Landlord and tenant — Rent review clause in lease — Clause provided for the review rent to be that at which the demised premises might reasonably be expected to be let in the open market etc (subject to fairly standard terms) but ‘upon the supposition (if not a fact) that the tenant had complied with all the repairing covenants herein imposed on the tenant’ — Various questions were raised, and amended, in the originating summons for the construction of the clause, but the main issue was whether the arbitrator had jurisdiction to determine a rent which varied from time to time during the review period according to the state of repair of the premises — Held, following National Westminster Bank Ltd v BSC Footwear Ltd and distinguishing Fawke v Viscount Chelsea, that the answer to this question was ‘No’ — This view was supported by the fact that the parties had agreed an answer to another question on the summons which was inconsistent with a differential rent
This was an
originating summons for the construction of a rent review clause in a lease
between Findon Developments Ltd, the lessors and defendants to the summons, and
Mr A B Clarke, the lessee and plaintiff. The lease was for a 21 years’ term of
premises known as The Stores, The Square, Findon, West Sussex.
E J Prince
(instructed by Bowles & Stevens, of Worthing) appeared on behalf of the
plaintiff; G M Shillingford (instructed by Davies Thomas Cheale, of Worthing)
represented the defendants.
Giving
judgment, WALTON J said: This summons has a somewhat curious history. It is a
summons taken out for construction of a rent review clause contained in a lease
of October 6, made between the defendant as lessor and the plaintiff as the
tenant, and it relates to a demise of premises known as The Stores, The Square,
Findon, in the County of West Sussex. The demise is for a term of 21 years from
October 6 1975, and the rent, in accordance with modern practice, is a variable
rent, and the reservation of that reads as follows
‘PAYING
therefor during the said term:
(a) For the first 7 years of the said term the
yearly rent of One thousand two hundred and fifty pounds, and
— and this is
what we are now really concerned with —
(b) For the next 7 years of the said term and
for the remaining period of Seven years thereafter such rent as shall have been
agreed between the Lessor and the Tenant or determined in accordance with the
provision in that behalf hereinafter contained the said rents in all cases to
be paid by equal quarterly payments in advance on the usual quarter days in
every year without any deduction whatsoever,
and so on and
so forth.
There are,
although my attention has not been directly called to them, covenants relating
to repair on the part of the tenant, and also a covenant by the landlord ‘To
keep the exterior including roof and main timbers (other than windows and
sky-lights latches locks and fasteners) of the demised premises and of all
additions thereto and the main drains and the boundary walls and fences thereof
in tenantable repair’. Again, although I have not strictly been properly
informed of this by evidence, I gather it is the tenant’s complaint that there
have been serious breaches of that covenant by the landlord.
The crucial
clause is clause 3, which provides that:
THE Tenant
shall pay for each successive period of SEVEN years after the first Seven years
of the term an annual rent which shall be determined in accordance with the
following formula that is to say such rent shall be the rent (but not less than
the rent firstly hereinbefore reserved) at which the demised premises might
reasonably be expected to be let in the open market by a willing Landlord by a
Lease for a term of years equivalent to the residue of the said term with
vacant possession on the same terms and subject to the same incidents in all
other respects as this present demise and upon the supposition (if not a fact)
that the Tenant had complied with all the repairing covenants herein imposed on
the Tenant —
but not a word
is said about the compliance by the landlord with the landlord’s covenant, and
for obvious reasons. Then it goes on as usual, that:
PROVIDED that
if no agreement is reached between the parties by the penultimate quarter day
prior to the commencement of each such period as aforesaid as to the rent at
which the demised premises might reasonably be expected to be let in the open
market on the basis herein before described then the question shall be referred
to the decision of a single arbitrator to be appointed by the President for the
time being of the Royal Institution of Chartered Surveyors . . .
The plaintiff
took out an originating summons on August 25 1983, asking for the following
relief: A declaration that upon the true construction of that lease the
arbitrator in determining the review rent for the premises for the seven-year
period commencing September 29 1982 is obliged to take into account the actual
state of the premises on September 29 1982 insofar as the defendants have
failed to comply with their repairing covenant; and, secondly, a declaration
that upon the true construction of that lease the review rent payable for the
premises for the seven-year period commencing September 29 1982 remains payable
notwithstanding compliance by the defendants with their repairing covenant
subsequent to the aforementioned date.
The parties
have agreed upon a new question, in place of the first question, and an answer
to the same. They are agreed that this question should be answered in the
affirmative sense:
Whether in
determining the review rent for the premises under clause 3 the arbitrator, as
well as considering the condition of the premises so far as attributable to the
breaking (if any) by the defendants of their repairing covenant, should take
into account the prospects of the defendants remedying the said breaches (if any)
or of the plaintiffs recovering compensation from the defendants equivalent to
the cost of remedying the same.
That, I repeat,
is agreed between the parties as being a proper way of dealing with the
question therein comprised.
So far as the
second question is concerned, until a very short while ago the defendants had
intimated to the plaintiffs that they did not
a change of heart and Mr Shillingford for the defendants has now argued for a
substituted clause 2 in these terms:
Whether in
determining the review rent payable for the premises under clause 3 the
arbitrator has jurisdiction to determine a rent which varies from time to time
during the review period according to the situation with regard to the state of
repair of the premises.
