Landlord and tenant — Rent review clause — Whether time of the essence — Contra-indications displacing the prima facie rule in United Scientific Holdings v Burnley Borough Council that time is not of the essence — Appeal from decision of Whitford J — Time-table for rent review and for exercise of break clause coincidental — Case indistinguishable in all material respects from decision of Court of Appeal in Al Saloom v Shirley James Travel Service Ltd — No significance in verbal differences — Landlords’ notice in present case invoking rent review clause given less than six months before date of review — Six months’ notice required by lease for both review and operation of break clause — Held that time was of the essence for the rent review clause — Appeal dismissed
This was an
appeal by the plaintiff landlords, Legal & General Assurance (Pension
Management) Ltd from a decision of Whitford J refusing them a declaration that
time was not of the essence in respect of a rent review notice served by the
appellants on the respondent tenants, Cheshire County Council, after the expiry
of the time-limit laid down in the rent review clause. Whitford J’s decision
was reported at (1982) 265 EG 781, [1983] 1 EGLR 121.
John Colyer QC
and Paul de la Piquerie (instructed by Lawrence Graham Middleton Lewis)
appeared on behalf of the appellants; Eric Somerset Jones QC and Andrew Geddes
(instructed by Sharpe Pritchard & Co, agents for J T Kellett, County
Secretary, Cheshire) represented the respondent council.
Giving the
first judgment at the invitation of Sir John Donaldson MR, DILLON LJ said: This
is an appeal against a decision of Whitford J given on July 23 1982 on the
hearing of an originating summons in the Chancery Division. The proceedings
raised the not unfamiliar question whether time is or is not of the essence of
a rent review clause in a lease. The appellant is the landlord by assignment;
the respondent is the tenant.
The lease was
dated July 31 1967 and it demised certain premises in the City of Chester to
the tenant for the term of 21 years from the date of the lease, July 31 1967.
The relevant clause for the purposes of this appeal is clause 3, which is
divided into two subclauses. Subclause (a) contains the rent review clause;
subclause (b) contains a tenant’s break clause. Subclause (a) reads so far as
material as follows:
. . . at the
expiration of the Seventh and Fourteenth years of the term hereby granted (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
hereinbefore reserved on giving to the Tenant not less than six months notice
in writing prior to the date of review of its intention so to do and if the
Landlord shall give to the Tenant such notice as a foresaid then from and after
the date of review the yearly rent payable in respect of the demised premises
shall be such sum as shall be agreed between the respective surveyors of the
Landlord and the Tenant as representing the fair rack rental market value of
the demised premises . . .
or in default
of agreement
the same
shall be decided by a single Surveyor
to be appointed
as provided in the clause.
Subclause (b)
of clause 3 provides:
If the Tenant
shall desire to determine the present demise at the expiration of the seventh
or fourteenth years of the said term and shall give not less than six months
previous notice in writing then immediately upon the expiration of such notice
the present demise and everything herein contained shall cease . . .
The landlord
gave a notice purporting to invoke the rent review clause in 1981 but gave it
less than six months before the dated review. The judge held the notice
ineffective as time was of the essence.
The appellant
landlord accepts that time is of the essence of the tenant’s break clause,
subclause (b). He relies upon the decision in United Scientific Holdings Ltd
v Burnley Borough Council [1978] AC 904 as establishing that, prima
facie, time is not of the essence of a rent review clause, and he submits
that there is nothing in this lease to make time of the essence of the rent
review clause in subclause (a) of clause 3.
His immediate
difficulty, before the learned judge and in this court, is a previous decision
of this court in the case of Al Saloom v Shirley James Travel Service
Ltd [1981] 42 P & CR 181.* In
that case there was a rent review clause and there was also a tenant’s break
clause, the final date as prescribed by the lease for the giving of notice
under the review clause and the final date for the giving of notice under the
break clause being the same, and this court held that the fact that time was of
the essence of one meant that it was of the essence of the other also. There
are slight verbal differences which are much relied on by Mr Colyer between the
two clauses, and I should read the clause in the Al Saloom case. It was
not divided into two subclauses; it all ran on together as follows:
Provided
always and it is hereby agreed that at the expiration of the third year of the
term hereby granted the lessee shall have the right on giving to the lessor not
less than six months notice in writing prior to the expiration of the said
third year of the term to determine this lease and if such notice shall be
given and the lessee shall up to the time of such determination pay the rent
and perform and observe the covenants on its part hereinbefore performed and
contained then immediately on the expiration of the said third year [the
present demise] and everything herein contained shall cease and be void but
without prejudice to the rights and remedies of either party against the other
in respect of any antecedent claim or breach of covenant and subject to the
lessee’s right of determination as aforesaid the lessor shall have the right on
giving to the lessee not more than 12 nor less than six months’ notice in
writing prior to the expiration of the said third year of the term to review
the yearly rent for the time being payable hereunder and if the lessor shall
give to the lessee such notice as aforesaid then from the commencement of the
fourth year of the said term the yearly rent payable in respect of the demised
premises shall be such a sum as shall be agreed between the lessor and lessee
as representing a fair rack rental market value of the demised premises for a
term of four years . . .
