, and properly painted at specified intervals; not to erect any other building or make external alterations to the existing buildings without the landlord's consent; to insure; so long as the requisite licences could be obtained, to use the premises as a public house; to use best endeavours to obtain the grant and renewal of the licences necessary for using the premises as a fully-licensed public house; not to assign or underlet the whole of the demised premises without consent, or to assign or underlet any part of the demised premises; and not to use the demised premises for any purpose other than as a licensed public house with service yard and gardens. Plainly, many of these covenants are inappropriate to a lease of a bare site so long as the site remains in that state. It was argued by the landlord before the judge that, accordingly, these covenants should not be read into the hypothetical lease. The tenant sought to meet this argument by submitting that the covenants were not inappropriate for a bare site let for development, as contemplated in paragraph (vii)(b). The judge expressed his conclusion thus:
"…I did not find this a satisfactory answer to the landlord's point. I note in particular that there is no express covenant to build in the existing lease. The result is that, if counsel for the tenant were right, the hypothetical lease would contain a number of covenants which would only be appropriate if there were a covenant to erect buildings, but that vital covenant itself would be absent. Moreover, the parties have expressly told the valuer to value on the hypothesis of a bare site. While most bare sites are let to be built on and some may be let in order to have public houses built on them, and in such cases just those covenants would be appropriate, it is by no means a necessary implication that the parties had this limited class of bare site in mind.
"I accept, therefore, that the covenants taken in the existing lease and looked at as a whole, are not appropriate to a lease of a bare site.
"I accept the submission of counsel for the landlord that the covenants and terms, save as to rent,...
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