Gorst & Anor v Knight

This is my judgment on an appeal brought by Brenda Gorst and her son Charles against the order of Master Price dated 28 June 2017, on a claim made by Anabel Knight against them under CPR Part 8. The claim was issued on 10 March 2017. It sought a declaration that the long lease of the maisonette known as Flat 1, 88 Tunis Road, London W12 7EY, of which Brenda and Charles Gorst are the current proprietors, does not extend to the subsoil under the terraced house known as 88 Tunis Road. Master Price by his order made that declaration.

Master Price heard the claim on 13 April 2017, and handed down his reserved, written judgment on 28 June 2017 (the draft judgment having been circulated about a month earlier). He refused permission to appeal against his decision. The appellants’ notice was filed on 25 July 2017. Morgan J granted permission to appeal on 24 October 2017. The respondents filed a notice seeking to uphold the master’s decision on additional grounds on 6 November 2017. The appeal was heard by me on 22 February 2018, when David Holland QC appeared for the appellants, and Alan Steinfeld QC and Owen Curry appeared for the respondents. I am very grateful for their helpful and concise arguments, both written and oral.

By virtue of CPR rule 52.21 (1), an appeal is limited to a review of the decision of the court below, unless the court considers that in the circumstances of a particular appeal it would be in the interests of justice to rehear the case: Audergon v La Baguette Ltd [2002] EWCA Civ 10, [83]. The important difference between a review and a rehearing is dealt with in Assicurazioni Generali SpA v Arab Insurance Group [2003] 1 WLR 577, CA, and in EI Du Pont Nemours and Co v ST Du Pont [2006] 1 WLR 2793, per May LJ. In the present case, this was a review rather than a rehearing, but the parties were able to make all the submissions on the facts and the law that they wished.

Rule 52.21 (3) provides that the appeal court will allow the appeal where the decision was (a) wrong, or (b) unjust, because of serious procedural or other irregularity in the proceedings below. Here ‘wrong’ means wrong in law, wrong in fact, or wrong in the exercise of discretion. But the test is different for each of these. Amongst other things, the court must distinguish between a finding of primary fact on oral evidence where credibility is in issue, the evaluation of facts by a judge, and the exercise of discretion by the judge.

The house at 88 Tunis Road consists of ground, first and second floors, a rear extension (on all three floors) and a patio at ground floor level. Additionally there is a cellar beneath the ground floor, approximately five feet high, with no natural light and a sandy, compacted earth floor. It appears from the documents placed before the court that the house was divided into two separate residential units, each called “maisonette”, in 1991-92, and leases were granted of those two units at the end of 1992. The lower unit was called Flat 1, and the upper unit was called Flat 2. The latter occupies the first and second floors of the house.

The original lease of Flat 1 is dated 17 December 1992. Broadly speaking, that lease demised the ground floor (excepting the entrance hallway, and a paved area outside the front door, fronting the street) and the cellar beneath the ground floor, together with the patio at the back, for 99 years, at an annual ground rent, rising throughout the term from £50 to £400. However, a “lease extension” under the Leasehold Reform, Housing and Urban Development Act 1993 was later obtained, and took effect from 12 May 2016. The result was that a new lease was granted, on the same terms as the old, but for a term now of some 189 years. The only parts of the freehold of the house at ground level not subject to a long lease are the small paved area outside the front door, facing the street, and the entrance hall. The original freehold reversion, with its rising ground rent and its forfeiture clause, would certainly have been worth something at the outset of the 99 year term.

The appellants had the idea of making the cellar into a habitable room or rooms. Since it is only 5 feet high, it needs more height. But this could only be obtained by digging down into the subsoil, about another 4 feet. The appellant applied for and obtained planning permission from the local planning authority. However, the respondent (who is not only the proprietor of the lease of flat 2, but also the owner of the freehold interest) opposes this plan.

The question therefore for the court is whether the lease of flat 1 demises the subsoil to the appellants. If it does not, then, without the consent of the owner of the subsoil, carrying out the plan would amount to a trespass and therefore could not go ahead. If on the other hand the lease of flat 1 does demise the subsoil to the appellants, then, subject to landlord's consent under the terms of the lease, the plan can be carried out. It is common ground that the requirement for the landlord’s consent is subject to section 19 of the Landlord and Tenant Act 1927, and therefore consent cannot be unreasonably withheld. In fact, the respondent has indicated by a letter from her solicitors dated 7 March 2017 that, if the demise is held to include the subsoil, the respondent will in principle give consent, subject to her properly incurred legal or other expenses being met, in accordance with s 19 of the 1927 Act.

