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Compensation for tenants’ improvements: a valediction?

Published online by Cambridge University Press:  02 January 2018

Michael Haley
Michael Haley*
Affiliation:
University of Keele
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Extract

At common law, any improvements made by a tenant (unless classified as ‘tenants’ fixtures' and, thereby, removable) form part of the freehold and, at the end of the lease, must remain for the reversioner. Subject to the law of waste and to any contrary stipulation in the lease, the tenant remains free to carry out improvements, but is not entitled to compensation. This common law approach can be viewed as a potential benefit to landlords when the improvement adds to the value of the reversion. It may, however, stand as a disincentive to tenants who might otherwise have effected improvements to their properties. It has fallen to Parliament to redress what is widely regarded as this lack of equity.

Type
Research Article
Information
Legal Studies , Volume 11 , Issue 2 , July 1991 , pp. 119 - 130
Copyright
Copyright © Society of Legal Scholars 1991

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References

1. New Zealand Government Property Co v HM & S Ltd [1982] 1 QB 1145. For an analysis of the law of fixtures see (1985) 135 NLJ 211, 235.

2. Landlord and Tenant Law ‘Compensation for Tenants’ Improvements' (1989) Law Commission 178. Hereinafter referred to as the Report.

3. Per Ormrod LJ, Pelosi v Newcastle Arms Brewery (Nottingham) Ltd (1981) 259 EG 247. See also Omen Owen Estate Ltd v Livett [1956] Ch 1.

4. Stuchbery & Sons v General Accident [1949] 1 All ER 1026.

5. It should be appreciated that it is Part II of the Landlord and Tenant Act 1954 which offers business tenants security of tenure and compensation for disturbance. Part III deals exclusively with compensation for tenants' improvements. The modifications followed the recommendations of the final report of the Leasehold Committee (1950) Cmd 7982.

6. Op cit, at 3.23.

7. Ibid, at 3.19.

8. To qualify there must be a tenancy of a ‘holding’ which is defined in s 17(1) of the Landlord and Tenant Act 1927 as ‘any premises held under a lease, other than a mining lease, made whether before or after the commencement of this Act, and used wholly or partly for carrying on thereat any trade or business, and not being agricultural holdings within the meaning of the Agricultural Holdings Act 1986.’ A similar scheme for agricultural tenants is contained in the 1986 Act. The two schemes are mutually exclusive.

9. Section 3(4).

10. Cf s 19(2) which imposes the proviso that, as regards qualified covenants, the landlord's consent is not to be unreasonably withheld.

11. In Hogarth Health Clubs Ltd v Westbourne Investments Ltd (1990) 02 EG 69 Staughton LJ expressed the regret that: ‘there may in these days be some injustice in this area of the law. A landlord may object to the tenant's proposed improvement for little or no reason and thus hold it up until the county court can provide a hearing with no penalty other than costs.’

12. Op cit, at 5.3

13. Section 1 (1). For a further analysis of the law and procedure see (1986) 280 EG 1422.

14. Section 3(1). See Deerfield Travel Services Ltd v Wardens of the Leathersellers of the City of London (1982) 46 P & C R 132. Methods of service are stated in s 23.

15. Ibid.

16. Ibid. Application is made by originating summons to the High Court under RSC/097; or by originating application to the County Court under CCWO 43.

17. Ibid. See English Exporters (London) Ltd v Eldonwall Ltd [1973] Ch 415.

18. Section 1 (1). See British & Colonial Furniture Co Ltd v William Mcllroy Ltd [1952] 1 KB 107.

19. As set out in s 47 of the Landlord and Tenant Act 1954. These limits cannot be extended: Donegal Tweed Co v Stephenson (1929) 98 LJKB 657.

20. Section 1 (1).

21. Ibid. In the absence of agreement all issues as to compensation are dealt with by the court (s 1(3)).

22. Sections 1(1), 1(2), 2(3). See also the set-off provisions within s 11.

23. Law Commission Working Paper ‘Landlord and Tenant: Compensation for Tenants’ Improvements' (1987) No 102 at 4.7. Hereinafter referred to as the Working Paper.

24. Op cit, at 3.21. See also published Working Paper ‘The Law of Landlord and Tenant’ (1970) No 25 at 87.

25. Ibid, at 3.17.

26. Ibid, at 3.24.

27. Ibid, at 3.19.

28. Ibid, at 3.2 1.

29. The Working Paper found from its limited preliminary research that, in the preceding five years, less than 20 subjects had either served or been served with a s 1 notice and only in five cases had compensation been paid under the statutory machinery (op cit, at 1.12). Subsequently, however, it voiced the opinion that ‘many people must have established rights’ under the scheme (at 3.13).

30. Op cit, at 3.

31. Ibid, at 3.7.

32. Section 1 (1), Landlord and Tenant (Licensed Premises) Act 1990. Such lettings are, however, prospectively awarded security of tenure from 11 July 1992 (s 1(2)).

33. Op cit, at 3.7.

34. Ibid, at 3.8.

35. Op cit, at 4.5.

36. Op cit, at 3.5.

37. Ibid, at 3.1 I.

38. Ibid.

39. Ibid, at 3.12.

40. Section 9, Landlord and Tenant Act 1927; s 49, Landlord and Tenant Act 1954.

41. Section 2(1)(b).

42. Owen Owen Estates v Livett, supra; see also Godbold v Martin the Newsagents Ltd (1983) 268 EG 1202.

43. Section I (1).

44. Op cit, at 3.12.

45. Matthew v Bobbins (1980) 41 P & CR 1.

46. Op cit, at 6.48.

47. The present system is not, however, without its faults. The Law Commission Working Paper ‘Part II of the Landlord and Tenant Act 1954’ (1988) No 111 thought that grounds for approval should be provided by statute so as to encourage a more interventionist approach on the part of the judiciary (at 3.5.13).

48. Holt v Lord Cadogan (1930) 46 TLR 271.

49. The Working Paper (No 102) was against prospective contracting out and believed that it would provide an optional compensation scheme and undermine the authorization procedure concerning prohibited improvements (op cit, at 6.46). It is submitted that these fears can be overcome by the statutory regulation of the judicial discretion to approve contracting out and by distancing further the authorisation procedure from the compensation provisions.

50. Op cit, at 3.13.

51. Section 1 (1).

52. Op cit, at 3.14.

53. Op cit, at 1.12.

54. Op cit, at 3.20.

55. Section 3(1).

56. Op cit, at 3.1 1. It is, however, unclear as to what ‘figures’ the Working Paper was referring to.

57. Ibid, at 3.10.