Landlord and tenant — Rent review provisions in lease — Construction — Whether time was of the essence for the purpose of a particular paragraph — This paragraph provided that, subject to certain conditions (which were satisfied), the lessee might after a particular date serve on the lessor a notice proposing the amount of the revised rent and this amount ‘shall be the revised rent’ for the relevant period unless the lessor within three months after service of such a notice by the lessee applied to the president of the RICS for determination of the rent by a valuer — The lessees served a notice under this paragraph proposing that the rent should be the same figure as during the previous five years, namely £11,000 per annum — Lessors did not apply to the president within the three months and the lessees sought a declaration that the rent for the new period should remain at £11,000 — Lessors counterclaimed for a declaration that their application to the president of the RICS after the expiry of the three months was valid — The issue before the court was whether time was of the essence for the purpose of the three months’ time-limit — It was submitted on behalf of the lessees that there were ‘contra-indications’ sufficient to displace the presumption established by United Scientific Holdings Ltd v Burnley Borough Council that time is not of the essence for the purpose of steps in a rent review clause — Reliance was placed on a dictum by Griffiths LJ in Trustees of Henry Smith’s Charity v AWADA Trading & Promotion Services Ltd and on the presence of a ‘default provision’ in the relevant paragraph — Held that the contra-indication required to rebut the presumption must be ‘a compelling one’ and that those put forward were not compelling — Declaration in favour of lessors
The following
cases are referred to in this report.
Cheapside
Land Development Co Ltd v Messels Service Co
[1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33 P&CR 220;
[1977] EGD 195; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
Greenhaven
Securities Ltd v Compton [1985] 2 EGLR 117;
(1985) 275 EG 628
Lewis v Barnett (1981) 264 EG 1079, [1982] 2 EGLR 127
Mecca
Leisure Ltd v Renown Investments (Holdings) Ltd
(1984) 49 P&CR 12; [1984] EGD 200; 271 EG 989, [1984] 2 EGLR 137, CA
Smith’s
(Henry) Charity Trustees v AWADA Trading &
Promotion Services Ltd (1983) 47 P&CR 607; [1984] EGD 103; 269 EG 729,
[1984] 1 EGLR 116, CA
Taylor
Woodrow Property Co Ltd v Lonrho Textiles Ltd
[1985] 2 EGLR 120; (1985) 275 EG 632
United
Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33
P&CR 220; [1977] EGD 195; (1977) 243 EG 43 & 127, HL, [1977] 2 EGLR 61
The plaintiffs
in these proceedings, lessees of two units on the Huncoat Industrial Estate at
Accrington in Lancashire, sought declarations that the rent payable under the
lease for the period April 14 1984 to April 13 1990 was £11,000 per annum and
that any application made by the lessors after August 31 1985 to the president
of the RICS for the nomination of a valuer under the rent review clause was
invalid. The lessors counterclaimed for a declaration to the opposite effect.
Joanne Moss
(instructed by Bower Cotton & Bower, agents for Becke Phipps, of
Northampton) appeared on behalf of the plaintiff lessees; P W Smith (instructed
by O’Collier, Littler & Kilbeg, of Stockport) represented the defendant
lessors.
Giving
judgment, WARNER J said: This is yet another case raising the question whether
time is of the essence of a particular paragraph in the rent review provisions
of a lease. The lease is dated June 18 1980. The property thereby demised
consists of two units on an industrial estate at Accrington in Lancashire known
as the Huncoat Industrial Estate. The demise was for a term of 25 years from
April 14 1980. The rents reserved by the lease were, apart from an ‘insurance
rent’, a peppercorn for the first month of the term (from April 14 1980 to May
13 1980), a rent at the yearly rate of £11,000 for the remainder of the first
five years of the term (from May 14 1980 to April 13 1985) and thereafter — I
quote from clause 2.1 of the lease:
during each
of the successive periods of five years beginning on 14th April 1985 14th April
1990 14th April 1995 and 14th April 2000 respectively a yearly rent equal to
the rent payable under this Lease immediately prior to the commencement of the
relevant period or such revised yearly rent as may be agreed or determined
under the provisions of Schedule 2 below (whichever shall be the greater).
