Landlord and tenant — Rent review — Construction: whether review procedure exhausted by rent review date
By a
reversionary lease dated August 24 1976, the plaintiff holds a term for 35
years from May 19 1981 of a six-storey building in Kingston upon Thames; the
defendant acquired the reversion in July 1991. On January 7 1991 the
defendant’s predecessor in title served a notice requiring the rent to be
reviewed at the review date (May 19 1991); by the review date the parties had
not agreed a rent nor had a surveyor been appointed to determine it in
accordance with the provisions of clause 6 of the lease. Clause 6(c) provided
that: ‘If at any date of review the Landlord and the Tenant shall be unable to
agree on the amount of the rack rental market value as aforesaid then the same
shall be decided by a Surveyor (who shall act as an expert and not as an
arbitrator) to be agreed upon by the parties hereto or . . .’. The plaintiff
contended that, under the rent review provisions in clause 6, if by May 19 1991
a new rent had not been agreed nor decided on by a surveyor then the rent
review provisions under clause 6(a)-(c) were exhausted in relation to that
review date, although the landlord could serve a fresh notice under clause
6(d), but in this event the new rent would take effect only from, at the
earliest, one month after such notice was served. The defendant contended that
once a notice was served under clause 6(a) the review was under way and was not
exhausted by a failure to agree the rent or have it determined by a surveyor by
May 19 1991; regard must be had to the opening words of clause 6(c).
any date of review’ in clause 6(c) is that it was envisaged that the parties
would try to agree terms right up to the date of valuation (the date of review)
and only thereafter would the surveyor proceed to decide the rent. The landlord
remained entitled to pursue the rent review.
No cases are
referred to in this report.
This was a
hearing of an originating summons of the plaintiff, London General Holdings
Ltd, to determine the construction of a lease of premises which it held in
Kingston upon Thames the reversion of which was owned by the defendant,
Kingston upon Thames Nominees Ltd.
Kim Lewison QC
(instructed by Paisner & Co) appeared for the plaintiff; Nicholas Dowding
(instructed by Rabin Leacock Lipman) represented the defendant.
Giving
judgment, MR T MORRISON QC said: By an originating summons dated
November 6 1991 the plaintiff (‘the tenant’) claimed a declaration against the
defendant (‘the landlord’) that their rent had not been reviewed with effect
from May 19 1991.
The summons raises
a short point of construction of the rent review provisions contained in a
reversionary lease made between the parties’ predecessors in title and dated
August 24 1976. The lease is of a six-storey office block in Kingston upon
Thames Royal London Borough Council and runs for a period of 35 years from May
19 1981.
Clause 6
contains the rent review provisions, the relevant parts of which I now set out:
6. PROVIDED
ALWAYS AND IT IS HEREBY FURTHER AGREED that:
(a) At the expiration of the fifth year and each
period of five years thereafter of the term hereby granted (the time in each
case being computed from the date of the commencement of the term and the date
of expiration of each such period being hereinafter referred to as the ‘date of
review’) the Landlord shall have the right to review the yearly rent first
herein before reserved and for the time being payable hereunder on giving not
more than twelve nor less than three months’ notice in writing prior to each
date of review of its intention so to do and if the Landlord shall give to the
Tenant a notice as aforesaid then from and after each date of review the yearly
rent first herein before reserved shall be increased to an amount which shall
represent the rack rental market value of the demised premises at each date of
review; . . .
(b) The rack rental market value of the demised
premises at each date of review shall be such amount as may be agreed between
Landlord and Tenant or determined in accordance with subclause (c) of this
Clause . . .
(c) If at any date of review the Landlord and the
Tenant shall be unable to agree on the amount of the rack rental market value
as aforesaid then the same shall be decided by a Surveyor (who shall act as an
expert and not as an arbitrator) to be agreed upon by the parties hereto or in
the event of failure so to agree within a period of two months from the date of
receipt by the Tenant of the notice referred to in subclause (a) hereof by a
surveyor to be nominated by the President for the time being of the Royal Institution
of Chartered Surveyors . . .
(d) Notwithstanding subclause (a) of this Clause
if the yearly rent hereinbefore reserved and for the time being payable
hereunder shall not have been reviewed at a date of review then the Landlord
shall at any time thereafter have the right to review the said rent once only
before the next review date upon giving to the Tenant not less than one month’s
notice in writing of its intention so to do and if the Landlord shall give the
Tenant a notice as aforesaid then from and after the date therein specified
(which shall be a date not earlier than one month from the date of service of
the said notice) the yearly rent first hereinbefore reserved shall be increased
to an amount which shall represent the rack rental market value of the demised
premises at the date specified in the said notice and the amount thereof shall
be agreed between the Landlord and the Tenant or determined in accordance with
the provisions of subclause (c) of this Clause;
(e) Notwithstanding the decision of the expert
hereinbefore referred to in no event shall the rent payable by the Tenant to
the Landlord after each date of review be less than the rent payable by the
Tenant to the Landlord immediately before such date of review;
The relevant
facts are as follows. Immediately prior to May 19 1991, accepted by both
parties as the ‘date of review’ within the meaning of clause 6 of the lease,
the annual rent of the demised premises was £333,333.33 pa. On January 7 1991
the then landlord served a rent review notice on the tenant, informing him
that:
the landlord
requires the rent reserved by the Lease to be reviewed at the expiration of the
10th year of the term granted by the Lease.
