Court allows landlord to recover rent and charges from tenant who failed to give proper notice to end lease.

Neutral Citation [2013] IEHC 162

An Ard-Chúirt

The High Court

Commercial

Record number 2011 11692P

Between

Edward Lee and Co. [1974] Limited

Plaintiff

And

N1 Property Developments Limited

Defendant

Judgment of Mr. Justice Charleton delivered on the 12th day of March, 2013.

This judgment is supplemental to that of the 12th November, 2012. It has been argued that the prior judgment has effectively

decided the proper approach of the Court in the issue now before it. A full reading of the judgment indicates that this is not so. In

that judgment, the Court held that the plaintiff tenant was entitled to relief in equity against a situation where the 36 year lease, on

which it held a Dunnes Stores Clothing shop in the defendant landlord’s premises known as the Northside Shopping Centre, provided

for an automatic extension at the same excessive rent for a further 36 years unless notice was served 6 months before that lease

was due to expire in late January, 2011. Clause 4.03 VII of the lease was in issue in that judgment. Four days before the lease

expired, and not six months as the lease required, a notice was sent by the plaintiff tenant stating that the lease would be

surrendered on its expiry. The window of opportunity to do this had ceased, however, because that window operated only from the

1st February, 2010, to the 31st July, 2010. Relief in equity was granted to the plaintiff tenant against being locked into another 36

year lease by holding that the notice should operate to determine the automatic 36 year extension of the lease. In the context of the

entire judgment, paragraph 35 makes that decision explicit:

In the result, the notice given by the plaintiff tenant to the defendant landlord that it did not wish to exercise the option

of a new 36 year lease on the same terms as the previous 36 year lease is valid. Such notice does not disentitle the

plaintiff tenant from statutory relief.

After that judgment, the plaintiff tenant did not seek a new tenancy pursuant to the Landlord and Tenant (Amendment) Act 1980.

That judgment did not decide what notice would be required to relieve the plaintiff tenant of all of its obligations to the defendant

landlord; only that relief should be given in equity in order to treat the notice as stopping a new 36 year lease coming into operation.

The Court was not asked if the notice was valid to determine a 36 year lease on four days notice when the terms of the lease

required six months notice. Nor did that judgment decide whether a new tenancy had come into operation by virtue of the overholding

of the plaintiff tenant; the premises only having been vacated on the 9th December, 2012; in round terms a full two years after the

notice from the plaintiff tenant that it wished to vacate. Nor did that judgment decide what the terms of that holding of the premises

by the plaintiff tenant might be. The defendant landlord claims that it is automatically a tenancy from year to year; thus requiring six

months notice expiring on a gale day. Finally, should a tenancy not have been created by the overholding of the plaintiff tenant, the

defendant landlord pleads by way of amendment to the defence and counterclaim an entitlement to mesne rates.

Facts and figures

The overholding of the premises by the plaintiff tenant took place in particular circumstances. On the 27th January, 2011, the

solicitors on behalf of the plaintiff tenant wrote to the defendant landlord that the tenant would not be renewing or extending the 36

year lease. This was accompanied by a statement that arrangements were being made to vacate the unit and to hand over the keys.

On the 15th February, 2011, the landlord replied protesting that as no effort had been made to hand over the keys, this lack of action

made it clear that the tenancy was being extended. It is fair to say that the main dispute in the case was then ventilated through an

exchange of well-argued correspondence; the prior judgment deals with this. A demand was made by the landlord for payment of

outstanding rent as of September, 2011 and this was accompanied by a threat to wind up the company as insolvent in the event that

payment was not made. On the 30th September, 2011, the tenant, despite remaining in possession and trading from the premises for

the previous eight months, sent a cheque to the landlord in the sum of €45,045 "in full and final settlement of all rent and outgoings

due in respect of our occupancy of the unit under the lease to the date of expiry and termination of the lease on 31 January 2011."

The landlord replied by pointing out that under the terms of the lease, if it continued as the landlord contended under the lease, a

sum of €371,128.90 was due. On the 5th October, 2011, the tenant tendered a cheque for €267,928, claiming that this was all that

was due for the additional months of occupation.

