BISHOPSGATE SPACE MANAGEMENT First LIMITED TEAMWORKS KARTING Second LIMITED v LONDON UNDERGROUND LIMITED ACQ/98 & 107/2002

UPPER TRIBUNAL

LANDS CHAMBER

ACQ/98 & 107/2002

Case No ACQ/98 & 107/2002

Between

BISHOPSGATE SPACE MANAGEMENT First LIMITED TEAMWORKS KARTING Second LIMITEDApplicant

LONDON UNDERGROUND LIMITEDRespondent

Before

The President

P H Clarke FRICS

Venue 48/9 Chancery Lane, London WC2A 1JR

Date 19 January 2004

Hearing 4 July 2003

Property: Bishopsgate Goods Yard, London E1

Catchwords: COMPENSATION – compulsory acquisition – leasehold interests – preliminary issues – whether termination to be assumed at earliest date possible under lease – whether possibility of renewal of tenancy to be taken into account – whether sub-tenancy extinguished by acquisition of landlord’s tenancy – Compulsory Purchase Act 1965, s 20

[1]This is a decision on preliminary issues in references to determine the compensation payable for the compulsory acquisition or termination of leasehold interests in Bishopsgate Goods Yard. Each tenancy was terminable on giving, in one case, five months and two weeks notice and, in the other, six months notice. The acquiring authority contend that the interests must as a matter of law be valued on the assumption that each would terminate on the earliest date of termination that could have resulted under a landlord’s notice given on the date of entry; and that as a matter of law no account can be taken of any possibility of renewal that would in fact have existed in the absence of the acquisition. Facts

[2]Bishopsgate Goods Yard is situated on the eastern side of Shoreditch High Street, a short distance to the north of Spitafields Market and Liverpool Street Station. It was formerly the Shoreditch Terminus of the Eastern Counties Railway (later named Bishopsgate) until the construction of Liverpool Street Station in 1874. It then became a goods depot or yard until damage by fire in 1964. It is on two levels. Bishopsgate Space Management ltd (BSM) occupied part of the lower level (the undercroft) and before acquisition by London Underground Ltd (LUL) had provided four football pitches, occupied by sub-tenants, and facilities for filming and occupation for other events. Teamworks occupied part of the upper level for their go-karting business.

[3]Before its acquisition by LUL (which we refer to below) the freehold interest in Bishopsgate Goods Yard was held by Network Rail Infrastructure Limited, formerly Railtrack Plc (“Railtrack”).

[4]By a tenancy agreement dated 1 April 1999 (varied by a deed of variation dated 13 July 1999) Railtrack granted to BSM a tenancy of part of the undercroft for a term of 10 years from 31 March 1999. Under clause 26 of the agreement either party could determine the tenancy at any time by six months written notice. Clause 25 recorded that sections 24-28 of the Landlord and Tenant Act 1954 had been excluded in relation to the tenancy by order of the county court. The unexpired residue of this tenancy was assigned to LUL on 1 July 2002.

[5]By a tenancy agreement dated 13 March 2000 Railtrack granted to Patto Limited (“Patto”) a tenancy of part of the upper level from 15 February 2000 to 31 January 2003. Under clause 29.1 of the agreement either party could determine the tenancy at any time by six months written notice. The provisions of sections 24-28 of the Landlord and Tenant Act 1954 had been excluded in relation to the tenancy by order of the county court (clause 28). Patto are not a party to these proceedings. Patto assigned (or purported to assign) their tenancy to LUL on 5 August 2002. By a sub-tenancy agreement dated 10 January 2001 Patto granted to Teamworks a tenancy of part of the upper level of Bishopsgate Goods Yard from 25 September 2000 to 24 January 2003. Under clause 29.1 of the agreement either party 3 could determine the tenancy at any time by giving five months and two weeks written notice, subject to the proviso that Patto could only give notice where they had received notice of determination in respect of their tenancy from Railtrack. The provisions of sections 24-28 of the Landlord and Tenant Act 1954 had been excluded in relation to the tenancy by order of the county court. Teamworks assigned (or purported to assign) their tenancy to LUL on 5 June 2002.

[6]On 20 January 1997 the Secretary of State for Transport made the London Underground (East London Line Extension) Order 1997 under the Transport and Works Act 1992. This authorised the construction of a railway by LUL, the East London Line Extension, with powers of compulsory purchase. The new line will connect the existing East London Line (New Cross and New Cross Gate to Whitechapel and Shoreditch) to the North London Line at Dalston. It will cross Bishopsgate Goods Yard in an east to west direction and one of the four new stations will be on this property.

[7]On 14 November and 7 December 2001 LUL served notices to treat and notices of entry in respect of part of the leasehold land occupied by BSM. On 4 December 2001 BSM served a counter-notice under section 8 of the Compulsory Purchase Act 1965 requiring LUL to take the whole of their interest. Under an assignment dated 1 July 2002 BSM and LUL agreed that LUL would take an assignment of BSM’s leasehold interest and pay compensation by way of “the Price”. The Price was defined to mean the compensation payable for the compulsory acquisition of BSM’s leasehold interest on the assumption that LUL took possession of the land on 1 July 2002. The price was to be agreed between the parties or, in default of agreement, settled by the Lands Tribunal. A reference to this Tribunal was made by BSM on 31 July 2002 (ACQ/98/02).

[8]On 9 November and 7 December 2001 LUL served notices to treat and notices of entry on Teamworks in respect of their leasehold interest and took possession of the land on 4 July 2002. Teamworks assigned (or purported to assign) their interest to LUL on 5 June 2002. The determination of compensation was referred to this Tribunal by Teamworks on 17 September 2002 (ACQ/107/02).

[9]On 4 September and 14 November 2001 LUL served notices to treat and notices of entry on Railtrack in respect of their freehold interest and took possession of the land on various dates between 4 December 2001 and 30 August 2002. The determination of compensation was referred to this Tribunal by LUL on 7 November 2002 (ACQ/134/02).

[10]The three references were assigned to the special procedure for member case management. On 15 November 2002 separate pre-trial reviews were held in the BSM and Teamworks’ references and directions given for statements of case and replies. On 13 May 2003 the Tribunal determined, on an application by BSM, that their reference is a reference to determine disputed compensation under section 6 of the Compulsory Purchase Act 1965 and section 1 of the Land Compensation Act 1961 and not a reference by consent under section 1(5) of the Lands Tribunal Act 1949. On 15 May 2003 a pre-trial review was held in the three references. Directions were given on 16 May that, for the purposes of determining narrow preliminary issues, the references by BSM and Teamworks must be heard together; 4 and that Network Rail might apply for their reference to be heard with these references for these preliminary issues. No application was made. A hearing on the narrow preliminary issues in the BSM and Teamworks references was held on 4 July 2003. Leave was given for Mr Roots to lodge further written submissions on LUL’s contention that Teamworks might not be entitled to compensation due to the termination of the Patto tenancy and for Mr Barnes to reply, with either party having the right to ask for a further hearing. Subsequently it was agreed that Teamworks could reply to the new issues and authorities referred to in Mr Barnes’ reply. Submissions and further documents were received between 29 July 2003 and 23 September 2003. Narrow preliminary issues

[11]At the pre-trial review on 15 May 2003 LUL made an application for the three references to be consolidated for the purpose of determining as a preliminary issue when, in the absence of the construction of the East London Line Extension, Railtrack would have obtained possession of the Bishopsgate Goods Yard and, if earlier, those parts formerly in the possession of BSM or Teamworks They said that these dates affected the determination of compensation in the three references and should be determined by a single decision. Evidence would be common to the three references. The application was opposed by BSM and Teamworks. It became clear that there are two issues as to termination. The first is a narrow issue which rests on LUL’s contention that for the purpose of assessing compensation the termination dates of the tenancies of BSM and Teamworks must be decided as questions of law. Briefly, it was contended that it must be assumed that notices to terminate were served on the date when LUL took possession and without prospect of renewal. Subsequently it was contended that Teamworks had no claim at all. The second is the wider issue that would arise if the termination dates are held to be questions of fact to be decided on the circumstances in the absence of the compulsory purchase. This would require evidence.

