J Murphy & Sons Ltd v Railtrack Plc

When fixing rent for a statutory business-tenancy renewal, the court must value the holding as demised, having regard to the tenancy terms and the specific statutory disregards. It must not imply an additional disregard for lack of access, or assume that the tenancy includes an easement which the landlord cannot grant. A landlocked holding may nevertheless have an open-market rental value. The existence of a special purchaser does not prevent an open market; the purchaser’s special interest may be reflected in the valuation. Contractual rent-review authorities cannot control the construction of the statutory scheme, which must operate uniformly and independently of the parties’ intentions.

Murphy occupied land leased from Railtrack under a business tenancy. The premises were landlocked, although Murphy owned adjoining land from which it could obtain access. After the contractual term expired, Murphy sought a new tenancy under Part II of the Landlord and Tenant Act 1954. The parties agreed the principal terms but disputed the initial rent.

The county court held that the lack or restriction of access had to be taken into account in valuing the holding and fixed an annual rent of £157,000. Railtrack appealed against that preliminary ruling, contending that the lack of access had to be disregarded or that access should be treated as included in the renewed tenancy. The central issue was the proper construction of section 34(1).

1. Appeal dismissed. The rent for a statutory renewal was properly assessed by treating the property as landlocked and allowing the restricted access to affect its value.
2. Section 34(1) of the Landlord and Tenant Act 1954 contains the essential guidance for fixing rent. “The holding” means the premises demised under the tenancy, pursuant to section 23(3). Parliament specified the matters to be disregarded. The court should not create a further implied disregard for lack of access.
3. The court could not assume an easement or other access right which the renewed tenancy did not confer and which Railtrack was unable to grant. Such an assumption would require the court to decide the nature and extent of access without statutory or contractual guidance. It would also require Murphy to pay rent for a benefit it already possessed through ownership of adjoining land.
4. An open market may exist even where the property principally attracts a special purchaser. The special purchaser’s interest is an appreciatory factor in valuation. The property therefore did not have to be valued at a nominal or nil rent merely because access was restricted.
5. The contractual rent-review decisions in Jefferies v O’Neill and British Airways Plc v Heathrow Airport Ltd concerned the construction and commercial efficacy of particular contractual clauses. It was unnecessary to decide whether those decisions were correct. They did not justify adding a statutory disregard.
6. Sections 32(3) and 35(1) did not authorise the court to include rights which the tenancy did not confer or to create new access rights. Orlik v Hastings & Thanet Building Society supported that conclusion.
7. Lord Justice Judge agreed that introducing an additional statutory disregard would amount to impermissible judicial legislation. Lord Justice May agreed with Lord Justices Peter Gibson and Judge, emphasising that Railtrack should not receive rent calculated on the basis of a benefit it could not provide. The appeal was dismissed with costs, subject to detailed assessment if not agreed within 14 days.

• Court of Appeal (Civil Division): [2002] EWCA Civ 679 dismissed Railtrack’s appeal against the county court’s preliminary ruling on the valuation of the landlocked premises and the resulting rent determination.
• Central London County Court: His Honour Judge Ryland held that the lack of access could not be disregarded in fixing the rent and subsequently determined the annual rent at £157,000.