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Compensation

This page deals with compensation payable to the tenant in two different sets of circumstances:
  • Where the tenant is unable to obtain a new tenancy because the landlord is objecting on grounds (e), (f) or (g);
  • Where the landlord gets the property back after he has made a misrepresentation or concealed material facts - s37A of the 1954 Act - the first case under this section.

Tenant unable to obtain a new tenancy

This section deals with compensation under Part II of the 1954 Act where the tenant is unable to obtain a new tenancy because of opposition by the landlord on certain grounds. There are two cases referred to; one deals with contracting out of the compensation provisions; the other with the conditions for double compensation. Each case is concerned with the occupation of the tenant immediately prior to the termination of the tenancy.

The right to compensation: s37

If:
  • The court is precluded from making an order for a new tenancy by reason of (e), (f) (g), or
  • L served a s25 notice or s26(6) counter-notice relying only on (e)(f)(g) and T did not apply or did but withdrew the application,
T is entitled to compensation on quitting the holding: s37(1).

The amount of compensation: s37(2)

Basic rate: Appropriate multiplier x rateable value.

Enhanced rate: Appropriate multiplier x twice rateable value.


Restriction on contracting out

Bacciocchi v Academic Agency Ltd
[1998] 3 EGLR 157, CA.

Introduction

Section 38(2) states:
    "Where .. during the whole of the five years immediately preceding the date on which the tenant under a tenancy to which this Part of this Act applies is to quit the holding, premises being or comprised in the holding have been occupied for the purposes of a business carried on by the occupier or for those and other purposes any agreement which purports to exclude or reduce compensation shall to that extent be void".
What is the position where there is a short gap between the tenant leaving the premises and the tenancy coming to an end?

Basic facts

  • 20 year lease - T ran a restaurant
  • Lease contained a clause excluding compensation on quitting
  • L served s25 notice specifying (f) and (g)
  • T issued claim for new lease in Jan 94
  • T discontinued 11/5/94
  • Tenancy came to an end 11/8/94 (s64)
  • On the face of it (because he had been in occupation for more than 5 years) T entitled to double compensation - the exclusion clause was void (s38(2)).
T's problem
  • He physically vacated and handed over keys to his solicitors on Friday 29/7/94, ie. 12 days prior to 11/8/94 when the tenancy came to an end.
  • Judge held that T was not in occupation of the premises "immediately preceding" 11/8/94.
  • Therefore s38(2) did not help him. T appealed.
CA's decision

Appeal allowed - T was in occupation for the purposes of s38(2) during the last 12 days and was entitled to compensation. Simon Brown LJ:
    " ... whenever business premises are empty for only a short period, whether mid-term or before or after trading at either end of the lease, I would be disinclined to find that the business occupancy has ceased (or not started) for that period provided always that during it there exists no rival for the role of business occupant and that the premises are not being used for some other, non-business purpose. That, to my mind, is how Part II of the 1954 Act should operate in logic and in justice. It has nothing to do with the de minimis principle. Rather, it is recognition that the tenant's physical possession will not invariably require permanent physical possession throughout the whole term of the lease and he ought not to have to resort to devices like storage of goods or token visits to satisfy the statutory requirements of continuing occupation. If of course, premises are left vacant for a matter of months, the court would be readier to conclude that the thread of continuity has been broken."
Compare Sight & Sound on s37(2) below and cases on "occupation" under s23. In particular Pointon York Group plc v Poulton [2006] EWCA Civ 1001 where Bacchiocchi was applied.

Condition for double compensation

Sight and Sound Education Ltd v Books etc. Ltd
[1998] EWHC 319 (Ch)

Introduction

Section 37(3)of the 1954 Act states:
    "..during the whole of the 14 years immediately preceding the termination of the current tenancy, premises being in the holding have been occupied for the purposes of a business carried on by the occupier."
Termination for these purposes is when the s25 notice expires - s37(7).

The following is an example of a case where the tenant did not receive compensation because he was not in occupation immediately preceding the termination of the tenancy:

Key facts
  • Lease of 14 years - on the face of it T entitled to double compensation.
  • Section 25 notice served - relied on(f)(g).
  • T issued application for new tenancy but later discontinued.
  • T vacated a few days before the contractual expiry date and five months before the date specified in s25 notice.
Ts problem
  • When he left in Sept 97 he ceased to enjoy the protection of Part II (Esselte AB v Pearl Assurance plc [1996] EWCA Civ 911; [1997] 1 EGLR 73)
  • The crucial date for determining the amount of compensation was five months later when the s25 notice expired (s37(3)(a); s37(7)).
  • At that date he was clearly not in occupation and so did not satisfy the condition that he had been in occupation "during the whole of the 14 years immediately preceding the termination of the current tenancy" (s37(3)(a)).
Held

T was not entitled to double compensation.

(Compare Bacciocchi immediately above under s38 - where there was only a small gap in time).


Compensation for landlord's misrepresentation

Change of circumstances

Inclusive Technology v Williamson
[2009] EWCA Civ 718

Summary

A landlord who told a tenant in a letter accompanying a s25 notice that he intended to redevelop but subsequently changed his mind, without telling the tenant, was held liable to the tenant for damages under s37A of the Landlord and Tenant Act 1954.

