Manton Securities Ltd v Nazam (t/a New Dadyal Cash & Carry)

This appeal is by Manton Securities Limited (“Manton”), the defendant. The respondent is Mohammed Nazam, the claimant. Manton’s appeal is against an order made by Mr Recorder James Behrens on 18 January 2008 after a four day trial in Birmingham County Court. The matter before him was what purported to be an application by Mr Nazam under section 24 of the Landlord and Tenant Act 1954 (“the Act”) for a new tenancy of business premises he occupies in Birmingham. It followed the service by Mr Nazam of a request for a new tenancy under section 26. Manton is Mr Nazam’s landlord.

Mr Nazam’s case was that he occupied the premises as a quarterly tenant entitled to protection under the Act. He also contended that, following his expenditure of money in the repair and improvement of his premises under Manton’s encouragement of an expectation in him that it would grant him a 21 year tenancy of the premises from 7 November 1997, Manton was prevented by the principles of proprietary estoppel from denying his entitlement to such a tenancy (“the equitable tenancy”). Whatever the legal nature of his occupation, he asked for a new tenancy.

Manton opposed the grant of a new tenancy on three grounds. First, that Mr Nazam occupied not as a quarterly tenant, but as a tenant at will; and that as a tenancy at will does not enjoy the protection of Part II of the Act, he was not entitled to a new tenancy. If the premise was right, the conclusion followed (Wheeler v. Mercer [1957] AC 416). Second, that Mr Nazam’s claim to the equitable tenancy was unfounded. Third, that even if he was in principle entitled to ask for a new tenancy, he ought not be granted one because of his persistent delay in paying rent (section 30(1)(b) of the Act). Manton counterclaimed for possession of the premises.

The Recorder held that Mr Nazam was a tenant at will and not a quarterly tenant. If that were all, he would not be entitled to a new tenancy. But the Recorder also held that Mr Nazam had established the equitable tenancy, that equity should regard as done that which ought to have been done, and that Mr Nazam should thus be regarded as entitled to a 21 year tenancy. The Recorder held that the proper way to give effect to Mr Nazam’s equitable entitlement was to order the grant of a new tenancy under Part II of the Act. He rejected the assertion that Mr Nazam’s claim was defeated by his rent payment record.

The result was that the Recorder gave directions for the determination of the terms of Mr Nazam’s new tenancy, although that has been stayed pending the disposal of this appeal. The new tenancy was to include not just the premises that Mr Nazam had occupied from the outset, but also a new warehouse attached to it at the rear and a right to park vehicles on land adjoining. The Recorder ordered Mr Nazam to pay arrears of rent of £26,088.72, and £61,687.50 on account of interim rent for the quarters September 2006 to December 2007. He gave him two thirds of his costs. He dismissed Manton’s counterclaim for possession.

By the appeal, brought with the permission of the Recorder, Manton challenges the basis on which the Recorder upheld the claim to the equitable tenancy and his rejection of Manton’s ground of opposition based on section 30(1)(b). Mr Nazam’s respondent’s notice seeks to support the Recorder’s decision on additional grounds, including that he should have found that Mr Nazam was from the outset, or else became, a quarterly tenant.

The court’s reading of the papers in advance of the hearing of the appeal led it to the provisional conclusion that there were some oddities about the way the case had been run below and the Recorder’s decision.

Mr Nazam’s case was that he was either a quarterly tenant or entitled to a 21-year equitable tenancy. On 24 April 2006 he had purportedly served a notice on Manton under section 26 of the Act requesting a new tenancy, to commence on 25 April 2007. The proposed terms of the new tenancy included (i) a term of 15 years from 25 April 2007, (ii) a rent of £40,000 payable quarterly in advance, and (iii) that the premises should include the car park on the land to the rear and a right of way over that land. On 4 May 2006 Manton served a counter-notice under section 26(6) in which it said that it would oppose grant of a new tenancy on the various section 30(1) grounds, although in the event it relied only on section 30(1)(b) (persistent delay in paying rent). On 22 December 2006 Mr Nazam issued his application under section 24 for a new tenancy. It was that application, followed by an exchange of pleadings raising the issues I have identified, that came before the Recorder for trial.

The first oddity is that, so it appeared to us, on neither basis that Mr Nazam claimed to occupy the premises did he have an entitlementto serve a section 26 request for a new tenancy. Section 26(1) provides that such a request may only be made by a tenant who has a tenancy “… for a term of years certain exceeding one year, whether or not continued by section twenty-four of this Act, or granted for a term of years certain and thereafter from year to year.” The claimed quarterly tenancy was not such a tenancy. As for the claimed equitable tenancy, assuming (which I doubt, but do not decide) that an equitable claim of that nature gave Mr Nazam a “term certain” for section 26 purposes, that did not entitle him to serve his section 26 notice either. By section 26(2), such a notice is by way of a request for a new tenancy:

“… beginning with such date, not more than twelve nor less than six months after the making of the request, as may be specified therein:

Provided that the said date shall not be earlier than the date on which apart from this Act the current tenancy would come to an end by effluxion of time or could be brought to an end by notice to quit given by the tenant.”

Mr Nazam’s notice purported to request a new tenancy commencing on 25 April 2007. But his equitable tenancy would not expire until 2018 and he had no right to terminate it by a notice to quit before them.

For these reasons, it appeared to us that Mr Nazam’s section 26 notice was a thing writ in water. Manton did not, however, take this point. It treated the notice as valid, served a counter-notice and appears to have regarded Mr Nazam’s subsequent application under section 24 of the Act as procedurally sound although it challenged his claim to a new tenancy. But a condition of Mr Nazam’s right to apply under section 24 was that he had served a section 26 notice. One might think that means a valid notice.

