Ponsford v H.M.S. Aerosols Ltd
| Jurisdiction | UK Non-devolved |
| Judge | Lord Wilberforce,Viscount Dilhorne,Lord Salmon,Lord Fraser of Tullybelton,Lord Keith of Kinkel |
| Judgment Date | 29 June 1978 |
| Judgment citation (vLex) | [1978] UKHL J0629-1 |
| Date | 29 June 1978 |
| Court | House of Lords |
[1978] UKHL J0629-1
House of Lords
Lord Wilberforce
Viscount Dilhorne
Lord Salmon
Lord Fraser of Tullybelton
Lord Keith of Kinkel
Upon Report from the Appellate Committee to whom was referred the Cause Ponsford and others against HMS (Aerosols) Limited, That the Committee had heard Counsel as well on Wednesday the 3rd as on Thursday the 4th days of May last upon the Petition and Appeal of HMS (Aerosols) Limited of 10 Thames Road, Barking, Essex praying that the matter of the Order set forth in the Schedule thereto, namely an Order of Her Majesty's Court of Appeal of the 8th day of February 1977 might be reviewed before Her Majesty the Queen in Her Court of Parliament and that the said Order might be reversed, varied or altered and that the Petitioners might have the relief prayed for in the Appeal or such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament might seem meet; as also upon the Case of Ian Reginald Ponsford, Peter Philip Rough and Edward John Posey (suing as Trustees of the G.M. Posey Voluntary Settlement) lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 8th day of February 1977 complained of in the said Appeal be, and the same is hereby, Affirmed and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay or cause to be paid to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.
My Lords,
This case concerns the interpretation of a rent review clause, and is one of impression. Of the four learned judges who have considered it, two favour one interpretation, two another. Your Lordships are, unfortunately, also divided in view.
The clause is contained in a lease of industrial premises for 21 years from 24th June 1968 at an initial rent for the first seven years of £9,000 per annum. For the second and third seven years of the term it is to be £9,000 "or such sum whichever be the higher as shall be assessed as a reasonable rent for the demised premises for the appropriate period."
There follow provisions for fixing this reasonable rent by an independent surveyor.
Soon after the granting of the lease the buildings were burnt down. The lessors, having received insurance money, undertook to reconstruct them, but at the same time the lessee desired to make some improvements. It applied to the lessors for a licence, and on 14th November 1969 this was granted by a formal document under seal. It contained this clause:
"3. IT IS HEREBY AGREED and declared that all the Lessees convenants and conditions contained in the Lease which are now applicable to the premises demised thereby shall continue to be applicable to the same when and as altered and shall extend to all additions which may be made thereto in the course of such alterations."
The improvements, including I understand the construction of a new bay, and the installation of sprinkler equipment and a central heating system, were carried out at a cost of about £32,000, which sum was paid by the lessee.
Now, at the end of the first seven years, the question which arises is this: on what basis is the independent surveyor to fix the reasonable rent? It is not disputed that he must fix that rent for the premises as improved�they are now "the demised premises". But can he take into account the fact that the improvements have been paid for by the lessee? The answer depends solely on the construction of the words "a reasonable rent for the demised premises".
Many arguments great and small have been used by either side. I start by discarding some which, for my part, I find inconclusive or unhelpful.
1. The lessors, and the majority judges in the Court of Appeal, place great reliance on the words "for the demised premises". They show, it is said, that the surveyor only has to look at the premises and value them as they are: he cannot consider anything else. For my part I find these words neither conclusive, nor even indicative. They state the obvious. What else could the rent be for? The question is not what the rent is payable for but on what basis the surveyor is to fix it�on the market value, the rack-rent value or (whatever this means) on the basis of what is reasonable.