[12]If LUL are correct in their contention that termination dates are to be determined as a matter of law, then the wider issue would not require determination. Furthermore, and if LUL are correct, this would be to the benefit of Network Rail, who might not therefore wish to take part in proceedings relating to the narrow issue. In view of these considerations, the Tribunal decided that there could be advantages in terms of time and costs in treating the overall issue as to the termination of the tenancies as narrow and wider preliminary issues. It would not be necessary to determine the latter if LUL were successful on the narrow issue. This was therefore ordered to be determined as a preliminary issue under rule 43 of the Lands Tribunal Rules 1996.

[13]The narrow preliminary issue for the Teamworks reference was agreed to be:- Whether the claim made by Teamworks must be assessed as a matter of law on the basis that:-

[1]The interest in the land held by them at the date of the notice to treat would have ended either:(a) on the expiration of their lease, 24 January 2003; or 5

(b) on the earliest date on which their sub-lease could have been ended by Patto Limited by a notice served on 4 July 2002, ie 18 December 2002.

[2]No assumption can be made that their sub-lease would have been renewed from the date of its termination and no account can be taken of any possibility of such renewal even if such possibility would in fact have existed.

[3]Whether the sub-lease of Teamworks determined on the date of the determination of the head-lease vested in Patto Limited, ie on the date on which possession was taken of Patto’s interest and by virtue of the determination on that date of that head-lease, so that for the purposes of section 20 of the Compulsory Purchase Act 1965 Teamworks had no unexpired term or interest for the value of which they are entitled to compensation under that section.”

[14]The agreed narrow preliminary issue for the BSM reference was agreed to be:- Whether for the purposes of assessing any part of the compensation payable to BSM the Tribunal should assume that as a matter of law the lease vested in BSM at the valuation date would have been determined at the earliest date at which it could have been determined by notice given by Railtrack under clause 26 of the lease. LUL’s case Teamworks

[15]Mr Michael Barnes QC for LUL said that the sub-tenancy held by Teamworks expired on 24 January 2003 and at the time of entry (4 July 2002) it had less than one year unexpired. It was therefore within section 20 of the Compulsory Purchase Act 1965. The date for the ascertainment of the unexpired term was the date of possession and not notice to treat. He relied on R v Great Northern Railway

(1876) 2 QBD 151

; Bexley Heath Railway Co v North

[1894] 2 QB 579

; Newham London Borough Council v Benjamin

[1968] 1 WLR 694

and submitted that the decision in Tyson v Mayor of London (1871) LR 7 CP 18 could not stand with this line of authority. Similarly the decision of the Lands Tribunal in Runcorn Association Football Club Limited v Warrington & Runcorn Development Corporation

(1983) 45 P & CR 183

conflicted with this line of authority, although the decision was correct in its underlying assumption that the general rules in section 5 of the Land Compensation Act 1961 do not apply to section 20 claims, which have their own code and procedure. It was not in issue in this reference that section 20 of the 1965 Act governed the determination of compensation.

[16]Section 20, said Mr Barnes, was a proviso or exception to the general provisions for the ascertainment of compensation (and he relied on R v Lord Mayor of City of London (1867) LR 2 QB 292 at 300, approved in Benjamin). Section 7 of the 1965 Act and section 5 of the 1961 Act did not apply. However, it did not make any substantial difference whether a case was within or outside section 20. The heads of compensation were similar. It was always necessary, however, to ascertain the length of the unexpired term. The effect of section 20 was mainly procedural. In practice, an acquiring authority would often acquire the reversion 6 to a short tenancy and then terminate the tenancy. No compensation would then be payable to the tenant (Syers v Metropolitan Board of Works

(1877) 36 LT 277

and Benjamin at 700).

[17]Although Teamworks’ tenancy provided for expiration on 24 January 2003 it could be terminated earlier under the break clause. If notice to terminate had been given on the date of entry it would have terminated on 18 December 2002. The importance of the break clause was that it indicated the earliest date on which the tenancy may determine. It dictated the length of the unexpired term for the valuation of the leasehold interest and the assessment of disturbance.

[18]The decision of the Lands Tribunal in Greenwoods Tyre Services Limited v Manchester Corporation

(1972) 23 P & CR 246

, said Mr Barnes, established that the unexpired term or interest under section 20 is the period between the date on which possession is taken and the earliest date on which the annual tenancy could have been determined by notice to quit given on the date of possession. This decision was consistent with earlier authorities (R v London and Southampton Railway Co (1839) 10 A & E 3 and Pearl v London County Council

[1961] 1 QB 287

[19]The rule relating to the termination of periodic tenancies also applied, said Mr Barnes, to a term of years subject to a break clause. A periodic tenant or a tenant for a term of years determinable under a break clause had a precarious interest in the land. Compensation should only be paid for the period during which the tenant could be certain that his tenancy would continue. There were stronger reasons for applying the rule to terminable leases. In such tenancies a break clause can be used to determine a tenancy more quickly than would be the case with notice to quit under an annual tenancy. This rule was coherent and salutary. Where a lease was for a term of years without a break it was certain to run to the termination date. But where a lease could be terminated early by the landlord it had no certain duration except the period up to the date on which it could be terminated by notice. A periodic tenancy could continue indefinitely but could also be terminated by notice to quit. The rule now established under section 20 was essential so that it might be applied to the unexpired term when assessing compensation.

[20]In the Teamworks’ tenancy the break clause could only be operated by the landlords, Patto, where their tenancy was determined by Railtrack. Railtrack did not serve notice to terminate Patto’s tenancy. This did not matter because the same principles as to the length of the unexpired term applied to Patto’s superior tenancy when assessing compensation.

[21]The compensation payable to Teamworks had to be assessed under section 20 of the 1965 Act; the unexpired term would have ended on 18 December 2002 or 24 January 2003. The claim was, however, made under section 5(2) of the 1961 Act, although the claimants had accepted that this was a section 20 case. It was necessary, therefore, to consider the basis of compensation if it was not a section 20 claim.

[22]Mr Barnes said that under rule (2) of section 5 the open market value of the land was to be assessed. Under section 39(1) “land” included any interest in land. It was necessary to 7 know what was the interest to be valued. This was the sub-tenancy of Teamworks which had to be valued as at the date of entry, 4 July 2002. At that time it had an unexpired term of six months and three weeks excluding the break clause. If that clause were taken into account the unexpired term was reduced to five months and two weeks. The question was whether the section 20 rule as to the unexpired term also applied to the assessment of compensation under rule (2) of section 5 of the 1961 Act. There were three reasons why it should apply. First, there was no rational reason for having a different rule for general valuations under section 5. The procedures under section 20 and for general acquisitions were different but the two should as far as possible be assimilated and harmonised. Second, there were periodic tenancies which could be within section 5 but outside section 20, eg a fixed term to be followed by an annual tenancy (see Land Settlement Association Limited v Carr

[1944] 1 KB 657

: a periodic tenancy might be granted for any period). In order to ascertain the interest to be valued under rule (2) of section 5 it was necessary to make an assumption regarding the termination date and the rational assumption was that the tenancy would end on the earliest date of termination by a landlord’s notice. Third, authority indicated that the rule in Greenwoods Tyre Services applied to all cases where an interest subject to termination had to be valued (see Pearl and London and Southampton Railway Co).

[23]Even if this was not a section 20 case, said Mr Barnes the same rule as to the termination of the tenancy applied. The duration of Teamworks’ leasehold interest for the assessment of compensation for the interest in land and disturbance must be on the basis that the interest would have ended on the earliest date on which it could have been determined by a contractual landlord’s notice given on the date of possession, namely on 18 December 2002.