The Recorder’s judgment does not show that consideration was given to these points by anyone. His decision reflected, if I may respectfully say so, a further oddity. He held, first, that Mr Nazam occupied as a mere tenant at will and so was not entitled to a new tenancy. So far so good. But he then held that he had established the equitable tenancy. Having so held, on what basis did the Recorder consider that the satisfaction of Mr Nazam’s claim to the equitable tenancy had to be met by the grant of a new tenancy under the Act? All that Mr Nazam needed was an order compelling Manton to grant him the 21 year tenancy to which it was estopped from denying his right. On no footing was he entitled to the new tenancy under the Act that the Recorder ordered. A question must have arisen as to the Recorder’s jurisdiction to make that order.

It appeared to us, therefore, that the foundation of the proceedings as a claim for a new tenancy under the Act was mistaken, as was the Recorder’s holding that Mr Nazam was entitled to such a tenancy. At the beginning of the hearing, we raised these points with counsel, Mr de Waal for Manton and Mr Harrison-Hall for Mr Nazam, both of whom appeared below. They acknowledged that the points had not been considered and that in principle they were right. Neither counsel sought to defend (i) the assumption that Mr Nazam had, on his own case, launched a valid application for a new tenancy under the Act, or (ii) the Recorder’s decision that the establishment of the claim to the equitable tenancy entitled Mr Nazam to such a new tenancy.

In these circumstances we considered that we ought not to deal with the appeal on the artificial basis that the Recorder had a proper application for a new tenancy before him. We suggested to counsel that we should instead deal with it on the basis that the substance of the issues before the Recorder, and before us, was (i) whether Mr Nazam had established his claim to the equitable tenancy, and (ii) whether, subject to the outcome of that, he was a tenant at will or a quarterly tenant. Whilst Manton’s grounds of appeal sought to contend that the Recorder had been wrong to hold that Mr Nazam was entitled to a new tenancy despite his persistent delay in paying rent, Mr de Waal accepted that he could no longer run that argument. But Manton’s grounds of appeal had also raised the argument that the persistent delay in paying rent was a factor that ought to defeat Mr Nazam’s claim to the equitable tenancy.

We dealt with the appeal on the suggested basis. Counsel did not suggest that their respective clients were thereby disadvantaged. I turn to the story.

In January 1988 Manton’s predecessor granted a lease of retail premises at 118, 120 and 122 Alum Rock Road, Saltley, Birmingham (“the premises”) to a predecessor of Mr Nazam for seven years from 24 June 1987. They were business premises but the tenancy excluded the provisions of sections 24 to 28 of the Act. On 22 December 1995, after the expiry of that tenancy, Manton granted a new lease of the premises to a Mr Salim for a term of 15 years from 24 June 1994 at a rent of £20,000 a year payable quarterly in advance.

Mr Salim apparently became disenchanted with the premises or the business he carried on there (or both) and opened negotiations for an assignment of the lease to Mr Nazam. Mr Salim vacated the premises and Mr Nazam moved in on 15 July 1997. He started carrying on a cash and carry business there under the name New Dadyal Cash and Carry, as he still does. He went into occupation without Manton’s knowledge or consent and Manton only learnt what had happened in November 1997, following which Mr Richard Manton (Manton’s managing director) wrote to Mr Salim on 6 November 1997 complaining about Mr Nazam’s unauthorised occupation.

In the event Manton did not object to the change of occupation. In particular, it did not claim it constituted a forfeiture of Mr Salim’s lease. For about a year there were negotiations between Mr Salim and Mr Nazam for an assignment of the lease to Mr Nazam but by November 1998 they had come to nought.

On 22 December 1998 Mr Manton wrote to Mr Nazam saying that, in view of Mr Salim’s unwillingness to assign, Manton would have to grant a new full repairing and insuring lease to Mr Nazam. That would not, of itself, get rid of the 1994 lease. But Mr Salim dropped out of the story and it is no part of either side’s case that Mr Nazam occupied as a tenant under that lease. The situation by December 1998 was one under which Mr Nazam was, with Manton’s consent, occupying the premises for business purposes and he and Manton were negotiating the grant of a new lease. The proposed lease was one which was initially to be for a term of 15, and then 21, years.

The early course of the negotiations, as summarised by the Recorder, was as follows. Southall & Co, Manton’s solicitors, wrote to Mr Nazam on 21 January 1999 suggesting that the 1994 lease was surrendered and a fresh lease granted to Mr Nazam. On 31 March 1999 they proposed that the new lease should be on the same terms as the 1994 lease, namely a 15 year term with three-yearly rent reviews. By 1 April 1999 Southall & Co had sent Manton a draft lease in a form they thought would do. In May 1999 Keely Beedham, solicitors, took the matter over on behalf of Manton. The negotiations continued, but only fitfully. In December 1999 Mr Manton asked what was happening. By February 2000 some amendments to the draft lease had been proposed by Mr Nazam.

In March 2000, by when still nothing concrete had happened, Manton ceased to conduct active negotiations for the grant of the lease. It was considering selling the property comprising the premises. But that did not come to anything either and during the following months – which grew into years – Mr Nazam continued in occupation paying rent quarterly.

The matter of Mr Nazam’s occupation woke up again in 2002. On 7 February 2002 Mr Manton wrote him a letter attaching two plans. It was headed “Lease Agreement – 118/122 Alum Rock Road – Rent Review Proposals”. Mr Manton referred to Mr Nazam’s wish to improve the premises and said that Manton’s holding company had recently contracted to buy land adjoining the premises in Wrights Road. That land included an area abutting the rear of the premises (“the land to the rear”). The letter referred to proposals Mr Manton had in mind for improving and extending the premises, including the enjoyment by Mr Nazam of a shared car park on the land to the rear. Plan B reflected the making of improvements increasing the sales and stores areas of the premises. Mr Manton continued:

“As mentioned you acquired the shop business in 1998 [in fact 1997] continued with rent payment based on 20,000 per annum which is low and will be reviewed. However by using table ‘B’ I propose your new rental commencing 1^st February 2002 will £43,104 pax.

