Landlord and tenant — Rent review clause — Construction and application — Effect of notice ‘making time of the essence’ — Warehouse in trading estate — In this case a rent review clause provided for a ‘trigger’ notice by the landlords followed by machinery for reaching agreement on a fair market rack rental and, in default of agreement, determination of the rent by a surveyor appointed, failing agreement, by the president of the RICS — Surveyor to act as arbitrator — Apart from the disputed effect of the tenants’ letter mentioned below, time was not of the essence for the purposes of the review clause — After some correspondence between the parties the tenants wrote to say that they could not agree with a revised rent proposed by the landlords and gave formal notice to the latter that they were required within 28 days of the date of the letter to refer the calculation of a fair market rent to arbitration — Landlords did not comply with this time-limit and tenants claimed that, as their letter had made time of the essence, it was now too late to proceed with the rent review and that the appointment of an arbitrator by the president was invalid — Landlords sought declarations that the appointment was valid and that the tenants would be liable to pay the rent determined by the arbitrator — Apart from a preliminary point decided in favour of the tenants, the issue before the court was whether the tenants were entitled to give an effective notice making time of the essence — Observations in the speeches in United Scientific Holdings Ltd v Burnley Borough Council considered — It was not correct to say that in every case where equity treated time as not being of the essence of a stipulation there was a countervailing right for the party affected to serve a notice making time of the essence — In the context of rent reviews a notice making time of the essence can be used in appropriate cases, but not all time-limits can be the subject of such a notice — It was submitted on behalf of the landlords that a tenant was not entitled to serve a notice making time of the essence of a step in the procedure that was open to the tenant himself to take — In the present case, as in the United Scientific case, it was equally open to the landlord and the tenant to apply to the president of the RICS for the appointment of an arbitrator — Held, accepting this submission, that in the circumstances of the present case the tenants were not entitled to serve a notice making time of the essence — Declarations claimed by landlords granted
The following
cases are referred to in this report.
Amherst v James Walker (Goldsmith & Silversmith) Ltd [1983] Ch
305; [1983] 3 WLR 334; [1983] 2 All ER 1067; (1983) 47 P&CR 85; [1985] EGD
157; 267 EG 163, [1983] 2 EGLR 108, CA
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
London
& Manchester Assurance Co Ltd v G A Dunn
& Co [1983] EGD 86; (1982) 265 EG 39 & 131, CA, [1983] 1 EGLR 111
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
Thorn EMI
Pension Trust Ltd v Quinton Hazell plc
(1983) 269 EG 41, [1984] 1 EGLR 164
Touche
Ross & Co v Secretary of State for the
Environment (1982) 46 P&CR 187; 265 EG 982, [1983] 1 EGLR 123, CA
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
In this case
the plaintiff landlords, Factory Holdings Group Ltd, sought by originating
summons declarations (a) that the appointment of Mr G J Calver FRICS as
arbitrator was valid in relation to the dispute with the defendant tenants,
Leboff International Ltd, as to the terms of the rent review clause in the
lease of a warehouse on a trading estate at Yate, Gloucestershire, and (b) that
the defendants were liable to pay to the plaintiffs with effect from June 12
1985 such rent as might be awarded by Mr Calver.
Kim Lewison
(instructed by Helder Roberts & Co, of Epsom) appeared on behalf of the
plaintiffs; David Neuberger (instructed by Linklaters & Paines) represented
the defendants.
Giving
judgment, WARNER J said: By a lease dated July 25 1969, the plaintiff, Factory
Holdings Group Ltd (which I will call ‘the landlord’), demised to the
defendant, whose name was then S Leboff (Fobel) Ltd and is now Leboff
International Ltd (I will call it ‘the tenant’), what I understand to be a
warehouse on a trading estate at Yate in Gloucestershire which is owned by the
landlord. The lease is for a term of 25 years from June 12 1969. The rents
initially reserved were a yearly rent of £8,930 and an insurance rent. However,
the lease contains, in clause 5 (2), provisions for rent reviews, the relevant
parts of which are as follows:
(a) If the Landlord shall desire to review the rent
hereinbefore reserved at or after the expiration of the eighth and sixteenth
years of the term hereby granted (or either of them) and of such desire shall
give to the Tenant not less than six calendar months previous notice in writing
then as from the date of the expiration of the said notice or of the expiration
of the relevant year of the term hereby granted in respect of which such notice
shall have been given (whichever shall be the later) for the residue of the
term hereby granted or until any subsequent review as herein provided the rent
first hereby reserved shall be revised and shall be such an annual sum as may
be agreed between the Landlord and Tenant or as may be determined as provided
by the following sub-clauses of this present clause to be the fair market rack
rental of the demised premises PROVIDED that in no circumstances shall the rent
payable hereunder following any such review be less than the yearly rent
payable by the Tenant at the date of the Landlord’s notice calling for the review
in addition to the insurance rent.