[24]Mr Barnes said that the effect on Teamworks’ sub-tenancy of the termination of Patto’s tenancy must be considered. Under the common law an underlease was of necessity a derivative interest carved out of the headlease; on the termination of the latter the underlease automatically determines (see Knightsbridge Estates Trust Limited v Deeley

[1950] 2 KB 228

at 232 and Pennell v Payne

[1995] QB 192

at 197). The effect of the compulsory acquisition of a short tenancy under section 20 was that, if the tenant were required to give up possession, then his tenancy determined without further legal or formal act or document being required. Under section 20 short tenancies were extinguished, they were not acquired. It followed therefore that when Patto’s tenancy was extinguished under section 20 by entry on 4 July 2002 the sub-tenancy of Teamworks also ended. On this basis their claim founded on an unexpired term would fail entirely since there would be no such term. Teamworks could have no claim at all under section 20 but only under section 37 of the Land Compensation Act 1973. The position was the same as if the acquiring authority had acquired a headlease and served notice to quit on the sub-tenant. Any objection on the grounds that these events ought to be disregarded because they were part of the scheme underlying the acquisition would fail having regard to the decision in Rugby Joint Water Board v Shaw-Fox

[1973] AC 202

at 253 that the Pointe-Gourde principle applies to the value of the interest acquired but not to the ascertainment of that interest.

[25]Mr Barnes replied to the submissions of Mr Roots on this issue. He said that two new facts, unknown to counsel, had emerged since the hearing on 4 July. They were the assignment of Teamworks’ sub-tenancy to LUL on 5 June 2002 and of Patto’s superior tenancy on 5 August 2002. It appeared that Patto’s interest was determined by the taking of 8 possession under section 20 of the 1965 Act and that therefore Teamworks’ interest was also determined by possession or by the automatic determination of their tenancy by the extinguishment of Patto’s tenancy. In these circumstances the two purported assignments had no effect in law and were nullities. It was not possible to assign a tenancy which had already ended. The reason for the assignments appeared to be that the advisers to LUL and the two claimants did not have a proper appreciation of section 20 and had regard to the decision in Runcorn, which it is now accepted is no longer good law. The existence of the assignments had no further bearing on the issues in this case.

[26]Mr Barnes said that the present matter is of wide impact and should be dealt with as a third issue, namely whether the sub-tenancy of Teamworks determined on the termination of Patto’s superior tenancy and therefore that Teamworks had no unexpired term or interest under section 20 of the 1965 Act.

[27]Mr Barnes said that the sub-tenancy of Teamworks was an interest to which section 20 applied. In most acquisitions the authority obtained title by conveyance or assignment, deed poll or under a general vesting declaration. There is a general power of entry under section 11 of the 1965 Act. Section 20, however, forms a separate code for short tenancies (see eg section 9(a) of the Compulsory Purchase (Vesting Declarations) Act 1981). The general procedures as to the acquisition of title only make sense on the assumption that a tenancy under section 20 comes to an end when possession is taken. Nothing further by way of assignment, deed poll or vesting declaration is needed.

[28]The tenancy of Patto was acquired under section 20 and therefore came to an end when possession was taken. In the same way the sub-tenancy of Teamworks came to an end on the same date. The question in each case was what was the unexpired term or interest on that date for the purposes of compensation under section 20? For Patto the unexpired term or interest was the period between the date of possession and the earliest date on which the tenancy could have been brought to an end by a contractual notice served on that date. The crucial question was: what was the unexpired term or interest held by Teamworks when their sub-tenancy came to an end under section 20 by the taking of possession of their interest? The answer was that there was no unexpired term or interest since on the date of possession their sub-tenancy ended independently of section 20. It was a sub-tenancy derived out of Patto’s superior tenancy and, as a general principle of landlord and tenant law, automatically ended on the determination of Patto’s superior tenancy. The law of compensation did not elevate Teamworks to any more favourable position than would be their position in accordance with ordinary common law principles, nor should it.

[29]The principle that a sub-lease automatically determines on the termination of the head- lease applied save in certain exceptional and limited circumstances (see Pennell at 197B). Consequently, the question was whether the determination under section 20 of the superior tenancy in this case constitutes a further exception to the general principle This depended on the rationale or juridical basis behind that principle and behind the only two exceptions, surrender and merger. The rationale was that both exceptions depended upon some new voluntary and agreed conduct between the freeholder and the head tenant which should not affect a sub-tenant, a stranger to the bargain (see Pennell, where an upwards notice to quit by 9 a tenant applied to determine a sub-tenancy. The giving of the notice was not a voluntary act between tenant and freeholder: there was no agreement or mutuality).

[30]In the present case, the determination of Patto’s head tenancy by LUL under section 20 contained no element of agreement or mutuality between Railtrack and Patto. Thus, no further exception to the common law principle was justified or permissible. Teamworks’ sub-tenancy ended on the day that Patto’s tenancy ended. There was no unexpired term or interest in the land for which Teamworks could claim compensation under section 20.

[31]Where, under the surrender or merger exceptions, the determination of the headlease did not automatically determine the sub-lease, the sub-tenant became the direct tenant of the freeholder. This could happen in compulsory purchase where the authority acquired the freehold and ended the headlease under section 20 but left the sub-lease in existence (assuming that it did not automatically end as stated above). If the sub-lease did not automatically terminate, the question arose as to the relationship between the acquiring authority and the sub-tenant. It seemed that privity of estate did not exist because the head tenancy had ended. The authority could not enforce covenants against the sub-tenant (see Webb v Russell (1789) 3 TR 393 as explained in Fairweather v St Marylebone Property Co Limited

[1963] AC 510

at 546; Electricity Supply Nominees Limited v Thorn EMI Retail Limited

(1991) 63 P & CR 143

at 145-6). The mutual lack of enforceability of covenants for lack of privity of estate caused the legislature to intervene in 1730 and 1845 and under section 139 of the Law of Property Act 1925. The interventions, however, related only to the surrender and merger exceptions and not to the present situation, because it was recognised that these were the only exceptions to the general principle. In Pennell the Court of Appeal were not prepared to extend the exceptions.

[32]If the Lands Tribunal was prepared to hold that section 20 created a further exception to the general principle, which had stood unimpaired without further exception since Coke on Littleton in the seventeenth century, it would create a serious and anomalous situation in landlord and tenant law. The Tribunal should avoid the creation of further anomalies where earlier anomalies have been dealt with by Parliament.

[33]Where a sub-tenant found that he has no claim under section 20 he might have a claim under section 37 of the Land Compensation Act 1973. It is, however, doubtful whether this would avail Teamworks since they came to the property after the relevant date in section 37(3).

[34]The position was that the sub-tenancy of Teamworks automatically terminated when Patto’s tenancy was determined by the taking of possession by LUL pursuant to section 20; Teamworks therefore had no unexpired term or interest to form the basis of compensation under that section.

[35]The second preliminary issue related to the possibility of renewal of the Teamworks’ sub- tenancy. Their statement of case asserted that they would have been able to remain in 10 occupation until at least 2006 and were entitled to be compensated for the possibility of the renewal of their tenancy.

[36]Although that possibility might have existed in fact it could exist in law. Compensation under section 20 was payable only in respect of the unexpired term or interest. There was authority to the effect that the possibility of renewal of a tenancy did not sound in compensation (R v Liverpool and Manchester Railway Co (1836) 4 A & E 650; Ex p Nadin (1848) 17 LJ Ch 421; Pearl). In Teamworks’ sub-tenancy agreement sections 24-28 of the Landlord and Tenant Act 1954 had been excluded, Part II of the Act had no relevance and the minimum compensation provisions did not apply. Although section 47(1) of the Land Compensation Act 1973 provided that rights of renewal under the 1954 Act were to be taken into account when assessing compensation, that did not apply here because those rights had been expressly excluded. Teamworks’ compensation must be assessed as a matter of law on the basis that no assumption could be made that their sub-tenancy would be renewed. No account could be taken of any possibility of renewal, even if such a possibility would in fact have existed. BSM

[37]The tenancy held by BSM from Railtrack was for a term expiring on 30 March 2009 subject to termination by either party at any time by six months notice. The narrow preliminary issue in this claim, said Mr Barnes, was whether the tenancy should be assumed to have been determined on the earliest date following notice under the break clause given on the date of possession (1 July 2002), that is to say termination on 1 January 2003. Any claim for disturbance was confined to the same period. The question was whether the break clause made this a section 20 claim, although, even if that were not the case, the same principles applied to find the claimants’ unexpired term.

