IMPROVEMENTS TO BE DISREGARDED IN FIXING RENT (Hansard, 15 October 1969)

§ Mr. Graham Page

I beg to move Amendment No. 1, in page 2, line 13, at end insert: '(3) Notwithstanding any other provisions of this section, an improvement carried out by a tenant for which he or his successor has been reimbursed otherwise than by another tenant of the property shall not be disregarded in fixing the rent under a new tenancy of the property. This is an Amendment which deals with the improvements to be disregarded in the assessment of rent when a business tenancy is renewed. When a business tenancy expires the tenant is entitled to a renewal of his lease, except in certain circumstances, set out in the 1954 Act, at a market rent. Certain things, as set out 495 in Section 34 of the 1954 Act, have to be disregarded in arriving at that rent. One of the things which has to be so disregarded is an improvement made by the tenant.

However, the tenant may have made the improvement but he may have been reimbursed with the cost of that improvement. Obviously, he should not benefit twice in those circumstances. As the Clause stands it is not clear what happens when the tenant has been reimbursed for such expenditure. Read logically, the Clause would mean that they are still left out of account in calculating the rent on renewal. We discussed this matter in Committee, when the Solicitor-General called attention to the position where an out-going tenant may be reimbursed by an incoming tenant for the money which he had spent on improvements.

Under those circumstances, it would be unfair for the incoming tenant who may remain there until the end of the lease to have those improvements taken into account in calculating the market rent for the renewal of the tenancy. He would already have paid his purchaser in title. That would be provided for in the Amendment. It would only be if the tenant had been reimbursed by someone other than the succeeding tenant.

I believe that the Amendment would fill a gap in the Clause, and would make it clear that, if a tenant who has carried out improvements then receives in some form reimbursement for them, the improvements will be taken into account in assessing the rent when the tenancy is renewed.

§ The Solicitor-General

The Amendment proposes to insert a new subsection in Section 34 of the 1954 Act, as amended by Clause 1, to ensure that improvements made by a tenant for which he has been reimbursed otherwise than by another tenant are not to be disregarded by the court when fixing the rent payable on renewal of the tenancy. I think that the Amendment is designed to strike at a situation in which a tenant may get a double benefit—reimbursement for his improvements and also a new rent which does not reflect the improvements.

Under Section 34 as amended by Clause 1, improvements carried out by a tenant otherwise than under a legal 496 obligation to the landlord are, in certain circumstances, disregarded when a new rent is fixed. Should a landlord reimburse his tenant for the improvements on the understanding that the rent would be increased to the appropriate rent for improved premises, that understanding or agreement would be of no avail when the tenancy came to be renewed since Section 34 requires the improvements to be disregarded. The Amendment, as I understand it, would enable these improvements to be taken into account in the new rent.

I feel bound to advise the House to resist the Amendment on two grounds. First, although this by itself would not be decisive, I think that it has very little practical application. It is true that we considered this matter in Committee and that the hon. Member for Crosby (Mr. Graham Page) brought forward some instances. But, apart from that, generally we have very little evidence—and there was no evidence to this effect before the Law Commission—that the disregard of improvements for which the tenant had been reimbursed has been criticised as operating unfairly to the landlord.

The second and more substantial objection to the Amendment is that it is too wide in its terms. First, I will deal with the limited practical application of what it proposes. Let us consider the matter first in relation to arrangements made after the Bill has become law. It seems to me that the Amendment does not serve a useful purpose in relation to future arrangements since, if the parties want a package deal comprising reimbursement to the tenant and higher rents to the landlord, a deal can be effectively implemented by the landlord carrying out and paying for the improvements. That would not itself be a case of improvements carried out by the tenant within the meaning of Section 34(2) and would thus not be disregarded in the new rent.

In relation to arrangements made in the period between 1954 and 1970, apart from the instances brought forward by the hon. Gentleman, there has been, we think, literally no evidence that the Amendment is really needed to assist landlords who, since 1954, have reimbursed tenants for improvements, knowing that the law did not entitle them to 497 a rent for the improved premises. A landlord would be ill-advised, one thinks, to act in that fashion and we believe that very few have done so.

7.45 p.m.

That leaves arrangements made before 1954. Under the Clause, tenants' improvements are only disregarded if made within the 21 years preceding the application for a new tenancy. At present, therefore, the Amendment seems only significant in relation to the five to six years of that 21-year period which precedes the 1954 Act. In five to six years' time, all improvements qualifying for disregard under Section 34 as amended will have been made in the lifetime of the 1954 Act. So, on that view of the matter, the House will appreciate that the Amendment, if what it proposes is an asset at all, is putting forward what can fairly be called a dwindling asset.

The Amendment is too wide, because reimbursement …, otherwise than by another tenant of the property … includes reimbursement by others besides the landlords. It may well be that the hon. Gentleman and his hon. Friends, in drafting the Amendment, when they resorted to that language had in mind the case of improvement grant paid by local authorities. But it seems to us that the expression is too wide because its terms are wide enough to cover, for example, cases of mere gifts by third parties and such transactions as reimbursement by the company employing the tenant. If the landlord is not entitled to a higher rent where the tenant pays for his own improvements, he should not be entitled to it when a third party pays.

For this reason, I must recommend to the House that it should reject the Amendment. I recognise again the argument put by the hon. Gentleman. I do not like time and again advising the House to turn down his proposals. Very shortly, if all is well, we shall be reaching an Amendment where his name and mine are found together in a united disposition to change the law for the better, but in this instance I must advise rejection of his Amendment.