Landlord and tenant — Rent review clause in lease — Construction — Whether rent review was to be carried out on
clause was extremely bare and was completely silent as to the subject-matter to
be reviewed, the material part merely providing for ‘a reference to arbitration
of the question what increased rent (if any) shall be payable (having regard to
the level of rents then prevailing in the open market)’ — In these
circumstances the normal presumption would be that what has to be reviewed is
the demised premises as they stand and it was the contention of the defendant
landlords that there was nothing to displace that presumption — The tenants, on
the other hand, suggested that there were matters which justified a departure
from the norm — The matters mentioned were the fact that the tenants had
constructed the new buildings and put in their own land; the large difference
in rent between the lease and an underlease for the whole term less a nominal
reversion (a point which the judge held to be irrelevant); the clear distinction
in the parcels clause between the land and the buildings; and the unusual
circumstances which would, if buildings were included, require the arbitrator
to value half a building
held that none of the matters advanced justified a departure from the normal
position, that the subject of the review was the demised premises as then
subsisting — Declaration accordingly
The following
cases are referred to in this report.
Goh Eng
Wah v Yap Phooi Yin [1988] 2 EGLR 148;
[1988] 32 EG 55; [1985] Malayan Law Journal 329, PC
Ipswich
Town Football Club Company Ltd v Ipswich Borough
Council [1988] 2 EGLR 146; [1988] 32 EG 49
Ponsford v HMS Aerosols Ltd [1979] AC 63; [1978] 3 WLR 241; [1978] 2
All ER 837; (1978) 38 P&CR 270; [1978] EGD 137; 247 EG 1171, [1978] 2 EGLR
81, HL
This was an
originating summons by which the plaintiffs, Ravenseft Properties Ltd, sought
the true construction of the rent review clause of a lease of property at York
Road, Acomb, York, of which they were tenants and the defendants, Roger Knowles
Park and Robert Croasdale Park, were the landlords.
Michael Barnes
QC and Jonathan Karas (instructed by Forsyte Kerman) appeared on behalf of the
plaintiffs; Derek Wood QC and H C Elgot (instructed by Sykes Lee & Brydson,
of York) represented the defendants.
Giving
judgment, JUDGE PAUL BAKER QC said: By this originating summons the tenants of
the relevant premises seek a declaration that upon the true construction of the
lease in question, which I shall come to, and in the events which have happened,
the increased rent to be determined pursuant to clause 2 of the lease is to be
determined upon the assumption that the property demised by the lease is a
parcel of land without any buildings erected thereon. That raises the sort of
problem which is not unfamiliar in these courts in recent years and turning, as
in so many cases, on the construction of a rent review clause.
The facts are
a little unusual. As to the parties, the plaintiffs, as I have said, are the
tenants of the relevant property but, in addition, they own some adjoining
land. The defendants are the freehold owners of the land the subject of the
lease. The two plots of land together consisted, at the outset of the events
which gave rise to this action, of four shops in York Road, Acomb, in the City
of York. The properties, the freehold of which is owned by the defendants, are
nos 69 and 71, and the additional properties of which the tenants own the
freehold are nos 65 and 67.
These two
neighbouring owners conceived a scheme in 1963 whereby there would be a
development replacing all four shops with a single supermarket. In pursuance of
that the defendants were willing to contribute their property to the scheme and
entered into an agreement with the then owners of the adjoining property, which
was Meadow Dairy Ltd, on May 8 1963. Under that agreement, it was recited that
the landlord — that is to say the defendants here — were seised in fee simple
of the shop premises nos 69 and 71, and the tenant was seised in fee simple of
the adjacent premises, nos 65 and 67, as I have mentioned. And, second, that
the tenant desired to build a new supermarket on the sites of all four of the
shop premises, and for the purpose the landlord was willing to grant to the
tenant a building lease.
The agreement
was for a period of 36 months and followed the usual form of a building lease.
The tenant was granted a licence and authority to enter on the defendants’ land
and erect the building, and the tenant undertook, in that period, to complete
the demolition of the shop buildings then standing on the premises and the
erection of a new supermarket on the combined site. Following the completion of
the new supermarket buildings the landlord was to grant and the tenant accept
and execute a counterpart of the lease in the form set out in the schedule and
at the rent therein fixed. The scheduled lease was in identical terms, so far
as it is relevant to these proceedings, as the lease which was subsequently
granted.
