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The statutory regulation of business tenancies: private property, public interest and political compromise

Published online by Cambridge University Press:  02 January 2018

Michael Haley
Michael Haley*
Affiliation:
Keele University
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Abstract

The need for the statutory regulation of business tenancies was officially recognised towards the end of the nineteenth century. The mischief complained of was that some landlords held their tenants to ransom by demanding an inflated rent as a condition of a lease renewal. This was particularly harsh for the tenant who had built up business goodwill and carried out improvements to the premises. Despite the organisation of commercial tenants and the growth of political lobbying, it was not until Landlord and Tenant Act 1927 that controls emerged which provided compensation for loss of goodwill and improvements. The inadequacy of these provisions, however, entailed that tenant discontent and lobbying persisted until the enactment of the Landlord and Tenant Act 1954. This paper charts the social and political change which brought about this significant retreat from market forces and the gradual recognition that security of tenure, as opposed to financial safeguards, was the necessary response. The controls established in 1954 have, remarkably, survived almost intact and, subject to some fine tuning, will continue to do so. This paper addresses the issue why the commercial code has, in marked distinction to its residential and agricultural counterparts, remained immune to shifts in political policy during a sustained period of deregulation in landlord and tenant law.

Type
Research Article
Information
Legal Studies , Volume 19 , Issue 2 , June 1999 , pp. 207 - 228
Copyright
Copyright © Society of Legal Scholars 1999

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References

1. See the Distress for Rent Act 1689 and the Small Tenements Recovery Act 1838. Agricultural tenants, however, had a right to compensation for improvements under the Agricultural Holdings Act 1875. As regards the agricultural industry, the need for the public interest to take priority over contractual agreements was long established: see Lord Hailsham LC in Johnson v Moreton (1978) 3 WLR 538 at 551, 552.

2. See eg D Englander Landlord and Tenant in Urban Britain 1838-1918 (Oxford: Clarendon Press, 1983); J Burnett A Social History of Housing (London: Methuen, 2nd edn, 1985).

3. Reports from Committees: 1892: vol 7. The Select Committee had been established in 1886 to undertake a full inquiry into the operation of the leasehold system. The Committee did not propose abolition, but concentrated instead upon improvement.

4. See the Leasehold Committee Interim Report on Tenure and Rents of Business Premises (1949) (Cmd 7706) at paras 12–24. In Eire, for example, a system of compensation for goodwill and improvements had operated since the Town Tenants (Ireland) Act 1906.

5. See generally A V Dicey ‘The Paradox of the Land Law (1905) 21 LQR 221.

6. See generally W S Holdsworth ‘The Reform of the Land Law: A Historical Perspective (1926) LQR 158. As Englander, above n 2, makes clear, there had long been a tacit agreement between the political parties to do nothing of significance. The Liberal Party, however, offered some hope for the future as signalled in its election slogan ’God gave the land to the people.

7. Above n 2, p xii.

8. It is remarkable that, until the Landlord and Tenant Act 1954, both the ‘low risk and ’good landlord counter-arguments continued to prevail to the extent that reforms were both modest and limited: see eg the recommendations of the Final Report of the Leasehold Committee (1950) (Cmd 7982).

9. Departmental Committee on Increase of Rent and Mortgage Interest (War Restrictions) Acts (1920) (Cmd 658).

10. Reports from Committees (1920) vol 5.

11. ‘In perceptual terms the landlord was an ogre, the hardest of hard-faced men, one who preyed upon and tormented the lives of millions (Englander, above n 2, p 5).

12. Above n 2, pp 78, 80.

13. 205 HC Official Report (5th series) col 556 (22 April 1920); 206 HC Official Report col 635 (15 May 1920). This difficulty persisted over the next three decades: see eg the divergent recommendations of the Leasehold Committee in its Interim Report (1949) above n 4 and its Final Report (1950) above n 8.

14. Per Major Owen 202 HC Official Report (5th series) col 1769 (23 February 1927).

15. Per Mr MacClaren 204 HC Official Report (5th series), col 2321 (7 April 1927).

16. A typical response from the Labour benches was that of Mr Dalton: ‘The present law… permits landlords to confiscate the fruits of the past labour and past enterprise of their tenants and also permits them sometimes to hamper and to penalise the future enterprise and future labour of those same tenants (204 HL Official Report (5th series) col 2315 (7 April 1927)).

