Landlord and tenant — Rent review clauses in two similar leases — Construction and effect of clause — Whether landlord’s notice to set rent review machinery in motion was valid — Effect of provision that, if landlord and tenant had not agreed the open market rent by a stated date and if the landlord had not made an application to the president of the RICS for the nomination of a surveyor to determine the rent, the landlord’s trigger notice should be void — County court judge held that this provision was itself invalid on the basis of United Scientific Holdings Ltd v Burnley Borough Council and accordingly decided that the landlord’s notice remained effective — Tenants appealed — Held by Court of Appeal that the judge’s reasoning could not be supported — In the events which had happened the landlord’s trigger notice had been rendered void because he had neglected to comply with a condition in the provision above mentioned, namely the making of an application to the president of the RICS on the failure of the parties to agree the amount of the open market rent — In the result the tenants’ appeals must be allowed
These were two
appeals by tenants from decisions of Judge Perrett at Birmingham County Court
which raised the same point on rent review clauses. The appellant in one case
was Paul Edward Lewis and in the other John Ceolfrid Scarborough and his wife,
Mary Diana Scarborough. The respondent in each case was David Gordon Barnett.
Ian McCulloch
(instructed by Masons, agents for Hill & Co, of Birmingham) appeared on
behalf of the appellants; Edward A Davidson (instructed by David Gordon Barnett
& Co, of Birmingham) represented the respondent.
Giving
judgment, STEPHENSON LJ said: This appeal arises out of rent review clauses in
two leases which were granted by the respondent, Mr Barnett, to a Mr Lewis
(that was a lease granted in 1970) and a lease granted to the predecessors in
title of Mr and Mrs Scarborough.
The two leases
set out a time-table in similar terms for the procedure of reviewing the rent
and it is therefore only necessary to deal with one lease and one appeal. At Mr
McCulloch’s invitation on behalf of all three appellant tenants we take Mr
Lewis’ lease and what we decide about that determines what is done about the
other lease.
What is asked
for in Mr McCulloch’s notice of appeal on behalf of these tenants is a
declaration:
that a notice
dated June 23 1977 given by the defendant as landlord to the plaintiff as
tenant under a lease dated December 10 1970 for the purposes of a rent review
to have effect from December 1 1977 is void having regard to the failure of the
defendant to procure the President of the Royal Institution of Chartered
Surveyors of (sic) an arbitrator for the purposes of determining the
said rent by September 1 1977 . . .
That was not
the order that was asked for in the proceedings before the county court judge
in Birmingham. The proceedings were begun by a plaint in the form which is Form
14 of the County Court Forms, preceded by way of an originating application
under Order 6, rule 4 of the County Court Rules. The application did not ask
for a declaration, which the county court is now empowered to give, where there
is no substantive action or matter to be litigated, by section 51(a) of the
County Court Act 1959, added thereto by the Administration of Justice Act 1977,
but did ask for orders which I think it is agreed the learned judge had no
power to give. But no objection is taken to the declaration now asked for by Mr
Davidson, on behalf of the respondent landlords if Mr McCulloch makes good his
submission that the learned judge came to the wrong conclusion in refusing to
make any order, either the declaration or any of the orders asked for in the
originating application which was in the correct form prescribed as Form 23 of
the County Court Forms.
The question
for decision arises on the terms of the two leases and I take Mr Lewis’ lease
from Mr Barnett and read the relevant provisions. The first relevant provision
is clause 1, which demises the premises for a term of 21 years from and
including December 1 1970 at a rent during the first seven years of £1,380 and
during the remainder of the said term the yearly rent (that is £1,380 a year)
or such other rent or rents as may become payable under and by virtue of the
provisions of the third schedule thereto by equal quarterly payments in every
year without any deduction, the first of such payments being due and payable on
December 1 1970.
Turning to the
third schedule, by para 1 that gives the following meanings to two expressions.
The ‘rent review dates’ are December 1 1977 and December 1 1984 and ‘the open
market rent’ is:
The yearly
rent for which the demised premises might reasonably be expected to be let with
vacant possession on the rent review dates in the open market by a willing
lessor for a term equal to the unexpired residue on the rent review dates of
the term hereby granted and otherwise upon the terms and conditions (save as to
the amount of rent payable) contained in this deed . . .
Then there are
three matters disregarded. Paras 2 and 3 provide:
2. If at any
time not more than twelve and not less than nine months before the rent review
dates the landlord shall give notice in writing to the tenant of his desire to
vary the yearly rent payable hereunder as from the rent review dates such
yearly rent shall from and after the rent review dates be whichever is the
higher of:
(a) the yearly rent reserved hereunder
immediately before the rent review dates and —
(b) the open market rent.
