Landlord and tenant–Rent review clause–Lease of shop premises for 14 years–Provisions for review of rent half way through term with elaborate provisions for notices by specific dates–Stipulations as to time to be of the essence of the contract–Rent to be the amount specified in landlord’s notice unless parties agreed the rent by a certain date or tenants had served a counternotice expressing election for determination of the rent by an independent arbitrator–Question whether tenants’ letter saying ‘we would hardly need to add that we do not accept your revised figure’ could be accepted as a counternotice–Held that letter was a mere refusal and not sufficiently specific to constitute a counternotice–Rent to be amount specified in landlord’s notice
The plaintiff
in this case, Mr Bellinger, sought by originating summons declarations as to
the effect, in the events which had happened, of a rent review clause in a
lease of shop premises at 87 High Street, Wimbledon, of which the defendants,
South London Stationers Ltd, were the lessees. The relevant provisions of the
lease and the facts are set out in the judgment of Goulding J.
N T Hague
(instructed by Pickering Kenyon & Co) appeared on behalf of the plaintiff;
E J Prince (instructed by Israel, Arnold & Strange) represented the
defendants.
Giving
judgment, GOULDING J said: Once again the court is called on to decide a
question arising out of the attempted operation of a rent review clause in a
lease. The parties here are the plaintiff, Mrs Bellinger–she claims to be an
assign of the reversion expectant on the lease, and her title is not
disputed–and the defendant, South London Stationers Ltd, which is the original
lessee still in possession under the lease. I will call them ‘the landlord’ and
‘the tenant’ respectively.
The lease was
dated August 31 1971 and it comprised shop premises at 87 High Street,
Wimbledon. The parties to the lease were defined as ‘the lessor,’ that being
the plaintiff’s predecessor in title, and ‘the lessees,’ that being the
defendant. Clause 1 of the lease, with which alone I am concerned, begins as
follows:
The lessor
hereby demises unto the lessees all that ground-floor shop and basement
thereunder . . .
and then
follow some additional words–
. . . known
as number 87 High Street, Wimbledon, in the London Borough of Merton
hereinafter referred to as ‘the premises.’
There are then
some exceptions and reservations, and the habendum reads as follows:
To hold the
same premises except as aforesaid unto the lessees from the twenty-ninth day of
September one thousand nine hundred and seventy-one for the term of fourteen
years hence next ensuing; that is to say until the twenty-ninth day of
September one thousand nine hundred and eighty-five; subject nevertheless to
the provisos for determination hereinafter contained.
Paying
therefore during the said term yearly and proportionately for any fraction of a
year the rents hereunder set out:
(a) for the first seven years of the said term
the yearly rent of one thousand five hundred pounds;
(b) for the next seven years of the said term
either the yearly rent reserved in subclause (a) hereof or the open market
rental value of the premises at the review date whichever is the higher, and in
either case the same to remain constant during the whole period referred to in
this subclause.
Then comes
provision for an additional rent in respect of insurance premiums paid by the
landlord, and clause 1 continues with a proviso:
PROVIDED that
for the purposes of subclause (b) hereof it is hereby agreed that the following
definitions and provisions shall apply, namely (1) the expression ‘open market
rental value’ means the annual rental value of the demised premises in the open
market which might reasonably be demanded by a willing lessor on a lease for a
term of years certain equivalent in length to the residue unexpired at the
review date of the term of years hereby granted with vacant possession at the
commencement of the term but upon the supposition . . .
and then
follows an elaborate hypothesis as to the basis upon which the value is to be
determined.
The clause
continues:
(2) The expression ‘review date’ means the
expiration of the seventh year of the said term for the purpose of
ascertainment of the open market rental value under subclause (b) hereof.
(3) The open market rental value shall be
determined in manner following, that is to say it shall be such annual amount
as shall be
(a) specified in a notice in writing signed by
or on behalf of the lessor and posted by recorded delivery post in a prepaid
envelope addressed to the lessees at the demised premises at any time before
the beginning of a clear period of two quarters of a year commencing on one of
the usual quarter days hereinbefore mentioned immediately preceding the review
date and such notice shall be conclusively deemed to have been received by the
lessees in due course of post; or
(b) agreed between the parties before the
expiration of three months immediately after the date of posting of such notice
as aforesaid in substitution for the said sum; or
(c) determined at the election of the lessees to
be made by counternotice in writing served by the lessees upon the lessor not
later than the expiration of the said three months by an independent surveyor
appointed for that purpose by the parties jointly in writing; or upon their
failure to agree upon such appointment within one calendar month immediately
after the date of service of the said counternotice, then by an independent
surveyor appointed for that purpose on the application of either party alone by
The President for the time being of the Royal Institution of Chartered
Surveyors and in either case in accordance with the provisions of the
Arbitration Act 1950.