If you decide to improve the property in accordance with Scheme B drawings our company will hold the above rent at £43,104 pax for the next 3 years, conditional on you carrying out agreed remedial improvements works, i.e. electrical maintenance and refurbishment. This offer shows a saving of £9,592 per annum, based on the existing accommodation and current comparative rents for the areas rising to £21,068 per annum if based on Scheme ‘B’ being operational quickly. On the above basis our company would not be willing to financially contribute to any works, indeed of the £30/60,000 rental saving I would reserve the right to rentalise at the open market rent the revised area in 3 years time.

I would like to meet you on Friday to settle the rental and the extent of improvements you envisage. Would you please telephone me so that a mutually agreeable time can be arranged for a meeting.”

The suggested meeting took place and Mr Manton noted its outcome in manuscript on his letter. His note reads: “Agreed. 1^st Feb 2002 - 30,000; 2003 – 32,500; 2004 – 35,000; 2005 – 35,000; Review thereafter.” The sense of that is that it was agreed that for each year commencing 1 February the annual rent was to be as set out until 1 February 2006, when it was to be reviewed.

Mr Manton wrote on 21 February 2002 to Mr Nazam, saying:

“Further to our recent discussions over your future occupation of the above premises, may I inform you that I have submitted the original lease (prepared 1997) with amendments to our solicitors, Shakespeares …, who will review the clauses on the basis that you will carry out substantial improvements to the building, in light of insurance, statutory requirements and also the use of the land at the rear of this unit.

Until we have a better idea on how the future use/occupation of the new area rear land improves the whole store operation, I am reserving my rights before granting use also bearing in mind the potential shared use by our adjoining occupiers …. I have informed our solicitors to avoid shared use disputes but reserve access rights where possible.

Would you kindly inform your own solicitors of the terms agreed and that you are agreeable to a £1,000.00 contribution towards the preparation of the lease.”

Negotiations for the grant of a lease were therefore firmly back on track. On the same day Mr Manton wrote to Shakespeares. He said the matter had “simply lapsed” during the previous two years, but that rent of £20,000 a year had been received. He provided a copy of the latest draft lease for the premises and asked them to review it and submit a new draft to Mr Nazam’s solicitors. He listed its essential terms, including that it was to be a 21 year term from 7 November 2007, with three-yearly upwards rent reviews, and he listed the rent agreement he had noted on the letter of 7 February (although omitting the £35,000 figure for the year commencing 1 February 2005).

Under the “Development” section of his notes, Mr Manton wrote:

“Landlord to retain full rights over land, property including rear land 102-118 Alum Rock Road, for access, construction and use of storeroom, loading, parking of 5 vehicles at any one time. Tenant to obtain planning approval for a permanent store area extension and improvements. Tenant to complete works (as schedule) within 6 months. Tenant on completion to provide electrical, fire and smoke alarm, burglar alarm certificates from independent parties and meet the statutory regulations and insurers requirements.

Also enclosed are copies of coloured plans A & B which represent the existing store layout (with approx. areas) and amended floor plan (Plan B) showing a revised, much improved floor sales area, with first floor storage and rear storage to be built (firstly temporary, later permanently; subject to planning approval). The costs for improvement are approximately £70/80,000 all payable by Mr Nazam directly to the builder.

The importance of Plan B is that on the first review the amended floor space is to be fully rentalised (not disregarded as tenants improvements) at open market price per square foot.

Regarding the land at the rear of this unit, we must retain rights of access throughout 124/132 Alum Rock Road. I envisage charging an increased rent for using this land when we have some idea as to what extent it will be utilised, i.e. loading/unloading, vehicle circulation, limitation of number of vehicles (suggested as 5 No.). [The adjoining occupiers] also wish additional parking. We will be clearing the entire area, Nazam will construct a temporary store. If Nazam’s use can be limited to say 50% of this area I propose to construct a division fence later and avoid tenant shared parking aggravation but a useful financial return from our new lump of land at £5/6,000 pax.”

That reflected that Mr Nazam was expected to carry out and pay for certain improvements of and extensions to the premises, at an expected cost of some £70,000 to £80,000. The reference to the building of a “rear storage” was, I should say, not to the later proposal to build a warehouse on the land to the rear that Manton was purchasing, but to a development of the premises.

On 7 March 2002 Manton sent Mr Nazam an invoice for rent. It was for the quarter’s rent commencing on 25 March, £7,500 (£30,000 a year), plus the proportionate rent of £4,273.97 due in respect of the period 1 February to 24 March 2002. It was consistent with the rent agreement noted on the letter of 7 February 2002.

Manton completed its purchase of the land to the rear on 18 March 2002. On 16 April 2002 Shakespeares wrote to Grove Tompkins Bosworth, Mr Nazam’s solicitors (“GTB”), enclosing a draft lease, explaining they were awaiting Manton’s instructions on the areas of land over which Mr Nazam was to have loading, unloading and parking rights. That was a reference to rights over the land to the rear. Clause 5.32 required Mr Nazam to carry out the works to the premises in the attached Schedule of Works.

On 22 April 2002 Shakespeares sent GTB a draft application for a court order under section 38(4) of the Act excluding the proposed tenancy of the premises from sections 24 to 28. GTB objected, saying Mr Nazam had been in possession for some time (nearly five years, in fact) and had an established business. After obtaining Manton’s instructions, Shakespeares replied that the proposed exclusion of sections 24 to 28 was not required after all. Negotiations on the draft lease continued in a leisurely manner, with no finality being reached.