So that, in
contradistinction to the case put forward by the tenant, who were simply saying
‘When the arbitrator has fixed a rent, that is that and that finishes it’, what
the landlords have now been arguing for is that the arbitrator is empowered, of
course if the evidence so justifies — and, as to that, I have no idea
whatsoever — to impose a differential rent varying with the state of repair of
the premises. I can see a recipe almost for disaster and bad landlord and
tenant relations if anything like that is done, but what I have to determine is
whether it can be done.
There are
apparently two cases, and only two cases, which are said to bear on this point.
The first is Fawke v Viscount Chelsea [1980] QB 441,* where the
court decided that this could be done under the terms of section 34 of the
Landlord and Tenant Act 1954, and that provides that:
The rent
payable under a tenancy granted by order of the court under this Part of this
Act shall be such as may be agreed between the landlord and the tenant or as,
in default of such agreement, may be determined by the court to be that at
which, having regard to the terms of the tenancy (other than those relating to
rent), the holding might reasonably be expected to be let in the open market by
a willing lessor, there being disregarded —
various
matters which are not material for present purposes. The premises there were
apparently largely out of repair, and the court found itself able and empowered
under section 34(1) to fix a differential rent depending upon the state of
repair of the premises. The leading judgments were given by Goff and Brandon
LJJ, but it does seem from the speeches of all three lords justices that this
is an exceptional case and an exceptional remedy was required in relation
thereto. I must of course loyally accept, as I do, that that is something which
is properly permissible under the terms of that subsection. But in a case
concerning a rent review clause, National Westminster Bank Ltd v BSC
Footwear Ltd (1980) 42 P & CR 90,†
the court held that, on the true construction of the rent review clause
then in question, it provided for a renewal of the lease on exactly the same
terms, except the substitution of the new prevailing market rent, and that the
arbitrator would have no power to fix the kind of differential rent that was
fixed in Fawke v Viscount Chelsea. In the course of the leading
judgment, which was delivered by Templeman LJ, he said that this was a totally
different situation. He said, at p 95:
In Fawke
v Viscount Chelsea, the courts were concerned with statute and with a
tenant who had no right to a lease of any particular term. The court had power
to grant to a tenant a lease of such period, not exceeding 14 years, as the court
thought fit. In those circumstances, it seems to me that the court was faced
with a different task. It could balance, on the one hand, the virtues of giving
a long lease with differential rents against the alternative of giving a short
lease so that the landlord could then come along and obtain the benefit of
inflation
and, pausing
there, also the benefit of any repairs
and I am not
surprised that differential rents are possible under that statute.
But we are
dealing here with a perfectly common form of lease which deliberately set out,
for the first 21 years, to have all the advantages and disadvantages of a fixed
rent . . . — a certainty which has its benefit for the landlord, in that he
knows he is going to get that sum for 21 years, and which has benefits for the
tenant in that he knows exactly what his obligations will be.
Against that
background, when we find that the lease itself provides for a renewal and the
renewal is to be on exactly the same terms as the old lease, except that there
is to be substituted the prevailing market rent at the date of the beginning of
the new lease, it seems to me that, on the true construction of that clause in
that lease, what the arbitrator has to do is to reconsider the figure
for rent
in the
original lease and to insert the figure which he thinks proper, having regard
to 1978 prevailing market rents.
*Editor’s
note: Also reported at (1979) 250 EG 855, [1979] 1 EGLR 89.
† Editor’s
note: Also reported at (1980) 259 EG 277.
It seems to me
that that passage applies with even greater force to the present case, where
there is not even the question of the grant of a new lease but the continuation
of the existing lease with merely a new substituted rent, and I do not at all
accept Mr Shillingford’s submission that the terms of clause 3 of that lease
are so closely analogous to those of section 34 of the 1954 Act that one
reaches the position under that Act. It seems to me to be as plain as a
pikestaff that all that the arbitrator was supposed to do under clause 3 was to
come up with a new figure for the rent to be inserted in place of the original
rent of £1,250. So even if the matter had simply rested on that, I should have
come to the clear conclusion that this case was governed by the National
Westminster Bank case and not by the Fawke case. But it seems to me
that Mr Shillingford’s argument here is completely and utterly out of court by
reason of the answer which both parties have agreed must be given to the first
question. So here we start out with it being agreed by both the landlord and
the tenant: ‘Yes, of course one has got to take into account the prospect
either, on the one hand, of the defendants remedying the breaches, or on the
other hand of the tenant obtaining damages for their breach’, and, having taken
that prospect into consideration once under that heading, there just is not the
faintest possible room for the arbitrator to take those same matters into
consideration by fixing a differential rent thereafter. It would be a matter of
taking precisely and exactly the same things into consideration and dealing
with them in one branch by adjusting the rent for the full seven-year period or
whatever it is that he has to do, and in the other branch by taking it as an
adjustment to be made at various times in the rent, ie a differential rent.
That would be giving the landlords the benefit of the matter twice over, and
that, on any footing, cannot be right.
Therefore, for
those two quite separate reasons, I have come to the conclusion that in this
particular case the second question must be answered firmly in the negative.
The
defendants were ordered to pay the plaintiff’s costs.