17. 69 HL Official Report (5th series) col 330, 1927 (29 November).

18. See Sir William Joynson-Hicks (Home Secretary) 204 HC Official Report (5th series) 2301 (7 April 1927).

19. Above n 17 at col 2307. Not all opponents to change were convinced by the government's rhetoric. The Property Owners Protection Society, for example, feared that the Bill would prove injurious to the prosperity of the country as a whole: The Times, 30 April 1927. Similarly, the Council of Auctioneers and Estate Agents Institute warned of the perils and potential evils arising from the Bill: The Times, 6 May 1927.

20. Per Sir William Joynson-Hicks, above n 18, col 2314. As Lord Greene explained in Stuchbery & Son v General Accident Fire & Life Assurance Corp Ltd (1949) 2 KB 256 at 264: ‘It was obviously thought by the legislature to be unjust that the landlord should obtain that type of unearned increment at the termination of a lease…

21. There were, for example, nearly 300 amendments suggested following the second reading of the Bill.

22. To Lord Phillimore it illustrated … a very melancholy fact that once again bad landlords were likely to make bad laws (69 HL Official Report (5th series) cols 353, 354 (29 November 1927)).

23. Mr Dalton (Labour) 204 HC Official Report (5th series) col 3215 (7 April 1927).

24. As Lord Paramour remarked,… the gift given by one hand is almost withdrawn by the mass of detail by which it is accompanied (69 HL Official Report (5th series) col 316 (29 November 1927)).

25. Above n 4 at para 4.

26. ‘Landlord and Tenant Law: Compensation for Tenant's Improvements (1989) (Law Com no 178). See M Haley (1991) 11 LS 119.

27. ‘In truth “adherent goodwill” is not goodwill at all in the sense in which that term is understood either in law or in ordinary business parlance (Final Report of the Leasehold Committee, above n 8, para 126).

28. Section 17(3)(a). Being wholly related to the personal skill and reputation of the tenant, this type of goodwill is unsaleable and does not increase the value of the property. See the ‘cat, ’rat and dog metaphor provided by Scrutton LJ in Whiteman Smith Motor Co v Chaplin (1934) 2 KE3 35 at 42.

29. As recognised by Lord Jessel, … this question of goodwill is a sort of elusive will-O -the wisp which you cannot grasp (69 HL Official Report (5th series) col 414 (1 December 1927). See also Charrington & Co v Simpson (1935) AC 325.

30. The tribunal, moreover, could make an interim order authorsing the tenant to continue in occupation until the claim was resolved.

31. Above n 4. Two minority reports were appended.

32. Above n 4 at para 51. This complacency was not, however, endorsed by Sir Edward Gillett who feared that the proposed cure would prove to be worse than the disease (p 36); see also the doubts of Sir Edwin Herbert (pp 37–40).

33. ‘Compensation is a very desirable alternative in cases where continuity of tenure is for special reasons out of the question, but it is only a second-best and it should remain in the background - the exceptional procedure, rather than the normal remedy. The business tenant occupies his premises in order to trade, or to pursue his profession: he does not wish to be compensated for being prevented from doing so (Above n 4, para 38).

34. This protection was necessary at least until the availability of business accommodation increased and some equality of bargaining power restored: above n 4, para 36. Whether the proposed scheme was to be permanent or temporary was an issue to be left until the Committee's Final Report.

35. Above n 8. The Committee again was not unanimous.

36. Above n 8, pp 122–125.

37. Above n 8, p 122, para 4.

38. Above n 8, para 133.

39. ‘The result of such a plan must inevitably be to benefit the man in possession of the premises at the expense of the man in search of premises for no better reason than that the former has managed to get in first (per Jenkins LJ, above n 8, p 123, para 5).

40. ‘Security of tenure is not to be at the expense of the landlord and is not to subsidise the inefficient business (above n 8, para 151).

41. ‘[R]enewal would become the principal relief and compensation would take what we conceive to be its proper place as a substitute in cases where renewal is not obtained (above n 8, para 207).