I turn now to consider the provisions of the leases of flat 1. First of all, the current lease is that granted on 12 May 2016 by the respondent as freeholder to the appellants as tenants pursuant to the right to a lease extension under the Leasehold Reform, Housing and Urban Development Act 1993. As I have already said, that has a term of about 189 years to run. The relevant provisions are as follows:

“1.

In consideration of the sum of £17,500 … paid to the Landlord on or before the execution hereof … and the rents and covenants hereinafter reserved and contained and on the part of the Tenant to be paid and observed and performed the Landlord HEREBY DEMISES unto the Tenant with full title guarantee ALL THAT the property devised by the Existing Lease ("the Premises") TOGETHER WITH the rights set out in the Existing Lease in common with the Landlord and all those authorised by the Landlord AND EXCEPT AND RESERVING in favour of the Landlord and all persons authorised by the Landlord the rights and easements set out in the Existing Lease and the right to apply to the Court for an order entitling the Landlord to resume possession of the Property pursuant to section 61 of the Act as provided in clause 6(c) of this Lease TO HOLD the Property to the Tenant for the term of 189 years from the 24^th June 1992 YIELDING AND PAYING the following rents:

FIRSTLY from the date hereof the yearly son of one peppercorn (if demanded) and SECONDLY the other or further or additional rents including service charge and other sums reserved by the Existing Lease as though repeated in this lease mutatis mutandis.

2.

Except as to the term of years granted the rent reserved and the express provisions of this Lease this demise is made subject to and on the same covenants on the parts of the Landlord and the Tenant and to the same provisos agreements stipulations and conditions as contained in the Existing Lease as though they had been repeated in this Lease mutatis mutandis save as amended by this Lease and as if the names of the parties to this Lease had been respectively substituted for those in the Existing Lease

3.

The Existing Lease shall merge and be extinguished in this Lease”.

That lease replaces the original lease, granted on 17 December 1992 by the original freeholder Catherine Anna Orr Deas to the original tenant Swordheath Properties Ltd, for a term of 99 years. The relevant provisions of this lease are as follows:

I was not taken to the lease of Flat 2, but the language, style and structure of this lease strongly indicate that there was a single model draft lease which was used for both leases. The language of clauses 1.1 and 4.5.4 for example, is quite striking in this respect. What that means is that there is the potential, if the adaptation is not done precisely, for there to be words and possibly phrases retained in the lease which are inapt for the particular flat which is the subject of the lease. I bear this in mind in construing the terms of the lease.

The principles of construction of commercial contracts have been discussed and set out in a number of recent decisions of the Supreme Court, including Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, and Arnold v Britton [2015] AC 1619. I was referred in particular to the decision in Wood v Capita Insurance Services Limited[2017] AC 1173, where Lord Hodge (with whom the other judges concurred) said this:

“9.

It is not appropriate in this case to reformulate the guidance given in the Rainy Sky and Arnold cases; the legal profession has sufficient judicial statements of this nature. But it may assist if I explain briefly why I do not accept the proposition that the Arnold case involved a recalibration of the approach summarised in the Rainy Sky case.

10.

The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. In Prenn v Simmonds [1971] 1 WLR 1381, 1383H–1385D and in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, 997, Lord Wilberforce affirmed the potential relevance to the task of interpreting the parties' contract of the factual background known to the parties at or before the date of the contract, excluding evidence of the prior negotiations. When in his celebrated judgment in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912–913, Lord Hoffmann reformulated the principles of contractual interpretation, some saw his second principle, which allowed consideration of the whole relevant factual background available to the parties at the time of the contract, as signalling a break with the past. But Lord Bingham of Cornhill in an extra-judicial writing, “A New Thing Under the Sun? The Interpretation of Contracts and the ICS decision” (2008) 12 Edin LR 374, persuasively demonstrated that the idea of the court putting itself in the shoes of the contracting parties had a long pedigree.

11.

