Landlord and tenant — Rent review clause — Time stated to be of the essence of the contract — Clause provided for open market rental value to be determined to be a sum (a) specified in a notice in writing signed by the landlord, (b) agreed between the parties before the expiration of three months after the date of posting such a notice, or (c) determined at the election of either party (to be made by notice served on the other party not later than the expiration of the said three months) by an independent surveyor to be appointed as arbitrator as therein mentioned — Question as to whether a letter from the tenants, sent within the three months’ period, constituted a sufficient notice for the purpose of alternative (c) above — Tenants’ notice referred to the period for reference to arbitration, stated that the increase of rent proposed by the landlords was not acceptable, indicated that the tenants were seeking expert advice as to the market rental, and asked whether in the meantime the landlords would supply evidence justifying the proposed increase of rent — Held, following Edlingham Ltd v MFI Furniture Centres Ltd, that the tenants’ notice did not make it unequivocally clear that the tenants were electing for arbitration rather than hinting at the possibility of negotiation — Accordingly the notice was not a sufficient notice for the purpose of the rent review clause
This was a
summons taken out by the tenants as plaintiffs seeking a declaration as to the
application of provisions in a rent review clause in a lease. The plaintiff
tenants were the Horserace Totalisator Board and the defendant landlords were
Reliance Mutual Insurance Society.
Michael R King
(instructed by Peter Wheatley & Co of Claygate, Surrey) appeared on behalf
of the plaintiffs; Robert Wakefield (instructed by Tucker, Turner & Co)
represented the defendants.
Giving
judgment, FALCONER J said: I have a summons before me concerning the review
provisions in a lease under which the plaintiffs are the tenants, under a lease
dated March 21 1977 which runs for a term of 10 years from January 31 1977.
There are two rent periods: the first rent period with which I am not concerned
was for the first five years at a fixed rent, and then for the second period,
which I think starts on January 1 1982, the rent review provisions, which are
contained in the schedule to the lease, come into operation to determine what
the rent should be for the second period of the lease.
It is
sufficient if I look at the first schedule in the lease which contains those
rent review provisions. I do not need to read the earlier provisions in the
lease which provide that the rent for the second period shall be determined in
accordance with the review provisions which are in the first schedule. Of the
first schedule the only relevant part is clause (3), which reads as follows:
The open
market rental value shall be determined in manner following that is to say it
shall be such annual sum as shall be
and there are
three subparagraphs, (a), (b) and (c), which are relevant for present purposes
(a) specified in a notice in writing signed by or
on behalf of the Landlord and posted by recorded delivery post in a pre-paid
envelope addressed to the Tenant at the demised premises or at its Head Office
such notice to be served not more than twelve months or less than three months
prior to the review date
(b) agreed between the parties before the
expiration of three months immediately after the date of posting of such notice
as aforesaid in substitution for the said sum
(c) determined at the election of either party
hereto (to be made by notice in writing served upon the other not later than
the expiration of the said three months) by an independent surveyor appointed
for that purpose by the parties jointly in writing or upon their failure to
agree upon such appointment within one month immediately after the date of
service of the said notice then by an independent Surveyor appointed for that
purpose on the application of either party alone by the President for the time
being of the Royal Institution of Chartered Surveyors and in either case in
accordance with the provisions of the Arbitration Act 1950.
I need not read
the rest of clause (3) of the schedule, nor clause (4).
Clause (5)
provides that:
All
stipulations as to time in subclauses numbered (1) (2) (3) and (4) above
and therefore
this covers and applies to clause (3)(a), (b) and (c), which I have read
shall be of
the essence of the contract and shall not be capable of enlargement save as
agreed in writing by the parties hereto.
The landlords
duly served on the tenants notice under those rent review provisions under
which they give notice (and they are really under subclause (a) of clause (3)
of the schedule) to increase the rent of the premises from the previous rent,
which was £3,000 a year, to £6,500 per year for the second period, and nothing
turns on that. That notice was given by letter dated August 28 1981.
On October 1
1981 the tenants replied, and I shall read this letter because the summons
concerns the construction of one of the paragraphs of it:
I refer to
your letter of August 28 enclosing notice of a rent review whereby you propose
to increase the rent for these premises from £3,000 to £6,500 with effect from
the review date of January 31 1982.
In accordance
with the terms of the lease the Board, as tenants, have 3 months to agree this
rent from the date of the notice and if agreement has not been reached within
that period the matter is referred to arbitration.
I am writing
to inform you that the Board does not accept your proposed increase of £6,500.
I am in the
process of instructing surveyors to advise me as to their opinion of the market
rental but it would be useful in the meantime if you could let me have evidence
justifying such a proposed rent.
The plaintiffs
rely on the second paragraph as providing a counternotice invoking the
arbitration procedure under subclause (c) of clause (3) of the schedule. The
defendants (the landlords) say that this does not amount to a counternotice,
and what Mr Wakefield for the landlords has submitted is that at most it
amounts to a conditional counternotice or election to arbitration. He points to
the third paragraph of the letter, which he says gives the real purpose of the
letter, namely, that the tenants do not accept the proposed increase under the
initial notice from the landlords, and the last paragraph of the letter, which
makes it clear that the tenant is seeking to keep open the possibility of
agreeing the rent, is relied on by counsel for the defendants as reinforcing
his submission that this is not such a notice as is satisfactory, or, in the
words of McNeill J, in a case from which I shall cite a few short passages, ‘an
unequivocal notice’ electing arbitration under subclause (c) of clause (3) of
the first schedule, the rent review schedule.
In the case of
Edlingham Ltd v MFI Furniture Centres Ltd (1981) 259 ESTATES
GAZETTE 421, where a rent review clause in all its essential of the same nature
to the one in the present lease except for one provision (which does not really
matter for present purposes), the question arose as to whether the letter then
sent by the tenants in that particular case did in fact amount to a
counternotice. The particular wording in that case is not the same as in the
present case. But in a passage at p 424, McNeill J said this:
I do not
think it is necessary for the purposes of this judgment to express a view as to
whether or not a counternotice, to be effective, must expressly refer to the
relevant clause of the lease which is in point. My inclination would be to say
that that degree of formality is probably unnecessary.
If I may
interpolate, I respectfully agree with that prima facie view. The
learned judge goes on:
But the
notice must identify the form of relief which the tenant is seeking and must do
so unequivocally. If a notice may be read as an invitation to negotiate or as
an election to arbitrate, it seems to me to be a defective notice. It must, to
adopt Goulding J’s words
those come
from an earlier case
contain that
which is specific and make it clear to the landlord that this is the tenant’s
election to choose his, in this case, 1(3)(c) course and not his 1(3)(b) course
those are
references to the corresponding subclauses of clause (3) in the schedule in
this case. The learned judge continues:
It is not a
question, as Templeman LJ put it, of a ‘magic formula’, but in his words ‘the
tenant must make it clear to the landlord that he proposes to have the rent
decided by arbitration in accordance with the provisions of the lease’.
Adopting the
principles set out in that short paragraph, in my judgment this letter of
October 1 does not make it clear unequivocally to the landlord that the tenant
is electing to go to arbitration, that is, electing the course under subclause
(c) of clause (3) of the schedule. I think at its best, as Mr Wakefield
submitted, it is a conditional election, and that is not good enough. An
election for this purpose must be made unequivocally and the notice must be
unequivocal.
Accordingly,
it seems to me, and I hold, that the letter of October 1 1981 sent to the
agents of the landlords (the defendants) does not constitute a sufficient
notice in writing for the purposes of clause (3)(c) of the first schedule to
the lease mentioned in the summons.
The judge
granted a declaration accordingly.
