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Thursday 25th November 1999

JUDGMENT

LORD JUSTICE BUXTON: This is an appeal from a judgment of His Honour Judge Welchman, delivered in the Woolwich County Court on 4th December 1998, in proceedings between the London Borough of Lewisham as plaintiff and Mr William Masterson as defendant.

The action was to recover payment for Mr Masterson's use and occupation for over five years, from 1st July 1987 to 11th November 1992, of an area of land owned by Lewisham. From the end of 1985 until 1992 it had been in the contemplation of the parties (with a greater or lesser degree of interest being shown by them) that the defendant would or might enter into a 15-year lease of the land.

The land had at one time been a coalyard, and I will refer to as "the yard" even though it may not have been recognisable as a yard at the time when the proceedings took place. In 1985 it was in a derelict or semi-derelict condition. The defendant was a general builder who wanted the yard for the purpose of storing equipment and otherwise (as I understand it) turning it into something that would be recognisable as a builder's yard. In 1985 he contacted Lewisham and had discussions with a Miss Monaghan. Miss Monaghan was then employed on a trainee basis by Lewisham, but was authorised by Lewisham at least to have those discussions. Mr Masterson told her that he would be interested in renting the yard as a builder's yard for the storage of machinery.

Following that meeting, the borough valuer wrote to Mr Masterson, setting out the terms on which Lewisham would be prepared to grant a lease. That letter was dated 25th November 1985. It was headed "Subject to contract" and "Without prejudice" and said that the borough valuer would be prepared to recommend to his authority that Mr Masterson should be granted a lease of the yard. The letter set out various proposed terms and conditions. Of those, the more important were:

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There were a substantial number of other provisions, including a provision that the lessee was to install gates in a position approved by the borough valuer. He was also to be responsible for obtaining any necessary planning permission. Mr Masterson signed at the bottom of that letter that he accepted the terms and conditions of that lease.

I interpose to say that it was no doubt understood that Mr Masterson was going to use the site as a builder's yard. Indeed, the letter provided in paragraph 13 that the site was to be used solely for that purpose. But I would say now, because it is of some importance later in this judgment, that I do not interpret this letter as imposing any obligation on Mr Masterson, or as envisaging that the lease would impose any obligation on Mr Masterson, actually to operate the site as a builder's yard. In other words, it was not that Lewisham wanted there to be a builder's yard in that position, though no doubt they were glad that there was going to be; rather that Mr Masterson wanted it for himself and Lewisham were content that that should happen.

Mr Masterson thereafter applied for planning permission for the site to be used for storage, and for the erection of an office and of the fence and gates. That permission was given, again by Lewisham (on that occasion acting as planning authority) in May 1986.

In December 1986 there was a further meeting between Miss Monaghan and Mr Masterson, in which Mr Masterson raised the question of his being given some sort of allowance or consideration because of the sum which clearing the site would cost him. Miss Monaghan's note of that meeting recorded that there was a good deal of rubble and other matter on the site, but also recorded that she at that time did not agree with Mr Masterson's estimate, apparently put forward at that meeting, that it would cost £2,500 to take the rubble away. There were what I can only describe as desultory exchanges between the parties thereafter, with some correspondence from the borough regretting that the matter had not been pursued. The matter then dragged on until 1991 with Mr Masterson on the site, clearly in occupation of it and having put in hand, as was his case, some part of the work of clearance.

The borough seem not to have known in 1991, until they made enquiries, whether Mr Masterson was still there or not. However, officials within the borough then became interested in the question. From the correspondence they were clearly, and properly, concerned that something should, if possible, be resolved. There was further discussion. Following a meeting with Mr Masterson, a further letter was sent by the borough in June 1991 to Mr Masterson. It was again headed "Subject to contract". That letter said that Lewisham's officials continued to be prepared to grant a lease on the basis of the terms agreed in November 1985; that is the letter I have already referred to. The lease was, as set out in the 1991 letter, to be a lease for a term of 15 years from 1st July 1987; the rental, as originally agreed, was to be £2,900; and the first rent review was to take place on 1st July 1992. I interpose to say that the borough, clearly appreciating that the three-year rent review period had now passed so far as a lease starting in 1985 was concerned, stipulated that rent reviews after 1992 should be at three-year intervals. Various other matters were mentioned, which I need not go into, about problems of access to the site. Mr Masterson signed at the bottom of that letter that he accepted the amended terms and conditions of that lease. That is how the matter stood in June 1991.

I take up the way in which the matter developed. We were shown some correspondence and evidence put forward by Mr Masterson in which it became clear that the relationship between him and Lewisham had either drifted or fallen apart, the reason for the failure to carry through and sign the lease being a matter of some controversy to which I shall have to return. The judge, however, said this at page 10 of his judgment, a passage, again, to which I shall have to return:

In the event Mr Masterson left, as far as I can see, effectively of his own free will, although Lewisham did obtain a notice to quit to require him to leave if he was not minded to do so voluntarily.