Lord Clarke of Stone-cum-Ebony JSC elegantly summarised the approach to construction in the Rainy Sky case [2011] 1 WLR 2900, para 21f. In the Arnold case [2015] AC 1619 all of the judgments confirmed the approach in the Rainy Sky case: Lord Neuberger of Abbotsbury PSC, paras 13–14; Lord Hodge JSC, para 76 and Lord Carnwath JSC, para 108. Interpretation is, as Lord Clarke JSC stated in the Rainy Sky case (para 21), a unitary exercise; where there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause (the Rainy Sky case, para 26, citing Mance LJ in Gan Insurance Co Ltd v Tai Ping Insurance Co Ltd (No 2) [2001] 2 All ER (Comm) 299, paras 13, 16); and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest: the Arnold case, paras 20, 77. Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms.

12.

This unitary exercise involves an iterative process by which each suggested interpretation is checked against the provisions of the contract and its commercial consequences are investigated: the Arnold case, para 77, citing In re Sigma Finance Corpn [2010] 1 All ER 571, para 12, per Lord Mance JSC. To my mind once one has read the language in dispute and the relevant parts of the contract that provide its context, it does not matter whether the more detailed analysis commences with the factual background and the implications of rival constructions or a close examination of the relevant language in the contract, so long as the court balances the indications given by each.

13.

Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process, of which Lord Mance JSC spoke in Sigma Finance Corpn [2010] 1 All ER 571, para 12, assists the lawyer or judge to ascertain the objective meaning of disputed provisions.

14.

On the approach to contractual interpretation, the Rainy Sky and Arnold case were saying the same thing.”

The same principles apply to the construction of a lease: see Berrisford v Mexfield Housing Co-Operative Ltd [2012] 1 AC 955, [17], [107]; Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] AC 742.

In the present case it is necessary to construe the leases in order to be able to answer the question whether the subsoil has or has not been demised to the appellants. Generally speaking, leases, like other commercial documents, are to be construed as at the date on which they are entered into. However, in the present case the new lease in 2016 demised certain premises by reference to the premises demised under the old lease of 1992. Accordingly, the appellants accept that the premises demised by the new lease are the same as the premises demised by the old lease albeit they are now subject to the terms of the new lease. But the appellants also say that, in construing the demise in the new lease, the court should take into account what was in the contemplation of the parties in 2016 rather than what was in the contemplation of the parties in 1992.

No authority on this question was cited to me. I am not sure that it would be right in any event to apply the contemplation “of the parties” to a compulsory lease extension, since the landlord is not entering into it voluntarily. The right to the extension arises only because of the voluntary transaction back in 1992. That is the latest event that involves the input of will on the part of both parties. My inclination therefore would be to say that the contemplation of the parties should be that of 1992. However, even if it would be right in the case of the compulsory lease extension to look at the contemplation of the parties in 2016, the fact remains that what is demised by the new lease is actually referred back to the old lease. So in my judgment the court must look at what was contemplated in 1992, rather than in 2016, to the extent that would assist in ascertaining the extent of the demise which is then carried forward to the new lease.

I therefore turn to consider the extent of the demise in the 1992 lease. The first question is what the then freeholder, who was granting the lease, actually owned at that date. Evidently she owned the freehold of the terraced house known as 88 Tunis Road. But did she own the subsoil beneath it? The general principle in English law is often expressed in the form of a Latin maxim: “cuius est solum, eius est usque ad coelum et ad inferos”.It was examined in some detail in the recent decision of the Supreme Court in Bocardo SA v Star Energy UK Onshore Ltd [2011] 1 AC 380. This was a case of drilling for oil by one person (Star) from its own land at a considerable depth, but in fact underneath land belonging to a neighbour (Bocardo).

Lord Hope said:

“9.

Bocardo’s case is that it is trite law that a conveyance of land includes the surface and everything below it, unless there have been exceptions from the grant such as commonly occurs in the case of minerals. Star do not dispute this proposition as a general rule that applies where the rights of the surface owner are interfered with. But they maintain that it does not extend to the depth at which the operations were and are being carried out in this case. The minimum depth was 800 feet, while for the most part the depths were greatly in excess of this. Mr Michael Driscoll QC for Star said that he accepted that in law the surface owner owned the substrata to some depth, but not that far. He submitted that the wells and their tubes and casing did not interfere with or enter upon land in any meaningful way at all. Moreover the right to search, bore for and get the petroleum was vested in the Crown. Bocardo did not own, and had no right to possess, the petroleum.