3 If the landlord and the tenant shall not have
agreed the open market rent not less than six months before the rent review
dates the open market rent shall be determined by a surveyor (hereinafter
called ‘the appointed surveyor’) to be agreed upon in writing by the landlord
and the tenant not less than four months before the rent review dates and in
default of such agreement to be nominated by the President for the time being
of the Royal Institution of Chartered Surveyors upon the application of the landlord
to be made not less than three months before the rent review dates.
Para 4 is
immaterial. Paras 5 and 6 provide:
5. If on the
rent review dates the open market rent shall not have been agreed or determined
as aforesaid the yearly rent reserved hereunder immediately before the rent
review date shall continue to be payable until the determination of the open
market rent by the appointed surveyor but so that immediately on demand after
such determination the excess difference (if any) over the amount actually so
reserved and the amount which would have been payable had the determination
been made before the rent review dates shall be paid by the tenant to the
landlord and if not so paid shall be recoverable as rent in arrear.
6. If the
landlord and the tenant shall not have agreed the open market rent at least six
months before the rent review date and the landlord shall neglect to make the
application referred to in para 3 hereof then (unless the parties hereto shall
in writing agree otherwise) any notice already given by the landlord to the
tenant under the provisions of para 2 hereof shall be void and of no effect.
It is conceded
that the first notice, the notice under para 2 of the landlord’s desire to vary
the yearly rent, was not given in time. It should have been given by March 1
1977, but it was not given until June 23 1977, when it was given by letter in a
form which was conceded to be adequate. The procedure that had then to be
followed after the notice had been given of the landlord’s desire to vary the
yearly rent was, under para 3, that the open market rent should be agreed. That
had to be done not less than six months before the rent review date. If it were
not done, then a surveyor had to be appointed. If he could not be appointed by
agreement not less than four months before the rent review date (in this case
December 1 1977) he had to be nominated by the president of the Royal
Institution of Chartered Surveyors and, to be nominated by the president, there
had to be an application by the landlord to the president to nominate a
surveyor and that application had to be made by the landlord not less than
three months before the rent review date. Again, it is common ground that the
earlier of the two dates on which the application was made to the president was
March 3 1978 — again, not in time. The application ought to have been made not
later than September 1 1977.
It was argued
on behalf of the tenant before the learned county court judge and has been
argued before us that, on those uncontradicted facts and on the true
construction of the lease, the notice which the landlord gave under para 2 was
void and of no effect, not because it was given out of time but because, first
of all, the landlord and the tenant had not agreed the open market rent at
least six months before December 1 1977 and, secondly, the landlord had
neglected to make the application to the president to appoint a surveyor before
the three months from December 1 1977 expired. It was submitted that, on the
plain words of para 6, that para showed an agreement before the parties that
the landlord’s neglect to make that application until too late invalidated his
notice under para 2 of his desire to vary the rent. The learned judge rejected
that submission and was persuaded by Mr Davidson, in what must have been an
extremely able argument, to achieve that result by regarding not the notice to
vary the rent as void and of no effect but para 6 as void and of no effect.
The learned judge
was rightly referred to the decision of the House of Lords in United
Scientific Holdings Ltd v Burnley Borough Council reported in [1978]
AC 904. That decision reversed two decisions of this court and held that there
was a presumption that the time-table provided in leases for reviews of rent
did not make time of the essence of the contract; and in giving the leading
judgment of the House Lord Diplock said at p 930 of the report:
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 the 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.
That principle
is binding on this court and of course was unchallenged by counsel on either
side.
The learned
judge, having referred to the passage in Lord Diplock’s speech which I have
just read, went on to say this in the amended transcript of his judgment, which
we are fortunate to have:
In the
present case, I have to ask myself this question: ‘are there any express terms
in the lease which make time of the essence?’
But no express terms appear in the lease making time of the essence. In
particular, paras 2 and 3 contain no such term. The question arises whether another
clause will determine that the time limits within which the rent payable is to
be ascertained is of the essence of the contract.
The learned
judge then went on to consider para 6 and said:
The question
is, are these two periods . . .
that is the
period of at least six months before the rent review date for agreeing the open
market rent and the period of not less than three months before the rent review
date for making the landlord’s application to the president of the Royal
Institution of Chartered Surveyors
. . of the
essence of the contract? If you cut out
para 6, time was not of the essence, in view of what Lord Diplock said. Does
para 6 make time of the essence? In view
of the recent House of Lords’ finding in United Scientific v Burnley
Council I feel that in the absence of an express term in paras 2 and 3 of
the third schedule, stating that time shall be of the essence, and in the
absence of any common law notice, clause 6 must be of no effect. Therefore,
with some regret, I find for the landlord.