42. As regards profit-making use, the test was whether failure to obtain renewal would cause substantial diminution in the value of the business as a going concern; in connection with non-profit-making activities, the test was whether it would cause a substantial increase in costs or loss of efficiency; and relating to the professions, the ground for claiming renewal was a substantial diminution in net profits.

43. Hence, businesses which did not generate ‘adherent goodwill would no longer be excluded from renewal rights.

44. The Hale/Ungoed-Thomas Minority View above n 8 at p 130, para 19.

45. The Hale/Ungoed-Thomas Minority View was that the broader base of compensation should apply in all cases where renewal was refused and the tenant was not in default (above n 8, p 131, para 25).

46. (1953) (Cmd 8713).

47. Above n 46, para 42.

48. Above n 46, para 53.

49. 188 HL Official Report (5th series) col 114 (29 June 1954).

50. This measure of compensation was favoured because it was simple and certain and, perhaps more to the point, because Parliament could not devise a better alternative: see Lord Simonds LC, 188 HL Official Report (5th series) col 116 (June 29 1954).

51. 188 HL Official Report (5th series) col 135 (June 29 1954).

52. The issue of leasehold enfranchisement, for example, dominated the Second Reading of the Bill.

53. (1963) 2 All ER 775 at 778.

54. See O May v City of London Real Property Co Ltd (1983) 2 AC 726 at 747, where Lord Wilberforce accepted that … there certainly is no intention… to freeze or… petrify the terms of the lease.

55. See Mr Turner-Samuels, 536 HC Official Report (5th series) cols 1825-1827 (27 January 1954). As the Lord Chancellor (Lord Simonds) admitted, ‘To some the amount will seem too much; to others undoubtedly it will seem too little 188 HL Official Report (5th series) col 116 (29 June 1954).

56. ‘Report on the Landlord and Tenant Act 1954 Part II (1969) (Law Com no 17). See also the Working Paper (1967) (Law Com no 7).

57. Previously, the tenant stood to gain financially by dragging out proceedings for as long as possible and, thereby, maintaining the old rent: see Espresso Coffee Machine Co Ltd v Guardian Assurance Co Ltd (1958) 1 WLR 900. The interim rent was not, however, to be a full market rent and fell to be discounted to reflect the ephemeral nature of the continuation tenancy; see M Haley (1993) 22 AALR 97.

58. It had been doubted whether the court could impose a variable rent on renewal. Although this occurred in practice (see Re 88 High Road, Kilburn (1959) 1 All ER 527), the Law Commission suggested that it was a somewhat dubious exercise of power: Above n 56, para 20.

59. In the report only two paragraphs were devoted to the subject: see above n 56, paras 32, 33.

60. Above n 56, para 32. The facility, however, was never to extend to periodic tenancies.

61. The Law Commission Report ‘Business Tenancies: A Periodic Review of the Landlord and Tenant Act 1954 (1992) (Law Corn no 208) relied on statistics which showed that, in 1989, there were 24,070 applications and approval was granted in 18,879 cases. The failure rate of 21% was explainable only on there having been technical defects in those applications.

62. The Commission recommended that court involvement be abandoned and replaced by new formalities concerning the giving of prescribed information to tenants: above n 61, paras 2.14-2.20.

63. 87 HC Official Report (5th series) col 245 (20 November 1985).

64. Law Commission ‘Part II of the Landlord and Tenant Act 1954 (1988) Working Paper no III, paras 1.5-1.6.

65. Law Commission Report No 208 above n 61. For a critique see M Haley (1993) Conv 334.

66. As Lord Silkin had accurately predicted, … this Bill is exceedingly difficult and will, I have no doubt for many years to come provide ample occupation for members of my [the legal] profession (188 HL Official Report (5th series) col 120 (29 June 1954)). The skills of the parliamentary draughtsman have also come under vehement attack: see Connaught Fur Trimmings Ltd v Cramas Properties Ltd (1965) 1 All ER 148 at 151, 152.

67. See the Agricultural Tenancies Act 1995 and Housing Act 1988, respectively.

68. See generally S Bright and G Gilbert The Nature of Tenancies (Oxford: Oxford University Press, 1995) ch 1.