[38]Mr Barnes said that it was to be assumed as a matter of law that notice under the break clause was given on the date of entry terminating the tenancy six months later on 1 January 2003 (see Greenwoods Tyre Services). The unexpired term was therefore less than a year at entry and the claim fell within section 20 of the 1965 Act. As a matter of law the claimants were not entitled to compensation for any possibility that the tenancy would have been renewed beyond 1 January 2003. General

[39]Mr Barnes said that the scheme of legislation in relation to compensation for compulsory purchase had been, and still was, to put short tenancies in a special category. This was seen in section 121 of the Lands Clauses Consolidation Act 1845, which had been carried forward into section 20 of the 1965 Act, compared to section 63 of the 1845 Act and section 7 of the 1965 Act and section 5 of the Land Compensation Act 1961. Short tenancies were usually only compensatable in small sums and might not be compensatable at all where the acquiring authority took the landlord’s interest and served notice to quit under the tenancy. The claimants took short, terminable tenancies of small parts of Bishopsgate Goods Yard and 11 gave up their rights of renewal under the Landlord and Tenant Act 1954. They knew the position when they took their tenancies. They should not now be able to claim large sums in compensation on the assumption that their precarious tenancies would not be terminated under the break clauses and would be renewed on termination. The scheme rule did not affect the position. It applied to the assessment of value and not to the ascertainment of the interest to be valued (see Rugby Joint Water Board at 214H-215A and 253F). Teamworks’ case

[40]Mr Roots said that section 20 of the 1965 Act applied to the acquisition of Teamworks’ tenancy because, at the date of possession, the unexpired term was less than one year. In accordance with Benjamin the claimants were required to go out of possession earlier than the termination date and were entitled to compensation under section 20. Section 5 of the 1961 Act sets out the rules for the assessment of compensation. The value of the claimants’ unexpired term fell to be assessed in accordance with rule (2); rule (6) preserved the claimant’s right under section 20 to compensation for loss or injury.

[41]Mr Roots said that the decision of the Lands Tribunal in Runcorn was that section 20 did not apply where the unexpired term was greater than one year at the date of notice to treat. However, in Benjamin the Court of Appeal interpreted section 20 to apply where the unexpired term at the date of entry is less than one year. For the reasons given in Benjamin he said that he found it difficult to argue that Runcorn was correctly decided. This did not, however, affect the quantification of compensation: the question whether section 20 applied was probably academic in the present context. Section 20 was, and remained, a procedural provision: originally, as section 121 of the 1845 Act, it determined the tribunal for the assessment of compensation and it still gave the acquiring authority the choice of waiting until a short tenancy expired by effluxion of time.

[42]In relation to the first preliminary issue, Mr Roots contended that the effect of section 20 was to entitle the claimants to the open market value of the unexpired term of their tenancy at the date of possession. In Klein v London Underground Limited [1996] RVR 94 the Lands Tribunal assessed a disturbance claim on the basis that a break clause in the claimant’s lease would not have been exercised in the absence of evidence that it would have been exercised.

[43]The first preliminary issue turned on the interpretation of the words “unexpired term” in section 20 or, if this section did not apply, on the length of the claimants’ interest under their lease. Apart from the break clause there could be no doubt that the unexpired term at the date of possession was the period from that date until termination under the tenancy agreement on 24 January 2003.

[44]This agreement, however, contained a break clause. For present purposes the Tribunal was only concerned with Patto’s right to terminate the tenancy, which could only have been exercised if Railtrack had served notice of termination on Patto. The first preliminary issue required consideration of the question: did the break clause in Teamworks’ tenancy mean that the normal and obvious meaning of the words “unexpired term” had to be set aside and 12 replaced with words such as “the period remaining on the assumption that the landlord had served notice under clause 29?” There was no authority which directly supported that interpretation. The cases cited by Mr Barnes were of no assistance.

[45]There were five cases where a tenant had a fixed term of more than one year. In Liverpool and Manchester Railway and Tyson the special Act expressly required six months notice to be given to terminate all short tenancies. In Tyson there had to be a short tenancy when such notice was given. In Kennedy and Bexley Heath Railway the landlord had given notice to terminate and no question arose under the statute. In Runcorn notice to treat was given when there was more than one year unexpired and the issue was whether this meant that section 20 did not apply. Thus, none of the cases involving a fixed term of more than one year was concerned with making an assumption, contrary to the facts, that the landlord had served, or would serve, a notice to terminate under a break clause.

[46]There were six cases involving tenancies from year to year, quarterly or other short terms. These were London and Southampton Railway, Nadin, Great Northern Railway, Syers, Pearl and Greenwoods Tyre Services. Each was explainable on its own facts and in the light of the special Act and provided no assistance on the question to be determined. Mr Barnes had particularly relied on Pearl, but the special Act was of some antiquity and contained a requirement for six months notice before the taking of possession of short tenancies. The decisions in Horn v Sunderland Corporation

[1941] 2 KB 26

and Harvey v Crawley Development Corporation

[1957] 1 QB 485

were not cited.

[47]There was, said Mr Roots, an important distinction between a short tenancy and a fixed term. In the former the tenancy would continue unless and until the tenant decided to leave or the landlord served notice to terminate. But a term certain would end on the agreed date without notice. There was no justification for assessing compensation for the unexpired term of Teamworks’ tenancy upon an assumption, contrary to the facts, that it had been, or would have been, prematurely terminated.

[48]In relation to the second preliminary issue, the question of law must be determined on the assumption that the evidence might show that, in the absence of the compulsory purchase, it was likely that the claimants would have been able to remain in possession of the reference land and continue to earn profits. There was no statutory provision which supported LUL’s contention that, as a matter of law, no account was to be taken of any possibility of renewal, even if in fact such a possibility existed. The authorities suggested that the proper approach was the reverse of this contention (see Horn at 41 and Director of Buildings and Lands v Shun Fung Ironworks Limited

[1995] 2 AC 111

at 125C). The acquiring authority’s contention would have the effect of preventing a claimant with a provable loss from recovering compensation. That must be wrong in law. The proper principle of law was that if, as a matter of fact, the claimants could establish that they had suffered loss which was attributable to the compulsory purchase and was not too remote, then they were entitled to compensation for that loss.

[49]Mr Roots said that the second preliminary issue must be approached on an assumed factual basis. It must be assumed that Teamworks’ tenancy would have been renewed and 13 they would have continued to make profits. Teamworks had invested significant sums and had built a successful business. There were other tenants at the property. There was no reason to think that a landlord would have wished to remove them until redevelopment was imminent. If the Tribunal were to find in favour of the claimants on the point of law, it would still be up to Teamworks to establish their loss. The preliminary issue must be determined merely on the assumption that Teamworks would be able to establish some loss.

[50]There were two cases which might seem to be (but were not) obstacles to Teamworks’ claim. In Greenwoods Tyre Services the Lands Tribunal awarded compensation for loss of profits only respect of the unexpired term, on the grounds that all elements of claim must be consistent. The Tribunal did not appear to have been reminded of Horn or Harvey, and Shun Fung had not yet been decided. Those cases strongly supported the proposition that compensation was intended to provide in financial terms for the claimant’s loss. In Hughes v Doncaster Metropolitan Borough Council

[1991] 1 AC 382

the House of Lords held that a disturbance claim could not reflect losses from an unlawful use of land. That was an entirely different situation. Teamworks’ occupation prior to possession was entirely lawful and it was not disputed that they have a valid claim in principle.

[51]Assuming that the claimants would be able to prove a loss, it would be wrong to exclude it as a matter of law. In section 38(2) of the Land Compensation Act 1973 compensation where a person had no compensatable interest was assessed having regard to the period for which the land occupied might reasonably have been expected to be available for his trade of business. It was unlikely that the draftsman intended to give to a person with no compensatable interest a greater right to compensation than to a claimant holding a short tenancy.