10.

It has often been said that prima facie the owner of the surface is entitled to the surface itself and everything below it down to the centre of the earth: see, for example, Rowbotham v Wilson (1860) 8 HL Cas 348, 360, per Lord Wensleydale; Bowser v Maclean (1860) 2 De G F&J 415, 419, per Lord Campbell LC; Pountney v Clayton (1883) 11 QBD 820, 838, per Bowen LJ; Elwes v Brigg Gas Co (1886) 33 ChD 562, 568, per Chitty J and National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675, 708, per Lord Russell of Killowen. The proposition that prima facie everything below the surface belongs to the surface owner is often linked to the proposition that everything above it belongs to him too: “everything up to the sky”, as Sir William James V-C put it in Corbett v Hill (1870) LR 9 Eq 671, 673, or “everything under the sky” in the words of Bowen LJ in Pountney v Clayton. In Mitchell v Mosley [1914] 1 Ch 438, 450, Cozens-Hardy MR said that the grant of the land includes the surface and all that is supra – houses, trees and the like – and everything that is infra – mines, earth and clay, etc. Agreeing with him, Swinfen Eady LJ and Phillimore LJ said that this was a recognised rule of law. Plainly, the source for these remarks was the well-known Latin brocard cuius est solum, eius est usque ad coelum et ad inferos.”

In the present case, it was common ground that this accurately expressed English law for our purposes, and that in the present case there was no evidence that the estate of the freeholder was restricted in any relevant way. Accordingly, in 1992 both the subsoil under the house and the airspace above it were available to the freeholder to be the subject of a demise. The question then is whether the subsoil was so demised.

It is clear that there is no reason in principle why a freeholder should not demise the airspace above a building. One example is Kelsen v Imperial Tobacco Co [1957] 2 QB 334 (where a lessee of the whole of a one-storey shop was held to have included in his demise the airspace above the roof of the shop). Another is H Waites Ltd v Hambledon Court Ltd [2014] EWHC 651 (Ch) (where the lessees for 999 years of flats in an apartment block and separate single-storey garages were held to have included in their demises the airspace above the roofs of the garages).

In the latter case, Morgan J said this:

“50.

Having considered these authorities, I conclude that there is nothing in them to prevent me giving effect to the provisional view I expressed in paragraph 45 above. Indeed, the authorities seem to me to provide support for that view. Whether one says that there is a presumption to be applied, I consider that where one is dealing with a demise of a building, where the wording of the demise is expressed by reference to a vertical division, and there is no wording expressing any horizontal division, it is natural to react to that wording by holding that there is no horizontal cut off which excludes the airspace above the building or, for that matter, the sub-soil below the building. My final view is that, in this case, the demise of a garage includes the airspace above the garage.”

This follows an earlier dictum, to which both Morgan J in his case and I in mine were referred, of Nicholls LJ in Straudley Investments Ltd v Barpress Ltd [1987] 1 EGLR 69, 70:

“The factual position now … is that the building or buildings 67 to 81 Mortimer Street form part of a terraced block. On those simple facts, for my part I can see no escape from the conclusion that the demise was of the whole of the building or buildings 67 to 81 Mortimer Street shown on the plan including, as part of that building or those buildings, the roof of the relevant two-storey area and the roof of the rest of the building or buildings and, in the normal way, the air space above those roofs. … I add that this lease, being a long lease of a whole building or whole buildings, is quite different from a lease or tenancy of a top-floor flat of a building which has been divided horizontally into flats” (emphasis supplied).

However, the difficulty in the present case arises precisely from the fact that the demise which I have to construe is not of the whole building where the demise is by reference to a vertical division. Instead the division of the building is horizontal, between flat 1 and flat 2. In this connection I was referred to the decision of the Court of Appeal in Davies v Yadegar (1989) 22 HLR 232. In that case, the plaintiff entered into a long lease in 1976 with the defendant landlord for the whole of the first floor flat, the upper floor of a house, specifically including in the demise the roof of the building and the space within the roof. There was the usual covenant by the tenant not to make any alteration or alter the plan or elevation of the demised premises without the prior written consent of the landlord. Subsequently the plaintiff wished to carry out a loft conversion, but consent was refused. In the county court, the judge held that the alterations amounted to an improvement within section 19 of the Landlord and Tenant Act 1927 and that consent was being unreasonably withheld. The defendant landlord appealed to the Court of Appeal, on the basis that the alteration sought would alter the profile of the roof so as to protrude further into the airspace above the existing roof. That court however dismissed the appeal.