(b) If within two calendar months after the
service by the Landlord of the notice referred to in sub-clause (a) of this
present clause the Landlord and the Tenant have been unable to agree upon a
fair market rack rental (as defined by sub-clause (c) of this present clause)
then the question of what is a fair market rack rental of the demised premises
shall as soon as practicable and in any event not later than four months before
the expiration of the said notice or of (sic) the expiration of the relevant
year of the term hereby created in respect of which such notice shall have been
given (whichever is the later) be referred for decision to a Surveyor to be
mutually agreed between the Landlord and the Tenant or in default of agreement
to be nominated by the President for the time being of the Royal Institution of
Chartered Surveyors and such Surveyor whether agreed or nominated as aforesaid
shall act as an Arbitrator in accordance with the Arbitration Act 1950 or any
statutory enactment in that behalf for the time being in force and the decision
of such Surveyor shall be binding on both the Landlord and the Tenant but
subject to the proviso contained in sub-clause (a) of this clause.
(c) The expression ‘fair market rack rental’
shall for the purposes of this clause mean the amount which would in addition
to the insurance rent be the annual amount obtainable at the date of agreement
or determination as aforesaid as between a willing Landlord and a willing
Tenant in respect of the demised premises on a letting thereof as a whole with
vacant possession for a term of eight years and subject to similar covenants
and conditions as those contained in this Lease but ignoring any goodwill value
attaching to the Tenant’s business or any improvements carried out by the
Tenant solely at its own expense and not pursuant to any obligation to the
Landlord and ignoring the provisions of this present clause for revision of the
rent but subject to the proviso contained in sub-clause (a) of this clause.
There was, I
understand, a rent review under those provisions at the eighth year of the term
as a result of which the yearly rent of £8,930 was increased to £26,000.
On November 26
1984, the landlord duly served notice under clause 5(2)(a) of its desire to
review that rent at June 12 1985, the expiration of the 16th year of the term.
I will for convenience, as is customary, refer to that notice as a ‘trigger
notice’.
Nothing then
seems to have happened until April 16 1985, when the landlord’s group estates
manager wrote to the tenant in these terms:
Further to my
letter of November 26 1984, I have now considered the matter of rental values
and I am of the opinion that the exclusive annual rental value of the above
premises with effect from June 12 1985 should be not less than £52,000 per
annum. I look forward to hearing from you that this is acceptable.
To that, the
tenant’s secretary replied on May 23 1985 as follows:
Thank you for
your letter of April 16. Having consulted with my colleagues I regret to say
the revised rental proposed in your letter is not acceptable to the company.
Please treat this letter as formal notice by the company that they require you
within 28 days of the date of this letter to refer the calculation of a fair
market rental to arbitration.
That letter
was received by the landlord on May 24 1985. On May 28 1985 the landlord’s
group estates manager wrote to the tenant saying:
Thank you for
your letter of May 23 1985, the contents of which I note. I am in the course of
preparing an application to the President of the RICS for the appointment of an
independent expert, but perhaps in the meantime you would place me in touch
with your surveyors so that we may establish the basic facts before the
appointment is known. I look forward to hearing from you.
That evoked no
response from the tenant. On June 26 1985, that is to say after the expiration
of the period of 28 days mentioned in the tenant’s letter of May 23 1985, the
landlord’s group estates manager wrote to the president of the RICS asking him
to appoint a member of that institution to determine the rent. On June 26 1985,
he wrote to the tenant, enclosing a copy of his letter to the president and asking
again to be put in touch with the tenant’s surveyors so that they could agree
basic facts.