That calculation is interesting. As noted in the prior judgement, as of the last relevant rent review, in 2005, the annual rent had

become €336,840 per annum. In this communication, the tenant was calculating an open market rent as mesne rates on the basis of

50% of that sum. They were tendering, as well, a reduced service charge payment, a reduced insurance payment and a reduced

promotion payment; all of which would be due under the lease. In this regard, given that the plaintiff tenant is part of the Dunnes

Stores group, which holds multiple properties throughout Ireland, it is hard to take seriously that the rent argued for during this

hearing amounted to an equivalent of €113,000 per annum taking into account a rent-free period of two years on a 10 year lease with

a five-year break clause. Notwithstanding that observation, I have adjudicated on the valuation evidence on its own merits. On the

25th November, 2011, the tenant, acting under protest, paid the landlord €485,017.90; which would be the full sum due under the

lease up to that time, should it operate to fix the appropriate payment. Proceedings issued on the 16th December, 2011. The

judgment of the High Court on the automatic extension of the tenancy question and on equitable relief was given on the 12th

November, 2012.

A number of things are clear from the correspondence. Firstly, the tenant was late in surrendering the tenancy. Secondly, the tenant

threatened more than once to leave the premises but did not do so. It may be argued that this failure to hand back vacant

possession of the premises was due to the threat that if the 36 year lease had been extended without relief in equity into a 72 year

lease, the tenant was better off staying in the premises and attempting to trade as profitably as it could. As against that, strong

arguments were available that relief in equity was applicable and that is ultimately how the legal situation transpired in the prior

judgment of this Court. Thirdly, it is clear that by staying in the premises and trading the tenant was, at the least, putting itself

under an obligation to pay a reasonable sum in lieu of rent. Given the length of the lease, it is also clear, fourthly, that any tenant

would make substantial investment in any shop premises that was going to be held over the span of a generation. From the point of

view of the landlord, a reasonable period of notice would be required in the context of that timespan in order to make arrangements

for the advertisement of the premises with a view to securing a new tenant and for refurbishment. It happens that the period of

notice fixed by the lease was six months and that such a term of notice seems reasonable in that context. In giving relief against the

mistaken extension of the 36 year lease into double that term, account should be taken of that factor as a relevant circumstance.

Overholding

The defendant landlord has argued that by implication of law, the circumstances of overholding by the plaintiff tenant gave rise to a

new tenancy from year to year that was determinable only by giving six months notice of surrender to expire on a gale day. Such an

implication, if it arises at all, arises from particular circumstances. There is no automatic rule of law that when a tenant overholds that

a new tenancy is thereby created. It can be presumed in certain circumstances; but that presumption is not automatic. The Landlord

and Tenant Law Amendment (Ireland) Act 1860, known as Deasy’s Act, radically reformed landholding in Ireland. It abolished any form

of holding under feudal law and thus any form of tenancy in return for services such as duties owed by those who held land at

sufferance from a lord. Instead, the relationship of landowner and landholder was to be replaced by contract. In Thomas Harrison, The

Law and Practice Relating to Ejectments in Ireland (Dublin, 1903) at pages 17-19 the learned author, dealing with the continuance of

a monthly tenancy, explains:

… mere continuance in possession with the permission of the landlord after the expiration of a lease is evidence from

which a new tenancy may be implied. Acquiescence by the landlord in his tenant’s remaining in possession is merely

evidence of a new tenancy. (Nixon v. Darley, I.R. 2, C.L. 467.) The length of the overholding, the conduct of the parties

and the entire circumstances under which the tenant overheld, are elements which may either support or rebut the

presumption. Receipt of rent is, however, almost conclusive evidence of the creation of a new tenancy.

Prima facie a yearly tenancy created by continuance in possession with the landlord’s consent, after the expiration of a

lease, is subject to the same terms as were contained in the lease itself so far as they are applicable to a yearly tenancy.

But it is always a question of fact what was the precise character of the tenant’s possession, and whether the new

tenancy is upon the same terms as the expired lease (See Kelly v. Patterson, L.R. 9, C.P. 681; Caulfield v. Farr I.R. 7,

C.L. 469.) It is open to either party to show that certain terms of the old lease have been varied or waived, either

expressly or by implication, or are inconsistent with or inapplicable to the new tenancy. (Meath v. Megan (1897), 2 I.R.,

at 479.)

