Cyril Brown v Council of the City of Gloucester
| Jurisdiction | England & Wales |
| Judge | THE PRESIDENT,LORD JUSTICE MILLETT,SIR CHRISTOPHER SLADE |
| Judgment Date | 03 November 1997 |
| Judgment citation (vLex) | [1997] EWCA Civ J1103-2 |
| Date | 03 November 1997 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHANF 96/0687/B |
[1997] EWCA Civ J1103-2
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(HIS HONOUR JUDGE RICH QC)
Royal Courts of Justice
Strand
London Wc2
The President
Lord Justice Millett
Sir Christopher Slade
CHANF 96/0687/B
JONATHAN BROCK QC & LESLIE BLOHM (Instructed by R A Cook, Gloucester, GL1 2EP) appeared on behalf of the Appellant
JONATHAN GAUNT QC (Instructed by Dibb Lupton Broomhead, Birmingham, B2 5LF) appeared on behalf of the Respondent
Millett LJ will give the first judgment.
This appeal raises a short point of construction of a rent-review clause in a lease which was not merely ill-drafted but ill thought through, to the point where it was described by the Judge as "a bizarre document".
The lease was made on 15 March 1989 between the Gloucester City Council and Heatek Services Ltd., the Respondent's predecessor in title. By the lease the Council demised a site comprising 4.25 acres of vacant land at the Cattle Market, St. Oswald's Road, Gloucester for a term of 125 years from 15 March 1989. The lease permits the land to be used for any purpose within Use Classes B1, B2 and B8 of the Town and Country Planning (User Clauses) Order 1987 with the landlord's consent, such consent not to be unreasonably withheld. The lease contains no restrictions on underletting.
Although the demised premises consisted of an undeveloped site, and although it was plainly the intention of both parties that the tenant should develop it, the tenant's covenants impose no obligation to do so; and while they include repairing covenants they include no covenant restricting or regulating the tenant's right to make alterations, remove buildings or rebuild throughout the very long term.
The lease reserves an initial rent of £3,340 per annum subject to the rent review provisions contained in the First Schedule. These provide for five-yearly upwards only rent reviews which direct that the rent payable from any review date should be equal to the passing rent or 10% of the Rack Rental Value as defined, whichever should be the greater. In default of agreement the Rack Rental Value is to be determined by an expert valuer. The first review date under the lease was 15 March 1994. It was common ground that at that date no buildings had been constructed on the demised premises.
The expression "Rack Rental Value" is defined in the First Schedule as follows:
"`Rack Rental Value' means the aggregate of the rents at which the buildings comprised (or assumed to be comprised in accordance with the provisions hereinafter contained) in the Demised Premises might reasonably be expected to be let on the Review Date in the open market by a willing lessor with vacant possession and upon such other terms as herein contained (including provision for rent review at the frequency in this schedule provided) but with such modifications as may be reasonably necessary to adapt the terms herein contained to lettings of individual buildings comprised in the demised premises."
This definition is subject to a proviso which applies if at any review date no building has yet been constructed on the demised premises. In this case the valuer is required to assume (inter alia):
"a notional building site coverage of 63,500 square feet which said notional coverage shall be regarded as five separate building units…"
The proviso is curiously worded and would lead to manifest absurdity, as the Judge observed, in certain circumstances; but these need not detain us as the circumstances in question have not occurred.
In determining the Rack Rental Value of the demised premises the valuer is directed to make a number of assumptions. So far as material these are as follows:
"(A) On the following assumptions in respect of each building then constructed (hereinafter referred to as `the Unit')….
(ii) that the Unit is available to be let by a willing landlord to a willing tenant as a whole without a premium with vacant possession and subject to the provisions of this lease (other than the amount of the rent hereby reserved but including the provisions for rent review)….."
These last assumptions are expressed to apply only in respect of buildings which have then been constructed on the site. It is arguable that they have no application to buildings which have not actually been constructed on the site but the existence of which is assumed. Since, however, the contrary is also arguable, it is fortunate that nothing for present purposes turns on the point, because the valuer is required to assume only that the buildings are available to be let on the stated terms and not that they are in fact so let, or even commercially capable of being let, on such terms.
The parties were unable to agree the amount of the rent payable during the rental period commencing on 15 March 1994. Accordingly, the valuer was required to determine the sum which would represent the aggregate of the rents at which five notional buildings of a total area of 63,500 square feet might reasonably be expected to be let on the open market on the review date. The annual rent payable under the lease would then be £3, 340 or 10% of the amount so determined, whichever was the greater.
This concept gave rise to a number of difficulties which were either resolved by the parties by agreement or were disposed of in a careful and impressive judgment by the Judge. Only one point of disagreement remains to be decided on this appeal. It concerns the length of the hypothetical term for which the five notional buildings should be assumed to be let. Before the Judge the tenant successfully contended that the valuer should treat each of the buildings as let for the residue of the term granted by the lease, that is to say, for a term of 120 years from 15 March 1994 less one day. The landlord contends that the term of the hypothetical lease of each notional building should be of such duration as the term for which the landlord might reasonably be expected to grant a lease of that unit and the tenant might reasonably be expected to take in all the circumstances prevailing at the review date.
The term of the original lease was 125 years; but it was a lease of a vacant site let for development at a small fraction of the rack rent which it would command when developed. The expert witnesses who gave evidence before the Judge agreed that no one would take a lease of such length of completed business premises at a rack rent. Mr O'Hanlon, the tenant's surveyor, deposed:
"Commercially no one would be willing to take a lease of either offices or industrial buildings for such a period (120 years). A substantial discount from the normal rent would have to be made to persuade anyone to accept such a lease."
He added:
"A surveyor needs to know the length of the notional lease before he can assess the rent. Arbitrators do sometimes find themselves in the position of having to determine rents on property subject to very long leases without breaks which would not in practice be offered in the open market. Indeed such judgments are currently being made on office buildings where the hypothetical term is 20/25 years or more and where in the open market a tenancy of such a term without a tenant's break clause would be extremely rare. Moreover in the case of Norwich Union Life...
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