The notice did
not mention a new proposed rent. There were, apparently, informal discussions
between the parties and by letter dated April 22 1991, the tenant wrote to the
then landlord saying that the tenant was anxious to have the matter settled and
stated that:
We had
expected to receive your quotation prior to February 18th 1991
— that is,
three months before the review —
in line with
lease terms.
Confirmation
was sought that if the new rent could not be agreed before the review date the
landlord would not levy interest on any outstanding rent which might be agreed
to be paid after the review date. The then landlord made no reply to this
letter. Accordingly, the tenant wrote again on May 10 1991 proposing a new rent
of £400,000 pa and drawing attention to the landlord’s lack of initiative in
getting the review under way. Again there was no reply and again, on May 22
1991, the tenant wrote complaining and suggesting that the landlord’s silence
could be taken as an acceptance of the new rent proposed by the tenant. The
landlord’s response, the following day, was simply to reject the proposals in
the tenant’s earlier letter and reserving their right to review the rent. On
June 3 1991 the tenant wrote yet again suggesting that the question of the new
rent might have to be referred to arbitration. Sometime in July the then
landlord assigned its interest in the demised premises to the defendant, who,
through agents, proposed a new rent of £1,150,000 pa.
The parties
then argued, in correspondence, the points which have been fully argued before
me. The only other relevant fact is that the landlord, without prejudice to his
contentions in relation to the validity of the earlier notice, served a notice
under clause 6(d) on about November 8 1991 reviewing the rent as from December
11 1991.
The case was
well and succinctly argued on both sides. I reserved judgment at the end of the
argument, which lasted less than one and a half hours.
The rival
contentions of the parties may be summarised as follows:
For the
tenant
1. Clause 6
gives the landlord a right to have the rent reviewed. He may exercise that
right by giving notice (in relation to the particular review date in question)
at any time between May 19 1990 (not more than 12 months before the review
date) and February 19 1991 (not less than three months before the review date).
The notice required is a notice of the landlord’s intention to review the rent
(clause 6(a): ‘notice in writing prior to each date of review of its intention
so to do’).
2. Clause 6(b)
contemplated that, following service of the notice of intention to review, the
parties would seek to agree the new rent: (clause 6(b): ‘shall be such amount
as may be agreed between Landlord and Tenant’). The parties had two months in
which to agree the rent and, where appropriate, the nomination of a surveyor to
act as an expert or, in default, to have an expert appointed by the president
of the RICS (clause 6(c): ‘the same shall be decided by a Surveyor . . . to be
agreed upon by the parties hereto or in the event of failure so to agree within
a period of two months from the date of the receipt . . . of the notice . . .
‘). The earliest a surveyor could be appointed would be July 19 1990 and the
latest April 19 1991.
3. If by May
19 1991 a new rent had neither been agreed nor decided upon by a surveyor then
the rent review provisions in clause 6(a)-(c) inclusive were exhausted in
relation to that review date. The landlord could, however, serve a fresh notice
under clause 6(d), but in this event the new rent could take effect only from,
at the earliest, one month after such a notice was served. The words of clause
6 which lead to this conclusion are to be found in subclause (d):
If the yearly
rent . . . shall not have been reviewed at a date of review then the Landlord
shall at any time thereafter have the right to review the said rent once only .
. . upon giving to the Tenant not less than one month’s notice in writing of
its intention so to do
Counsel for
the tenant stressed the contrast between, on the one hand, a notice under
subclause (a) which is a notice of the landlord’s intention to review the rent
and, on the other, a review of the rent as contemplated by subclause (d)
(‘shall not have been reviewed’). Thus, it was argued, the parties must have
accepted that the notice under subclause (a) was not the review itself. The
review means a reconsideration and the reaching of a conclusion. If no new rent
had been concluded ‘at a date of review’ then a notice under (d) was
permissible.
Hence the
force of the words ‘Notwithstanding subclause (a)’ at the beginning of
subclause (d). It was argued that even if, contrary to his prime contention,
the notice under subclause (a) could be said to be a review, on the facts no
new rent was proposed by the landlord until after the date of review.
Therefore, on the facts, the rent was not, and could not have been, reviewed at
the date of review, namely May 19 1991.
4. Counsel
submitted that his construction gave effect to the language used by the
draftsman, gave weight to each part of the clause, represented a perfectly
sensible bargain in commercial terms (in particular he stressed the need for
certainty so that a tenant could plan his financial affairs) and provided an
inducement to the
subclause (a) the more risk he ran that the process would not have been
completed by the review date. Here, the landlord had left serving his notice
until near the end of the period and then failed to do anything about the review
itself, leaving the tenant in a state of limbo, as it were.