There is then
a paragraph 4, which provides that if the result of the arbitration is not
available before the review date, the former rent is to be paid thereafter
until the new rent is determined, when there is to be an adjustment, if
necessary, in favour of the landlord. Clause 1 ends with a paragraph numbered
5:
(5) All stipulations as to time in the foregoing
subclause numbered (1) (2) (3) and (4) shall be of the essence of the contract
and shall not be capable of enlargement save as agreed in writing by the
parties.
When that
language is applied to the date stated in the habendum of the lease it becomes
clear that the rent may be revised as from Michaelmas 1978, that is half-way
through the term of 14 years from Michaelmas 1971, and that if such
revision is desired by the landlord, notice must be given before Lady Day 1978,
March 25. Thereafter, agreement may be reached within three months after the
date of posting of the landlord’s notice, or an arbitration can be set on foot
if the tenant serves a counternotice not later than the expiration of those
three months. If a counternotice is served, then a further month is given from
the date of service of the counternotice for agreement, if possible, upon an
arbitrator. That is the time system, as I understand it, of the rent review
clause, and, as I have read from the lease, the parties provided, or
endeavoured to provide, that all the stipulations as to time should be of the
essence.
Now I come to
the material correspondence between the parties. On March 7 1978, that is to
say during the final month for the landlord to serve a notice, R G Bellinger,
who is the husband of the landlord and also acts as her solicitor through his
firm, wrote to a Mr Levinson (in the letter wrongly described as Mr Nevinson),
a director of the tenant. He addressed his letter to the demised premises, 87
High Street, and wrote as follows:
As you
probably know, the lease of these premises provides for the rent to be reviewed
as at September 29. Could I suggest a meeting when we could discuss the matter.
Perhaps you would telephone me
and a
telephone number is given
to see if
something can be arranged.
A few days
later, Mr Bellinger and Mr Levinson had a telephone conversation. Mr Bellinger
told Mr Levinson that he was going to serve a formal notice for rent review under
the lease; and so he did. The notice is dated March 20 1978. Two copies were
sent, one to Mr Levinson at an address which he had given in North London, the
other, in conformity with the terms of the lease, to the tenant at the demised
premises. The terms of the notice are:
Dear Sirs,
Under the
terms of the lease of the above premises, the rent falls due for review on
September 29 1978. I will accordingly inform you that the rent for the period
of seven years from the review date will be £5,250 per annum.
The notice
sent to Mr Levinson in North London was accompanied by a covering letter from
Mr Bellinger:
Dear Mr
Levinson,
Further to
our recent telephone discussion, I enclose a formal notice of rent review as at
September 29 next. I look forward to hearing from you during the current month,
and perhaps at that time I can return your hospitality from our last meeting,
and so on.
On March 31 an
acknowledgement was signed by Mr Levinson in the name of the tenant saying:
We formally
acknowledge receipt of your notice of rent review for the above property, and
we would hardly need to add that we do not accept your revised figure.
No evidence
has been given of any communication between the parties or their agents
thereafter until July 24 1978, when Dutton & Brasier, a firm of surveyors
in Kilburn, wrote to Mr Bellinger saying:
We write to
inform you that we have accepted instructions to advise South London Stationers
Ltd on the rental value of these premises in respect of a rent review due on
September 29 1978, contained in the fourteen years’ lease dated August 3 1971.
We would, therefore, be obliged to hear your opinion as to the rental value
applicable so that we can advise our clients accordingly.
A reply was
made forthwith to that letter taking the point which is taken before me, that
the three months allowed by the lease for agreement on the revised rent or
service of a counternotice requiring arbitration had expired, that no
counternotice had been served, and that accordingly the tenant would have to
pay for the next seven years–until, that is, the expiry of the whole term–the
rent of £5,250 specified by the landlord’s notice.
It is not
suggested that the document dated March 20 was not a good notice within the
terms of paragraph 3(a) of clause 1 of the lease, or that it was not duly
served. Accordingly, the only question before me is whether a counternotice was
duly served by or on behalf of the tenant, and the only counternotice relied on
is the letter of March 31 1978, whereby the tenant stated that it hardly needed
to add that it did not accept the landlord’s revised figure.
Mr Hague, who
appears for the landlord, referred me to a decision of Templeman J in Keith
Bayley, Rogers & Co v Cubes Ltd (1975) P & CR 412 as
indicating the manner in which the court approaches this sort of question.