[52]In supplementary submissions after the hearing, Mr Roots dealt with the contention of Mr Barnes that, due to the termination of Patto’s tenancy, Teamworks had no claim under section 20 but only under the 1973 Act. Mr Roots referred to LUL’s reply to Teamworks’ statement of case, which he said acknowledged that Teamworks were entitled to compensation in respect of an unexpired term of five and a half or six and a half months. It was not suggested in pleadings that Teamworks had no entitlement to compensation at all because their tenancy must be taken to have ended. This new contention represented a significant change to the way in which LUL put their case.

[53]Mr Roots said that LUL’s submissions on this point were wrong for two reasons. First, because they rested on the assumption of fact that Patto’s tenancy was terminated on 4 July 2002. This was not accepted. Patto assigned their lease to LUL on 5 August 2002. This was inconsistent with the assertion that Patto’s tenancy had terminated on 4 July. Second, because the common law rule relied upon, as identified in Pennell, could have no application, and indeed no relevance, where the headlease was terminated by statute for the purposes of compulsory purchase.

[54]In section 20, Mr Roots said, the phrase “unexpired term” referred back to being “required to give up possession … before the expiration of his term”. Teamworks were required to give up possession before their sub-tenancy expired. It was therefore inescapable 14 that they were entitled to compensation as provided by the section. Whether or not Patto’s tenancy was terminated at the same time was irrelevant to the operation of section 20 in relation to Teamworks.

[55]Leave was given for Teamworks to reply to the further written submissions of Mr Barnes on the Patto extinguishment point. These further submissions were made by the claimants’ solicitors.

[56]They said that Teamworks’ position remained that, regardless of the legal basis for LUL’s case, the evidential basis for it had not been made out. That would require LUL to establish that they acquired by agreement or by compulsion Patto’s interest before they took possession of Teamworks’ interest. LUL assumed that this was what happened but no supporting evidence had been produced.

[57]A deed of assignment of Patto’s interest recorded that it was assigned to LUL on 5 August 2002. The assignment referred to a settlement agreement dated 20 May 2002 between Patto and others and LUL to which the deed of assignment was expressed to be supplemental. The settlement agreement governed the giving of vacant possession of those areas occupied by Patto and related companies. The reference land was not occupied by Patto but by Teamworks. The settlement agreement governed the acquisition by LUL of Patto’s interest by requiring a deed of assignment within 28 days of vacant possession. It was not recorded in the settlement agreement or the deed of assignment when possession of the Patto land was taken.

[58]LUL have queried the reference in Teamworks’ statement of case to LUL having taken possession of Teamworks’ land on 4 July 2002, having regard to the completion of the Teamworks’ deed of assignment on the previous 5 June. But LUL had also referred to this date of possession and it was in the agreed statement of facts prepared for the narrow preliminary issue. On the current understanding of LUL’s position, Teamworks did not consider that, for the purposes of submissions on the section 20 issues, there was any relevance in the question whether possession was taken of Teamworks’ interest on 5 June or 4 July 2002. Were the matter to be relevant, detailed consideration would be required as Teamworks accepted that the position was unclear.

[59]In summary, there were three possible situations. First, that LUL acquired Patto’s interest after it took possession of Teamworks’ interest. In that situation LUL’s argument could not apply on the facts; section 20 would apply to the giving up of possession by Teamworks. Second, that LUL acquired the interests of both Patto and Teamworks simultaneously. Section 20 would then apply to the giving up of possession by Teamworks. Third, that LUL acquired Patto’s interest before it took possession of Teamworks’ interest. That would then fall within the decision in Pennell and would, in effect, be a surrender of the head tenancy, so that the sub-tenancy would continue. BSM’s case 15

[60]Mr Brian Ash QC for BSM said that he adopted Mr Roots’ submissions in so far as they were material to BSM. BSM had a tenancy which could have extended until the end of March 2009. Although it was apparent that this tenancy did not fall within section 20, LUL had suggested that their proposition of law accorded with the principle that a periodic tenancy must be taken to end on the earliest date on which it could be terminated by notice to quit. This could be restated:

“Although BSM’s case does not fall within section 20, the Tribunal is required by law to treat it as though it did fall within section 20.”

There was no statutory provision to that effect and the argument was not sustainable.

[61]The position under section 20 differed, said Mr Ash, from other acquisitions (see Benjamin at 699D, 700E and 701H). There was no authority which indicated that section 20 could be applied by analogy to a term of years. The decisions in London and Southampton Railway and Pearl did not support the proposition that section 20 could apply to a tenancy which was not a short tenancy. It was clear that section 90 of the Special Act in Pearl only applied to tenants at will or for a year or from year to year (at 299). Mr Ash referred to Syers (at 277, 278 and 279) and said that the tenants were quarterly tenants and the position was quite different. Any rule which was inconsistent with the facts was contrary to common sense.

[62]Mr Ash submitted that the compensation payable to BSM was to be determined in accordance with section 5 of the 1961 Act. Compensation for disturbance was to be assessed in accordance with the principles in Harvey (at 494). It was agreed that loss of profit was capable of being a loss which met those requirements. It was also apparent from LUL’s reply to BSM’s statement of case that there was considerable agreement on the method of assessing that loss. The issues which arose in the application of that method were matters of fact and judgment, not issues of law. Clause 26 of the tenancy agreement might, as a matter of fact and judgment, be a factor in identifying what was likely to have occurred in the no scheme world, but there was nothing in law to require that the tenancy would be terminated “at the earliest date at which it could have been determined by a notice given by Railtrack” under that clause and where the facts suggested the contrary. Indeed, it was apparent from the pleadings that both sides recognised that the facts probably did suggest the contrary. There was a real chance that, if BSM’s claim was restricted to six months’ loss of profits, their compensation would be less than the loss they had suffered. Mr Ash referred to Shun Fung at 125C and 135G. It would be contrary to the fundamental principle of fair compensation to hold that the compensation which BSM should receive had to be less than the loss suffered. Discussion

[63]The two arguments of general application that the acquiring authority advance are, firstly, that it is necessary as a matter of law, when assessing compensation under section 20, to assume that a periodic tenancy, or a tenancy with less than a year unexpired, or a tenancy for a term of years subject to a break clause, would determine on the earliest date of termination that could have resulted under a landlord’s notice given on the date of entry; and, secondly, that as a matter of law no account can be taken of any possibility of renewal that would in fact have existed in the absence of the acquisition. There is in our judgment good authority for both these propositions, and we shall refer to this. Before we do so, however, it is 16 appropriate to say something about section 20 and its relationship to the statutory provisions that apply when land is acquired.

[64]Section 20(1), which makes the same provision as that contained in section 121 of the 1845 Act, provides:

“If any of the land subject to compulsory purchase is in the possession of a person having no greater interest in the land than as tenant for a year or from year to year, and if that person is required to give up possession of any land so occupied by him before the expiration of his term or interest in the land, he shall be entitled to compensation for the value of his unexpired term or interest in the land, and for any just allowance which ought to be made to him by an incoming tenant, and for any loss or injury he may sustain.”

Subsection (3) provides that disputed compensation under the section shall be determined by the Lands Tribunal. The provisions of subsection (1) apply where two conditions are satisfied, namely that the land acquired is in the possession of a person having no greater interest than as tenant for a year or from year to year, and that he is required to give up possession before the expiration of his term or interest. Where these conditions are satisfied he is entitled to compensation under three heads: for the value of the unexpired term or interest, for any just allowance by an incoming tenant and for any loss or injury he may sustain. The narrow preliminary issues are concerned with the meaning of the words “unexpired term or interest in the land” in section 20(1).