For the
landlord
1. The
argument presented on the tenant’s behalf was impractical and failed to give
effect to the opening words of subclause (c) (‘If at any date of review’). What
was contemplated by clause 6 was a notice under subclause (a) followed by a
period of negotiation:
If at [the]
date of review
— namely, May
19 1991 —
the Landlord
and the Tenant shall be unable to agree on the amount of the [new rent] . . .
then the same shall be decided by a Surveyor . . .
If the rent
review contemplated by subclauses (a)-(c) had to be completed by the date of
review, as the tenant argued, the first time that the surveyor could be asked
to decide would be the last time he could do so, apart from a scintilla
temporis. The parties cannot have intended such a bizarre result. Further,
the valuation date for the new rent was the date of review. It was unlikely
that the parties intended a surveyor to be asked to decide the new rent much,
if at all, before that date.
2. Service of
a notice under subclause (a) is a condition precedent to the landlord’s right
to review the rent. The right to review is crystallised by the service of such
a notice; service of the notice triggers the review itself. It is not merely a
notice of intention to review. Once served, the process is inexorably under
way. Clause 6(a) refers to the landlord having the ‘right to review’. The words
in subclause (d), ‘shall not have been reviewed’, are referring not to
completion of the whole process but to the review process itself. The parties
might have chosen to use a different expression (eg ‘if the yearly rent . . .
shall not have been varied’ — see p3 of the lease — ‘(subject to variation)’)
if it had intended the consequence contended for on behalf of the tenant.
3. On the
tenant’s argument the landlord would be put into a difficult position if a
surveyor was appointed and he did not proceed to his decision with due dispatch
or became ill. Further, in the real world, the parties cannot have contemplated
that, were a surveyor to be instructed, he could or would complete his task
without receiving representations from the parties of valuation, with each
putting forward their own comparables, although there was nothing in this lease
requiring the parties to make such representations. None the less that is the
way in which the clause would probably operate in practice. That would all take
time and it was unlikely that the process could be completed by the date of
review unless it was started a long time before. The tenant’s argument
effectively rendered the process in clause 6(a)-(c) unworkable.
4. Further,
the tenant’s argument in favour of certainty and speed would not work in
relation to clause 6(d). There, it would not matter how long the expert took to
reach his decision. The landlord’s right of review would not be lost once a
proper notice had been served under subclause (d), however much time had
elapsed.
I am of the
view that the arguments on behalf of the landlord are to be preferred to those
on behalf of the tenant. In essence, I think that the tenant tries to make too
much of the words in subclause (d) on which his argument is rested. The effect
of his submission is that the words ‘shall not have been reviewed at a date of
review’ mean ‘shall not have been agreed, or in default of agreement, decided
by a Surveyor appointed in accordance with subclause (c)’. I do not think the
words bear that interpretation. In my view, subclauses (a) and (d) contemplate
that the landlord reviews the rent by serving the appropriate notice. In this
sense what subclause (d) does is to provide that, if the landlord has not
reviewed the rent by serving a notice (of his intention to do so) within
subclause (a), he may review the rent in accordance with subclause (d), namely
by serving a one-month notice. In other words, a notice under (a) both ‘reviews
the rent’ and serves notice of the landlord’s intention to do so.
In my
judgment, some support for this conclusion may be found in the fact that
subclause (d) begins with the words: ‘Notwithstanding subclause (a) of this
Clause.’ It is to be noted that there is
no express reference to subclause (c); subclause (a) is largely concerned with
the serving of notice, while subclause (c) is concerned with fixing the amount
by agreement or decision of a surveyor. If the meaning contended for on the
tenant’s behalf had been correct I would have expected clause 6(d) to have said
‘Notwithstanding the provisions of subclauses (a) and (c) of this Clause’.
It seems to me
that counsel for the landlord is right when he contends that the tenant’s
argument gives no meaning to the words at the beginning of subclause (c) ‘If at
any date of review’. In his reply, counsel for the tenant suggested that this
phrase was not temporal and for the word ‘at’ one might read ‘in relation to’.
I do not agree. The plain meaning of these words, in my judgment, is that it
was envisaged that the parties would try to agree terms right up to the date of
valuation (the date of review) and only thereafter would the surveyor proceed
to decide the rent. Of course, there would be nothing to prevent the parties
from getting the surveyor to decide the rent issue in advance of the valuation
date, but I accept that, in the normal course of events, it would not be
commercially sensible for that process to be carried out too much in advance of
the review date, since rents might fluctuate in a relatively short space of
time.
Therefore, I
accept that the tenant’s construction would be unworkable in practice and would
be capable of bizarre consequences. In short, for the reasons which he gave
(and which I have set out above) counsel for the landlord seems to me to be
right and the tenant’s argument wrong.
It follows,
therefore, that I refuse to make the declaration sought and dismiss this
originating summons. Costs will follow the event.
It is only
right that I should pay tribute to the arguments on both sides. For a short
time I was entertained to advocacy of a high order.
Originating
summons dismissed.