There, technical objections were taken to certain notices to quit which a
reversioner had served, intending, apparently, that they should operate both
under a clause in a lease or leases, giving power to the reversioner to
determine the demise at the expiration of 14 years of the original term, and
also as notices for the purposes of Part II of the Landlord and Tenant Act
1954. Templeman J said at p 415 of the report:
In my
judgment, anyone receiving one of the notices, with the accompanying letter,
must have realised at once that the persons serving the notice were clearing
out of the way the lease and underlease by operating the break clause and were
bringing themselves into direct relations with the plaintiffs as occupiers and
were offering to grant them a new lease under the 1954 Act. In my judgment, it
was clear to anybody reading the notice and the relevant letter that the
defendants were desirous of terminating the lease pursuant to the break clause,
and, once that is clear, then the defendants have done what the lease says they
must do–give notice of their desire in that behalf.
And later on
on the same page the learned judge goes on:
If it is
clear–and I find it is clear–that each of the recipients can be in no doubt as
to what the landlord was up to and what the notice and the letter meant as far
as he was concerned, it does not seem to me that the court is entitled or bound
to be perverse and invent imaginary difficulties which might have arisen in
other cases. In my judgment, looking at these documents as a matter of
construction and trying to be not over-obstructive, the notice by itself, or,
alternatively, the notice plus the letter, sufficed to exercise the break
clause in the headlease and sufficed to be a section 25 notice for the
plaintiffs with the consequence that the plaintiffs are only entitled to a new
tenancy on terms agreed with the defendants or determined by the court under
the 1954 Act.
So, says Mr
Hague, I must ask myself whether anyone receiving the letter of March 31 must
have realised at once that the tenant was requiring arbitration; or, putting it
another way in the judge’s later words, that the recipient could be in no doubt
as to what the tenant was up to.
Mr Prince, for
the tenant, puts the matter this way. He agrees that the sole question before
the court is as stated by Mr Hague, namely whether the letter of March 31 is a
good counternotice. He agrees, as he must, that the letter does not in terms
mention arbitration, but, says Mr Prince–to this extent, I think, building on
the judgment of Templeman J–clauses of this nature requiring formalities should
not be construed too strictly so as to defeat a party on a purely formal or
technical point. The substance, submits Mr Prince, of the rent review clause is
that the landlord has a chance to claim a higher rent at the end of the seventh
year, and if agreement is not yet reached then there is to be an arbitration.
The letter says in terms the landlord’s figure is not agreed and there is no hint
of any subsequent agreement, and, therefore, as night follows day there must be
an arbitration and the court should not be astute to defeat the tenant’s right
to it by too literal insistence on the formal provisions of the clause.
I hope I have
not misrepresented Mr Prince’s argument. It is founded very largely on the
case, which he read to me, of The Dean and Chapter of the Cathedral Church
of the Holy Trinity in Chichester v Lennards Ltd (1977) 35 P &
CR 309. I should mention, I think, before reading some extracts from the
judgments, the nature of the question there. The plaintiff
clause which could be operated either by the landlord or by the defendant
tenant, upon either party giving to the other at least three months’ written
notice expiring at the end of the 14th year of the term stating the suggested
new rent to be reserved; and then, in default of agreement, the new rent was to
be fixed by arbitration. The landlord had given notice in due time, sending a
letter in terms as formal notice of the landlord’s desire to review the rent,
but the letter did not contain any statement of the new rent suggested, and for
that reason, naturally enough, the tenant maintained that the rent review
clause had never been put into operation.
That
contention found favour with the judge of first instance, but was rejected by
the Court of Appeal. The learned Master of the Rolls said at p 313:
The judge
gave his decision at a time when there were rulings of this court that time was
of the essence for these notices to review. Under the influence of the law then
applicable to the time element, the judge thought that he should apply the same
reasoning to the suggested new rent. He said ‘I consider that here as a matter
of construction the parties have . . . made it of the essence of the contract
that the notice should specify a figure for the proposed new rent.’
Then, after
referring to the case of United Scientific Holdings* in the House of
Lords, the learned Master of the Rolls continued:
Lord Salmon
here applied the familiar distinction between ‘mandatory’ and ‘directory.’ A ‘mandatory’ provision is one which must be
fulfilled in all its strictness, so that a failure to fulfil it means that the
whole thing falls. A ‘directory’ provision does not carry that consequence.
Even though it is not complied with, it does not mean that the whole thing
fails. Sufficient may be done to enable the courts to give effect to a
requirement, when the justice of the case so requires.
*United
Scientific Holdings v Burnley Borough Council [1978] AC 904: (1977)
243 EG 43, [1977] 2 EGLR 61, 127.
In my opinion
the provision here that the notice must state ‘the suggested new rent’ is not
mandatory but directory. The failure to mention it does not invalidate the
notice.
The result is
also reached by means of a statutory provision.