The tenant’s
response to that took the form of a letter from its solicitors dated July 25
1985 contending that, whether or not the timetable contained in the lease made
time of the essence, the tenant’s letter of May 23 1985 had certainly done so,
with the result that, the landlord having failed to apply to the president of
the RICS for the appointment of an arbitrator within the period of 28 days
stipulated in that letter, it was now too late for the landlord to seek to
proceed with the proposed rent review.
In October
1985 the parties were informed by Mr G J Calver, a Fellow of the RICS, that he
had accepted an appointment by the president of that institution to act as
arbitrator in their case. The tenant’s solicitors at once took the point that,
the landlord having (as they contended) lost its right to review the rent, the
appointment of Mr Calver was invalid.
On April 14
1986, the landlord issued the present originating summons, seeking declarations
that the appointment of Mr Calver was valid and that the tenant is liable to
pay to the landlord with effect from June 12 1985 such rent as may be awarded
by Mr Calver.
I can dispose
shortly of the question whether, apart from the tenant’s letter of May 23 1985,
time was of the essence of the provision in clause 5(2)(b) of the lease for
referring the matter of the fair market rack rental of the demised premises to
an arbitrator. Mr Neuberger, who appears for the tenant, while not formally
conceding the point, very properly accepts that, in the light of the decisions
in Touche Ross & Co v Secretary of State for the Environment
(1982) 46 P & C R 187* and Thorn EMI Pension Trust Ltd v Quinton
Hazell plc (1983) 269 EG 41, [1984] 1 EGLR 164, it would be a waste of time
for him to argue that the answer to that question was in the affirmative.
*Editor’s
note: Also reported at (1982) 265 EG 982, [1983] 1 EGLR 123.
The next question
is one of construction of clause 5(2)(b) and it is whether that time-limit
expired on June 12 1985, the date of ‘the expiration of the relevant year of
the term’, or on February 12 1985, four months earlier. Mr Neuberger concedes
that, if the time-limit did not expire until June 12 1985, the tenant’s letter
of May 23 1985 seeking to make time of the essence was premature. It is common
ground that the phrase ‘and in any event not later than four months before the
expiration of the said notice or of the expiration of the relevant year of the
term . . . (whichever is the later)’, which is the crucial phrase in clause
5(2)(b), is ungrammatical. The word ‘of’ after the word ‘or’ should not be
there. Mr Neuberger suggests that it probably crept in as a result of blind
copying of the corresponding phrase in clause 5(2)(a), where its presence is
appropriate. Be that as it may, Mr Lewison, on behalf of the landlord, submits
that the time-limit did not expire until June 12 1985, because, he says, the
words ‘four months before’ relate only to the first limb of the alternative,
‘the expiration of the said notice’. He submits that if it had been intended to
make them relate also to the second limb, ‘the expiration of the relevant year
of the term’, the natural thing to have done would have been not to repeat the
words ‘the expiration of’ so that the phrase would have read ‘and in any event
not later than four months before the expiration of the said notice or of the
relevant year of the term . . . (whichever is the later)’.
On this point,
I prefer Mr Neuberger’s argument. He points out that under clause 5(2)(a) the
landlord was free either to serve its trigger notice not less than six months
before the end of the relevant year of the term or to serve it later. In the
former case, the new rent would become payable as from the end of that year. In
the latter case, it would become payable as from the end of six months from the
date
alternative relates to a late notice while the second limb relates to a timeous
notice. In either case, by virtue of clause 5(2)(c), the ‘fair market rack
rental’ would fall to be ascertained as at the date of agreement between the
parties on its amount or of the determination of that amount by the arbitrator.
There is no sensible reason why the reference to the arbitrator should be
required to be made four months before the date when the new rent becomes
payable in one case but not in the other. In either case there is sense in
having the new rent fixed before it becomes payable or as soon thereafter as
possible. As I have indicated, I accept that argument.
That brings me
to the difficult question in this case which is: was the tenant, in the
circumstances, entitled to give notice making time of the essence?