As I have said, Lewisham now claim on a use and occupation basis, valued at the rate of £2,900 a year, for the period from 1987 to 1991. The judge ruled as follows at page 12 of his judgment:

The judge then referred to the two letters which I have already quoted. The judge continued:

The judge valued use and occupation in the sum of £12,661.40. The experts to whom the judge referred were two expert valuers, called respectively by each party, who were persuaded to give evidence ostensibly about the value of the land or Mr Masterson's interest in it, and also about the proper cost of clearing the site. All those are matters to which I shall have to return.

In this appeal Mr Masterson, in a case which has been vigorously and resourcefully put on his behalf by Mr Roberts, says the following:

That submission was reinforced by Mr Masterson's contention, conceded by Lewisham, that no other person had been interested in the site; and by the contention that the evidence before the judge, including that of Mr Gobel (the expert called by the council), was that it was unlikely that anyone else would take on the site without a lease but with an obligation to pay rent and to carry out the works. That meant, said Mr Roberts, that the council would not have found anyone else other than the defendant to do what he did; that is to say, to improve the site at his own expense. Further, he said - and this was a separate point, though linked to that which I have just set out - the unimproved site was in fact of no value to Mr Masterson. It was also contended that in the event he obtained no value from the site: because his preparatory works were not sufficiently advanced, he had not in the event used the site for the purpose that he had in mind.

On that latter basis, in particular, it was argued that, since the site was of no value in that sense to Mr Masterson, its occupation value, or alternatively the value to him of his occupation of the land, was nil. The judge therefore should not have awarded Lewisham anything at all for use and occupation value. Lewisham argued in reply that the judge had in fact been right in his reliance on the agreement, but he had been wrong to make the deduction that he did because of Mr Masterson's clearance work on the site. To that latter point, Mr Roberts replied that, on the judge's reasoning, the allowance that he said that he was making for site clearance costs was in fact a proxy (that is not the word that was used but that was the meaning) for the rent-free allowance that had, in the exchanges between the parties, always been seen as a recognition of the costs of site clearance. On that basis, the judge had come to a wrong figure, inconsistent with Lewisham's own evidence as to the cost of the clearance.

Mr Roberts helpfully summarised the principle upon which he relied, and the way in which it applied in this case so far as the main argument is concerned, as follows. He said that the basis of valuation is the value of the piece of land as it is actually offered to the occupier on the actual basis on which it is offered. Here the basis upon which the land was offered to the occupier was a tenancy at will of a derelict or semi-derelict site. Therefore the evidence that the judge should have acted on was the expert evidence as to what would have been paid by a willing occupier for a derelict site on the basis of his having only a tenancy at will. That, as I have said, was something very different from what had been agreed between the parties.

Mr Roberts reinforced that argument by saying that the principle of valuation for use and occupation was now seen to be a principle of restitution. He took us to the judgments in this court in the case of The Ministry of Defence v Ashman and another [1993] 2 EGLR 102 and, amongst other passages, to some observations of Hoffman LJ. Ashman was a holding-over case which, in other respects, Mr Roberts said, was an uncertain guide for the valuation of a case such as this, which is an entry case, not a holding-over case. But I understood him to say that Hoffman LJ's general analysis of use and occupation valuation was of assistance. Hoffman LJ said this (page 105C):

That, if I may respectfully say so, is no doubt so. But it still leaves the question of how that valuation is to be arrived at.

The benefit that the defendant has received will, in a use and occupation case, be exactly that - the ability to use and occupy the premises. That is what the judge found in this case. I go back to page 10 of the judgment, where the judge set out the view he had formed, having had the benefit of hearing Mr Masterson give evidence before him. He said:

In view of that, and looking at the case more generally, it is in my judgement simply not right, even taking Mr Masterson's case at its highest, to say that his interest in this land was in any proper sense valueless to him. When the cases speak of value to the tenant, they do not mean commercial value but, in a world of free bargaining, the value of the occupation that the tenant has chosen to enjoy. That is why, as Hoffman LJ said shortly after the passage that I have just quoted from him in Ministry of Defence v Ashman, open market value would ordinarily be the appropriate test of valuation. The Court of Appeal in that case did not say, and it is not the law, that (as Mr Roberts put it in closing) the question of the value of the occupation to this tenant (meaning, as I understood it, the commercial value) was the use that in fact he put the property to. In the event that Mr Masterson's occupation was not fruitful commercially, that was nothing to the point - as, indeed, the judge said and emphasised. Nor was the value diminished by the fact that he had to do the works. As I have already said, apart from the erection of the boundary fence, it was after all under the proposed lease (and still more under his tenancy at will) a matter for him whether he did the works or not. Lewisham were no doubt glad, as a local authority, that he was creating a business on part of their land, but that that should occur was not a condition of the lease or a condition of occupation.

