Originating summons — Underlease varied by two deeds — Whether variation binding on successor in title — Effect of section 79 of the Law of Property Act 1925 — Hypothetical letting at rent review — Content of user clause in hypothetical lease — Length of hypothetical term — Declaration in favour of lessee
The plaintiffs are the underlessees by assignment of a 15-year term granted by the defendants in August 1978; the demised premises are the ground floor and basement of 52 King’s Road, Chelsea. The underlease contains provisions for seven rent reviews of which the last two reviews are in respect of periods commencing in August 1987 and August 1990 respectively. The review rent is to be “the fair market rent of the demised premises at the commencement” of each review period, assuming a letting on the same terms as the actual lease.
Clause 2(11)(a) of the underlease contained provisions relating to the user of the premises: there was an absolute prohibition against certain uses of a nuisance nature; the premises were restricted to use as a wine and snack bar; the landlord would not unreasonably withhold consent to a variation; and there was a prohibition on competing uses or uses prohibited by the superior lease.
The underlease was subject to two deeds of variation; one in 1981 that related to an assignment, increased the rent, and varied the user clause; and a second in 1986 that concerned the assignment to the present plaintiffs, permitted the restaurant use proposed by the plaintiffs (but otherwise omitted any reference to the already amended user clause) and contained covenants by the assignee not to use the demised premises otherwise than as permitted. In accordance with the terms of the rent review clause, an independent surveyor was appointed to determine the rent for the review period that commenced in August 1987. The plaintiffs brought the present proceedings by way of an originating summons to have determined two questions arising as to the meaning of the hypothetical lease: (1) the effect of the 1986 deed of variation on the user provisions in clause 2(11)(a) of the underlease, the plaintiffs arguing that, by virtue of the deeds of variation, the user clause in the hypothetical lease was more restrictive than under the original lease, as the possibility of the lessors’ reasonable consent to a variation was removed, and this had to be taken into account in determining the rent; (2) the length of the hypothetical term, the plaintiffs contending that “for a term equivalent to the said term” meant for the unexpired residue of a term of 15 years from August 1978 (when the actual lease was granted).
Held 1. There is a presumption in favour of reality and this clearly requires the terms of the hypothetical lease to reflect any variations that have been made to the terms of the actual lease: SI Pension Trustees Ltd v Ministerio de Marina de la Republica Peruana [1988] 1 EGLR 119 distinguished. However, the lessors’ contention that the terms of the 1986 deed, as to use for a restaurant only, were personal to the plaintiffs, and did not bind successors in title, was not accepted. The wording of section 79 of the Law of Property Act 1925 enabled a covenant entered into by a party to a deed, who at the time had not acquired an estate in land, to bind successors. Accordingly the 1986 deed was binding on successors in title and its restrictive effect in removing the possibility of the lessors’ consenting to a variation of user had to be taken into account in the hypothetical lease.
2. The hypothetical term was for the unexpired residue of a term of 15 years from August 1978; the formula in Datastream International Ltd v Oakeep Ltd [1986] 1 EGLR 98 being imported to resolve the valuation difficulties.
John Dagnall (instructed by Fuller Buckley, of Cobham, Surrey) appeared for the plaintiffs; and Justin Fenwick (instructed by Oswald Hickson Collier & Co) appeared for the defendants.