On that
question, Mr Lewison submitted in limine that there was no authority
binding me to hold that the concept of a notice making time of the essence was
applicable in the sphere of rent review clauses; that the only authorities to
that effect were obiter dicta; and that, on principle, I should hold
that that concept was not applicable in that sphere. Mr Lewison pointed out
that the concept was in origin an equitable one applicable in the sphere of
contracts for the sale of land. (As to that there is no doubt: see per
Lord Diplock in United Scientific Holdings Ltd v Burnley Borough
Council and Cheapside Land Development Co Ltd v Messels Service
Co [1978] AC 904 at p 928.) In the
sphere of contracts for the sale of land, Mr Lewison’s argument continued, its
effect was to entitle a party to the contract, once the contractual date for
completion had passed or, if the contract fixed no date for completion, once a
reasonable period had elapsed, to serve on the other party a notice requiring
him to complete within a reasonable further period specified in the notice,
failing which the party serving the notice, if not himself in default, would
have the option of either suing for specific performance of the contract or treating
it as wholly at an end. In no case could a party, by serving such a notice,
entitle himself both to affirm the contract and relieve himself of some of his
obligations under it. It would be inequitable, said Mr Lewison, to extend the
scope of the application of the concept in such a way as to enable a party to a
lease to achieve such a result. Alternatively, if the concept were to be
applied in the sphere of rent review clauses, it must be applied to the full,
that is to say on the footing that a tenant availing himself of it would, if
the landlord failed to comply with the tenant’s notice, have the option of
either proceeding with the rent review none the less or treating the lease as
at an end and accordingly giving up possession of the demised premises.
I cannot
accept those submissions. In the first place, I do not think that what Lord
Diplock and Lord Fraser said on the point in their speeches in the United
Scientific and Cheapside cases (as I will call them for short) was obiter.
I think that it formed part of the reasoning that led them to their decision,
at least in the Cheapside case, and I observe that Lord Simon of
Glaisdale expressed, at the beginning of his speech, his agreement with Lord
Diplock’s arguments and conclusions.
Second, I have
been referred to numerous dicta in the Court of Appeal, in cases
subsequent to the United Scientific and Cheapside decisions,
supporting the view that a notice making time of the essence may be used in the
course of a rent review. There are dicta to that effect by Slade LJ in London
& Manchester Assurance Co Ltd v G A Dunn & Co (1982) 265 EG
39 at pp 134-135, [1983] 1 EGLR 111; by Oliver LJ (as he then was), by Ackner
LJ (as he then was) and by Lawton LJ in Amherst v James Walker
Goldsmiths & Silversmiths Ltd [1983] Ch 305 at pp 315, 318 and 319
respectively*; by the Master of the Rolls and by Slade LJ again in Trustees
of Henry Smith’s Charity v AWADA Trading & Promotion Services Ltd
(1983) 47 P & CR 607 at pp 609-610 and p 619 respectively(† ); and by
Eveleigh LJ and May LJ in Mecca Leisure Ltd v Renown Investments
(Holdings) Ltd (1984) 271 EG 989 at pp 990 and 992 respectively.
Cumulatively, those dicta represent a formidable body of authority.
*Editor’s
note: Also reported at (1983) 267 EG 163: see pp 166-167, [1983] 2 EGLR 108.
† Editor’s
note: Also reported at (1983) 269 EG 729: see pp 729, 732 and 735, [1984] 1
EGLR 116.
Third, even if
there were no authority to that effect, I would have no doubt that, in
principle, once it is accepted, as it must be accepted in view of the decisions
of the House of Lords in the United Scientific and Cheapside
cases, that there is a presumption against time being of the essence of
provisions in rent review clauses, it must follow that the party who is thereby
adversely affected should be entitled, in appropriate circumstances, to invoke
the remedy of serving a notice making time of the essence. The problem is to
determine what those circumstances are. As Mr Lewison pointed out, if the
concept of a notice making time of the essence is to be imported into the
sphere of rent reviews, it must be adapted so as to operate in that sphere with
due fairness to both parties. I cannot think that it would be an appropriate
adaptation to hold that where such a notice was given by a tenant and the
landlord did not comply with it, the tenant was put to his election either to
proceed none the less with the rent review or to give up the lease altogether.
I turn to what
was Mr Lewison’s main argument on this part of the case. On the basis of an
analysis of the speeches in the House of Lords in the United Scientific
and Cheapside cases, Mr Lewison submitted that there were three reasons
why it should be held that the tenant in the present case was not entitled to
give the notice on which it relies.
The first
reason was that, in the case of a rent review initiated by a landlord’s trigger
notice, the tenant was not entitled to make time of the essence of any
subsequent step in the procedure.