Clause 2.1
goes on to provide, so far as material, that the rent shall be payable in
advance by equal quarterly payments on the usual quarter days in each year and
that:
until any
revised rent is agreed or determined under the provisions of Schedule 2 below
the rent payable for the relevant period shall (subject to paragraph 10 of
Schedule 2 below) be the rent payable immediately prior to the commencement of
such period.
Schedule 2 is
entitled ‘Rent Review Provisions’. It has eleven paragraphs, each with its own
heading. Paras 1, 2 and 3 are as follows:
DETERMINATION
BY AGREEMENT
1 The revised rent referred to in Clause 2.1
above may be agreed at any time between the Lessor and the Lessee.
DETERMINATION
BY A VALUER: LESSOR’s OPTION
2 In the absence of agreement under paragraph 1
above the revised rent may at the option of the Lessor be determined not
earlier than two months before the commencement of the period to which it
relates (the ‘Relevant Period’) by a Valuer (the ‘Valuer’) to be nominated in
the absence of agreement by the President of the Royal Institution of Chartered
Surveyors (‘the President’) on the application of the Lessor made not more than
six months before or at any time after the commencement of the Relevant Period.
DETERMINATION
BY A VALUER: LESSEE’s OPTION
3 In the absence of agreement under paragraph 1
above and provided that the Lessor has not applied to the President in
accordance with paragraph 2 above the Lessee may at any time after the
commencement of the Relevant Period serve on the Lessor a notice containing a
proposal as to the amount of such revised rent (not being less than the rent
payable immediately before the commencement of the Relevant Period) and the
amount so proposed shall be the revised rent for the Relevant Period unless the
Lessor shall apply to the President for determination by a Valuer within three
months after service of such a notice by the Lessee.
Para 4
provides that the valuer shall act as an expert and not as an arbitrator and
that his determination of the revised rent shall be binding on the lessor and
the lessee unless the revised rent has been agreed prior to such determination
in accordance with para 1.
Para 5 lays
down the principles on which the revised rent is to be determined by the
valuer. It is to be such rent as in his opinion
shall be the
yearly rent of the demised premises having regard to market rental values
current at the commencement of the Relevant Period
on a number of
assumptions. I need not go into the details of those assumptions. They are of a
familiar kind.
Para 6 deals
with the procedure to be adopted by the valuer.
Para 7
provides for the appointment of a substitute valuer in certain events.
Para 8
provides that the cost of the reference to the valuer
shall be in
the award of the Valuer whose decision shall be final and binding on the Lessor
and Lessee.
Paras 9 and 10
are important and I must read them:
CONTINUATION
OF EXISTING RENT UNTIL DETERMINATION OF REVISED RENT
9 If and so often as a revised rent in respect
of any Relevant Period has not been agreed or ascertained pursuant to the above
provisions before the first day appointed for the payment of rent for such
Relevant Period rent shall continue to be payable during that Relevant Period
at the rate equal to the rent payable immediately before the commencement of
that Relevant Period (the ‘Old Rent’) until fourteen days after that revised
rent has been agreed or ascertained or until the expiration of that Relevant
Period (whichever happens first)
PAYMENT OF
ARREARS
10 Within fourteen days after any revised rent
has been determined by a Valuer in accordance with the provision of this
Schedule or agreed under paragraph 1 above or ascertained under paragraph 3
above the Lessee shall (provided the revised rent is greater than the Old Rent)
pay to the Lessor an amount equal to the difference between the Old Rent and
the revised rent together with Interest upon such difference calculated from
the commencement of the Relevant Period to the actual date of such payment.
By virtue of
clause 1 of the lease, which is a definition clause, such interest is
calculable at the rate of 2 per cent per annum above Barclay’s Bank base rate
from time to time.
Finally, para
11 of Schedule 2, which is headed ‘Rent Review Memoranda’, provides:
When the
amount of any rent to be ascertained as provided above has been so ascertained
memoranda of it shall thereupon be signed by or on behalf of the Lessor and the
Lessee and annexed to this Lease and the counterpart of this Lease each party
bearing its own costs.
