Court of Appeal

Published June 20, 2007

Lay and Others v Drexler and Others

Before Lord Justice Chadwick, Lord Justice Law and Mr Justice Evans-Lombe Judgment May 18, 2007

A business tenant who told his landlord he wanted to renew his lease and subsequently told the court he had changed his mind could be liable for the landlord’s court costs.

The Court of Appeal so stated allowing an appeal of the landlord, Richard Neville Lay, Euan Michael Ross Geddes (Baron Geddes of Rolvenden) and John Adrian Watney, trustees of the Portman Estate from the decision of Judge McMullen, QC, dated June 22, 2006 at Central London County Court to make no order on the costs of the proceedings and ordered the landlord to pay the costs of the tenants, Victor Robert Drexler, Derek Humphrey and Richard Weston, trading as Littlestone Martin Glenton, of hearings of applications on May 24, 2006 and June 22, 2006.

Ms Katherine Holland for the landlord; Mr Mark Warwick for the tenants.

MR JUSTICE EVANS-LOMBE said that the legislative purpose of the amendment to section 24(1) of the Landlord and Tenant Act 1954 by the Regulatory Reform (Business Tenancies) (England and Wales) Order (SI 2003 No 3096) was to substitute for the strict time limits which previously governed the steps available to a tenant to obtain the grant of a new business tenancy, a right to landlords to commence such proceedings so that they could compel tenants to make clear at an early stage their intention whether to seek a new tenancy and thereafter diligently to pursue negotiations to arrive at agreed terms.

This was a classic case where the landlord was using its newly created right to commence proceedings under section 24(1), as amended, to protect its interest in knowing whether he was going to have to remarket his business premises, from the effect of the tenant’s delay in coming to a decision or taking appropriate or any steps to arrive at agreed terms for a lease.

It was clear that by filing an acknowledgment of service indicating an intention to take a new lease which, if terms could not be agreed, would be settled by the court under sections 32 to 35 of the 1954 Act, the tenants should be taken to have joined in the proceedings leading to the grant of a new lease so as to preclude them from suggesting that the proceedings had been started prematurely.

The tenants were, in effect, commencing their own proceedings designed to obtain a new lease on terms more favourable than the landlord was prepared to offer.

They were therefore committed to proceedings in the course of which costs would be incurred which, depending on the result, they might themselves be ordered to pay.

The service on the court by the tenants of notice under section 29(5) was the equivalent of a notice to discontinue proceedings.

It followed that the judge should have placed the burden of proof on the defendants to establish facts which would justify his departure from the normal costs order in such circumstances. Since the tenants were not able to do that the judge should have ordered them to pay the landlord’s costs.

Lord Justice Laws agreed and Lord Justice Chadwick gave a concurring judgment.

Solicitors: Pinsent Masons; Olswangs.

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