The second
reason was that a tenant was not entitled to make time of the essence of a step
in the procedure the carrying out of which was not within the exclusive control
of the landlord. The only relevant time-limit here was the time-limit in clause
5(2)(b) for taking the step of referring the matter of the fair market rack
rental value to an arbitrator. Adherence to that time-limit depended in part on
the speed with which the president of the RICS appointed an arbitrator and on
the speed with which the appointed arbitrator accepted the appointment.
The third
reason was that a tenant was not entitled to serve on a landlord a notice
making time of the essence of a step in the procedure which it was open to the
tenant himself to take. If the relevant time-limit in clause 5(2)(b) was to be
interpreted as one within which an application should at least be made to the
president of the RICS for the appointment of an arbitrator, the tenant did not
need the remedy of being able to serve a notice on the landlord making time of
the essence of it because the tenant was, under the clause, entitled equally
with the landlord to make the application. Mr Lewison went so far as to say
that the tenant was not only entitled but under an obligation to make the
application. I was not, however, persuaded by his argument to that effect.
With those
submissions in mind, I turn to the speeches in the House of Lords in the United
Scientific and Cheapside cases. Lord Diplock, in the first part of
his speech, deals generally with the question of principle, whether there is a
presumption that time is not of the essence of a rent review clause and comes
to the now well-known conclusion that there is. In so doing, he mentions the
concept of a notice making time of the essence only in the passage that I
referred to earlier, in which he states its historical origin.
In the second
part of his speech, Lord Diplock turns to the actual facts of the United
Scientific case. The lease there was for 99 years and the rent reviews were
to take place every 10 years during the term. The only stipulation as to time
in the rent review clause was that the rent for each successive period of 10
years or, in the case of the last period, nine years, was to be determined in
the year immediately preceding that period. The case had two features in common
with the present case. The first was that at any rent review, failing agreement
between the landlord and the tenant as to what the new rent should be, that
matter was to be referred to arbitration at the initiative either of the
landlord or of the tenant. The second was that the arbitrator was to be
nominated by the president for the time being of the RICS. In reaching the
conclusion that the presumption that time was not of the essence applied in
that case, Lord Diplock said this at pp 931-932:
The Court of
Appeal took the view that it was a detriment to the tenant not to know what his
new rent was going to be in advance of the date when it started to accrue, as
he might not be able to afford the additional rent and might feel compelled to
assign the residue of the term to someone else. For my part, I find this
unrealistic, if only because under this particular clause the tenant can
initiate the review procedure himself and unless there is some unforeseen delay
on the part of the arbitrator, has it in his power to ensure that the new rent
is determined before the stipulated date. Apart from this, delay in the determination
of the new rent until after the first rent day following the stipulated date
works to the economic benefit of the tenant since until the higher rent has
been determined he has the use of the money representing the difference between
the former rent and the new rent which he would otherwise have been compelled
to pay.
Lord Diplock
made no mention in that part of his speech of any possibility that the tenant
might serve a notice making time of the essence.
In the third
part of his speech, Lord Diplock turned to the facts of the Cheapside
case. The relevant provisions of the rent review clause there were as follows:
3 The market rent may be determined and
notified to the lessees in the manner following:
(a) the proposed rent shall be specified in a
notice in writing (‘the lessors’ notice’) served by the lessors or their
surveyor on the lessees not more than twelve months nor less than six months
prior to the review date. (b) the lessees may within one month after service of
the lessors’ notice of the proposed rent serve on the lessors a counter-notice
(‘the lessees’ notice’) either agreeing the proposed rent or specifying the
amount of rent which the lessees consider to be the market rent for the period
in question. (c) in default of service of the lessees’ notice or in default of
agreement as to the market rent to be payable for the period in question the
rent shall be valued by a Fellow of the Royal Institution of Chartered
Surveyors agreed between the lessors and the lessees or in default of agreement
to be appointed not earlier than two months after service of the lessors’
notice on the application of the lessors by the President for the time being of
the said Institution whose valuation shall be made as an expert and not as an
arbitrator and shall be final and binding upon the lessors and the lessees and
shall be given in writing to the lessors and the lessees not less than fourteen
days before the review date.
