UK: Humber Oil Terminals Trustee Limited v Associated British Ports [2012]

Last Updated: 23 July 2012
Article by Rachel Fletcher and Emma Humphreys

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 decided the interim rent payable under the lease of property described as an oil jetty, which stretches about 1 kilometre into the Humber Estuary and comprises 7 berths for ships ("the Oil Jetty Lease").

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). Each year, about 20 million tonnes of oil and related products pass though Immingham to and from two local refineries, the Lindsay Oil Refinery and the Humber Oil Refinery ("the Refineries"), each owned and operated by a large oil company. The owners of the refineries together operate HOTT, a joint venture company.

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.

ABP contended that the Immingham Oil Terminal was the most advantageously located facility for deepwater access for oil tankers, that HOTT's exclusive use of the terminal was the only such arrangement within the Port of Immingham, and that it was not operating the terminal efficiently. ABP's case was that it wished to occupy and manage the Immingham Oil Terminal itself to maintain supply to the refineries and to open the oil jetty, demised to HOTT under one of the leases, to third party users.

HOTT applied to the court for the grant of new tenancies under the 1954 Act. HOTT argued that ABP could not prove its required intention under section 30(1)(g) and pointed out that on termination of the leases, HOTT would be entitled to remove its complex system of pipes, equipment and infrastructure from the oil jetty, which would cost around £10 million. It would then cost at least £60 million and about two years to replace what had been removed.

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. The court took the view that the parties would be guided only by economics and commercial reality and that it was not only possible, but quite probable, that the tenant would come to a commercial arrangement with the landlord to continue to use the Immingham Oil Terminal.

The court was convinced by ABP's evidence that it was motivated by the need to obtain value for its port facilities, to expand competition in the port and to attract third party customers. It felt that it was not for the court to decide whether ABP's approach was a prudent business decision, provided that it had a reasonable prospect of being fulfilled. HOTT's appeal against this decision was dismissed.

Issues over Interim Rent

Following this decision, in a separate hearing, the parties asked the court to rule on the question of the interim rent payable by HOTT pursuant to section 24D of the 1954 Act.

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.

For the Oil Jetty Lease, ABP's proposed interim rent under section 24D was £24,903,000 per annum and HOTT's proposed interim rent was £2,300,000 per annum.

The parties were divided over two major issues. Firstly, 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.

Secondly, 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.

The court emphasised that the factual context was important and noted that the Refineries, being two of nine oil refineries in the United Kingdom, need to have supplies of crude oil and to be able to supply refined products to their customers in order to function productively. In their commercial operations, the Refineries are heavily dependent on being able to use the oil jetty to obtain supplies of crude oil and whoever owned the Refineries would have a strong incentive either to take a lease of the oil jetty or to enter into fee paying arrangements with whoever controlled the jetty to keep it operational. Essentially, there was a strong element of mutual dependency in the relations between the owner of the jetty, the operator of the oil jetty and the owners of the Refineries. The court also noted that both HOTT and ABP had had made equally vital contributions to the creation of a viable oil jetty. 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.

Section 24D

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), that

"in determining the interim rent under subsection (1) above the court shall have regard - (a) to the rent payable under the terms of the relevant tenancy; and (b) to the rent payable under any sub-tenancy of part of the property comprised in the relevant tenancy, but otherwise subsections (1) and (2) of section 34 of this Act shall apply to the determination as they would apply to the determination of a rent under that section if a new tenancy from year to year of the whole of the property comprised in the relevant tenancy were granted to the tenant by order of the court",

were subordinate to and should be read in light of section 24D(1). The court referred to the Court of Appeal decision in Neale v Witney Electric Theatre [2011] EWCA Civ 1032 in this regard, in which Laws LJ said that the "overriding" provision in section 24D is subsection (1).

The court also said that the current passing rent under section 24D(2)(a) was capable, depending on the circumstances, of having relevance beyond acting as a possible 'cushion' against an increase in rent by reference to market circumstances.

Decision on issues

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 held that there was no good commercial reason why the interim rent should be set at a level which would continue to afford HOTT and the oil companies the commercial benefit of being wholly exempt from goods and ship dues. The court recognised that the exemption from such charges was an unusual feature and that there appeared to have been no attempt in the Oil Jetty Lease to calculate the amount of these potential liabilities which could be expected to be saved. However, the court found that this exemption 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 a willing landlord and a willing tenant in open market conditions would agree 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.

In general terms, the court said that this was not a case in which it was appropriate to allow for a cushioning effect to take account of an increase in market rents above the current passing rent due to inflation or to the impact of unexpected events, i.e. circumstances where it would be reasonable to protect a tenant against the impact of a much higher rent. However, 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 and assessed the interim rent under the Oil Jetty Lease at £14,800,306 per annum.

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.

Interim Rent Start Date

In order to assess the start date for interim rent, the court had to decide which of two notices served by ABP pursuant to section 25 of the 1954 Act in relation to the Oil Jetty Lease was valid.

The issue concerned the proper construction of the provision in the Oil Jetty Lease, which stated that HOTT was to hold the demised premises "on and from" 1 January 1970 for the term of forty years. ABP argued that this phrase meant that the contractual term expired on 31 December 2009. HOTT argued that it meant that the contractual term expired on 1 January 2010.

Where the term of a lease is expressed to be a period "from" a particular date, this usually means that the period commences immediately after that date. Where a term is said to commence "on" a particular date, that date will generally be construed to be the first day of the period. Here, the court held that the phase "on and from" had the effect that the term expired on 1 January 2010, which meant that the first section 25 notice (which purported to terminate the tenancy on 31 December 2009) was invalid and the court looked to the second section 25 notice for the interim rent start date.

The court rejected ABP's attempt to rely on Mannai Investment Co Limited v Eagle Star Life Assurance Co. Limited [1997] AC 749 in order to validate its notice. The court held that the section 25 notice in this case could have referred to any number of dates, so the identification of the specific termination date was central to the meaning of the notice.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Emma Humphreys
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.