His Lordship
then read section 25(7) of the Judicature Act 1873 and remarked that its
provisions were repeated in section 41 of the Law of Property Act 1925. He
said:
Mr Godfrey
said that that statute had been applied hitherto only in regard to time and not
in regard to anything else. That may be correct. But that is no reason why we
should limit it to time. The statute itself says ‘as to time or otherwise.’ That is quite good enough for us to act upon.
We need not look back to the old days before 1873 to see what equity would have
done then. We can look at it now and see what equity would do now. If the
stipulation is not of the essence–whether as to time or otherwise–then it
should not be regarded as mandatory but only directory.
Applying
these principles, it seems to me that this notice should not fail because it
does not name the actual figure of suggested new rent. It gives the tenants
perfectly good notice that the landlords desire that the rent should be raised
to correspond with the new market value: and it was courteously suggested that
the surveyors of the parties should decide what the new rent should be. That
was a perfectly proper notice. It ought not to be held invalid because of the
omission of that little bit of machinery.
That judgment
was concurred in by Lord Russell of Killowen, who said:
I agree that
the requirement of a written notice is to be regarded as essential, but I say
no more than that I do not consider the other matter is to be regarded as of
the essence of the contract.
Eveleigh LJ
agreed, but said:
I do not wish
to decide whether or not writing is of the essence.
And omitting
two sentences:
In those
circumstances, I do not think that the parties, who have agreed to this clause
in an effort to treat one another fairly, should readily be taken to insist
upon strict measures upon which their attempt to vary or their power to vary
should be dependent.
So, says Mr
Prince, the letter of March 31 here gives the landlord perfectly good notice
that the tenant does not accept the proposed new rent, and that should be good
enough, although the technical word ‘arbitration’ is not mentioned either
expressly or by any unequivocal words of the same significance.
I return to
the present short question after that excursion into authority, and it is
indeed a short question. Here, time is of the essence. There is nothing to say
that any particular precision in a notice or a counternotice is of the essence.
It is a pure question of construction whether or not the words ‘we would hardly
need to add that we do not accept your revised figure,’ fairly read, tell the
landlord that the tenant requires the open market rental value to be determined
by an independent surveyor.
I think that
one has to bear in mind, as Mr Hague said, that this was an immediate reply and
protest following upon the landlord’s formal notice of March 20. One would have
expected some further contact between the parties or their surveyors to see
whether agreement could not be reached before recourse to arbitration;
agreement within three months after the posting of the landlord’s notice being
expressly contemplated by paragraph (b) of clause 1(3) of the lease, and it
will be remembered that by his covering letter of March 20 Mr Bellinger had
suggested to Mr Levinson that there might be a meeting between them.
It seems to me
that the matter can be tested in this way. Supposing that a day or two after
March 31 Mr Levinson, or someone else on behalf of the tenant, had written to
Mr Bellinger and said that the tenant had taken advice and, having regard to
current rentals and to the possible costs of arbitration, was prepared to
accept after all the figure of £5,250. Suppose that had happened, and suppose
that Mr Bellinger, on behalf of the landlord, had then turned round and said,
‘Oh, no; you have by your letter of March 31 required an arbitration, and my
figure of £5,250 was on my own advice a low one, and I would now rather go on
and see what I can get from an arbitrator,’ would the landlord have been
entitled to insist on that course? I
cannot believe that the court in those hypothetical circumstances would have
construed the letter of March 31 as a counternotice that opened the door
irrevocably (in the absence of further agreement) to an arbitration. I do not
forget, indeed, that Templeman J, as he then was, in the case which I have
cited said not only that the court should not be perverse and should not be
over-obstructive, but also that the court should not invent imaginary
difficulties which might have arisen in other cases. Nonetheless, on a simple
question of interpretation such as this is, I know of no other method than to
test the meaning of the language in different hypothetical circumstances, and I
am forced to the conclusion, which was also my first impression when the matter
was opened to me, that the letter of March 31 contains nothing sufficiently
specific to constitute a counternotice under subparagraph (c) in clause 1(3) of
the lease. To my mind, it is no more than a refusal of the landlord’s proposal,
and then it remained open to the tenant, if he wished to do so, to try to
persuade the landlord’s surveyor, through his own surveyor maybe, that a lower
figure was appropriate, or, in the end, to accept the landlord’s figure without
the risk of costs of an arbitration; or, thirdly, if he thought fit, to serve a
counternotice requiring arbitration. The tenant seems to me to have retained
entire freedom as between those courses on a reasonable reading of the letter.
In the end, I
think the question is how far the court should be prepared to depart from the
general principle, pacta sunt servanda to avoid possible hard cases. I
have no idea whether on the facts and figures this is a hard case or not, but
so far as I am concerned I cannot construe the letter in the way desired by the
tenant. Accordingly, I give judgment in favour of the landlord. I make the two
declarations required by the
money judgment, the plaintiff saying by counsel that she is content to rely on
the declarations.