In fact, the
lessors had given a trigger notice under clause 3 (a) in due time. Negotiations
between the parties followed, but no agreement was reached either as to the new
rent or as to a valuer to determine it. The delay that occurred was in the
lessors’ application to the president of the RICS to appoint a valuer. They did
not make that application until after the review date. In commenting on the
clause, Lord Diplock said this at pp 933-934:
These
provisions contain an elaborate timetable as to what is to be done in various
eventualities, not only by the landlord and tenant but also by persons over
whom neither has any control — the President of the Royal Institution of
Chartered Surveyors and whatever Fellow of the Institution may be appointed as
valuer.
Leaving out a
paragraph, he goes on:
In two
respects under the terms of the review clause the progress of the procedure for
determining the new rent is, or may become, within the exclusive control of the
landlord. He alone can initiate the procedure; and he alone can apply to the
President of the RICS if negotiations with the tenant do not result in an
agreement as to the rent or upon the person who is to value it.
The tenant’s
position under this clause thus differs from that of the tenant under the rent
review clause that is the subject of the first appeal inasmuch as he has no
right under his contract to initiate the procedure or to apply for the
appointment of a valuer if the landlord himself fails to do so within the
stipulated times. But this difference has not in my view any significant
practical consequences so far as concerns any detriment to the tenant from the
landlord’s failure to do either of these things within the stipulated times. If
the tenant reckons that the advantage of knowing before the review date exactly
how much higher his new rent will be outweighs the economic benefit of having
the use of the money representing the difference until the new rent has been
determined, he has the remedy in his own hands. Quite apart from the fact that
he can get a pretty good idea of what the market rent is from his own surveyor
or can himself offer to enter into negotiations with the landlord before the
stipulated time for serving a lessor’s notice has expired, so soon as that time
has elapsed he can give to the landlord notice specifying a period within which
he requires the landlord to serve a lessor’s notice if he intends the market
rent to be determined and payable instead of the former rent for the ensuing
seven years. The period so specified, provided that it is reasonable, will
become of the essence of the contract.
Lord Diplock did
not go on to say that the tenant could do the same thing if the landlord failed
to apply in good time to the president of the RICS for the appointment of a
valuer.
I need not
trouble with the rest of Lord Diplock’s speech, which contains nothing directly
material for the present purposes. The same is true of the speeches of Viscount
Dilhorne, Lord Simon of Glaisdale and Lord Salmon. It is true that there is a
passage in Lord Simon’s speech at p 946 where he discusses making time of the
essence by notice, but, as is common ground between counsel, he does so only by
way of comment on the historical survey in the first part of Lord Diplock’s
speech and, apart from confirming that the concept is a creature of equity,
what he says has no direct bearing on the questions arising in the present
case.
Lord Fraser of
Tullybelton drew the same distinction between the United Scientific case
and the Cheapside case as Lord Diplock. In commenting on the facts of
the United Scientific case he said this at p 960:
There is provision
for the arbitrator to be nominated, failing agreement between the parties, by
the President of the Royal Institution of Chartered Surveyors and it is left
open to either party to request the President to make a nomination. If the
stipulation in the schedule requiring the rack rent to be ascertained ‘during
the year’ is to be strictly enforced the result would be that if, owing to some
accident for which the landlord was not responsible or to the illness or
dilatoriness of the arbitrator, the rack rent had not been ascertained until a
month or even a day after the end of the year, the review would be abortive and
the former rent would continue in force for another ten years. That result
would seem to be inequitable . . .
Nowhere did
Lord Fraser suggest that in the United Scientific case, or a case like
it, the tenant might in any circumstances resort to a notice making time of the
essence. Lord Fraser began his discussion of the Cheapside case in this
way:
A more
difficult question is raised in cases where the clause is in a form giving the
landlord the sole right to initiate a review provided he does so by a certain
time. Provisions of this sort are conveniently described as ‘triggering’
provisions. A typical triggering provision is found in the Cheapside
case.
He then
summarised the facts of that case. In the course of doing so, he commented as
follows:
No time limit
for the application to the President or for the appointment of the valuer was
stated, but, as the valuation had to be made not less than fourteen days before
the review date, it was implied that the application and the appointment must
be made in reasonable time to enable that to be done. In fact, the lessors did
not apply to the President until more than two months after the review date and
the President declined to make the appointment until its validity had been
decided by the court. Hence these proceedings.