[65]When land is compulsorily acquired, compensation is to be assessed in accordance with the rules contained in section 5 of the Land Compensation Act 1961. For present purposes we need only note rules (2) and (6). These are:

“(2) The value of land shall, subject as hereinafter provided, be taken to be the amount which the land if sold in the open market by a willing seller might be expected to realise: (6) The provisions of rule (2) shall not affect the assessment of compensation for disturbance or any other matter not directly based on the value of land:”

[66]Mr Barnes submitted, and we agree, that although section 20(1) of the 1965 Act and rules (2) and (6) of section 5 of the 1961 Act are couched in different terms they are essentially providing for compensation on the same bases, the two elements being the market value of the interest and disturbance. (The compensation provided for under section 20(1) contains a third element – “any just allowance which ought to be made to him by an incoming tenant” – but no question on this arises in the present cases and, in any event, it probably is no more than part of disturbance.) The difference between section 20 and those provisions that relate to the compulsory acquisition of land is essentially procedural. Section 20 enables the acquiring authority to terminate a short tenancy rather than acquiring it and to pay compensation for the value of the tenancy at the date of entry and for consequential loss.

[67]We should also note the particular provisions contained in section 37 and 38 of the 1973 Act for the payment of compensation for disturbance where no interest is acquired. There is 17 an entitlement to such compensation where a person in lawful possession is displaced in consequence of the acquisition of the land by an authority possessing compulsory purchase powers. A disturbance payment covers both removal expenses and, where the person was carrying on a trade or business on the land, the loss sustained by reason of the disturbance of the trade or business consequent upon his having to quit the land. It is expressly provided that, in estimating such loss, regard is to be had to the period for which the land occupied by the claimant might reasonably have been expected to be available for the purpose of his trade or business.

[68]The principal authority on the two issues we have to address is, in our judgment, Minister of Transport v Pettitt

(1968) 20 P & CR 344

, although it was not one of the authorities relied by Mr Barnes for his principal submissions. In that case the claimant was tenant from year to year of a fifty-eight acre farm, the tenancy agreement providing for twelve months’ notice to quit expiring on March 25 in any year and also that the claimant was to give up any portion of the land for building or for any purpose specified in section 27 of the Agricultural Holdings Act 1923 on six months’ notice (with compensation and reduction in rent), such notice not to terminate the tenancy of the rest of the holding. In 1962, in pursuance of a compulsory purchase order, the appellant Minister gave notice to treat and enter in respect of some seven acres of the farm which were needed for the making of a motorway. The effect of the taking of the seven acres was to sever the farm into three parts instead of two parts as formerly. While the motorway was being built, the claimant had to work harder and longer to offset the inconvenience caused. The Court of Appeal (Russell and Winn LJJ, Lord Denning MR dissenting) held that, in ascertaining the measure of a tenant’s interest under section 121, it would be correct to have regard to section 24(1) of the Agricultural Holdings Act 1948, which gave protection to a tenant served with notice to quit, but that a notice to quit given to the claimant by the landlord at the date of notice of entry for Lady Day 1964 on the stated ground that the land was required for construction by the Crown of a motorway would have been excluded from the operation of section 24(1) by the provisions of section 24(2)(b); and that, accordingly, the claimant’s interest should not be envisaged as having lasted beyond Lady Day 1964.

[69]In his dissenting judgment, Lord Denning MR started by considering the position of the claimant apart from the prospect of remaining in possession under the Agricultural Holdings Acts. He said (at 348):

“… in calculating the value of Mr Pettitt’s unexpired interest in the seven acres, one would, apart from the Agricultural Holdings Act, have to take the interest to which he was entitled as of right. The matter would have to be treated as if the landlord had given a notice to quit at the earliest time available in point of law. One would not take into account the possibility, or probability, that the landlord might not have given him a notice to quit: see R v London and Southampton Ry.; Pearl v London County Council. In this particular case, of course, no notice to quit was in fact served. But it could have been. At common law, the landlord could, on September 6, 1962 (the date of the notice to treat), have given Mr Pettitt notice to determine his tenancy on March 25, 1964.”

[70]The majority of the court proceeded on the same basis, although they evidently did not think it necessary to set out the rationale or the authorities for it. Russell LJ said (at 352): 18 “The first question is whether, this being an agricultural holding, compensation under heading (a) for the value of the minor tenant’s ‘unexpired interest’ in the lands taken is assessable only on the basis that it would have expired on the second anniversary of the tenancy after notice of entry, since it was terminable by a year’s notice expiring at the end of any year of the tenancy, or whether, in valuing that interest, a longer period in possession should be assumed having regard to the safeguards for an agricultural tenant.” The same assumption was implicit in the judgment of Winn LJ, whose overall conclusion (see 359) was that the value of the claimant’s interest in the land taken for the motorway had to be assessed on the footing that the interest would expire on Lady Day 1964.

[71]The court was thus unanimous on the point articulated by Lord Denning MR in the passage we have quoted. The disagreement related to the question whether, in valuing the interest, account could be taken of the prospect of the tenancy continuing under the provisions of the Agricultural Holdings Acts. It was not suggested on behalf of the Minister that, but for the coming of the motorway, there would have been any probability of the claimant being disturbed in possession of any part of his holding (see Winn LJ at 358). Lord Denning MR invoked the rule in Pointe Gourde, saying (at 349) that “…the tenant should get no less compensation because of the motorway scheme. He should, I think, be compensated for the loss of his prospect of remaining in possession had there been no motorway scheme.”

[72]The majority of the court rejected this view. Russell LJ said (at 355):

“…It seems to me that, in determining the likelihood of the tenant’s interest in the land continuing beyond, here, Lady Day 1964, it would be necessary to consider that such a notice would have been unassailable, and to conclude that, in point of time, the interest should not be envisaged as lasting beyond that date. I do not, with respect, think that this is contrary to the Pointe Gourde principle, which I believe to relate not to the ascertainment of what is the interest to be valued, but to the value of the interest when ascertained.”

Winn LJ said (at 359):

“For myself, I accept in this respect the submission made by [counsel for the Minister], and am satisfied that the value of the claimant’s interest in the 7.5 acres taken must be assessed on the footing that the interest would expire at Lady Day 1964. I am of the opinion that the member of the Tribunal erred in law in directing himself that Watson’s case and the other cases to which he referred left ‘entirely open the question whether in any given case the market value of such an interest might or might not reflect the chance of continuance beyond the date on which it was liable to be determined.’”

[73]A further issue that arose was whether the same assumption as to the termination of the tenancy was to be made in relation to the retained land for the purposes of assessing compensation for severance and injurious affection under section 121. The court was 19 unanimous that it should not. Russell LJ at 355 said that there was no reason to suppose that any notice to quit on that land would be outside section 24(1). Thus both he and Winn LJ (at 360) held that compensation for severance and injurious affection was to be assessed on the basis that the tenant had security of tenure on the retained land.

[74]Minister of Transport v Pettitt was approved by the House of Lords in Rugby Joint Water Board v Foottit

[1973] AC 202

. That decision concerned the valuation of landlords’ freehold interests in agricultural land where in each case there were tenancies which, in the absence of the scheme, would have been protected and could have been expected to continue. The House of Lords (Lord Simon of Glaisdale dissenting) held that the interests were to be valued on the basis that the landlords were entitled to turn out the tenants on giving the requisite length of notices prescribed in the respective leases since in each case the interest to be valued was the reversion as it existed on the date of notices to treat, when it was a reversion to an unprotected tenancy. The majority (including Lord Gardiner, who gave no reasoned judgment) rejected the contention that the Pointe Gourde rule applied to the ascertainment of the nature and extent of the interest to be valued. Lord Pearson said (at 216H to 217A):

“…The respondents’ interest to be valued is the reversion as it existed on the date of the notice to treat, when it was a reversion to an unprotected tenancy. That is what the respondents had to sell and what the appellants must pay for. I agree with the majority decision in Minster of Transport v Pettitt (1968) 67 L.G.R. 449.”

