Commercial premises — Rent review — Deed of variation — Construction — Orders accordingly
In 1971, the landlord, the Crown Estate Commissioners, granted a lease of 96 1/2 years to the predecessors in title to the present tenant, Bath House Estates Ltd, of Bath House, Holborn Viaduct, London EC4. A rent of £20,000 pa was reserved with an “additional rent” with effect from four review dates, 1972, 1993, 2018 and 2043, respectively. In February 1988 the same parties entered into a deed varying the terms of the lease. The schedule to the lease set out how the additional rent was to be calculated by providing, inter alia, from 1972, (a) “an annual sum equal to one-third of the amount (if any by which the sum of the annual net rack rents (actual agreed or determined) … exceeds £185,000 at such date”; (b) as from each of the succeeding review dates, “a further annual sum equal to one-third of the amount … by which the sum of the annual net rack rents (actual agreed or determined …) shall at such date exceed the sum … as determined at the previous review date”; (c) “for the purposes of rent review the expression `annual net rack rents’ shall (subject to paragraph 2 …) mean the total sum of the annual rents (including service charges) payable by the persons in actual occupation by virtue of leases tenancies and licences subsisting at the review date … after deducting such sums as shall properly represent the annual cost of providing any central heating hot water porterage lighting cleaning or other services and the annual cost of maintenance repair insurance management and all other outgoings”. Para 2 provided for arbitration where there were no such leases, tenancies or licences subsisting or the landlord thought that the rent payable was less than, or the tenant thought that it was more than the full market rent, then “in that event the annual net rack-rents shall be taken to be such full market rental after deducting such sums as shall … represent the annual cost of maintenance repair insurance management and all other outgoings other than outgoing borne by the persons in actual occupation”. The deed of variation reserved to the landlord “further additional rent” in addition to that reserved by the lease in respect of parts of Bath House for “new office premises” which had hitherto been restricted to commercial purposes. That additional rent arose for so long as any part of the new office premises was comprised in an underlease, the reversion of which remained vested in the tenant. It was calculated by reference to “unimproved office rental”. The schedule to the lease was varied, inter alia, by clause 3 which provided that “annual rack rent” should be taken to be 64% of the unimproved office rent. Questions arose in connection with the 1993 review for resolution by the court.
Held Orders accordingly.
1. The broad purpose of the schedule was to be a profit sharing arrangement between landlord and tenant whereby the landlord was entitled to a one-third share of any increase in net rental values fixed by reference to the position at the review date.
2. In para 1(c) the calculation was by reference to actual annual rents, including service charges payable by occupants at the review date. There was no sense in including the items to be deducted for the purposes of para 1(c), but omitting them as items of deduction for the purposes of para 2. Account therefore was to be taken not just of the full market rent but also of any service charge payable.
3. Clause 3 of the variation clearly assumed that on the principal review date a relevant underlease subsisted for the purposes of calculation directed by that clause.
Hazel Williamson QC and Amanda Tipples (instructed by Middleton Potts) appeared for the tenant; John Furber QC (instructed by Speechley Bircham) appeared for the landlord.