The Recorder found that at the February 2002 meeting with Mr Manton, Mr Nazam agreed with him that he would carry out repairs and improvements to the premises. The Recorder found that Mr Nazam agreed to carry the works out on the basis that when they were completed the lease agreement would be completed. To this end Mr Nazam entered into a contract with a builder, Mr White (who traded as CNG), to carry out these works, which were to cost £79,000 plus VAT, or some £93,000 in all. The Recorder found that the works duly started and that Mr Nazam paid Mr White a total of some £63,000, including VAT, or some two-thirds of the total bill. At some point, however, Mr White walked off site.

When Mr White walked out, Manton retained builders to complete the works that Mr Nazam had agreed to do, to carry out further works to the premises and also to carry out works on the land to the rear, including the building of a warehouse adjoining the premises. In round terms, Manton spent some £310,000 on the premises and £42,000 on the warehouse. The warehouse was built during 2004/2005.

Manton’s pleaded case was that in 2003 Mr Nazam and Mr Manton agreed that Mr Nazam would reimburse Manton for all its expense on works to the premises and on the land at the rear. The lease to be granted to him would include both the warehouse and a right of way over, and a right to park on, the land at the rear. Mr Nazam agrees with what Manton said the lease would comprise and that he was to pay an increased rent accordingly. But he denied that he ever agreed to pay for any works other than those he originally agreed to carry out, which the Recorder found were originally costed at about £93,000, including VAT. By the trial, Manton’s case had changed radically. It was then claiming, with studied imprecision, that all that Mr Nazam had agreed with Manton in 2003 was that he would make a “substantial contribution” towards its expenditure on the premises and the land to the rear.

As regards the works to the premises that Mr Nazam agreed to carry out, there was no dispute that he was to pay for them, although in the event, following Mr White’s departure from the site, it was Manton that paid for the last part of them. But the Recorder also found that Mr Nazam made two payments by way of reimbursement of Manton for that expenditure. He made a cheque payment on 15 September 2004 for £10,700 in respect of (according to the cheque stub) the “roof” and a further payment on 14 February 2005 for £15,383.42 in respect of (according to the stub) “rent and building repair”, so that at least an unspecified part of that cheque related to works. Manton had recorded these payments as rent but Recorder found that the whole of them was by way of reimbursement.

The Recorder’s overall finding as to Mr Nazam’s payment for the repair and improvements to the premises that he had agreed to carry out was that he initially paid for some two thirds of it (to Mr White) and that Manton paid the balance. But he also found that ultimately Mr Nazam “had paid more or less the whole of the balance” by the two cheques. The Recorder, in paragraph 41 of his judgment, found that there was no doubt that the works that Mr Nazam carried out “at a cost of, what should have been a cost of some £79,000 plus VAT, were the works which Mr Manton required him to carry out as part of the terms of the proposed lease.”

The Recorder also accepted Mr Nazam’s evidence that, contrary to Manton’s case, he had not made any agreement with Manton that he would pay, or contribute to, the cost of any of the further works carried out by Manton on the premises and the land to the rear. He found Mr Manton to be an unreliable witness and referred to an untruthful letter he wrote to a third party in 2002 as to what a good rent payer Mr Nazam was. The Recorder found that Mr Manton was sometimes inclined to fabricate evidence to suit his case.

As for rent payments, Mr Nazam was in fact a bad payer and his quarterly rent was usually paid late. The Recorder’s finding, based on Mr Manton’s evidence, was that Manton was content to accept the late payments because the premises were in the nature of a tertiary property and that in the case of such properties it was not unusual for rent to be paid a month or two late. Mr Manton said not all landlords would accept this, but many would and Manton was one.

I should summarise the documents in the papers relating to the payment of rent. On 15 April 2003 Mr Manton wrote to Mr Nazam on two matters. He advised him he had not paid the quarters’ rent due on 25 December 2002 and 25 March 2003, totalling £18,777.86. On 12 June 2003 Manton invoiced Mr Nazam for the quarter’s rent due on 24 June 2003. The invoice also demanded payment of the rent outstanding from the December 2002 quarter. On 17 July 2003 Manton wrote further to Mr Nazam complaining about the arrears of rent, a total of £21,485.95 having become due and unpaid since 31 March 2002. Manton suggested that Mr Nazam should provide three post-dated cheques for £7,161 odd each, payable on 24 July, 24 August and 24 September 2003. Mr Nazam did not take up that suggestion, or pay the arrears, and on 12 August 2003 Manton wrote further to him saying that if payment in full was not made by 22 August 2003, the debt would be placed in the hands of Manton’s solicitors.

In 2005, following the completion of the building of the warehouse on the land to the rear, Manton allowed Mr Nazam to occupy it. He also used the car parking facilities on the land to the rear. Inconsistently with its case that Mr Nazam had agreed to make a “substantial contribution” to the cost of its works to the premises and the land to the rear (one rejected by the Recorder), Manton invoiced Mr Nazam for the whole cost of this work and proposed a revised rent to reflect the improved value of the extended premises. Mr Nazam, perhaps not surprisingly, was unwilling to pay for the works and also an increased rent reflecting the improved value they created.

Mr Nazam’s refusal to contribute to such costs led to a major dispute with Manton. There followed the service of the purported section 26 notice, counter-notice and section 24 application for a new tenancy I have described. Manton’s riposte was to give a notice to Mr Nazam dated 30 June 2006 purporting to terminate his tenancy at will of the premises and requiring him to vacate them. Manton later became concerned that that notice should also have extended to the warehouse on the land to the rear, and on 17 January 2007 it served a further notice terminating Mr Nazam’s tenancy at will of the premises and warehouse, including his rights of way and parking.