[75]Lord Hodson said (at 219 F-G and 220A):

“In the instant case the increase in the value of the interests of the owners in the land must of course be disregarded but this has no application to the ascertainment of those interests. The Pointe Gourde principle is satisfied as the owners contend on the basis that the land is agricultural land ignoring any increased value attributable to the scheme for its use as a reservoir. As Russell LJ put it in the Pettitt case, 67 LGR 449, 462 the principle relates ‘not to the ascertainment of what is the interest to be valued but the value of the interest when ascertained. The majority decision in the Pettitt case was in my opinion correct… The ability to give an effective notice to quit is an element in the value of the land and cannot be disregarded. When the precise nature of the interest has been ascertained then the land can be valued.”

[76]Lord Cross of Chelsea said (at 253 E-H): “To accede to the board’s submission on this point would involve an extension of the principle to which I would hesitate to agree, even if it seemed desirable in order to achieve justice between the parties; but for the reasons which I have already given on the construction point I do not think that there would be any injustice to the tenant – let alone that there would be any injustice to the board – in allowing the landlord to be paid the value of the reversion assessed on the footing that he could serve an effective notice to quit.” 20

[77]The effect of Rugby Joint Water Board and Minister of Transport v Pettitt is, in our judgment as follows. In valuing an interest in land that has been compulsorily acquired, where there is a tenancy of such land, the interest is to be valued on the basis that the tenancy could have been terminated on the earliest date possible under the tenancy, and any prospect that there might have been in the no-scheme world of the tenancy continuing is to be disregarded. This rule applies equally to the valuation of the landlord’s interest and to the valuation of the tenant’s interest, and it applies also where possession has been taken under section 20. In our judgment there is no reason in principle, when applying the rule, to distinguish between a periodic tenancy and a tenancy for a term of years subject to a break clause. As Lord Hodson put it in Rugby Joint Water Board in a passage we have quoted, the ability on the part of the landlord to give an effective notice to quit is an element in the value of the land and cannot be disregarded. That consideration applies both to the landlord’s interest and to the tenant’s interest.

[78]Since in our view these two authorities are so conclusive of the matter, it is strictly unnecessary for us to consider the other authorities that were relied on by counsel. We need, however, to consider whether, although no account may be taken of the prospect of the tenancy continuing in the no-scheme world, when determining the value of the unexpired term, some different rule may not be applicable when determining compensation for disturbance, whether under rule (6) or as “any loss or injury” under section 20. It is disturbance compensation, for the loss of profits that the claimants say they would have made if Bishopsgate Goods Yard had not been required for the East London Line Extension, that forms the principal subject of dispute in the present cases; and the claimants seek to rely on the basic principle that the entitlement to compensation consists in the right of a claimant “to be put, so far as money can do, in the same position as if his land had not been taken from him” (per Scott LJ in Horn v Sunderland Corporation

[1941] 2 KB 26

at 41) or “to be compensated fairly and fully for …. losses fairly attributable to the taking of his land” (per Lord Nicholls of Birkenhead in Shun Fung

[1995] 2 AC 111

at 125C).

[79]In Greenwoods Tyre Services Ltd v Manchester Corporation, on which, as we have said, Mr Barnes relied, this Tribunal (R C Walmsley FRICS) held that, where the assumption had to be made for the purpose of assessing the value of the unexpired term or interest under section 20 that the tenancy could be terminated within less than a year, the prospect of its continuation beyond that time could not be taken into account for the purpose of assessing “any loss or injury.” In that case, at the time when the acquiring authority took possession, notice to quit served on that date would have expired ten and a half months later, and the Member held that this was the unexpired term that had to be valued. Counsel for the claimants, Mr Iain Glidewell QC, submitted that this determination of the length of the unexpired term did not limit the period to which regard could be had for the purpose of assessing compensation for loss or injury. He based his argument on the conclusion that the court in Pettitt had reached on the part of the claim that related to severance and injurious affection. His submissions are recorded in the decision as follows (at pp 250 to 251):

“Here was a company, said counsel, which was likely to continue in business indefinitely had the corporation not snuffed it out. The tribunal was entitled to look at the facts of the case; that the tenant company was the means by which the freeholder derived his livelihood, and of which the freeholder had complete control; that the only event likely to sever this relationship was a sale, by Mr Greenwood, of 21 the company and all its assets; that the company had de facto sustained the same loss, and should therefore be entitled to the same compensation, as if they had been freeholders. A distinction was drawn in section 20, submitted Mr Glidewell, between the assessment of compensation for ‘the ‘unexpired term’ on the one hand (where it was agreed the tribunal could do no more than look at the actual legal term to which the company was entitled), and compensation for ‘any loss or injury’ on the other hand (which was not restricted at all, and in respect of which the actualities of the case could be looked at). The case of Minister of Transport v Pettitt was authority for the proposition that an assumption underlying one part of a claim under section 20 or section 121 may be different from the assumption underlying another part.”

[80]The Member rejected these submissions. He said (at 255) that “A claim must be consistent within itself”, and, having referred to Pettitt, he went on (at 256):

“What was decided in Pettitt’s case, as I understand it, was that the assumptions underlying the assessment of compensation in respect of Lands Not Taken need not correspond with the assumptions underlying the assessment of compensation in respect of Lands Taken. In the present case however the whole of the compensation is in respect of Lands Taken, and the assumption which underlies the claim for ‘any loss or injury’ must in my opinion be the same assumption as underlies the claim for the ‘unexpired term or interest,’ namely (in the present case) the assumption of an unexpired term of ten-and-a-half months.”

[81]In our view, this decision was correct, and the Member was right in holding that Pettitt was no authority for the contention advanced in that case by the claimant. It is established on the highest authority that disturbance compensation is properly to be seen as part of the value of the land to the claimant, and it is in respect of this total value that he is entitled to compensation. In Hughes v Doncaster Metropolitan Borough Council

[1991] AC 382

Lord Bridge of Harwich said (at 392):

“Thus, although compensation in respect of the market value of land acquired and compensation for disturbance must in practice be separately assessed, the courts have consistently adhered to the principle, both before and after the present rules were first introduced by the Act of 1919, that the two elements are inseparable parts of a single whole in that together they make up ‘the value of the land’ to the owner, which, unless he retains other land depreciated by severance or injurious affection, was the only compensation which the 1845 code awarded to him.”

[82]Thus there is justification in principle for applying the same assumption as to the termination of the claimant’s interest when assessing the market value of that interest and when assessing the additional value that the interest has for the claimant and for which is compensatable as disturbance or “any loss or injury”. Pearl v London County Council, which was applied in Pettitt, is also authority on this point. That case concerned a claim for compensation under section 90 of the Metropolitan Paving Act 1817 where the claimant’s kiosk in Charring Cross Station yard had been taken for widening the Strand. The section provided that a tenant at will or from year to year who was compelled under the provision “to quit before the expiration of his or her term” should receive compensation “for the loss or 22 damage which he or she shall or may sustain thereby.” The Court of Appeal held that the claim failed because the acquiring authority had not in fact exercised their powers under section 90. The case had been argued, however, on the basis that section 90 applied, and the court (Lord Evershed MR, Harman and Donovan LJJ) therefore went on in a reserved judgment to deal with the contentions advanced by the claimants on this basis. Lord Evershed MR, giving the judgment of the court said that the language of section 90 was strictly analogous to that of the Southampton Railway Act considered in R v London and Southampton Railway Co. That case was thus authority for the view that – “…‘expiration of his term’ must be construed as referring to the earliest point of time at which the landlord could validly, according to the terms of the contract of tenancy, have terminated the tenancy from year to year.”

[83]The claimants had placed reliance on their prospect of obtaining a new tenancy under the Landlord and Tenant Act 1954. On this the court said (at 302):

“The effect of the relevant provisions of this Act is to give to a business tenant (such as are the appellants) the right, or at least the opportunity, if his existing tenancy were determined, to obtain by order of the court a new tenancy. But in our view the compensation for which section 90 of the Act of 1817 made provision is for the premature determination of an existing tenancy, and cannot extend fairly to cover injury suffered through the loss of a new tenancy or the opportunity of obtaining it.”

