Landlord and tenant - Business premises - Rent
Edwards & Walkden (Norfolk) Ltd and others v Mayor and others: ChD (Mr Justice Sales): 12 September 2012
The instant case concerned claims made by the claimant tenants of stalls, shops and offices at a market in London for new business tenancies to be granted at rents and on terms to be determined by the court under sections 24, 34 and 35 of the Landlord and Tenant Act 1954.
The defendant landlord was the Mayor and Commonalty and Citizens of the City of London. The market was a well-known and historic principal meat and poultry market in London. Three parts of the market were in issue: the east market, the west market and the poultry market. New commercial office accommodation was built above the parts of the east market and the west market occupied by the tenants, which the landlord let out to commercial tenants to generate rental income. There was also an extensive car park under the market, which was used by the tenants and the landlord, but which was also open for the public to use in return for a charge.
The tenants and the landlord agreed that new business tenancies fell to be granted to the tenants under the 1954 act for a period of 15 years. They disagreed about other matters relevant to setting the rent and terms of the new tenancies to be awarded by the court.
In particular, the landlord proposed that there should be a basic rent set together with a service charge varying from year to year to reflect the actual running costs of the market, divided up in an appropriate way between the tenants. The tenants proposed that there should be a simple rent with no service charge. There was no provision in any of the tenants’ leases that the rent or service charge money which they paid to the landlord had itself to be treated by the landlord as funds to be spent directly on market purposes. The instant matter was the trial of two preliminary issues.
The issues for consideration were: (i) whether the tenants were entitled to have their rents reduced on account of income received by the landlord from any part of the east and west market buildings and the poultry market building of the central markets in the city of London used for non-market purposes, including from the car park and offices let for non-market purposes, namely from the commercial offices let to commercial tenants; and (ii) whether the rents to be fixed by the court should be an all-inclusive rent, consisting of the maximum recoverable rent, service charge and uniform business rates for each unit, as under the existing leases or exclusive with the tenant’s contribution to services covered by a separate service charge.
In respect of issue (i), the tenants submitted that, by virtue of sections 8 and 9 of the Metropolitan Meat and Poultry Markets Act 1860 (the 1860 act) (see  of the judgment), the landlord was obliged to bring the relevant part of the income it received from the commercial offices and the car park into account against the running costs of the market and so reduce the income which the landlord ought to be entitled to receive in the form of rent from the tenants when the court set the rent for the new tenancies. The tenants contended that the operation of sections 8 and 9 of the 1860 act had the effect that the rents to be set in relation to the new tenancies under the 1954 act should be lower.
In respect of issue (ii), the tenants submitted that the best estimate of costs of maintaining and operating the market should be made at the instant time and an overall rental figure should be set by reference to those costs. The landlord submitted that there should be a lower rent element under the new tenancies, but a high variable service charge element which would be adjusted each year to cover the actual costs incurred by the landlord in maintaining and operating the market. That way, the tenants could bear the true operating costs properly attributable to running their businesses. Consideration was given to a plan of the market.
The court ruled: (1) In the instant case, the tenants were not entitled to have their rents under the new tenancies reduced on account of income received by the landlord from letting any of the commercial offices or from the car park. The landlord was obliged by section 9 of the 1860 act to use its income from the letting of the relevant part of the commercial premises, after deducting expenses, for the purposes of supporting the maintenance and operations of the market.
The proper meaning and effect of sections 8 and 9 of the 1860 act in a situation where the landlord built commercial offices within the relevant parts of the plan for the purpose of creating a source of income to support the operation of the market, and then leased them for a rent to achieve that end, was that the landlord remained bound to appropriate and use its remaining interest in the land the purposes of the market.
There was no provision in any of the tenants’ leases that the rent or service charge money which they paid to the landlord had itself to be treated by the landlord as funds to be spent directly on market purposes. Nor was there any statutory limitation in the 1860 act on the amount which the landlord could charge its tenants. There was no limitation in the 1860 act as to which market purposes the income from the commercial offices and the car park should be spent on. It was open to the landlord to choose to spend that income on market purposes which were unrelated to the direct provision of services to tenants under the new tenancies.
Accordingly, the landlord was not under any legal obligation to use the relevant commercial office and car park income for the benefit of the tenants, in order to lower their rents. The existence of the obligations under the 1860 act could not be taken to be a matter causing a lower rent to be agreed by a notional willing landlord and a notional willing tenant for the purposes of setting rent under section 34 of the 1954 act (see ,, -  of the judgment).
The answer to issue (i) was no (see  of the judgment). R v City of London Magistrates’ Court, ex p Brewster, Unreported, 21 December 1993 considered. It was settled law that the court should not generally exercise its discretion under section 35 of the 1954 act to change the basic parameters of the commercial arrangement between landlord and tenant (see  of the judgment).
(2) In respect of issue (ii), the balance of justice and fairness was clearly in favour of adoption of the landlord’s proposal for a variable service charge. Accordingly, the rents to be set under the new tenancies to be ordered by the court under the 1954 act in relation to all the properties reviewed should be exclusive rents with the tenants’ contribution to services covered by a separate service charge (see ,  of the judgment).
The preliminary issues would be resolved in favour of the landlord (see  of the judgment). Hyams v Titan Properties Ltd  24 P & CR 359 considered; O’May v City of London Real Property Co Ltd  1 All ER 660 considered.
James Dingemans QC and Paul Letman (instructed by Kidd Rapinet) for the claimants.; Martin Rodger QC and Joseph Ollech (instructed by Field Fisher Waterhouse) for the defendant.