The rival cases before the Recorder were that, as Manton claimed, Mr Nazam was a tenant at will; and, as Mr Nazam claimed, he was a quarterly tenancy, that being the period by reference to which he was supposed to pay rent. The Recorder’s finding was that Mr Nazam initially went into occupation of the premises in the expectation of terms being agreed for an assignment of Mr Salim’s lease; and, when negotiations for that broke down, he remained in occupation in the expectation of terms being agreed for the grant of a lease. Guiding himself by reference to the principles explained in this court’s decision in Javad v. Mohammed Aqil [1991] 1 WLR 1007, the Recorder said:

“75.

… I accept that this is a case where a tenant has been in occupation for many, many years, but there was throughout, despite the long delays either by solicitors or indeed on one occasion by Mr Manton who was considering selling the property, it seems to me that Mr Nazam’s status did not change from the day he entered until the proceedings were over. So if that was all he would simply be a tenant at will and would not be entitled to bring this application for rent [sic: must mean ‘for a new tenancy’].”

The Recorder held it was not. His finding in paragraph 75 was that Mr Nazam was encouraged to spend some £75,000 plus VAT (he had earlier said £79,000 plus VAT) on works to the premises in the expectation of the grant of a lease, and he carried those works out and paid for them in such expectation. Mr Nazam did not complete the performance of those works himself, Manton had to complete about a third of them. But the Recorder found that Mr Nazam reimbursed Manton for its expense in doing so by the two cheques. The Recorder held that in those circumstances it would be unfair and unconscionable for Manton to withdraw from the proposal to grant Mr Nazam the lease that had been the subject of the negotiations. He regarded the circumstances as akin to those in Cobbe v. Yeoman’s Row Management Limited [2006] 1 WLR 2964.

The Recorder directed himself as to the appropriate remedy having regard to the detriment suffered by Mr Nazam by reason of his investment in the repair and improvement of the premises. Manton’s submission was that he should simply be reimbursed his expenditure. The Recorder did not consider that would achieve proper justice, as Mr Nazam had invested heavily in his business. His view was that he should have the new tenancy he was asking for. He said that involved a fiction, since Mr Nazam was a mere tenant at will, with no right to a new tenancy. But he took the view that equity should regard as done that which ought to have been done, and that Mr Nazam should be treated as having already received the tenancy that he ought to have received; and his view was that occupation under such a tenancy would given him a right to a new tenancy under Part II. In the alternative, the Recorder said he considered that “a new tenancy under the 1954 Act is the appropriate and proportionate solution that I can independently give him by way of a remedy.”

The Recorder’s finding, based on an agreed schedule, was that Mr Nazam’s average delay in paying his rent was “plus or minus a few days, a matter of three months”. Mr Nazam did not dispute that but said he was never seriously pressed to pay and did not feel obliged to pay his rent unless he felt under a serious obligation to pay it. The Recorder described that as not the most enchanting part of his evidence. He said:

“51.

I make the point now that if he is to be granted a new lease, the dates of payment of rent under the new lease are not simply matters for negotiation, but they are times when money must be paid – not a cheque sent, but money must be received. Rent is payable on the date it says it is payable. A cheque is only a conditional payment. If Mr Nazam is in arrears under any new lease which is granted by this court and proceedings for possession are brought, the fact that he has been warned in this judgment about payment of rent being necessarily paid on time, will I hope be drawn to the attention of the new court. At any rate he has been very remiss in paying rent on average about three months late and in future that must not be the case.”

In deciding whether Mr Nazam’s claim to a new tenancy should be defeated by his persistent delay in paying rent, the Recorder said that for Mr Nazam to be on average three months late in the payment of rent “may well be said to be persistent: it is certainly serious.” He referred to Betty’s Cafés Ltd v. Phillips Furnishing Stores Ltd [1957] 1 Ch. 67, and interpreted certain obiter remarks of Birkett LJ, at 82, as saying that in a case such as the present the tenant should not be entitled to a new tenancy, which the Recorder said seemed a very strict test that perhaps reflected the 1950s. The Recorder referred also to the decision of this court in Hazel v. Akhtar [2002] 2 P & CR 240, a case in which the delay was between one and 21 days but there was evidence that the practice of late payment was something to which the landlord had assented and the court ordered the grant of a new tenancy. The Recorder found that, had Mr Manton been firmer with Mr Nazam than he was, Mr Nazam would have paid the rent when it was required. He said “I am quite sure that he would be able to pay his rent on time if he realised he had to.” His conclusion was:

“82.

I think that the ‘ought’ in [section 30(1)(b)] imports the full consideration of the merits of the case, including those which entitle the tenant to bring the proceedings under the Act at all. It is not limited just to consideration as a word. It seems to me that it would be highly wrong, morally and legally, for the tenant to be entitled to bring a claim under the Act because of Mr Manton’s promises made to him which have not been fulfilled and then to have victory pulled away from him at the last minute because of this failure to pay rent which was acceded to by Mr Manton. … on balance I do not consider that Mr Nazam ought not to have a tenancy because of his bad payment record. In particular I am entirely satisfied that he is able to pay the rent under the new tenancy when that is due. I am entirely satisfied that this judgment, in making it crystal clear that rent must be paid when due, will be used against him if there should be any default in the future when he gets his new lease. I am not saying that an occasional delay of a day will mean that he is out, but if there any regular delay, or the delay is in any way serious, I am quite sure that the warning in this judgment will be drawn to the attention of a judge in any future application for possession. Accordingly I do not consider the defence under section 30(1)(b) is made out.”