On January 22
1985, a firm of chartered surveyors acting for the landlord (Malbern Property
Holdings Ltd) wrote to the tenant (Phipps-Faire Ltd) saying that they had been
instructed by the landlord to negotiate with the tenant the new rent to take
effect from April 14 1985 and proposing that that rent should be £19,920 per
annum. They received a reply dated January 26 1985, from a chartered surveyor
instructed by the tenant, questioning whether there should be any increase in
the rent at all. After a further exchange of letters between the surveyors in
March 1985, the tenant’s surveyor wrote to the landlord’s surveyors on May 30
1985 maintaining that there was no case for an increase in the rent. He added:
If your
client does not agree with this I would ask that you accept this letter as
formal notice under paragraph 3 of Schedule 2 of the lease dated 18th June 1980
that the lessee proposes that the review rent for the period 14th April 1985 to
13th April 1990 be £11,000 per annum.
Though there
is no evidence as to when that letter was received by the landlord’s surveyors,
counsel have treated it as common ground that the period of three months
prescribed by para 3 of Schedule 2 ended on or about August 31 1985. It was not
until October 7 1985 that the landlord’s surveyors wrote to the president of
the Royal Institution of Chartered Surveyors applying for a valuer to be
nominated. There had been some correspondence between the parties’ surveyors in
the meantime, but I do not think that anything in that correspondence is
relevant to the question that I have to decide.
This action is
brought by the tenant against the landlord for declarations that the rent
payable under the lease for the period April 14 1984 to April 13 1990 is
£11,000 per annum and that any application to the president of the Royal
Institution of Chartered Surveyors made after August 31 1985 for the purposes
of Schedule 2 to the lease is out of time and invalid.
There is a
counterclaim by the landlord for, inter alia, a declaration that the
application to the president of the Royal Institution of Chartered Surveyors
made on October 7 1985 was valid.
The whole
question, of course, is whether time was of the essence of the provision in
para 3 of Schedule 2 that the lessor should apply to the president within three
months after service of the lessee’s notice under that paragraph. If the answer
to that question is ‘Yes’, the landlord’s application to the president of
October 7 1985 was out of time and the rent payable under the lease for the
period April 14 1985 to April 13 1990 is now fixed at £11,000 per annum.
On that
question I was referred to a number of authorities including the United
Scientific and Cheapside cases [1978] AC 904, Lewis v Barnett
(1981) 264 EG 1079, [1982] 2 EGLR 127, Trustees of Henry Smith’s Charity
v AWADA Trading and Promotion Services Ltd (1983) 47 P&CR 607*, Mecca
Leisure Ltd v Renown Investments (Holdings) Ltd (1984) 49 P&CR
12† , Greenhaven Securities Ltd v Compton
Textiles Ltd ibid p 120.
*Editor’s
Note: Also reported at (1983) 269 EG 729, [1984] 1 EGLR 116.
† Also
reported at (1984) 271 EG 989, [1984] 2 EGLR 137.
Miss Moss, on
behalf of the tenant, takes as the starting point of her argument the statement
of principle by Lord Diplock in the United Scientific and Cheapside
cases ([1978] AC 904 at p 930):
So upon the
question of principle which these two appeals were brought to settle, I would
hold that in the absence of any contra-indications in the express words of the
lease or in the interrelation of the rent review clause itself and other
clauses or in the surrounding circumstances the presumption is that the
time-table specified in a rent review clause for completion of the various
steps for determining the rent payable in respect of the period following the review
date is not of the essence of the contract.
Miss Moss
submits that in the present case there are three ‘contra-indications’ in the
express terms of the lease.
First, she
points to the contrast between the phrase ‘at any time’, which is used in each
of paras 1, 2 and 3 of Schedule 2, and the phrase ‘within three months’ used in
para 3. I do not regard that contrast as a material contra-indication. The
phrase ‘at any time’ appears to me to be used in each of the places where it is
used because it is the appropriate phrase to use there to convey the intended
meaning clearly. Miss Moss suggests that the phrase could have been left out in
each of those places but, in my opinion, to have left it out would have
amounted to slipshod drafting. Of course the phrase ‘within three months’, if
read literally, imports a strict time-limit. But the very essence of the
principle laid down in the United Scientific and Cheapside cases
is that there is a presumption that such a phrase is not to be taken literally.
The use of the phrase cannot of itself serve to rebut the presumption.