2. The clause, it is said, prescribes merely "a reasonable rent". If the surveyor were to consider other matters than the visible character of the premises it would say "reasonable in all the circumstances". A distinction is thus made between this clause and the statutory provision considered by the Court of Appeal in John Kay Ltd. v. Kay [1952] 2Q.B. 258 in which it was held that the words "such rent � as the court in all the circumstances thinks reasonable" gave to the court a wide discretion. I cannot find the least substance in this argument. The word reasonable has no abstract or absolute meaning: it only has significance when related to a set of facts. What is reasonable in some circumstances, may be unreasonable in others. I find no difference between the two expressions.
3. It is said that if the lessee had wished to protect himself against paying rent based on the improvements, it could (and should) have done so when the licence was granted. I do not agree. If the review clause has the meaning for which it contends there was no need for it to do so. If it bears the opposite meaning, it loses its case. The question, which is right, remains to be decided.
4. It is said that the lessee's argument involves reading the clause as if it said "a reasonable rent for the tenant to pay" and that there is no justification for reading in the latter words.
I do not follow this argument. There is no need, on the lessee's argument, to read in any words. The rent which has to be fixed is a rent payable by this tenant under this lease which has fourteen years to run and which may be renewed thereafter. It is not a rent (to follow the words of the Landlord and Tenant Act 1954 section 34) at which the holding might reasonably be expected to be let in the open market by a willing lessor. The contrast in language is plain: the lessor's contention, indeed, is that the words mean just that, which, in my opinion, they cannot do.
I turn to arguments of substance. The clause exists and must be interpreted in the context of this lease and of what the parties must have been aware of at the time they agreed to it. They must have known the following:
1. That a lessee has the right to make improvements subject to the lessors' approvl which cannot be unreasonably withheld. The lessors cannot as a condition of granting approval demand an increased rent. They did not of course do so in 1969.
2. If, when the lease expires, the lessee is in a position to call for a new lease, the rent then payable must be fixed without regard to the improvements. (Landlord and Tenant Acts 1954�1969.)
3. If, when the lease expires, the lessee goes out, it may be entitled to compensation in respect of the improvements to the extent to which they add to the letting value.
These facts would be known to any surveyor called on to fix a reasonable rent.
In the light of this, one has to ask: would a rent, taking into account the physical existence of the improvements and nothing more, be a reasonable rent? The answer to this is surely negative. It is not reasonable:
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( a) For a lessee who has spent £32,000, at an interest cost may be of £3,200 p.a., to pay rent on the product of this expenditure for the rest of the term�even if it gets some compensation at the end of the lease.
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( b) For a lessee, who on a renewed lease, would pay rent on a basis which disregarded the improvements, to pay rent during the current lease on a basis which did not disregard them.
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( c) For a lessor, who could not exact an increased rent on licensing the improvements, to obtain one at a later date by use of the rent review clause, the purpose of such a clause being to adjust the rent for inflation and market changes.
If, at the present time, the lessors were to say to the lessee "we are asking you to pay an increased rent which, of course, takes account of the improvements you have made to my premises" the lessee would surely say "That is most unreasonable". And conversely, if the lessee were to say "I offer to pay you an increased rent taking into account of inflation since 1968, the rise/fall in market demand and of the fact that I paid for the improvements made in 1969" the Lessors would surely say "Fair enough".
If the meaning of "reasonable" is not such as to admit the considerations to which I have referred, I must ask what is its meaning or what is the "reasonable rent" referred to in the clause. The answer given to this is that the rent is the market rent. Then, when the question is asked why, if this is so, the clause does not so state, the answer given is that the word reasonable is put in so as to exclude a freak rent which some extraordinary lessee might offer. I must say that I find this a very lame argument. A market rent (or a rack rent) is one thing: a reasonable rent is another. A reasonable market rent is a hybrid which I cannot understand, and the clause, understandably, does not use these words.
In support of their argument, the respondents and the majority in the Court of Appeal, appeal to a judgment of Megarry J. in an unreported case: ( Cuff v. J. & F. Stone Property Company Ltd. 13th Dec. 1973). The actual...
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