Finally, the Recorder considered whether the new tenancy should include the warehouse on the land to the rear. Although Mr Nazam’s notice served under section 26 of the Act referred only to the premises, the Recorder interpreted it as including the warehouse. He directed that the demised premises under the new tenancy were to include the premises, the warehouse on the land to the rear and a right to park vehicles on that land.

Manton challenged the Recorder’s finding of a proprietary estoppel on two factual bases. It argued (i) that the Recorder was wrong to find that Mr Nazam had paid for all the works to the premises that he found he had agreed to carry out; (ii) that the Recorder was wrong to find that Mr Nazam had not agreed to make a “substantial contribution” to the cost of the further works to the premises and to the land to the rear that Manton had carried out; and (iii) that Mr Nazam had acted dishonourably in relation to the matter of the payments for works on the premises and the land to the rear.

Mr de Waal pointed out that in paragraph 12 of his witness statement Mr Nazam claimed to have spent £52,000 plus VAT on alterations and improvements to the premises on the understanding reached with Mr Manton that he was a business tenant and already hadsecurity of tenure. He there said the works included the creation of a first floor warehouse area -- not a reference to the new warehouse on the land to the rear, but to an improvement of the premises -- staff rest rooms, kitchen and toilets, an office and first floor corridor and storage area, the installation of a framework for the suspended ceiling, electrical wiring and the removal of some internal walls to expand the sales floor area. He said he had also spent over £100,000 on internal fixtures and fittings at the premises. He explained he had agreed with Mr Manton that Manton would build the warehouse on the land to the rear and tarmac that land to create a car park. He denied he ever agreed to pay for those works, but said he had agreed an increased rent to reflect that the warehouse and the car parking rights were to be included in his lease.

Mr de Waal pointed out that the documents Mr Nazam disclosed prior to the trial did not support his expenditure claims but proved he had spent no more than £28,871.60. During his oral evidence Mr Nazam suggested that the two cheques he had tendered to Manton, which Manton had accepted as rent, were (as the Recorder found) payments towards repair costs. Mr de Waal criticised this finding, making the point that the two cheques, totalling £26,088 odd, had not been the subject of prior disclosure and nor, it was said, were the all-important cheque stubs produced at the trial and so they were not seen by counsel or by the Recorder. The Recorder found that, adding those payments to the other payments he found Mr Nazam to have made, meant that Mr Nazam had paid for all the costs towards the works on the premises he had agreed to carry out. The consequence was that, as Manton regarded them as payments of rent, Mr Nazam still owed Manton an equivalent amount of rent; and the Recorder ordered him to pay those rent arrears.

In summary, Mr de Waal advanced five reasons as to why the Recorder should not have made the finding he did in relation to the two cheques. First, Mr Nazam had not pleaded that he provided them in reimbursement of costs. Second, nor had he said so in his witness statement. Third, the cheque stubs said to record the purpose of the payments were not disclosed or produced. Fourth, Manton’s evidence was that the cheques were tendered as rent, which Mr Nazam did not challenge. Fifth, not even Mr Harrison-Hall had submitted that the whole £26,088 odd was paid towards repairs.

For Mr Nazam, Mr Harrison-Hall submitted that the Recorder was in no manner at fault in making the findings he did as to Mr Nazam’s expenditure on the works he had agreed to carry out. There was no dispute that Mr Nazam engaged Mr White to carry out the works and Mr White gave evidence that Mr Nazam had paid him part of his costs. The Recorder found he had paid him some £63,000, including VAT, towards the works. During the course of Mr Nazam’s oral evidence, the Recorder asked him to search for further documents, the result of which was that he found the stubs for the two cheques in question and bank statements showing that Manton had received the payments. The Recorder found the cheques were tendered in reimbursement of Manton’s contribution to the cost of the works, with the result being that, as he found in paragraph 63, “Mr Nazam thought he had paid more or less the whole of the balance” of the cost of the works he agreed to carry out.

As for the point that the cheque stubs were said not to have been disclosed, Mr Harrison-Hall said they were in court and available for inspection by Manton’s solicitors and counsel. If they chose not to exercise that right, that was not Mr Nazam’s fault. Whilst Mr Nazam did not challenge Manton’s treatment of the payments as being for rent, Mr Harrison-Hall said that he did not know they had been so treated. As for Mr de Waal’s fifth point, Mr Harrison-Hall admitted he did not submit that the entirety of the two payments was in respect of repairs, because the stub for one recorded that it was for rent as well. But there was no evidence as to what part was referable to rent and the Recorder chose to treat the whole as referable to reimbursement.

The matter of the two cheques was undoubtedly eleventh hour evidence, which had not been foreshadowed in the pleadings, witness statements or in pre-trial disclosure. But I do not consider that there is a sound basis for challenging the Recorder’s findings as to Mr Nazam’s expenditure on works that he had agreed to carry out, including the finding that the two cheques represented reimbursement to Manton for its discharge of part of that liability. The Recorder saw the witnesses, heard the evidence and was entitled to make the findings he did as to Mr Nazam’s payment for works to the premises. As for the point that Manton had no opportunity to consider the cheque stubs, it appears that it did have that opportunity but declined to take it. Manton might perhaps have objected to the adducing of evidence as to the nature of the payments made by these two cheques. But it does not appear that it did so, and the Recorder found the facts that he did. It might be said that the Recorder was generous to find that all of the second cheque was referable to works when the stub suggested that part (as to the extent of which there was no evidence) was referable to rent. But this made no overall financial difference to Manton, because – having treated both cheques as referable to works – the Recorder ordered Mr Nazam to pay the like sum to Manton as rent. Nor, as Mr de Waal anyway conceded, was any small shortfall in reimbursement by itself fatal to Mr Nazam’s proprietary estoppel case. I would reject Manton’s criticism of the Recorder’s finding that Mr Nazam paid in full for the works he agreed to carry out.

