Rent review clause–Complicated terms ending with requirement of nomination of arbitrator on application by landlords before a specified date–Time-limit not merely ‘machinery,’ but inserted for protection of tenants–Not to be ignored in a case where landlords failed to make application by due date
This was an
appeal by Wetherall Bond Street W1 Ltd from a judgment of Blackett-Ord V-C on
January 31 1974 holding that the respondents, Stylo Shoes Ltd, were entitled to
revise the rent of premises at 9 Bond Street, Leeds, in accordance with a
review clause contained in an underlease of December 31 1965.
Mr G Lightman
(instructed by Rubens, Shapiro & Co) appeared for the appellants, and Mr L
J Porter (instructed by Wurzal & Co, of Leeds) represented the respondents.
Giving
judgment, LORD SALMON said: This appeal turns entirely upon the construction of
a short clause in an underlease made on December 31 1965 between the present
appellants (whom I will call ‘the tenants’) and the respondents (whom I will
call ‘the landlords’). The underlease granted to the tenants for a term of 14
years certain premises at 9 Bond Street, Leeds. The lease commenced on
September 29 1965, and provided that for the first three years of the term the
rent should be £2,600 a year and for the next four years £2,750 a year. The
lease made no express provision as to what rent should be payable during the
last seven years of the term. The clause to which I have referred is clause 1
(b) which reads as follows:
The landlords
shall be entitled to require the rent to be revised from the commencement of
the eighth year of the said term being the 29th day of September 1972 and if
the landlords shall so require then the yearly rent payable during the residue
of the said term shall be either the said sum of £2,750 or such amount as may
be agreed in writing between the landlords and the tenants before the
commencement of the eighth year of the said term as represents the full rack
rental value (as hereinafter defined) of the demised premises or (in the
absence of agreement as aforesaid) as shall be determined by arbitration
whichever amount shall be the greater. The arbitrator shall in default of
agreement between the parties hereto be nominated by the President for the time
being of the Royal Institution of Chartered Surveyors on the application of the
landlords made not more than 12 months nor less than three months before
September 29 1972 and the decision of the arbitrator (who shall be deemed to be
acting as an expert) shall be final and binding upon the parties.
The clause is
very ill-drafted and not at all easy to construe. It seems to me, however, that
it provides for three things.
they require a revision of the rent before the beginning of the eighth year,
the tenants shall go on paying rent for the residue of the term at £2,750 a
year. Secondly, if the landlords require a revision of the rent, although the
clause does not expressly oblige them to give any notice, it is to be implied
that they can show that they require the rent to be revised only by giving the
tenants notice of that fact; but the date when the notice is to be given is, so
far as the express words in the clause are concerned, not stated. Thirdly, if
the landlords require the rent to be revised, the clause clearly contemplates
that the parties may come to some agreement as to the amount of the true
rack-rent: if, however, they do not agree in writing on this point, then it may
be settled by arbitration. The parties may either agree upon an arbitrator
between themselves, or alternatively, if they do not agree upon an arbitrator,
then an arbitrator shall be nominated by the President of the Royal Institution
of Chartered Surveyors, but only on the application of the landlords made ‘not
more than 12 months nor less than three months before September 29 1972.’
It seems to me
that that part of clause 1 (b) which provides what is to happen if deadlock is
reached is of critical importance. The application of the landlords has to be
‘made not . . . less than three months before September 29 1972.’ I think those words are clearly put in for
the protection of the tenants. They protect the tenants against the risk of
having to face an increased rent at the very last moment before the last seven
years start to run, or indeed at any time during the last seven years. Mr
Porter (to whom we are indebted for a very able argument) was driven to concede
that on his construction of the clause, which the learned Vice-Chancellor was
persuaded to accept, the application could be made by the landlords at any time
during the currency of the lease. This lease was in a form put forward by the
landlords. The clause is shockingly badly drafted. The one clear thing about it
is that the landlords cannot apply for the appointment of an arbitrator less
than three months before September 29 1972. I think that that last sentence in
the clause colours everything that goes before it. It shows that if the
landlords want to ensure that they will obtain a revised rent otherwise than by
a written agreement, they have to initiate an arbitration not less than three
months before the beginning of the eighth year. It is implicit in this clause
that if the landlords desire to establish a right to arbitration they must
certainly notify the tenants, before those three months to which I have
referred, that they require a revision of the rent. If they so notify the
tenants prior to the beginning of the three months, and no written agreement
has been reached with the tenants by that time, they can then, but not later,
apply for arbitration.