The
landlord’s right to operate the trigger and to apply to the President are both
unilateral rights. The former might be described as an option. The latter would
not I think normally be so described but, in my opinion, it is for the present
purpose indistinguishable from the former in that both are unilateral rights
which the landlord is under no obligation to exercise.
Lord Fraser
went on to discuss an argument advanced on behalf of the tenants which was
based on the view that the landlord’s rights were options. He then, at p 962,
said this:
It was also
argued on behalf of the tenants that the lessors in a case such as Cheapside
are not under any obligation to initiate a review and that there is therefore
no room for applying the equitable rule so as to release them from the
consequences of failure to perform an obligation. But the equitable rule
originated in relieving a mortgagor from the consequences of failure to redeem
his property by the stipulated date although he had no obligation to do so. The
mortgagor, like the landlord here, had a unilateral right which might be
described as an option, yet he was able to rely on the equitable rule to
relieve him from the consequences of failure to exercise his right in time.
There seems no reason in principle why the landlord should not be able to do
the same and in my opinion he can. If a tenant felt himself prejudiced by the landlord’s
delay in serving a triggering notice, it would be open to him after the time
for serving it had expired to give notice prescribing a further time within
which the triggering notice must be served. Provided that the further time was
reasonable, he could thus make time of the essence.
Like Lord
Diplock, Lord Fraser did not say that the tenant could do the same if the
landlord delayed his application to the president of the RICS.
From the way
in which Lord Diplock and Lord Fraser expressed themselves in the United
Scientific and Cheapside cases, I deduce that not every time-limit
in every rent review clause of which time is not of the essence can be the
subject of a notice making it so.
Mr Neuberger
contended that so to hold would be contrary to basic principles. He submitted
that it was never a rule of equity that a time-limit could be ignored. Equity
never went further than to say that a time-limit was not of the essence of the
contract and, when equity said that, it gave by way of quid pro quo to a
party who was thereby prejudiced the right to make time of the essence by
serving an appropriate notice. To deny him that right would amount to treating
the time-limit as not being in the contract at all.
In my
judgment, that argument is ill founded. As was observed by Lord Diplock in his
historical survey ([1978] AC 904 at p 927), by Lord Simon in his comments
thereon (ibidem at pp 941-942) and by Lord Fraser in the last passage
that I have read, the equitable rules about not treating time as being of the essence
of a contract had their origin in the law of mortgages. It has never been part
of those rules that a mortgagee can defeat the mortgagor’s equity of redemption
by serving a notice making time of the essence. It is therefore not correct to
say that, whenever equity treats time as not being of the essence of a
stipulation in a contract, it confers on a party thereby affected the
countervailing right to serve such a notice. There is nothing contrary to
principle in saying that the right to serve such a notice is non-existent in
the sphere of mortgages, unlimited (unless by the contract itself) in the
sphere of contracts for the sale of land and limited in the sphere of rent
review clauses. I do not overlook that some of the dicta in the Court of
Appeal to which I referred earlier are wide enough, if
right is unlimited but, as Mr Neuberger very properly conceded, in none of the
cases in which those dicta were uttered was the present question even
remotely before the court and I cannot attribute to their authors an intention
to express a view on it.
I turn to Mr
Lewison’s three reasons for saying that the tenant was not entitled to serve a
notice making time of the essence in the present case.
The first
(that, in the case of a rent review initiated by a trigger notice given by the
landlord, the tenant is not entitled to make time of the essence of any
subsequent step in the procedure) was, of course, based on the omission by both
Lord Diplock and Lord Fraser, when dealing with the Cheapside case, to
say that the tenant could serve a notice making time of the essence of the
exercise by the landlord of its right to apply to the president of the RICS for
the appointment of a valuer. At first sight that omission is puzzling, but I
think that the reason for it must be that, as was pointed out by Lord Fraser,
there was there no express time-limit for the application to the president. It
would therefore have been necessary for Lord Diplock and Lord Fraser, if they
were going to deal with the point, to express views obiter on questions
that had probably not been argued as to the effect of the absence of an express
time-limit. Lord Diplock, it seems, preferred to say nothing about it, while
Lord Fraser went no further than to say that a reasonable time was implied. As
is made clear by both Lord Diplock and Lord Fraser, the purpose of conferring
on the tenant a right to serve on his landlord a notice making time of the
essence is to afford him a remedy against inaction by the landlord which may
delay the ascertainment of the new rent. I see no reason why the tenant should
be denied that right at any stage of the rent review procedure at which
inaction by the landlord may delay progress, if that right can be conferred on
the tenant without unfairness to the landlord. I derive some assistance in that
regard from the Trustees of Henry Smith’s Charity’s case, where the
Court of Appeal saw nothing unfair in holding that time was, on the
construction of the rent review clause there in question, of the essence of a
provision in it imposing on the landlord a time-limit for applying to the
president of the RICS for the appointment of a surveyor. I therefore reject Mr
Lewison’s first reason.