Woolf LJ (with whom Sir Roger Ormrod agreed), in what is clearly an extempore judgment, said (at 235):

Sir Roger Ormrod added a short concurring judgment, at the end of which he referred to the dictum of Nicholls LJ in Straudley Investments Ltd v Barpress Ltd, already referred to, and said (at 237):

“The only point I make is that, if the demise of the top floor flat includes the roof and roof space, then the same rule applies as to the demise of the whole building.”

In other words, Sir Roger Ormrod interpreted the words used by Nicholls LJ in a certain way, so as to prevent there being any inconsistency between what Nicholls LJ said and what the Court was saying in Davies v Yadegar.

I have to say that I respectfully doubt that Nicholls LJ meant to be understood in the way that Sir Roger Ormrod said. In my respectful view, Nicholls LJ was referring to a different and more general point, which was that, where there is a horizontal division in a building, there are a multiple of interests beneath the same roof, and one cannot simply say that whoever has the top of the building automatically has the airspace as well. In fact the need in Davies was only for space to erect and open dormer windows. There was, for example, no suggestion that the tenant wished to erect a further floor (or two) into the air space. In my judgment, the decision in that case must be seen in that light.

I should add that in Rosebery Ltd v Rocklee Ltd [2011] EWHC 2947 (Ch), Nicholas Strauss QC, sitting as a deputy judge in another case about airspace above a flat, this time in an apartment block divided both vertically and horizontally, had cited to him both Straudley and Davies. He said:

“43.

In my opinion, the authorities do not support the proposition advanced by Mr. Harpum that there is a presumption in any lease of, or including, a roof that it extends upwards to the full height of the airspace available to the lessor. Davies v Yadegar was a case in which the demise included the whole of the top floor and the whole of the roof. The passage emphasised in the judgment of Woolf LJ above suggests that, where the demise is of the roof of a small part of the building, in circumstances in which its use could affect tenants on other floors, no such presumption applies. I agree with Lewison on Interpretation of Contacts, 4^th ed. at §11-12 that there are no clear presumptions relating to divisions of individual parts of a building.”

Davies v Yadegar, of course, like the Straudley Investments case, concerned the roof and the airspace above the roof, whereas the present case concerns the subsoil underneath the house. Mr Holland QC, for the appellants, says that makes no difference, and that the same principle must apply. I do not agree. There are some similarities, but there are also a number of differences. Chief among them is the fact that the subsoil is key to the stability of the whole building. If the foundations become unstable, the whole building is threatened. Not so of the roof. Second, access to the subsoil is more difficult, and will generally involve going through the lowest demise in the building. (I accept that Bocardo shows that this is not invariably so.) Thirdly, the subsoil is not visible and open to the elements, as the roof is. A problem with it will not be so easily noticed at an early stage. In my judgment, these considerations mean that one cannot apply authorities concerning the roof to the subsoil without further consideration.

The only authority to which I was referred concerning the subsoil in a building divided into flats horizontally was Lejonvarn v Cromwell Mansions Management Co Ltd [2012] L & TR 31. This was a decision of John Jarvis QC, sitting as a deputy judge of the High Court. In that case, the claimants were the tenants of flat described in the lease as "the Ground Floor and Basement and Cellar Flat" forming part of a house in North London for a term of 999 years from 1975. The building contained another two flats located on upper floors. The claimants wished to carry out substantial development works involving excavation of the subsoil under their flat. The defendant freeholder, a company owned by the owners of the three flats in the building, opposed this, arguing that the proposed works fell outside the premises demised to them. (I note in passing that Mr Holland QC, here for the tenant, appeared in that case for the landlord.)

Clause 1 of the lease provided:

“The Lessor hereby demises unto the tenant all that the Ground Floor and Basement and Cellar Flat (hereafter called the ‘Flat’) numbered 1 and being on the Ground Floor and Basement and Cellar of the Building and including one half part in depth of the structure between the ceilings of the Flat and floors of the Flat above it, and the internal and external walls of the Flat up to the same level, together with the land being the garden as is shown coloured pink on a plan hereto annexed, together with the easements, rights and privileges mentioned in the First Schedule hereto...”