The automatic extension of terms is merely a matter of implication and it is one that is readily capable of being rebutted by the

circumstances of the continuation of the arrangements between the tenant and landlord being inconsistent with any mutual intention

to continue with the tenancy. Further, some terms may be shown to have continued and some may, by the conduct and actions of

the parties, be show to have fallen away; Meath v. Megan [1897] 2 I.R. 477. In Phoenix Picture Palace Ltd v. Capitol and Allied

Theatres Ltd [1951] Ir. Jur. Rep. 55, Dixon J. reviewed the authorities and his statement of the law at page 57-58 may be taken as

correct:

It is usually stated to be the law that where a tenant remains in possession after the expiration of his term and rent is

paid and accepted without more, the parties are presumed to have agreed to a yearly tenancy, on the original terms and

conditions so far as applicable to such a tenancy. This is, however, a very general statement. A more precise one will be

found in De Moleyns’ Landowners’ Guide, 8th ed. At p.220, in these words:

“No writing is needed to create this tenancy, which arises by implication of law, whenever a person remains, or is

placed, in possession of premises, with the understanding, express or implied, of paying an annual rent with

reference to a yearly tenancy; but this payment of rent is only evidence of the contract of tenancy and may be

rebutted. The italics are the author’s.”

One of the authorities cited by De Moleyns in support of this proposition is the judgment of Parke B. in Braythwayte v.

Hitchcock 10 M.&W. at p.497. In that case, Parke B. said:

“Payment of rent, indeed, must be understood to mean a payment with reference to a yearly holding for in

Richardson v.- Langridge (1811), 4 Taunt. 178 a party who had paid rent under an agreement of this description;

but had not paid it with reference to a year, or any aliquot part of a year, was held nevertheless to be a tenant at

will only.”

In the present case, it is clear that the lease of 14th June, 1944 did not demise the premises by reference to a yearly

holding or by reference to a yearly rent or even a rent for any aliquot part of a year; and it seems to me, therefore, that

the necessary foundation, according to the passages just cited, for presuming an agreement for a yearly tenancy is

missing.

In Baumann v. Elgin Contractors Ltd. [1973] I.R. 169 Finlay J. rejected as “unreal” an assertion that a new tenancy had come into

operation through the mere payment of rent. He assessed that overholding as being a “temporary arrangement” until a new tenancy

could be fixed through application to the Circuit Court in due course. The background is all important. As Finlay J. stated at p. 177:

As I understand the legal principles applicable, the true origin of an implied tenancy is that the law implies from the

conduct of the parties what is, in effect, a silent agreement that their relationship shall be arranged in a certain

contractual fashion.

Mere payment of rent is no secure basis, without enquiring into all the other relevant circumstances, for any implication that a new

tenancy was created merely by the fact of overholding; Twil Ltd v. Kearney [2001] 4 I.R. 476 at 493.

In the context of the correspondence quoted, an implication of a new tenancy as contended by the defendant landlord cannot arise.

There is no basis in law for applying any inference of, much less legal presumption of, a new tenancy from year to year on the facts

of this case. The circumstances are clear in raising an inference to the contrary. From January, 2011 the plaintiff tenant was

protesting that the lease had come to an end by efflux of time. The plaintiff tenant, by proffering various sums of money that were

less than the rent and other charges fixed by the lease was making it clear throughout that year that whatever it was obliged to pay,

that sum was different from and was less than that specified under the lease. The defendant landlord was demanding the full sums

due and was also claiming that a new 36 year tenancy had, through the terms of the lease, come into automatic operation. Nothing

about this case suggests the kind of typical situation that is canvassed in the cited cases whereby a cosy arrangement is continued

over a substantial time between landlord and tenant, through consensus or sheer lassitude, or because the existing arrangements suit

both parties. Nothing, in fact, could be further from this case.

I therefore hold that a new tenancy from year to year was not created through the actions of the parties.

Mesne rates

As a matter of law, the defendant landlord is entitled to reasonable remuneration in respect of the occupation by the plaintiff tenant

of the premises. What is reasonable depends not only on the valuation of the appropriate rent of the premises on the open market but

also must be assessed by reference to what period of notice to determine the arrangement is reasonable in the context of the

occupation that has taken place, the character of the property, over what time span and under what circumstances the overholding

has taken place, and what might be envisaged by a diligent landlord as a reasonable period to make attempts to arrange for a

replacement tenant. Any protest by the tenant that the landlord is holding the tenant to an unfair bargain must also be taken into

account. I take all of these factors into account in the calculation that follows.