The question therefore is whether the judge was right to take the £2,900 agreed between the parties as the worth of the occupation to Mr Masterson. Mr Roberts argues that that figure must be irrelevant because it related to a 15-year lease, which Mr Masterson had not obtained. He submits that the question is rather what would have been the value of a different interest; that is to say, a tenancy at will. That argument, in that stark form, cannot of course be right, because it would mean that in no case could an agreement, even a previous lease in a holding-over case, be seen as relevant. That view was not argued in, for instance, Ministry of Defence v Ashman, amongst many other cases, and it would be quite inconsistent with the approach of the court in that case. Mr Roberts, appreciating that, reformulated the argument so as to say, as I have already set out, that on the facts of this case the tenancy at will was of a derelict site which needed improvement, and in those circumstances only a 15-year lease, giving security against that improvement, would be contemplated. Because of that need for security as a basis for doing the works, the value under that lease was quite different from a value under a relationship where there had been no security.

I am not certain whether the argument was put in quite that way to the learned judge. However that may be, what was required was an assessment by the judge of whether the agreement figure contemplated a situation sufficiently different from what Mr Masterson in fact obtained that it was not a true guide to what the only candidate in the open market assessment was prepared to pay. In my view, the judge was well justified in these circumstances in taking the agreement figure. This was not a sophisticated transaction and the judge was right to find, in the passage I have already read, that Mr Masterson got what he bargained for.

Such a conclusion is strongly reinforced by the fact that Mr Masterson signed agreements contemplating a rental of £2,900 not only in 1985, but also when he had been in occupation for some six years in 1991. There was no reason for him to think, and no evidence that he thought, that if he had wanted to enter into the lease it would not have been available to him. That does not mean that the £2,900 was agreed on the basis of an expectation of the lease being granted. Rather it shows, particularly in relation to the 1991 agreement, that Mr Masterson was in principle prepared to pay £2,900 per annum for the opportunity to develop his business but eventually made up his own mind not to develop that business, and thus not to take the 15-year lease that remained on offer to him. As the judge found and, on the evidence shown to us, as was plausible, by the end of 1992 Mr Masterson had essentially lost interest in the yard.

The agreed £2,900 was, of course, not for the same interest as is now being valued. Of necessity, that will be the case in every use and occupation case. But it was for an occupation that the judge found was essentially that which Mr Masterson sought under the proposed lease and it was reasonable, therefore, to value it on the basis of the value provisionally agreed for that lease.

I turn to the other two questions in the case. On a plain reading of the judgment, the judge did not make a deduction because of any agreement or assumption about a rent-free period. His deduction was simply and directly to compensate Mr Masterson for his expenditure. The judge was right not to act on the basis of a rent-free period. Nothing was ever agreed about such a period, much less about how long it should be. Also Mr Masterson willingly signed the 1991 letter, in which such a term did not figure. It is quite impossible, therefore, in my judgement to say that the figure of £2,900 pound was contingent on there being a rent-free period in the lease - as would, in my view, be required if that point were to prevail. Since the judge's deduction was not in respect of the rent-free period, agreed or otherwise, I find it impossible to find any other basis on which it could be imposed. Lewisham were under no obligation to compensate Mr Masterson for doing works, any more than Mr Masterson was under any obligation, other than to erect the fence, to do anything for Lewisham: as opposed to acting in pursuit of his own commercial interests.

In my judgement, therefore, the appeal in this case fails, the cross-appeal succeeds. I would discharge the order of the learned judge below and substitute for it a judgment for the whole of the £15,561.40 that was found by the judge to be the value of the use and occupation before any deduction.

MR JUSTICE MORISON: I agree. I add a note of my own, simply out of respect for Mr Roberts' arguments. I agree with the trial judge that the figure of £2,900 represents the true annual value of the prospective tenant's use and occupation of the land. It was a figure he agreed in 1985 and again in 1991. Mr Roberts' primary argument was that the value of the use and occupation should be coloured by reference to the fact that subsequently the parties could not agree terms of the proposed lease, and therefore the prospective tenant had throughout held merely as a tenant at will. I see no reason, in principle or in common-sense, why the value of the use and occupation should vary according to whether the lease was ultimately executed or not. It was, I think, implicit in the arrangement between the parties when the prospective tenant was allowed into occupation whilst negotiations took place, that he would pay to Lewisham £2,900 for each year of occupation from the outset, since the lease was intended to operate as from the date when he entered into occupation. The parties had, therefore, in my judgement reached a bargain which valued the use and occupation at £2,900 per annum. I agree with the order proposed by my Lord.

SUPPLEMENTARY JUDGMENT ON COSTS

LORD JUSTICE BUXTON: Such order as to costs as we make in this case will be on the ordinary not on the indemnity basis. The reason for that is that, although we consider we have jurisdiction under the parts of the rules which have been referred to us to make an order for costs on an indemnity basis, we do not think it right or just to encourage the giving of this sort of notice at a time that, although it does leave time for consideration and acceptance, puts the other side under an unnecessary amount of pressure, both to make decisions about whether to accept or not and also to work out the procedure that it is necessary to follow in order to avoid the problem about costs. Had this offer been made when the appeal was already on foot, but further away from the hearing, we would not take the same view.

ORDER: Appeal dismissed. Cross-appeal allowed. Order below discharged. Judgment given in the sum of £15,561.40, assessed on the ordinary not an indemnity basis. Respondent to have their costs in the appeal and the cross-appeal paid by the Legal Aid Board under section 18 of the 1989 Act. Legal aid assessment of the costs.