Introduction

Section 37A of the 1954 Act provides as follows:
    “Where-
    (a) the tenant has quit the holding-
    (i) after making but withdrawing an application under section 24(1) of this Act; or
    (ii) without making such an application; and
    (b) it is made to appear to the court that he did so by reason of misrepresentation or the concealment of material facts,
    the court may order the landlord to pay to the tenant such sum as appears sufficient as compensation for damage or loss sustained by the tenant as a result of quitting the holding.”
Facts

By June 2006 the landlord formed a genuine intention to refurbish the property and had been advised that the works could not be carried out with the tenant in occupation. He had previously in February warned the tenant of the possibility that he might require possession for such works. There is also evidence of a conversation in April or May with the landlord’s agent in which he told the tenant that there was to be refurbishment work, and that the paper-work was being prepared.

On 7 June 2006, the landlord served a notice under s25 of the 1954 Act terminating the tenancy on 31 January 2007. The notice specified s30(1)(f) as the ground for opposing a new tenancy. The covering letter to the notice referred to the previous exchanges regarding the future refurbishment of the property and said that it was “…necessary to obtain vacant possession to carry out the intended work.”

However, by the end of September, the landlord had decided to “hold fire”, although: “He still intended to carry out the works… in the future when the ircumstances were right.” The effect was that the landlord was no longer in a position to rely on an intention to carry out the works at the end of the tenancy. The tenant was not informed of this change in position by the landlord. At the end of November, the tenant signed a lease for other premises in a nearby building and vacated in December 2006.

When the tenant became aware that the refurbishment works had not been carried out they commenced proceedings for compensation under s37A of the 1954 Act.

First instance

The trial judge dismissed the claim holding that there had been neither misrepresentation nor concealment. The tenant appealed.

Decision

Appeal allowed. The judge should have found that there was a continuing representation, in the letter accompanying the s25 notice, that had been made false by the change in circumstances. Carnwarth LJ at paras 15 and 16:
    "Mr Lander [counsel for the tenant] says that … the representation here was not simply a statement of what was in the mind of the landlord at that time, but was directly referable to a statutory process designed in due course to enable the landlord to obtain possession; and therefore that either it should be regarded as a continuing representation which became false, and therefore a misrepresentation, or it gave rise to a duty or at least an expectation that the landlord would inform the tenant if he changed his mind, and his failure to do so should be regarded as concealment. That, to my mind, is a wholly convincing analysis of the position.".
It is important to note that the liability did not arise simply because a s25 notice had been served on the tenant specifying s30(1)(f) as a ground for opposition. The case was decided on its particular facts, ie the letter accompanying the notice together with the previous conversations. Carnwarth LJ at paras 18 and 19:
    "I certainly accept that not every case in which a section 30(1)(f) notice is served will give rise to such a continuing obligation on the part of the landlord. However, in this case, the pre-notice exchanges show that the landlord, very fairly, was being entirely open with the tenant as to his plans. The letter of June which accompanied the notice, as the judge found, was as clear as possible a statement of present intention, and the letter indicated that it was that intention which gave rise to the service of the notice. I agree with Mr Lander’s submission that it amounted to a continuing representation, which does bring into play the section. That approach seems to me consistent with what I understand to be the purpose of the provision, which is to encourage fair dealing between the parties."
The tenant relied on the letter. "Why else would the tenant have moved out, since there was no doubt that he wanted to stay if he could?" (Carnwarth LJ at para 21).

Hughes LJ analysed the case by saying that there were three principal questions that need to be answered:
  • Was there in this case a representation?
  • Whether the representation was a continuing one or whether it was no more than a statement of the intention held at the time of the covering letter in June 2006?
  • Did the statement of the continuing representation become false to the landlord's knowledge?
On each of those questions, Hughes LJ made the following points:
  • Misrepresentation: ".. service of a section 25 notice indicating a reliance upon ground (f) within section 30(1) cannot, by itself, as it seems to me, be capable of amounting to a representation of intention" (para 30). However, the covering letter in its context did constitute a representation. (Our emphasis).
  • Continuing representation: "In the present context … a statement of intention to refurbish a tenanted property in the context of a possible tenant’s application for a fresh tenancy only has meaning if it is a continuing representation" (para 32).
  • Falsity of representation: "It is, I think, important to say in a case of this kind that a continuing representation of the kind given here, of an intention to renovate or refurbish, would not be rendered false simply because the landlord explored other commercial options; that is almost inevitably going to happen in a large number of cases." (para 34). However, by October 2006 "the landlord knew that he could not and would not oppose the grant of a new tenancy upon ground (f)."
Conclusion

Damages were awarded based on the difference in rent between the assumed market rent for the original premises and the rent for the new premises.

Comment

The judgment of Hughes LJ states that mere service of a s25 notice will not give rise to liability. However, Carnwarth LJ did not put the matter in such clear terms. Further, it will probably fairly easy for a court to find other circumstances surrounding the notice that can be taken as a representation of intention. Thus, any landlord who has served a s25 notice and then changes his mind is probably best advised to inform the tenant of the full situation.

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