The second ground of appeal is that the Recorder was wrong to find that Mr Nazam made no agreement to make a “substantial contribution” to the considerable further expenditure that Manton incurred on the premises and the land to the rear, including building the warehouse. That conclusion is said to be against the weight of the evidence. Mr de Waal relied on various documents. The first was an undated note (probably made in December 2003) made by Mr Manton of a meeting he had with Mr Nazam, which the Recorder did not refer to and which is said to support the conclusion that the cost of the building of the warehouse was down to Mr Nazam. In my view it falls short of proving what it is said to prove. It can be read as evidencing no more than that Manton was going to complete the works to the premises that Mr White had started, and for which Mr Nazam had agreed to pay.

The other documents are letters from Manton to Mr Nazam. The first is dated 19 May 2005, well after the warehouse works had started. It referred to the works to the premises and to the building of the warehouse. It appears to have made a request for a costs contribution of “£50,000 to £60,000”. It referred to the fact that there had been delays in Mr Nazam’s rent payments, and that the March quarter’s rent remained unpaid; and that Manton did not wish a similar situation to arise in respect of its invoices for works to the premises. Mr Manton wrote that “[t]herefore, prior to re-instructing our solicitor to complete on the draft lease which has for some time been in preparation I must insist that our costs to date must be met for the work described.” That no doubt reflected that Manton regarded those costs (or a contribution to them) to be down to Mr Nazam. But Mr Nazam denied in evidence that he had ever agreed to pay such costs and the Recorder accepted his evidence.

The next letter is a short one of 16 June 2005. It complained that Mr Nazam had not paid costs for which he had been invoiced, as to which I make the same comment as in relation to the last letter. It also referred to rent and insurance rent as being overdue, but finished by saying that “Our solicitors are still awaiting instruction over the draft lease.” The next letter is one of 8 August 2005. Its main thrust was that Mr Nazam was in occupation of the new warehouse without any lease agreement having been signed and it warned that, if an agreement was not signed within six months, Manton would reserve its right to re-possess the warehouse. Manton also said that it proposed to start charging the increased rent of £18,000 in respect of the warehouse in December 2005. This letter supports Manton’s assertion that Mr Nazam had agreed to repay material and labour costs associated with repairs and improvements, but Mr Nazam’s evidence was to different effect. The last letter relied on, one of 20 December 2005, may also be read as supporting the like assertion by Manton. It also referred to the current rent remaining unpaid and included a proposal by Manton to increase it to £103,965 a year. It concluded by Manton recording that “[g]enerally we both agree the store is now complete trading well and should for many years ahead. Any further information please do not hesitate to call.”

I do not accept that these letters – which, to the extent that they support Manton’s case, are somewhat self-serving – undermine the Recorder’s finding that Mr Nazam made no agreement to pay or contribute to the cost of Manton’s works to the premises or the warehouse construction. He saw the witnesses, heard the evidence and made the finding he did. The find was one he was entitled to make. There is no basis upon which this court can make a different finding.

Had Manton been able to make good either or both of the points it levels at Mr Nazam’s alleged failure to pay for, or contribute to, the costs of the various works carried out, its further submission was that Mr Nazam had behaved dishonourably. Either he had reneged on his bargain to make the payments he agreed to make; or he knew that Manton expected him to make the payments and kept quiet as to his intention to pay nothing. The Recorder found Mr Nazam had paid for all the repairs and improvement to the premises for which he had agreed to pay; and that he had not agreed to pay for the further works to the premises and to the land to the rear that Manton carried out. On those findings, which I do not regard as open to challenge, there is nothing in the point that Mr Nazam behaved dishonourably.

The other point taken by Manton in challenge to Mr Nazam’s proprietary estoppel claim is that it is said that the Recorder was wrong not to hold it defeated by Mr Nazam’s long delays in the payment of rent. I have noted the Recorder’s finding that the lateness of the payments was acceded to by Manton and that it was not a factor that ought to disentitle Mr Nazam from being granted the new tenancy under the Act. Whilst the Recorder did not expressly consider whether it defeated the proprietary estoppel claim, it is implicit that he did not regard it as doing so.

Mr de Waal invoked Coatsworth v. Johnson (1886) 54 LT 520 in aid of his submission. There the plaintiff went into possession of a farm under an agreement for a 21 year lease. He did not pay any rent. The defendant ousted him from possession on the basis that he was no more than a tenant at will. The plaintiff sued the defendant in trespass, claiming to be entitled to a 21 year term in equity. That depended on whether he was entitled to specific performance of the agreement for the lease. The court held he was not because he had breached a covenant in the lease agreement to cultivate the farm. The outcome was judgment for the defendant. What is said here is that as Mr Nazam had not paid his rent promptly he too was in breach of his obligations and should therefore not be entitled to an equitable remedy akin to that of specific performance.

I do not regard Coatsworth as fatal to Mr Nazam’s case. It supports the proposition that a claimant seeking specific performance of a contract to grant him a lease will or may be denied specific performance if, having entered into possession, he breaches a covenant in the promised lease. But, first, it appears to me that the application of that principle is likely to be fact-sensitive to the particular case and to depend on the nature and seriousness of the breach complained of and perhaps also the extent to which it is remediable. Second, the present case is not one in which Mr Nazam was claiming specific performance of a contract to grant him a lease. He was relying on the broader principle that his expenditure on the premises, encouraged by Manton in the expectation of the grant of a 21-year lease, estopped Manton from denying his right to such a lease. That case is not one to which any principle that may be derived from Coatsworth is directly applicable, although I of course accept that inequitable conduct on the part of a claimant seeking the type of equitable relief that Mr Nazam was claiming may in any particular case be sufficient to deny him the claimed relief. But on the perhaps somewhat unusual facts of the present case, I was not persuaded by Mr de Waal that Mr Nazam’s rent payment record disentitled him to his equitable tenancy.

