Rail for London Ltd v The Mayor & Burgesses of the London Borough of Hackney
| Jurisdiction | England & Wales |
| Judge | Claire Jackson |
| Judgment Date | 12 December 2022 |
| Neutral Citation | [2022] EWHC 2929 (Ch) |
| Docket Number | Case No: PT-2021-000217 |
| Court | Chancery Division |
[2022] EWHC 2929 (Ch)
Her Honour Judge Claire Jackson sitting as a Judge of the High Court
Case No: PT-2021-000217
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
PROPERTY, TRUSTS AND PROBATE LIST (CH D)
Rolls Building, 7 Rolls Buildings
London, EC4A 1NL
Mr Matt Hutchings KC (instructed by TFL Legal) for the Claimants
Mr Ranjit Bhose KC and Mr Shomik Datta (instructed by LB Hackney Legal Department) for the Defendant
Hearing dates: 18–20 October 2022
This judgment was handed down remotely and without attendance at 9:30am on 12 December 2022
This is a dispute between Rail for London Limited (“RfL”) and TTL Properties Limited (“TTL”) as former and current tenants respectively (collectively “the Claimants”), and the London Borough of Hackney as landlord (“the Defendant”), of a number of railway arches and buildings at Kingsland Viaduct in Hackney (“the Property”).
As a result of the extension of the East London Line of the London Overground (“ELLX”) the Claimants' predecessor in title, London Underground Limited (“LUL”), and the Defendant entered into a series of transactions regarding the Property. The parties accept that one of these transactions was a lease of the Property dated 3 May 1996 (“Lease C”) between LUL and the Defendant which provided for rent to be payable. On the face of the lease the basic rent was calculated by way of reference to a sub-lease between LUL and London Industrial (Kingsland Viaduct) Limited (“Workspace”), also dated 3 May 1996 (“Lease D”). Lease D was surrendered on 21 November 2003. LUL became the direct landlord of the subtenants and/or was entitled to sublet the individual Arches to sub-tenants (“the Occupational Tenancies”).
Between 2004 and 2019 LUL, and from September 2009 RfL, continued to pay basic rent to the Defendant using an approximation of the Lease D calculation mechanism and applying such to the Occupational Tenancies. The basic rent paid to the Defendant by RfL for 2018–19, was £1.38 million.
In 2019 RfL wrote to the Defendant stating that, given the surrender of Lease D, basic rent was no longer payable under Lease C and they sought recovery of the basic rent paid since the surrender of Lease D. The Defendant refused asserting that basic rent remained due and payable.
At the heart of the dispute is the Claimants' contention that, because of the surrender of Lease D, the “Basic Rent” that is payable to the Defendant under the terms of Lease C is, and will remain for the term of Lease C, nil. The parties have been unable to resolve this dispute.
Proceedings were therefore issued by the Claimants seeking a declaration in their favour. The Defendant counterclaims a declaration in its favour. Reimbursement of the rent paid between 2004 and 2019 was not sought in the proceedings and Mr Hutchings KC, Counsel for the Claimants, confirmed in closing submissions that the Claimants will not seek to recover that sum in any event.
Background to the Agreements
This section of the judgment draws heavily on the skeleton arguments of the parties.
In 1986 the North London Line City Branch, which formerly ran over Kingsland Viaduct, was closed. The freehold of the viaduct, arches and adjacent buildings, including the Property, vested in the Defendant. For the purposes of these proceedings there were approximately 190 arches within the Viaduct and six other buildings.
The Defendant's land included commercial units that were let to, or available for letting by, third party occupiers. This included commercial units within the individual arches, save for approximately 20 of the 190 arches which formed bridges over highways or over the Regent's Canal.
As at 1 May 1996 the annual rent receivable by the Defendant from the commercial units was in excess of £480,000. Approximately 69 of the individual arches were however unlet, or possibly unlawfully occupied, as at that date.
In October 1990, it was estimated that the Defendant's liability for repairs to bring the Viaduct into an acceptable condition was £4.5 million:
“ None of the above improvements can be achieved without the implementation of ELLX and the viaduct will remain, at least over the next ten years, a liability to its present owners, the London Borough of Hackney.”
LUL wished to use the railway line running on top of the Viaduct to facilitate a part of ELLX, linking Shoreditch to Dalston. On 30 November 1993 LUL applied to the Department of Transport for an order under the Transport and Works Act 1992 (“TWA”) in respect of ELLX. Article 17 of the draft order contained compulsory purchase powers over, inter alia, the Property.