With all
respect for the learned judge it seems to me that, in posing the question ‘are
there any express terms in the lease which make time of the essence?’, he was
not asking the right question; nor was he right to look in consequence at paras
2 and 3 for an express term there stating that time shall be of the essence.
What he had to do was to construe the lease as a whole and to direct his mind
to the question what the effect of para 6 was, read with all the other
provisions of the lease, including, in particular, paras 2 and 3 to which it
expressly refers.
I have not the
smallest hesitation in saying that no principle of construction and no
authority of any court compels or even justifies a judge in finding one
paragraph in a written document (in this case a sealed lease) to have no
effect. Effect must be given to the paragraph if it possibly can be. That was
the basis on which the learned judge rejected the tenant’s application. I am
not surprised that Mr Davidson, without a respondent’s notice (though I do not
think he needs one: it is just a question of construction), asks this court to
affirm the judge’s judgment on a less paradoxical ground. Mr Davidson says that
some effect must be given to para 6, but he submits that para 6 is careful to
refer to the period of ‘at least six months’ in the opening words ‘If the
landlord and the tenant shall not have agreed the open market rent at least six
months before the rent review date’; but is careful to omit any reference to
the period of ‘not less than three months’ from the following words importing
the second condition for nullifying and voiding any notice under the provisions
of para 2, namely, that the ‘landlord shall neglect to make the application
referred to in para 3 . . .’. He says that omission is deliberate and it is a
necessary condition of a notice being voided by para 6 that the landlord should
have neglected to make the application referred to in para 3 at any time, or at
any reasonable time, or at any time which will not prejudice the tenant. He
submits that if that construction is given to the paragraph it will still take
effect where the landlord fails to make any application to the president when
the circumstances for making that application arise, or fails to apply to the
president after the tenant has given a common law notice making time of the
essence, such a notice as indicated by Lord Diplock and Lord Salmon in the United
Scientific v Burnley Council case to be necessary to make time of
the essence in a rent review time-table. Their lordships there suggested that
the best way for tenants in the future to secure that time was of the essence
for a time-table for a rent review was to say so in express words in the lease.
It is no doubt that expression of opinion by Lords Diplock and Salmon in the United
Scientific v Burnley Council case which led the learned judge in
this case to put the question he had to consider and his judgment in the way in
which he did.
These leases
were, of course, drawn up and executed before the decision of the House of
Lords in that case, but nevertheless the tenants may have achieved indirectly
the result that express words would have achieved by, in Lord Diplock’s words,
‘contra-indications in the express words of the lease’.
In my
judgment, in spite of Mr Davidson’s submissions, that is exactly what they have
done. I cannot regard the omission of the reference to time from the reference
to the landlord’s application as having the effect for which Mr Davidson
contends. It seems to me that when the draftsman of this paragraph referred to
the landlord’s neglect to make the application referred to in para 3, he was
referring, without setting out all the words, to his application to make it not
less than three months before the rent review dates, because that is the application
which the landlord has to make in para 3. He might have omitted the words ‘at
least six months before the rent review date’ in the second line of the para if
he had wished to be equally concise. In my judgment para 6 means what it says
and what it says is that, if the landlord neglects to comply with para 3 in
respect of the application there referred to in a case where he and the tenant
have not been able to agree the open market rent in the time required, or at
all, then any notice already given by the landlord to the tenant under the
provisions of para 2, including the all-important opening notice, shall be void
and of no effect. In my judgment, neither on the basis of the learned judge’s
judgment that para 6 was of no effect nor on the more plausible basis of Mr
Davidson’s construction of the para, can the learned judge’s judgment be
upheld.
For these
reasons I would allow both appeals, set aside the learned judge’s judgment in
both cases and make the declarations asked for in both notices of appeal,
stopping at the word ‘void’. In other words the declarations in each case
should be that a notice dated June 23 1977 given by the defendant as landlord
to the plaintiff as tenant under the lease for the purposes of a rent review to
have effect from
added the words ‘having regard to the failure of the defendant to procure the
president (it must be ‘to appoint’) an arbitrator for the purposes of
determining the rent’, without mentioning the date at which the application to
appoint the president was made or ought to have been made. I do not think the
addition helps the landlord and I would omit it.
For these
reasons, as I say, I would allow the appeals and make the orders I have indicated.
BRANDON LJ: I
agree.
SIR STANLEY
REES: I agree.
The appeals
were allowed with costs.