Mr de Waal’s main point was that Mr Nazam’s expenditure on the premises was incurred by about May 2003 (apart from the two cheques which were paid in September 2004 and February 2005, and which Manton anyway regarded as rent) and that during the period subsequent to May 2003 the rent payments were on average 95 days late, an average delay which can be regarded as having increased once the two cheque payments were treated by the Recorder as reimbursements rather than rent. It could not therefore fairly be said that Mr Nazam had acted to his detriment during the period after May 2003, during which period his rent payment record was appalling. By reference to the transcript of evidence, Mr de Waal also criticised the Recorder for having made what he said were unjustifiable findings that Manton was in fact acceding to the late payments of rent of up to as much as 95 days or more.

The Recorder dealt with this point only in the context of the section 30(1)(b) defence, which for reasons earlier given does not now arise. He was, however, also implicitly of the view that Mr Nazam’s rent payment record did not deprive him of his entitlement in equity to a lease. I would uphold that conclusion. The essence of the point is that it is said to be unfair to Manton to burden it with a tenant whose rent payment record is so poor. But Manton’s case in this respect must be judged by Manton’s deeds. Whilst it is true that it wrote the occasional cross letter to Mr Nazam about his late payment of rent, it cannot have regarded this as a serious problem because it never did anything about it: in particular, as it regarded Mr Nazam as in occupation as a mere tenant at will, it could easily have sought to remove him from occupation and looked for a better tenant. Until there was the final falling out, Manton never sought to do this. A good example of its attitude to the late payment of rent is its letter to Mr Nazam of 15 April 2003, which concluded as follows:

“Regarding the lease may I first assure you that its completion will be dealt with after we have concluded the planning and acquainted ourselves with the precise amount of land you require. Our solicitors have been advised accordingly.

May I advise you that the rent for the quarter periods December 2002 and March 2003 totalling £18,776.86 remains unpaid. A payment for the December quarter will be required over the next few days.”

At that point the December 2002 quarter’s rent was nearly four months overdue. But there was Manton giving Mr Nazam an assurance that the lease would in due course be granted. It did not, for example, make its assurance conditional on the arrears being paid promptly or future payments being made on time. Manton never did say that. I have also referred to the reliance Manton placed, for a different point, on its more recent letters of 16 June, 8 August and 20 December 2005. The tenor of these letters was that, despite Mr Nazam’s rent payment record, Manton was still proposing to proceed with the lease.

It was only after Mr Nazam had served his purported section 26 notice in 2006 that Manton sought to terminate his occupation as a tenant at will; and that breakdown of relations was not because Mr Nazam was a bad rent payer but because he declined to pay Manton money for works that, as the Recorder found, he had never agreed to pay. The inference I draw is that, had that dispute not arisen, and Mr Nazam had made all the costs contributions that Manton was claiming, Manton would have been prepared to grant him the lease despite his poor rent payment record. In my judgment, in those circumstances it would be quite unjust to allow Manton now to invoke the late payment record as a ground for denying Mr Nazam his equitable tenancy. I would therefore also reject this element of Manton’s appeal. My conclusion on this is not affected by the fact that, as the Recorder seems not to have appreciated, Mr Nazam would ordinarily be entitled to relief, on usual terms, against any forfeiture of his lease for non-payment of rent.

During the course of the hearing we also gave permission to Manton to amend its grounds of appeal so as to advance the further argument that Mr Nazam’s equity could and should be satisfied by reimbursing him his expenditure spent on the premises rather than by granting him a lease. We exercised our discretion to do so because the point was argued below and it was also a short one, with the argument as to whether it should be allowed to be renewed before us effectively also covering its substance. The Recorder, having directed himself that he had to decide upon the minimum equity to meet the justice of the case, rejected the argument, which he considered would not do justice to Mr Nazam, who had invested so heavily in the business over the years. Mr Nazam’s unchallenged evidence was that the value of the goodwill of his business was more than £500,000. I agree with the Recorder that the mere reimbursement of Mr Nazam of his expenditure would not meet the justice of his equitable claim. I would reject this ground of appeal as well.

In these circumstances, having upheld Mr Nazam’s claim to the equitable tenancy, it is unnecessary to discuss the arguments we heard to the effect that Mr Nazam occupied as a quarterly tenant rather than, as the Recorder found, a tenant at will. I say simply that Mr Harrison-Hall did not persuade me that the Recorder was in error in arriving at the conclusion he did in this respect.

Whilst, for reasons given, I regard the Recorder as having been wrong to order the grant of new tenancy under the Act, I would uphold his finding that Mr Nazam had established a claim to the 21 year tenancy he asserted. I reject the challenges to that conclusion that Manton advanced on this appeal. I would therefore vary the Recorder’s order so as to include a declaration that Mr Nazam is entitled to such a tenancy and I would remit to the county court the determination of its terms by a Circuit Judge or District Judge specifically nominated by the Designated Civil Judge in Birmingham. It was apparent during the hearing that there may well be no material difference between the parties as to the terms other than as to rent.

I add that it also appears to me that, because of the mistaken basis of the proceedings before the Recorder, his order for the payment of £61,687.50 interim rent cannot stand. That part of his order also requires to be varied. I would ask the parties to consider how that should be dealt with, one obvious solution being that the rent so ordered (and, I understand, paid) should be regarded as paid in respect of rent under the lease to which Mr Nazam is entitled. I would invite the parties to endeavour to agree the form of order that the court should make.

I agree.

I also agree.