Term of hypothetical lease — Two underleases granted to same tenant — First in possession — Second lease of reversion to succeed first lease — Provisions in both leases similar — Rent review provision in first lease — Whether unexpired residue of hypothetical term same as unexpired term of first lease or first and second lease combined — Whether additional words could be implied — Whether hypothetical tenant assumed to have security of tenure — Court implies words to complete intention
The appellant is the underlessor of warehouse premises, in Fleming Way, Crawley, West Sussex, the subject of two underleases granted in June 1973. The underleases were granted on the same day to the same underlessee. The first underlease was for a term of 16 years expiring at Lady Day 1989 and the second was an underlease of the expectant reversion commencing on Lady Day 1989 and for a term of 34 years. The second lease was on the same terms as the first and subject to the first not having been forfeited. The two underleases thus gave, in effect, terms amounting in aggregate to 50 years.
The respondent underlessee had sought a declaration as to the meaning of the 5-year rent review provisions in the first underlease. These required the rent to be determined on the assumption of a lease “for a term of years certain equivalent in length to the residue unexpired …”. The provisions also directed that there shall be disregarded “all restrictions whatsoever relating to rent or security of tenure contained in any statute or orders, rules or regulations …”. Knox J declared ([1988] EGCS 148) that: (1) the “residue unexpired” referred to the first underlease alone and not to an unexpired term equivalent to the two underleases combined; and (2) that statutory intervention concerning security of tenure must be ignored. The underlessors appealed.
Held The appeal was allowed on the first question and dismissed on the second.
1. Because of the nature of the original transaction, the purpose of which was to give to the underlessee, in effect, a 50-year term by way of one lease succeeded by a second, further words had to be implied to avoid a result that could not have been the commercial intention of the parties. The “residue unexpired” included the term of the second underlease granted on the same date as the first.
2. The reference to restrictions relating to security of tenure were clear and any security and rights under the Landlord and Tenant Act 1954 had to be ignored.
David Neuberger QC and Kim Lewison (instructed by Braby & Waller) appeared for Provident Mutual Life Assurance Association, by substitution the appellant landlords; and Derek Wood QC and John Male (instructed by Clifford Chance) appeared for the respondent tenant.