We have been
invited to read the clause in a reverse sense, as indeed the learned
Vice-Chancellor read it. He said that the first part of the clause contained
nothing to compel a request to revise, let alone an agreement for revision, to
be made not less than three months before the beginning of the eighth year:
without looking at the last sentence, there is nothing to prevent the landlords
informing the tenants at the last moment of the seventh year, or even at any
time during the succeeding seven years, that they require a revision of the
rent: therefore, if the last sentence means what it says, and the landlords may
be deprived of arbitration unless they apply within the three months to which I
have referred, there is an inconsistency between the last sentence and the
first part of the clause which ought to be resolved in favour of the landlords.
Alternatively, the last sentence of the clause is only machinery, and
accordingly the time-limit, clearly put in for the protection of the tenants,
may safely be ignored. I am afraid that I cannot accept that argument. We have
been referred to three authorities, from which I derive no help. Counsel were
right to refer us to them, for they (or at any rate two of them) were relied on
to some extent by the learned judge. In all of these cases the clause in
question was, however, so strikingly different from the present clause that I
think it is unnecessary for me to say any more about those authorities. I have
come to the clear conclusion that, looked at broadly, this very slovenly-drawn
clause has the meaning which I have already indicated. It has none of the
inconsistency for which Mr Porter has contended and which appealed to the
learned Vice-Chancellor. The construction which I favour makes sense, and
preserves for the tenants the protection which the clause manifestly intend to
afford them. It is the landlords’ clause, and it would not be right to stretch
its language in their favour so as to justify the time-limit for an application
for arbitration being disregarded. I would accordingly allow the appeal.
STEPHEHSON LJ:
I agree. Clause 1 (b) is badly drawn, but it is the landlords’ own language which,
in my judgment, defeats them and compels us to allow this appeal, for the
reasons my Lord has given. As I read the clause, the landlords can take their
time for requiring the rent to be revised, in the hope of getting an agreement
in writing with the tenants on the revised rent, and if they get it at any time
before the revised rent is payable in advance on September 29 1972 they can
claim the revised rent. In the absence of agreement on the amount of the
revised rent, they may be able to get the tenants to agree on an arbitrator,
and that agreement they can, in my judgment as at present advised, get,
although it is unnecessary to decide the point, at any time before or after
September 29 1972. But in default of agreement on an arbitrator, the only way
of getting a revised rent is by applying to the President of the Royal
Institution of Chartered Surveyors, and that the landlords must do within the
time-limit laid down by the clause which they put forward. If, therefore, the
landlords are in any doubt whether the tenants will agree the amount of the
revised rent or agree upon an arbitrator, they cannot take their time, but must
require the rent to be revised in time for the application to be made to the
President not less than three months before September 29 1972. I sympathise
with the learned Vice-Chancellor’s view that the time-limit was not of the
essence and was inconsistent with the earlier part of this obscure clause; but
I have come to the conclusion that he was wrong to make the declaration which
he did, that it is too late for the landlords to require the rent to be
revised, and that their action must be dismissed.
MACKENNA J: As
I construe this unsatisfactory clause, if the landlords are to compel the
tenants to pay a revised rent they must require them to do so before the
three-months period begins. If they do, and if before that period begins the
parties fail to agree to a revision, then, if they do not agree on an
arbitrator, the landlords may apply to the President for the appointment of one.
If they do apply to the President, they must make the application before the
three-months period begins. It follows, if I am right, that unless the tenants
agree to something different, the requirement to pay a revised rent, the
failure to agree on a revision, and the application to the President for the
appointment of an arbitrator, must all occur before the commencement of the
period. In this case the landlords did not require the rent to be revised
before the beginning of the period. As the tenants did not agree to a revision
the landlords lost any right to a revision which they might otherwise have had.
I agree that the appeal should be allowed.
The appeal
was allowed, with costs in both courts.