Second, Miss
Moss points to the purpose of para 3, which is to enable the lessee, after the
commencement of the ‘Relevant Period’, to shorten to three months the period
within which the lessor must apply to the president of the Royal Institution of
Chartered Surveyors for the nomination of a valuer, a period which, by virtue
of para 2, would otherwise be indefinite. Such a provision is necessary for the
protection of the lessee, not only because, as was recognised in the United
Scientific and Cheapside cases, there are circumstances in which a
tenant needs to know without undue delay what his liability for rent is going
to be, but also because of the provisions of para 10 of Schedule 2 for the payment
of the so-called ‘arrears’ of rent with interest. Thus, says Miss Moss, para 3
is concerned with the imposition of a time-limit which was not there before,
with the object of achieving finality. By the very nature of such a provision,
time must be of the essence of it. In support of that submission, Miss Moss
relies on a dictum of Griffiths LJ (as he then was) in the AWADA case.
Discussing the clause there in question, he said (at 47 P & CR 607 at p
617):
By clause
1(f) market rent is to be assessed as at the date of the landlords’ rent review
notice. Clause 2 allows the landlords to serve a rent review notice at any time
during a five-year review period; so if rents are rising fast the landlords may
think it to their advantage to delay serving their notice. However, the tenants
are given the chance of protecting themselves against this tactic by serving a
notice on the landlords requiring them to serve a notice within six months, and
if the landlords do not do so, clause 2 expressly prohibits the landlords from
serving another notice during that review period. This clause must be read with
time being of the essence otherwise the protection of the tenant is either
destroyed or greatly reduced.
As reinforcing
that contra-indication, Miss Moss points, thirdly, to the fact that para 3
contains a ‘default provision’, that is to say the provision that, if the
lessor does not apply to the president within three months after service of the
lessee’s notice, the amount proposed in that notice ‘shall be the revised
rent’. Miss Moss recognises, in view of the decision of the Court of Appeal in
the Mecca Leisure case, that the presence of such a default provision
does not necessarily indicate that time is of the essence, but she rightly
submits that it may well do so, particularly in conjunction with other factors
pointing to the same conclusion.
Miss Moss’
arguments based on her second and third ‘contra-indications’ are attractive. I
have, however, come to the conclusion that I ought to reject them. The
authorities seem to me to show that the presumption that time is not of the
essence of a provision in a rent review clause is strong and that it will not
be rebutted by any contra-indication in the express terms of the lease unless
it is a compelling one. I do not find the contra-indications relied upon by
Miss Moss compelling. The effect of holding that time is of the essence of the
provision here in question is to entitle the lessee, once the three months’
period has elapsed, to bring matters to a head by serving on the lessor a
notice making time of the essence, that is a notice specifying a reasonable
period within which the lessor is to exercise its right to apply to the
president of the Royal Institution of Chartered Surveyors for the nomination of
a valuer or lose that right. Since the act of writing to the president is a
fairly simple one, the period need not be long. Mr Smith, who appeared for the
landlord, suggested 28 days at the most. I should have thought that 14 days
would be ample. It does not seem to me that such an extension of the prescribed
period of three months, which may be necessary to prevent para 3 from being
what Eveleigh LJ in the Mecca Leisure case called ‘a trap’, would
substantially impair the protection intended to be afforded to the lessee by
that paragraph.
I do not
overlook the dictum of Griffiths LJ on which Miss Moss relies but, as she
fairly recognises, the view taken by a judge of the effect of a particular
document in one case does not always afford safe guidance as to the effect of a
different document in a subsequent case. I am not sure that I understand why
Griffiths LJ thought that unless time was held to be of the essence of the
clause with which he was concerned the protection of the tenants would be
‘either destroyed or greatly reduced’. Probably it was because there the market
rent was to be assessed as at the date of the landlord’s notice. There is no
equivalent of that here. Also the time within which in that case the landlords
were to act in response to the tenant’s notice was six months, not three.
Nor do I
overlook that, by holding time not to have been of the essence here, I do
violence to the language of para 3 to the extent that the amount proposed in
the tenant’s notice of May 30 1985 will not necessarily be ‘the revised rent’
for the period April 14 1985 to April 13 1990. But, in every case where time is
held not to be of the essence of a provision in a rent review clause, it
follows that the new rent may not be what it would have been if the words of
the clause had been given literal effect. So that is not an objection.
In the result
I will declare that the application made by the landlord to the president of
the Royal Institution of Chartered Surveyors on October 7 1985 was valid. It
does not appear to me that the other declaration sought by the counterclaim is
appropriate, but I will hear counsel on that.