The deputy judge said:

“9.

It seems to me that the wording used in cl.1 is of crucial importance. I bear in mind that this is a document that was prepared by lawyers and that the words will therefore have been carefully chosen. It is significant to me that the words that were used in cl.1 for the definition of the ‘Flat’ were ‘the ground floor and basement and cellar flat’. One starts with what must be, on this analysis, rooms. It is not talking about, for example, the land which might have been conveyed. It is not uncommon where there are leases and apartments in blocks that what is transferred by way of lease is the self-contained unit of the flat. The fact that the draftsman chose to use those words and gave them there a defined meaning for the remainder of the lease is significant.”

The deputy judge went on to say (at [12]) that in other provisions of the lease the use of the word "Flat" was consistent with the meaning which he favoured, that is "the built out part of the demise".

He also focused on the position of the foundations in relation to the building. He said:

“16.

What is of perhaps greater significance is that the obligation is on the landlord to maintain the foundations. Mr Holland argues that the foundations of a property such as this are so important to all three flats within a property that one would expect the freehold owner to retain control of the foundations so that it was not subjected to its rights of entry for the purposes of repair and imposing of repairing obligations, but rather it was to take the primary obligation by taking the whole interest in the foundations. There is, in my judgment, force in that submission that the foundations are in a class of their own because it is the position that the foundations will have a fundamentally detrimental effect on all three flats if they were to fail.”

I observe, in relation to the present case, that the foundations are in fact expressly demised to the appellants by the present lease. Nevertheless, by imposing an obligation on the tenants, enforceable by the landlord, to keep the foundations in repair, and also by empowering the landlord, in case the tenants do not comply with that covenant, to enter on the demised premises for the purposes of making the repair herself, the lease has in effect retained the control of the foundations and their state of repair for the landlord herself. So the position in substance is much the same here as it was in Lejonvarn.

The deputy judge also considered (at [20]) that one of the "most telling clauses in this lease" was one granting rights for the benefit of the demised premises to run services "in or under or passing through the building or any part thereof". The express use of the word "under" was held to be consistent only with the tenants not having any property in the subsoil. I observe that there is a similar provision in the lease in the present case (cl 1.1.2(a)), referring to similar services running "in or under the Demised Premises". That provision is in fact contained in a reservation to the landlord, rather than in a grant to the tenant. The appellants argued that that made all the difference. I do not see why it should. The use of the word "under" in either case indicates that there is a lower limit to the demised premises. Whatever the limit is, whatever is under it is self-evidently not demised. That is consistent with the provision in clause 1 of the lease that what is demised is the maisonette "generally including all parts of the Building" (emphasis supplied) below the line dividing equally the ground and first floors.

The deputy judge referred to what he regarded as "a legal presumption that … there is a grant that includes everything above and beneath the property", which he said was expressed in the phrase "Cuius estate solum eius est usque ad coelum et ad inferos". He referred to Lewison on the Interpretation of Contracts, 4th edition, at paragraph 11.12, which was referred to by Mr Strauss QC in Rosebery Ltd v Rocklee Ltd [2011] EWHC 2947 (Ch), [43], quoted above. But, as I have said, this principle is really about how far the grant of the freehold of land extends upwards and downwards from the surface, and so is relevant in ascertaining what it is that the freeholder is competent to dispose of by way of demise. It does not seem to me to be an appropriate starting point in considering what is the extent of a particular demise. That must be ascertained by reference to the terms of the grant, consisting only in the actual words used (and any other indicia of the actual intentions of the parties) taken with the context in which they were used, in relation to which the state and extent of the freehold available is of course one factor.

I think the deputy judge recognised this when he said:

“30.

It seems to me that the rationale for the presumption of usque ad is founded primarily where it is the freehold owner who has conveyed the freehold title to another person. The law is plain that it can apply to leasehold interests as well. However, the principle cannot be applied blindly in the case of leases and it must depend on looking at the particular circumstances of the lease within the context of the whole property in which that leasehold has been carved out.”

The deputy judge, having looked at the facts of the case before him, concluded:

“33.