*Editor’s
note: Also reported at (1981) 259 EG 420, [1981] 2 EGLR 96.
In that case
Waller LJ giving the leading judgment in this court, with whom Oliver LJ and
Fox LJ agreed, referred to the general principles laid down in the United
Scientific case, and referred also to cases in which there was a period of
time between the two dates, the date for the tenant’s exercise of the break
clause being later than the date prescribed by the lease for the landlord’s
service of a rent
inferred that time was of the essence of the rent review clause so that the
tenant should have the opportunity to consider his position after the landlord
had had time to serve his notice. Waller LJ said at p 184:
In this case,
however, the periods were identical, except that the notice of review could not
be made more than 12 months before the appropriate date, and it was submitted
that, the final date being the same for both break and rent review clauses,
this was not enought to rebut the presumption.
He then cites
from Lord Diplock’s speech in the United Scientific Holdings case, and
at p 185 there is the paragraph which gives the ratio of the judgment of the
court:
As I have
already said, both provisions about break and rent review in this case were in the
same clause and closely allied to each other. The words ‘not less than six
months notice in writing prior to the expiration of the said third year of the
term’ were used for both break and rent review. Whether the word
‘inter-related’, ‘correlated’ or ‘associated’ was used, the implication of the
use of the same phrase in the same clause is overwhelming. The phrase must mean
the same in each case, either that in both time was of the essence or in
neither. In my view the phrase could not change its meaning in the course of
ten lines unless there was some qualifying phrase to make such a change clear.
I have no doubt that in both cases here time was of the essence.
In that case
the clause all ran on and the break clause was put before the rent review clause.
In the present case we have two subclauses of one clause. I see no significant
difference in that, especially as Mr Colyer has accepted that if the definition
of the date of review had been taken across into subclause (b) in the present
case instead of a reference to the expiration of the seventh or 14th year of
the term, his case would have been unarguable. In the Al Saloom case the
rent review clause was introduced expressly by the words ‘subject to the
lessee’s right of determination’. There are no such express words in the
present case, but it is plainly implicit that the rent review clause will not
take effect if the lessee duly exercises his right of determination because the
term will not go on beyond the review date.
There is no
significant difference between the wording in the present case in subclause
3(a), ‘at the expiration of the Seventh and Fourteenth years of the term hereby
granted . . . the Landlord shall have the right to review the yearly rent . . .
on giving to the Tenant not less than six months notice in writing prior to the
date of review of its intention so to do’, and the wording in subclause (b),
‘If the Tenant shall desire to determine the present demise at the expiration
of the seventh or fourteenth years of the said term and shall give not less
than six months previous notice in writing.’
Therefore, as it seems to me, the decision of this court in the Al
Saloom case is indistinguishable from the present case and binding on us,
and that is enough to dispose of this appeal.
But I would
add this. It is pointed out, and stressed, by Mr Colyer that where the dates of
a break clause and a rent review clause are coincidental, there is always a
possibility that the landlord’s service of a rent review notice may come too
late — even if in time — for the tenant to be able to take into account and act
on it in serving a break notice. That is theoretically possible if the astute
landlord wants to take the chance of serving his rent review notice at the last
possible permitted moment, or if by some accident a notice properly served in
accordance with the notice provisions of section 196 of the Law of Property Act
1925 does not come into the tenant’s hands in due time. But most landlords who
wish to invoke rent review procedures are apt to serve in comfortable time
before the expiration of the permitted period. Therefore the learned judge in
the present case was fully entitled, in my view, to say, as he did in his
judgment: ‘I think the tenant could reasonably expect that the notice would be
given in sufficient time for him to decide whether he wanted to break or not.’
The reason for
having coincident dates is obviously that the tenant should have in mind, when
he decides whether he is going to break or not, whether or not the landlord is
going to invoke rent review procedure, and the reasoning which has led the
courts to hold that time is of the essence of a rent review clause where the
tenant’s break clause in the same lease is geared to a date later than the date
prescribed for the service of the landlord’s rent review notice leads equally,
I think, to the conclusion which this court reached in the Al Saloom
case and I would reach in this case, that time was of the essence of the rent
review clause in this lease.
I would
dismiss this appeal.
THE MASTER OF
THE ROLLS and MAY LJ agreed and did not add anything.
The appeal
was dismissed with costs. Leave to appeal to the House of Lords was refused.
