Rent review formula — Basis of valuation — Shopping and retail purposes — Areas actually let or available for letting — Whether areas let separately or otherwise — Whether such areas available only for shopping or retail — Terms of hypothetical lettings
The plaintiff holds an underlease of premises in Strand, London, for a term of 75 years from July 5 1963; the reversion is owned by the defendant. The initial rent was £550,000 per annum, but clause 1 of the underlease contains provisions for a rent review at July 5 1979 and at the end of seven-year periods thereafter. Clause 1(i) provides that the rent at review is to be the aggregate of three items including “(a)the excess of the rental value on the relevant date above two hundred and fifty thousand pounds of those areas being parts of the ground floor and the basement of the demised premises as shown edged red on the plans annexed hereto and marked C and D (on the basis that those areas are actually let for or are available for letting for shopping and retail purposes) …”.
Of the four areas so edged red on the plans, the greater part is — and at all material times has been — used as part of the Strand Palace Hotel for which it is physically adapted for the purpose. The other areas are used, and have been, for shopping and banking. The parties sought answers to a number of questions of construction, such as: whether the areas were available for letting separately or in aggregate; to the extent that they were sublet, whether they were to be assumed as available with vacant possession or otherwise; whether the areas were available for shopping and retail purposes only or for purposes permitted by the lease; and what terms were to be assumed in such hypothetical lettings.
Held The decision of the Court of Appeal in Basingstoke and Deane Borough Council v The Host Group Ltd [1987] 2 EGLR 147 provides assistance as to the proper approach in construing rent review provisions. Although regard must be had to the language used by the parties in the lease, it is proper and sensible to have in mind what normally is the commercial purpose of a rent review clause. Unless the lease “otherwise requires, expressly or by necessary implication, or there is some context indicating otherwise, the parties are to be taken to have intended that the notional letting assumed for the purposes of the rent review assessment was to be on the same terms … as those subsisting under the actual, existing lease”.
1. The user clause in the lease itself was permissive to the extent that it referred to certain uses of the demised premises, but the reference to shopping and retail purposes in the rent review clause was an instruction to the surveyor and impliedly recognized that for rent review purposes the use of the areas was for shopping and retail purposes only.
2. As there are four separate areas identified for shopping and retail purposes, each area must be regarded as let separately and the rental value is the aggregate of the values of the individual areas.
3. Any area sublet at the relevant date is to be treated as being available for letting subject to any sublease.
4. The provisions of the hypothetical lettings are not those that might be agreed in the open market but are to be derived from the terms of the existing lease: the term in each case is to be the same as the unexpired residue of the existing lease; rent reviews at the same intervals; and all other terms as contained in the lease so far as necessary for the purposes of the assumed lettings.
Derek Wood QC and Kirk Reynolds (instructed by Paisner & Co) appeared for the plaintiff tenant; and Michael Barnes QC and David Neuberger QC (instructed by Herbert Smith) appeared for the defendant landlord.
