UK: Humber Oil Terminals Trustee Limited v Associated British Ports [2012] EWHC 1336 (Ch)

Last Updated: 19 July 2012
Article by Rachel Fletcher

In the latest in a series of judgments in the litigation between Humber Oil Terminals Trustee Limited ("HOTT") and Associated British Ports ("APB"), the High Court ruled on the question of the interim rent payable by HOTT pursuant to section 24D of the 1954 Act.

Background

To set the interim rent judgment in context, this litigation concerned leases of properties forming part of the Immingham Oil Terminal in the Humber Estuary, the busiest port in the UK (by volume).

The Immingham Oil Terminal facility was constructed in the late 1960s and the four leases of property which relate to the Immingham Oil Terminal were entered into for periods of forty years, the contractual terms of which all came to an end in 2010. The particular features of the property demised to HOTT under the leases are unusual, but the approach of the court in determining the interim rent provides valuable assistance to parties who are faced with interim rent valuations under section 24D of the Landlord and Tenant Act 1954.

Opposed Lease Renewal Proceedings

ABP served section 25 notices terminating the leases and indicating an intention to oppose any application by HOTT for the grant of new tenancies on the basis of section 30(1)(g) of the 1954 Act, i.e. the landlord's intention to occupy the premises for the purpose of carrying on its own business there. HOTT applied to the court for the grant of new tenancies under the 1954 Act.

The court found on the facts that ABP's intention was to occupy the Immingham Oil Terminal for the purposes, or partly for the purposes, of a business to be carried on by it at the Immingham Oil Terminal at the termination of the leases. HOTT's appeal against this decision was dismissed.

Issues over Interim Rent

Interim rent fills the gap between the earliest possible termination date for the tenancy according to the landlord's section 25 notice/tenant's section 26 request and either the start date for the new rent under a renewal lease or the date when the premises revert to the landlord. Section 24D contains provisions for calculating interim rent in circumstances where section 24C does not apply. Section 24C applies where the renewal is unopposed, the tenant is in occupation of the whole of the property at the time when the section 25 notice or section 26 request is served, the landlord grants a new tenancy of the whole of the property to the tenant, and there have been no significant changes to the rental market or to the terms of the new lease so as to affect rental value. The parties were divided over two major issues in respect of the lease of the oil jetty ("the Oil Jetty Lease"):

  • The Oil Jetty Lease permitted HOTT to remove "the Lessee's works" at the end of the term. These included the pipes and loading and unloading equipment which HOTT had installed. HOTT argued that the 1954 Act required the court to assess the rent that a willing landlord and a willing tenant would be prepared to agree a yearly tenancy in relation to the premises without any of the tenant's works present, i.e. the court should assume that the pipework and equipment had to be installed by an incoming tenant to get the oil jetty up and running again. This would, of course, have the effect of significantly depressing the interim rent payable because of the level of capital outlay required to equip the bare jetty structure.
  • The Oil Jetty Lease contained an exemption from ship dues and goods dues for ships using the Oil Jetty and for crude oil and refined products passing across the Oil Jetty. ABP argued that a willing tenant would be prepared to pay a significant amount for a lease of the Oil Jetty with the benefit of the ship and goods dues as this was a very valuable exemption.

Interim Rent Decision

  • The court emphasised that the factual context was important. In order for the oil jetty to be of any good commercial use, there had to be the jetty structure with the pipelines and equipment installed.
  • Since there was no ready market for the letting of oil jetties, the court accepted both parties' experts' reliance on the Depreciated Replacement Cost method of valuation, which is a method for ascribing capital value to the asset in question based on the assumption that a willing buyer would not pay more to acquire the asset that the cost of acquiring an equivalent new one.
  • The court noted the requirement in section 24D(1) of the 1954 Act that interim rent is to be set at the level which is fair and reasonable for the tenant to pay. The court said that the requirements in section 24D(2) were subordinate to and should be read in light of section 24D(1).
  • In relation to the first major issue of disagreement between the parties, the court noted that the pipelines and equipment were firmly anchored to the oil jetty structure and for legal purposes had become part of ABP's property, subject to a right to removal by HOTT under the Oil Jetty Lease.
  • In any event, the court found that the amount of interim rent did not depend on the question of whether the items installed by HOTT qualified as tenant's fixtures as it rejected the 'bare jetty' approach put forward by HOTT. The court said that it was difficult to see that anyone would wish to take a yearly tenancy of the bare jetty structure of the oil jetty for anything other than a nominal or very low rent.
  • The court held that the property to be disregarded under section 34 of the 1954 Act was any property installed by HOTT and which HOTT was contractually entitled to detach and remove from the oil jetty at the end of the Lease. Therefore, HOTT had to pay an interim rent in respect of the property now owned by the landlord which HOTT had no right to remove.
  • In relation to the second major issue of disagreement between the parties, the court held that there was clearly significant value for HOTT and the oil companies in having been able to continue using the oil jetty to service the refineries over the interim rent period, whilst also having the benefit of the exemption from ship and goods dues. The court found that these were significant features which ought to inform the amount of rent which it was reasonable for the tenant to pay under section 24D. The court found that the exemption from ship and goods dues was a supplementary benefit for HOTT which effectively kept the rent low, akin to a rent free period as an incentive to a tenant to take a lease.
  • The court said that the additional element of rent which should be paid in relation to the exemption would be that part of the net savings attributable to the elements of the jetty structure for which the landlord is responsible. The court felt that a deal between business entities as willing landlord and tenant was likely to conclude with equal division of benefits, i.e. half of the net savings in relation to goods and ship dues.
  • The court accepted ABP's expert valuer's assertion that the notional rental figure should be reduced by 10% to take account of the yearly nature of the notional tenancy which has to be assumed under section 24D.
  • Landlords may be interested to note the court's comment that in appropriate circumstances it is possible for the court to "have regard" to the current passing rent in a particular contractual setting and to infer from it and from a change in the circumstances that the interim rent should be increased above the current passing rent.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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