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Easements on renewal

Easements and rights on lease renewal

Some practical points

By John Martin

Introduction

To tenants of most business premises, the right to lease renewal under the Landlord and tenant Act 1954 (“1954 Act”) would be of little value unless they were also guaranteed easements and rights equivalent to those enjoyed under the current tenancy. This fact is implicitly recognised both by the 1954 Act and by the courts. However, exactly what can a tenant insist upon?

Section 32

Stated shortly, the effect of section 32(1) of the 1954 Act is that if the court makes an order for the grant of a new tenancy, that tenancy will be a tenancy of the holding. By virtue of section 23(3) of the 1954 Act “the holding” means the property comprised in the current tenancy, other than any part or parts not occupied by the tenant or his business employee. Section 32(3) of the 1954 Act then provides that where the current tenancy "includes rights enjoyed by the tenant in connection with the holding", those rights shall be included in the new tenancy, except as otherwise agreed between the landlord and the tenant or, in default of such agreement, determined by the court. But what does the term “rights” extend to?

It is clear from the decision of the Court of Appeal in Nevill Long and Co (Boards) Ltd v Firmenich and Co [1983] 2 EGLR 76 that the word “rights” in this context includes rights in the nature of easements, where they are additional to other property included in the current tenancy. In that case, the tenant enjoyed under its lease rights of way over adjoining land also owned by the landlord, which gave access to the rear of the demised premises. During the contractual term of the lease, that adjoining land was sold to a third party. The tenant was successful in obtaining a declaration from the court that the rights of way would continue after the expiry of the contractual term of the lease, pursuant to the Act.

It follows, of course, that the rights must not have expired or lapsed at the point at which the matter comes before the court. In Kirkwood v Johnson [1979] EGLR 82, the Court of Appeal held – without deciding whether an option could qualify as a right for that purpose – that an option contained in the lease to acquire the reversion, because it had lapsed three months before the expiry of the contractual term of the lease, could not be regarded as a “right enjoyed by the tenant” within the meaning of section 32(3) of the 1954 Act.

The High Court has held that purely personal rights, as opposed to rights in the nature of easements, fall outside the scope of section 32(3). The tenants in Re No. 1 Albemarle Street [1959] 2 WLR 171 enjoyed under their lease a right in the nature of a licence to maintain advertising signs on land outside their demise. It was held that that this was not a right covered by section 32(3). However, the judge went on to hold that he had jurisdiction under section 35(1) of the 1954 Act, when determining “the other terms” of the new tenancy, to include a similar term and he so ordered.

Authority

In The Picture Warehouse Ltd v Cornhill Investments Ltd [2008] EWHC 45 (QB) the lease granted no rights to park vehicles externally. However, the tenant had the benefit of a licence or permission granted by means of a separate letter of assurance for its customers and deliverymen to park no more than two vehicles for up to thirty minutes on the forecourt outside the demised premises. It sought on renewal to include in the new tenancy an express right to park two vehicles on the forecourt.

On appeal from the Mayor’s & City of London Court, Jack J held that whatever rights the tenant had were not included in the current tenancy and so were outside section 32(3) of the 1954 Act. This followed from the plain wording of the statute, and there was no reason to strain its wording and give it a wider meaning.

The judge then considered whether a right to park on the forecourt should be included as a term of the new tenancy under section 35(1) of the 1954 Act. He noted that there was clear authority in both G Orlik (Meat Products) Ltd v Hastings and Thanet Building Society (1974) 29 P&CR 126 and J Murphy & Sons Ltd v Railtrack plc [2002] EWCA Civ 679 for the proposition that the court had no jurisdiction under section 35(1) to enlarge the holding by ordering the grant of an easement over the landlord’s land that the tenant had not previously enjoyed.

What was open to the court under section 35(1) was to include in the new tenancy a provision conferring on the tenant a right no greater than that given by the letter of assurance. He concluded, however, that in the circumstances it was inappropriate to do so, and that the tenant should be left to rely upon the terms of the letter of assurance for such rights as it conferred.

Conclusion

This decision provides a useful reminder to tenants, when first taking premises, of the need to ensure that all rights necessary for their enjoyment are granted within the lease as easements so as to qualify later for protection under the 1954 Act. If they are granted after the lease has been entered into, then a supplemental deed should be used. They will still then qualify as “rights enjoyed by the tenant in connection with the holding”. This may not be so if at the time of grant of the lease, or later, they are granted by means of an informal licence or similar. (That might also allow the landlord an argument that they are revocable during the contractual term.)

There are two final points to note. The first is that rights may be enjoyed with the demised premises, but not with the holding where a tenant has sublet part of the demised premises and is therefore not in occupation of that part. The second is that the tenant is not automatically entitled to the equivalent of all rights enjoyed with the holding. The court has a discretion to cut down the extent of the rights to be included on renewal, where there is no agreement between the landlord and the tenant. This might be the case where the landlord is able to show, for instance, that a particular right has become redundant.

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