[84]The compensation provided for by section 90 was in respect of “the loss or damage” that the tenant might sustain from being required to give up possession before the expiration of his term. It was thus in terms that encompassed disturbance compensation, and it is indeed likely that the claim for compensation would have consisted principally of disturbance compensation. Whether or not that is the case, however, the judgment is authority for the proposition that compensation for “loss or damage” from the termination of a tenancy cannot reflect the possibility of the tenancy continuing, or a new tenancy being granted, after the earliest date on which, under its terms, the tenancy could have been terminated.

[85]Under Teamworks’ sub-tenancy agreement, their tenancy could have been determined on five months and two weeks notice, and on the date when, it is agreed, possession was taken, that period was the unexpired term for the purpose of assessing compensation under section 20, both for the value of the unexpired term and for any loss or damage. The BSM tenancy was terminable on six months notice, and it is in relation to this period, from 1 July 2002 when it is agreed possession is to be assumed to have been taken, that compensation is to be assessed. We think that Mr Barnes is right in saying that the power to terminate on six months notice makes this a section 20 claim, but in our view, as we have said, in practice compensation is to be assessed on the same basis whether the claim lies under section 20 or is in respect of the acquisition of the interest. Both the value of the interest and the claim for loss of profits are limited to the period ending with the date of termination.

[86]We have referred to the provisions of sections 37 and 38 of the 1973 Act giving an entitlement to a disturbance payment where a licensee is dispossessed in consequence of the acquisition of land by an authority with compulsory purchase powers. In such a case in 23 estimating the claimant’s loss regard is to be had to the period for which the land occupied by him might reasonably have been expected to have been available for the purpose of his trade or business if he had not been required to leave (section 38(2)). In the light of the law as we have found it to be, a licensee who can show that he could reasonably have expected to remain in possession for, say five years would be better off than the tenant with a similar expectation and with six months of his tenancy unexpired at the date of possession. However, section 47 of the 1973 Act substantially removes this anomaly be enabling a tenant to rely on his rights under the Landlord and Tenant Act 1954. Nevertheless in each of the present cases, the provisions of sections 24 to 28 of the 1954 Act have been excluded in relation to the tenancy by order of the county court. Moreover, if each tenant had been a licensee rather than a tenant it could only have taken advantage of sections 37 and 38 if it had entered into possession before the preparation of the CPO in draft (see section 37(3)(a)). The CPO was made in 1997, and, although the agreed facts do not state when each claimant entered into possession, the tenancy agreements were made after this, in 1999 and 2001. Each tenant took what was in effect a precarious interest, with 1954 Act rights excluded, after the CPO had been made. It does not appear to us to be unfair that compensation both for the value of its interest and for loss of profits should be limited to the period between possession and the earliest date after that by which the tenancy could have been terminated.

[87]The remaining question is whether, as Mr Barnes contended, the sub-tenancy of Teamworks was automatically extinguished by the extinguishment of Patto’s superior tenancy by entry by LUL on 4 July 2002, that LUL also entered in respect of Teamworks’ sub-tenancy on the same date and that Teamworks had no claim under section 20 of the 1965 Act. Termination under that section, he said, was not an exception to the general rule of law that a sub-tenancy automatically expires on the termination of the superior tenancy. The purported assignments to LUL of Teamworks’ tenancy on 5 June 2002 and of Patto’s superior tenancy on 5 August 2002 were of no effect in law.

[88]Mr Roots, and subsequently Teamworks’ solicitors, said that the evidential basis for Mr Barnes’s submissions had not been made out. There were three possible situations. First, that LUL acquired Patto’s interest after it took possession of Teamworks’ interest; section 20 would apply to the giving up of possession by Teamworks. Second, that LUL acquired both interests simultaneously; section 20 would apply to the giving up of possession by Teamworks. Third, that LUL acquired Patto’s interest before it took possession of Teamworks’ interest; that would be an exception to the general rule under Pennell v Payne

[1995] QB 192

[89]The factual position appears to us to be this. The parties agreed that LUL took possession of the Teamworks’ interest on 4 July 2002. In his submissions Mr Barnes said that LUL took possession of Patto’s interest on the same date. After the hearing we were supplied with copies of an assignment dated 5 June 2002 between Teamworks and LUL, an assignment dated 5 August 2002 between Patto and LUL and a settlement agreement dated 20 May 2002 between Patto and others and LUL, referred to in this latter assignment. The Teamworks’ assignment refers to an advance payment deed and a heads of terms agreement but we have not been provided with copies of these documents. 24

[90]The two assignments are in similar, although not identical, form. Both state in paragraph (C) of the Introduction that “the Premises remained vested in the Assignor for the residue of the Term.” The “Premises” in each case are the premises demised to Patto and Teamworks respectively under their tenancies. Thus, at 5 June 2002 in the case of Teamworks, and 5 August 2002 in the case of Patto, their tenancies were stated to be still in existence. Clause 3 in each assignment then provides for the assignment to LUL of the premises demised to Patto and Teamworks respectively, in Patto’s case subject to the sub-tenancy of Teamworks. In our judgment, therefore, the true position is that, notwithstanding the agreement that entry was not made until 4 July 2002, LUL acquired Teamworks’ tenancy on the earlier date of 5 June 2002 by force of the assignment. Any claim that Teamworks’ have against LUL would accordingly, it seems to us, have to be based on the agreement that provided for the assignment rather than on section 20. Since, however, we do not know the full terms of that agreement and we have received no submissions on the question, we express no concluded view on this.

[91]It is not contended that Patto’s interest had been acquired on 5 June 2002. If we are wrong about Teamworks’ tenancy having been acquired on that date, however, entry in respect of both that and Patto’s interest would have been at the same time on 4 July 2002. Patto’s interest would not, therefore, already have been terminated at the time possession was taken as against Teamworks, who would thus have a valid claim under section 20. We accordingly determine the preliminary issues on the basis that entry as against Teamworks was taken on 4 July 2002, as agreed between the parties, and that Teamworks have a valid claim under section 20. Determination

[92]We determine as follows the preliminary issues:(a) The claim by Teamworks must be assessed as a matter of law on the earliest date on which their sub-lease could have been ended by Patto Ltd by a notice served on 4 July 2002, ie 18 December 2002.

(b) No assumption can be made that Teamworks’ sub-lease would have been renewed from the date of its termination and no account can be taken of the possibility of such renewal even if such a possibility would in fact have existed in the absence of the scheme.

(c) For the purposes of assessing any part of the compensation payable to BSM it is to be assumed as a matter of law that the lease vested in BSM at the valuation date would have been determined at the earliest date on which it could have been determined by notice given by Railtrack under clause 26 of the lease.

[93]The parties are invited to make submissions on the costs of the preliminary issues, and a letter dealing with this accompanies this decision. The decision on these preliminary issues will become final when the question of costs is determined. 25 Dated 5 December 2003: George Bartlett QC, President P H Clarke FRICS 26 Addendum on costs

[94]We have received submissions from the parties. The acquiring authority ask for their costs. The primary submission of the claimants is that costs should be costs in each reference, since, until the final decision of the Tribunal on the amount of compensation is determined the Tribunal is not in a position to determine where the costs of the preliminary issues should lie. The acquiring authority’s response to this is that even on the hypothesis most adverse to LUL, ie that the compensation ultimately awarded exceeds any sealed offer or there is no sealed offer, it would still be correct that the costs of the preliminary issues should be awarded to LUL since the determination of the preliminary issues in LUL’s favour would constitute a special reason (within the meaning of section 4(1) of the Land Compensation Act 1961) for depriving the claimants of their costs.

[95]We do not take the view that LUL’s success on the preliminary issues would inevitably amount to special reasons for the purposes of section 4. The contentions that the claimants advanced on them were undoubtedly reasonably arguable. We do not think that it is possible in advance of the final decision of the Tribunal to be sure how the costs of the preliminary issues ought to be borne by the parties. The appropriate order to make in these circumstances is that the costs of the preliminary issues be reserved, and we so order. Dated 19 January 2004 George Bartlett QC, President P H Clarke FRICS 27