Rent review clause allowing for upwards or downwards assessment — Heavy fall in rental value since last review date — Whether landlords entitled to “frustrate” review process by electing not to serve a notice — Whether landlords could rely on implied reference to such notice in paragraph providing for appointment of independent surveyor
The defendant held an office building in London NW1 under a 42-year lease, granted by a predecessor of the plaintiffs, which commenced in July 1974. Clause 1 of the lease, having fixed the annual rent for the first seven years at £148,500, went on to declare that the rent for each succeeding period of seven years “shall be” the higher of £148,500 or such sum “as shall be assessed as the current open market rent”, such assessment being made: para (a) “as shall be specified” by a landlords’ notice given within a prescribed period; para (b) “as shall be agreed between the parties” within three months after such notice; or para (c) in the event of the parties failing to reach such agreement, as fixed by an independent surveyor, to be appointed by the president of the RICS in default of an agreed joint appointment. Subject to the agreed minimum rent of £148,500 there was no provision excluding downwards review. In the event of a late assessment there was express provision in para (d) for backdating the tenant’s obligation to pay any increase, but there was no corresponding provision in favour of the tenant for a downwards adjustment.
In July 1988 the rent was increased to £440,000. By the next review date, July 1995, both parties were aware that any fresh assessment would yield a much lower figure. The landlords decided not to serve a notice under para (a). The question before the court was whether, as a matter of construction, a binding independent assessment could take place notwithstanding that decision, the landlords contending that the steps prescribed under paras (a) and (b) were an indispensable preliminary to the making of an appointment under para (c).
Held Judgment was given for the dependant.
The normal expectation of parties to such a provision was that the market rent would be payable throughout the lease thus reflecting the change if any in the value of money. That purpose was abundantly clear from the opening words of the reddendum which called in mandatory terms for an on going comparison between the initial rent and the market rent as assessed, whether upwards or downwards, from time to time. The landlords could not claim a power to frustrate that purpose, by electing not to serve a notice, without pointing to a clear provision to that effect. This they had failed to do. The fact that para (c), on one interpretation, presupposed the service of a notice under para (a) was not of itself a sufficiently strong indication in the landlords’ favour as the intention of all three paragraphs was merely to provide “machinery” for giving effect to the paramount purpose as stated beforehand: see the general approach adopted by the Court of Appeal in Royal Bank of Scotland v Jennings [1996] EGCS 168. Nor could the landlords rely on the apparent one-sided operation of para (d) as the court would, if called upon, imply a corresponding refund provision in the case of a downwards assessment.
Simon Berry QC (instructed by Denton Hall) appeared for the plaintiff landlords; Nicholas Dowding QC (instructed by Berwin Leighton) appeared for the defendant tenant, the Secretary of State for the Environment.