Section 46 of Deasy’s Act sets forth a rule equivalent to the doctrine in contract of quantum meruit. This is the entitlement of a

person who provides services to another in the implied expectation of a reward to receive reasonable remuneration where no payment

has been specified by contract. In those circumstances, a worker is entitled to the value of his or her work. The rule as to

remuneration as between landlord and tenant is, by statute, similar:

Every person entitled to any Lands, and who shall suffer the said Lands to be holden or occupied by any Person under an

Agreement not specifying or determining the Amount of Rent, shall be entitled to recover a reasonable Satisfaction for the

Use and Occupation of the said Premises holden or occupied by the said Person in Action…

There is no rule that remuneration by way of an equivalent to what the rent would be worth, mesne rates, is to be invariably

assessed on the basis of equivalence to any prior rent paid. Any such approach gleaned from disparate decisions responding to

varying sets of facts has long since been superseded. In Wylie, Landlord and Tenant Law, 2nd Ed., (Dublin, 1998) at 27.17, the

author correctly comments:

Formerly there was a rule of thumb that mesne profits would be assessed at the same rate as the former rent no matter

how long that rent had operated. Modern courts tend to assess a fair market rent or thereabouts though this may be

affected by factors such as the short term nature of the overholding period in most cases and that the tenant is

departing at the end of the period.

The calculation of mesne rates is thus dependent upon the factors which go to make up a fair market rent. As a matter of law, I hold

that the assessment of what is fair as remuneration to a landlord by an overholding tenant may allow for a period of rent in lieu of

notice or for notice while the premises continue to be used by a tenant. No other approach complies with the fundamental principles

of law in the context of a dispute over commercial premises between a professional landlord and a large and highly respected retail

organisation. A ‘pop-up-shop’, as a very temporary arrangement to lease premises from week to week or month to month with little

alteration to the fabric of the premises is called, must be assessed as being radically different to how an overholding of a long

tenancy is to be treated in these circumstances.

As a matter of fact, once the judgement of the court was given on the 12th November, 2012, the defendant landlord demanded

payment of sums equivalent to those due under the lease that had expired. For its part, the plaintiff tenant by letter dated the 26th

November, 2012, notified the defendant landlord that it would not be seeking a new lease pursuant to the statutory scheme set out

in the previous judgement in this case but would instead be vacating the premises. On the 3rd December, 2012, the plaintiff tenant

wrote to the defendant landlord stating starkly "we ... will be gone on or before 10 December 2012." How was anyone to know where

this dispute was going prior to this time? From my view the correspondence, as emerges in the prior judgment, it seemed to me that

what was in issue was the level of the rent. I have been shown nothing otherwise; though there was a statement made by counsel to

a witness during the hearing that for some years the plaintiff tenant was trying to get out of “this shopping centre”. As a question,

that is fine. It is not, however, evidence. There is nothing in the correspondence to back that up. If that was the attitude, a tenant

would be studying their lease with a view to getting a determination of the tenancy. There is nothing to suggest that. The impression

created by all of the correspondence was a move towards a new tenancy at a probably much lower rent under the Landlord and

Tenant (Amendment) Act 1980. The now entrenched attitude of both parties is clear.

In Dean and Chapter of the Cathedral and Metropolitan Church of Christ Canterbury v. Whitbread PLC [1995] 1 E.G.L.R. 82, Judge

Cooke gave a summary of the principles applied to this kind of assessment for overholding from the former authorities in England and

Wales at p.85:

Where the holding is consensual, as here, and not trespassatory, the basis of the action is for a payment for use and

occupation… Woodfall at paras 10.017 takes the view that the distinction is of no practical importance and none of the

authorities cited to me suggest that there is any real difference in the measure of damage or sum payable or that the

proposition in Woodfall is in any way to be doubted. It seems to me that I can obtain help from authorities on both types

of claim.

How one approaches the assessment of the figure and what principles one applies are, however, somewhat more complex

to explain.

(a) There is no need for the landlord to show that he could or would have let the premises to somebody else at the

material time: see Swordheath Properties Ltd v Tabet [1979] 1 WLR 285 following the well known “wayleave” case of

Whitwham v Westminster Brymbo Coal & Coke Co [1896] 2 Ch 538.

(b) There are alternative and mutually exclusive bases of claim: (1) loss actually suffered; and (2) value of benefit which

the occupier has received. The letter is a restitutionary claim and there has to be election before judgment: see Ministry

of Defence v Ashman (1993) 66 P&CR 195, at p 201, Hoffmann LJ… The restitutionary claim is, in effect, the same as the

Whitwham claim.