The Defendant's statement of case for the public inquiry into the making of an order, dated 13 May 1994, made clear that they supported ELLX in principle, but had a number of concerns, which they wished to see addressed in various ways. These included the grant of CPO powers, in particular over the Property.
LUL's statement of case, dated 19 May 1994, noted that LUL had no power to purchase property until the powers had been obtained and funding was forthcoming. As to CPO powers paragraph 19.6.1 stated:
“ LUL seeks compulsory acquisition powers to ensure that it has sufficient control of the properties necessary to undertake construction works, comprehensively refurbish the Hackney viaduct and secure safe and effective management of, and access to, these structures in the longer term.”
On 11 November 1994 LUL gave undertakings to Dalston City Partnership Limited and the Defendant, as parties to the public inquiry, in relation to the exercise of its prospective powers under an order. No undertaking was given in respect of the exercise of CPO powers over the Property.
On 13 December 1995 the Defendant's Policy and Resources Committee produced a report recommending terms for the grant of a lease of the Property to London Industrial Plc. The cost of refurbishment of the Viaduct was estimated at £5.25 million to be financed in part by the European Regional Development Fund. The report “… accepted that it is not appropriate to market the viaduct on the open market for a number of reasons.”
On 21 February 1996 the Defendant's Policy and Resources Committee produced a further report recommending that the Head of Legal Services be instructed to complete the transactions relating to Kingsland Viaduct on the basis there set out.
The London Underground (East London Line Extension) Order 1997 was made, on 20 January 1997 (“the 1997 Order”). Article 17 conferred on LUL CPO powers over, inter alia, the Property. By 2003 LUL still had not secured funding for ELLX to be constructed.
The Agreements
LUL and the Defendant each retained specialist solicitors, Stephenson Harwood and Sharpe Pritchard respectively, to negotiate and/or draft the agreements. Neither firm of solicitors was represented at the trial of this action.
The Principal Agreement
On 3 May 1996 an agreement was entered into between (1) the Defendant, (2) LUL, (3) Workspace, and (4) London Industrial Plc (“the Principal Agreement”). Workspace was a special purpose vehicle formed for the purposes of the arrangement to which the Principal Agreement gave effect. London Industrial Plc was a company in the business of letting real estate. It was the Defendant's existing lessee of arches Nos 402–420 (“Union Walk”) under three leases for terms of 99 years from 25 March 1994. It was party to the Principal Agreement as guarantor for Workspace.
The main terms of the Principal Agreement were as follows:
(a) By clause 2 the Defendant agreed to sell and LUL agreed to purchase the freehold interest in “ the Property” (as defined) for £1. It included the Property. Completion was to take place on 3 May 1996. The Property was sold subject to the existing occupational tenancies of the arches, other areas, and buildings: clause 9.1, and Schedule 2 (“the Occupational Tenancies”). This schedule recorded the Defendant's existing rent entitlement.
(b) By clauses 2.2 and 5 a scheme of leases were to be executed on the same day between LUL, the Defendant, and Workspace. Copies of the leases were exhibited to the Principal Agreement by way of appendices.
(c) By clause 12 the Defendant agreed to carry out or procure various works, described in clause 1 as “ the Council's Works”. These works included the removal of track bedding at the Viaduct, and the structural refurbishment of the same by levelling and a new reinforced concrete waterproof membrane. There was no stated maximum value of the Council's Works, which were to be undertaken to the standards required by clause 12.2.2. By the proviso to clause 12.2.3 the date for the completion of all the Council's Works was 3 August 1997 at the latest. If the Defendant defaulted in its obligations in respect of the Council's Works, clause 12.5.1 permitted LUL to undertake them in default and recover the costs from the Defendant to a “Cap” of £2.6 million plus VAT. In such an event, the Defendant covenanted to use its best endeavours to obtain from the European Regional Development Fund all monies it was entitled to claim for in respect of the Council's Works: clause 12.5.2.
(d) By clause 13 Workspace agreed to carry out or procure various works. These works included the refurbishment of the “Property Arches”, to include repair and repointing of the undersides of them, and the provision of electricity and sanitation. LI's Works were specified by clause 1 to cost up to £3.2 million (including VAT).
(e) By a “Call” (and “Put”) option in clause 14, the Defendant and LUL agreed that in the event of ELLX not having occurred by 3 May 2006, the Defendant would have the option of...
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