On Mr
Lewison’s second reason (that a tenant is not entitled to serve a notice making
time of the essence of a provision concerning a step in the procedure the
carrying out of which is not within the exclusive control of the landlord) I
need not express a view and I refrain from doing so, because Mr Neuberger in
effect conceded that the period of 28 days mentioned in the tenant’s letter of
May 29 1985 was unreasonably short if the letter meant that within that period
not only must the landlord have applied to the president of the RICS for the
appointment of an arbitrator but the president must have appointed one and the
person appointed must have accepted the appointment. Mr Neuberger’s contention
was that the letter meant no more than that, within the 28 days, the landlord must
have written to the president of the RICS applying for the appointment of an
arbitrator.
So I turn to
Mr Lewison’s third reason (that a tenant is not entitled to serve on the
landlord a notice making time of the essence of a step in the procedure that it
is open to the tenant himself to take). This case shares, of course, with the United
Scientific case, the characteristic that it was equally open to the
landlord and the tenant to apply to the president of the RICS for the
appointment of an arbitrator. It seems to me to be implicit in the speeches of
both Lord Diplock and Lord Fraser, that in those circumstances, the tenant is
not to have the alternative remedy of serving on the landlord a notice making
time of the essence, because he does not need it.
Mr Neuberger
urged upon me that the tenant ought to have it because he ought to be entitled
in effect to say to the landlord: ‘I do not want to go to arbitration, because
I think it will be an expensive waste of time, but I do not want the threat of
arbitration hanging over my head. If you want to go to arbitration, you must do
so within a reasonable time.’
It seems to
me, however, that, in a case where it was true that the relevant facts and
figures were such that an arbitration would be an expensive waste of time, the
landlord and the tenant ought to be able to settle the matter by agreement. It
is failing agreement between them that the rent review clause provides for
arbitration. The purpose of conferring on a tenant the right to make time of
the essence of a provision in a rent review clause is not to give him an
opportunity of avoiding fortuitously his obligations under the lease.
In saying
that, I have in mind the point made by Lord Diplock at [1978] AC 904 at p 930
where he said:
The
determination of the new rent under the procedure stipulated in the rent review
clause neither brings into existence a fresh contract between the landlord and
the tenant nor does it put an end to one that had existed previously. It is an
event upon the occurrence of which the tenant has in his existing contract
already accepted an obligation to pay to the landlord the rent so determined
for the period to which the rent review relates. The tenant’s acceptance of
that obligation was an inseverable part of the whole consideration of the
landlord’s grant of a term of years of the length agreed. Without it, in a
period during which inflation was anticipated, the landlord would either have
been unwilling to grant a lease for a longer period than up to the first review
date or would have demanded a higher rent to be paid throughout the term than
that payable before the first review date. By the time of each review of rent
the tenant will have already received the substantial part of the whole benefit
which it was intended that he should obtain in return for his acceptance of the
obligation to pay the higher rent for the succeeding period.
That point was
echoed by Viscount Dilhorne at p 938, by Lord Simon at p 946, by Lord Salmon at
p 948 and by Lord Fraser at p 958.
For that
reason, I do not think that the tenant in the present case was entitled to
serve a notice making time of the essence in the circumstances in which it
claims to have done so.
That is enough
to dispose of the case and I need not express any view on Mr Lewison’s further
submission that, in any event, the tenant’s letter of May 23 1985 was
inadequately worded because it did not clearly state what the landlord must do
in order to comply with it or what the consequences would be if the landlord
did not comply with it.
I will grant
the declarations claimed by the originating summons.