The leases that I am looking at are, as I have indicated, three in number, and they form really a carefully devised structure of rights and obligations. It would seem to me that there is in this context a world of difference between being able to develop upwards and therefore be of no real consequence to the remaining tenants of the property and to start digging under and into the foundations. It seems to me that this is very different from the case of a freehold owner of a property who would naturally have all the rights below ground. It seems to me that a structure such as this does not naturally lend itself to being in the same category of case where the presumption of usque ad is at all appropriate. I decline to apply any such presumption on the particular facts of this scheme.”

Again it will be seen that the deputy judge emphasises the difference, in a building divided horizontally, between extending upwards and digging downwards.

I put on one side the case of a single lease of an entire freehold (not being a "flying freehold") where the freeholder owned the subsoil. That is not this case, and it can be dealt with when it arises. In my judgment, in the case of the grant of a lease such as we have here, it is not a question of presumption (or not) that the grant of the leasehold interest in land includes the subsoil. The question is rather what the construction of the grant, given what was available to be granted, and in the context, reveals the intentions of the parties to have been. I do not think it makes any difference that the defendants have been demised the surface of the land at ground floor level.

In the present case the express words of demise in clause 1 of the lease extend to the maisonette known as Flat 1 on the ground floor of the Building, including all parts of the building below the midway line. Those words did not include the subsoil, because the subsoil was not part of the Building. Clause 4.5.4 added the cellar and foundations of the Building into the definition of the "maisonette", rather than into the definition of the "Building". As a result, we have a demise of the ground floor flat, the cellars and the foundations of the Building, and generally all of the Building below the midway point. But to that we must add certain rights, including the right to services through the neighbouring or adjoining property of the landlord (clause 1.1.1(a)). If the subsoil were retained by the landlord, then it would include that. The cellar, with its compacted earth floor, would not obviously fall within the definition of the Building either. But the definition of the “maisonette” is expressly extended to cover it. That too suggests that the subsoil is not included, though the force of the suggestion is limited by the fact that the cellar is to extend beneath the entrance hall, which is not demised.

On the other hand, the lease reserves to the landlord the right to services through conduits in or under the "Demised Premises" (clause 1.1.2(a)). As I have already said, the word "under" must mean that there is a lower limit to the Demised Premises. This is consistent with restricting the demise to the lower half of the Building. But it can fairly be said that, if the subsoil were retained by the landlord, no reservation would be necessary as to that which is "under the Demised Premises". There is also a right for the landlord to enter on the Demised Premises to repair adjoining premises. As already mentioned, the definition of "maisonette" is extended by clause 4.5.4. This suggests that, without that extension, the "maisonette" would not include the foundations and the cellar. But, by expressing that, it also suggests that it excludes the subsoil from the demise.

I bear in mind the context in which the original lease was granted. In 1992 extensions downwards into the subsoil underneath terraced houses were less common than they are today. But I cannot say that they were unknown. Subject to planning permission, the then freeholder could have done in 1992, before granting the leases of the two maisonettes, what is now proposed. She did not. But I do not find anything in the lease to suggest that the first leaseholder was thinking of doing it either. There are the usual terms concerning alterations to the Demised Premises generally, but that is all. They are not of any real assistance. The fact that the lease was granted for a term of 99 years does not assist either. Of course circumstances are likely to change over such a lengthy period, and there may be significant developments in building techniques or lifestyles, but one cannot say that therefore any particular development, let alone everything, is contemplated.

Overall, on the construction of the lease, in the context of this transaction, and taking account of the ability of the freeholder in 1992 to grant a lease of the subsoil, in my judgment this lease does not include the subsoil beneath the Building. I quite accept that, in an urban context, where living space is at a premium, it may well be a reasonable use of natural resources to seek to create extra living space by digging down only a few feet, so improving the accommodation which already exists.

But this can only take place within the context of the legal rights which have been deliberately created by the parties or their predecessors in title. The mission – or a part of the mission – of property law is the allocation and management of resources, which requires (amongst other things) stability. Hence what governs is not what is reasonable in the circumstances. Instead, it is (within public policy limits) what is stipulated. The economics, however reasonable, do not control the law.

Thus, at the end of the day, in my judgment it is up to the freeholder whether this project can go ahead. If the freeholder asks too much by way of compensation, it will not. That would perhaps be a pity. But, under our property law, it is up to her. In the meantime, I conclude that Master Price reached the right conclusion, even if he expressed his reasons slightly differently. The appeal is accordingly dismissed.