(c) The ordinary measure is a proper letting value of the property for the relevant period, there being in the ordinary case

in a free market the value to the trespassers of its use; see Swordheath.

I have taken the relevant background into account. Having regard to all of the circumstances, my decision is that it is reasonable for

the plaintiff tenant to pay an open market rent for the two years 2011 and 2012 during the use of the premises for trading and that it

is also reasonable on the particular facts of the case that a reasonable period of notice should be given to the landlord as to the

vacation of the premises. In the context of the relevant factors set out previously in this judgement, my view is that such period is

six months. From the date of the expiry of the lease, therefore, the plaintiff tenant must pay two and a half years rent and other

charges. I am assuming that the other charges are not to be proportionately reduced as no submission to that effect has been made

to me. Nothing in the lease seems to allow for such a reduction but, if absolutely necessary, I will hear counsel on the matter. It is

therefore appropriate to turn to an assessment of the open market rental valuation of these premises for that period beginning in

January, 2011.

Valuation

The issue as to the appropriate valuation of the premises is best seen in the context of a diagram of the premises. To the top of this

plan of the ground floor of the Northside Shopping Centre is shown the Dunnes Stores Clothing shop occupied by the plaintiff tenant

until December, 2012. The other marked area below it is a store that was recently rented out by the defendant landlord.

Two distinguished valuers gave evidence and I am grateful to both. Having regard to all of the evidence, the manner in which the

evidence of each was given and my assessment of their approach to testimony, I clearly prefer the evidence given on behalf of the

defendant landlord. It was more objective and was also based on long experience of this shopping centre. I do not, in particular,

accept evidence from the plaintiff tenant that this is a shopping centre that is “on its knees”. Rather, it is clearly a good and pleasant

place for general shopping and has an excellent catchment area.

The unit formerly occupied by Dunnes Stores Clothing, the plaintiff tenant, is over three floors with a central staircase and a goods

lift. The ground floor has ample space of 520 m², with slightly more on the first floor and slightly less in the basement. It is an

extremely practical trading space, at ground floor level particularly, and has dual frontage totalling 29.5 m. It was reasonable to draw

a comparison with a recently rented unit in the centre, as shown in the lower part of the diagram. It also seems to me to be

objectively reasonable to conclude that there are advantages to the former Dunnes Stores. The unit is fitted out with floors and

ceilings, though any trader taking over the space will need to do more. There is good configuration within the store, it has good

frontage, it is in a very good location and the premises can be used as storage either above or below the ground floor, if desired.

There is no basis on which a discount of 25% might be rationally applied and the indications are strong that the desirable elements of

the unit should attract a good price. As mentioned earlier, as of the last relevant rent review, in 2005, the annual rent had become

€336,840 per annum. Retail rents are down considerably since that time. Commencing the rental period in January, 2011 the evidence

suggests a probability that an annual rental of €250,000 should be achievable on a ten year lease with a five year break clause. On

the evidence, I do not accept that a rent-free holiday of two years is appropriate for an incoming tenant for every five years. I do,

however, accept that some period of settling in on a rent free basis should be initially allowed for; in the light of all of the evidence, a

year seems reasonable. That would be assessed by ordinary bargaining between the landlord and the tenant. Here, in setting the

figure I have regard to the evidence of both valuers. On that basis, doing the best that I can, given that these figures are likely to be

the result of negotiation, the rent is therefore reduced to €200,000 per annum on an averaged basis. In addition, my view is that

under the lease, a promotional levy and service charge would continue to be payable, as would insurance contribution. Since the

premises were occupied during 2012, the sum chargeable would be calculated as of that date. For 2011 and 2012 there were also

promotion charges, insurance for those two years and service charge as well. I do not regard it as reasonable that for a period of

notice where the tenant is not in occupation that anything other than rent is payable.

Duration

The relevant duration where the plaintiff tenant overheld and traded is two years and the relevant period of notice which the tenant

did not give under the terms of the lease but which the lease reasonably provided for in the context of the length of the tenancy is

six months.

Result

Against the sum calculated in respect of rent, service charge and insurance will be set off the amount of €485,417.90 that was paid

by the plaintiff tenant to the defendant landlord on the 25th November, 2011.

My figures indicate a total sum due of €358,447. Fortunately these figures are agreed as to calculation.

In the result, there will be a decree in favour of the defendant landlord in that sum.