Almost to the
month — it was in fact July 26 1966 — the three years had elapsed, the building
was there and the lease was granted, and I should read out portions of the
parcels, term and reddendum.
By this time
the plaintiffs had taken the place of Meadow Dairy Ltd. Nothing turns on that.
The lease is made between the parties before me, the defendants as landlord and
the plaintiffs as tenant. It goes on:
IN
consideration of the expense incurred by the Tenant in erecting a new
supermarket building upon the land hereby demised of the premium of Three
hundred pounds now paid by the Tenant and of the rent and covenant
and so forth.
. . . the
Landlord hereby demises to the Tenant ALL THAT piece of land formerly the site
of two shops Numbers 69 and 71 York Road, Acomb in the City of York but now
(together with an adjacent piece of land the property of the Tenant and
formerly the site of Numbers 65 and 67 York Road Acomb aforesaid) constituting
the site of a new supermarket building lately erected by the Tenant AND ALSO
ALL THAT part of the said supermarket building (being one half or thereabouts)
erected thereon WHICH PIECE OF LAND hereby demised is separated from the said
adjoining land the property of the Tenant by an imaginary line drawn through
the outer edges of two boundary marks erected for the purpose by the Tenant at
the front and back of the premises and is more particularly delineated on the
plan annexed hereto and surrounded by a red line TO HOLD the said land and
premises (hereinafter called ‘the demised premises’) to the Tenant from the
thirty-first day of December One thousand nine hundred and sixty-five for the
term of ninety-nine years PAYING THEREFOR unto the Landlord during the said
term the yearly rent of Eleven hundred pounds or such increased rent as is
hereinafter provided
I do not think
I need read any more of clause 1. I leave clause 2 for the moment. In clause 3
there are a number of covenants of a type very familiar in a letting of this
nature — repairing covenants and covenants against making structural
alterations, insuring and so forth.
For the sake
of completeness I should mention that, following the grant of that lease, a
lease of the entirety was made by the plaintiffs to another company, Allied
Suppliers Ltd, on March 30 1967, for the whole of the rest of the term less a
nominal reversion, at a rent of £5,250 for the year, and it has similar review
provisions.
So that is the
background and, as I have indicated, the issue is whether, a review period
having come, the revised rent should be that attributable to the land only or
to the land with the buildings.
With that I go
to the rent review clause. It is clause 2:
At any time
within six months before the expiration of twenty-one years from the
commencement of the term hereby created and in like manner at any time within
six months before the expiration of each subsequent period of twenty-one years
the Landlord may by notice in writing served on the Tenant require a reference
to arbitration of the question what increased rent (if any) shall be payable
(having regard to the level of rents then prevailing in the open market) after
the expiration of the relevant period. Such a reference shall be to a single
arbitrator in accordance with the Arbitration Acts for the time being in force.
No further
guidance is given as to the review of rent in the document. One notices that it
is periods of 21 years, and the first period of 21 years therefore ended on
December 31 1986. It is a disagreement as to what was to be done at that review
which has led to this originating summons.
I have heard
most helpful argument from Mr Barnes and Mr
is accepted by the tenants that, prima facie, the subject-matter which
the arbitrator has to review is the demised premises as they now stand. There
might have been erections in the meantime. Buildings might have been altered
since the last review date, or something of that sort. Where the review clause
is silent as to the subject-matter to be reviewed, as this clause is, then one
starts from the proposition that what has to be reviewed is the demised
premises as they stand. There is a presumption that that is where one starts,
and Mr Wood’s simple argument is that one ends there. On behalf of the tenants,
though, it is suggested that there are features here which would displace that
presumption, which can be discerned from the terms of the document itself and
also from the background material which it is proper for the court to look at.
Mr Barnes
called attention to four matters which he says would make it proper to depart
from the norm. The first was a matter of background rather than of provisions
in the lease, that is that it was the tenant who had constructed the new
buildings and had facilitated that construction by putting in his own land, the
implication being that he had thereby brought about a great accession of value
to the whole site, which possibly neither site on its own could achieve, and on
the face of it it is curious if, on rent review, the tenant is obliged to pay
the value of what has been constructed.
Although one
can see the merits of that argument, I do not find that very persuasive, for
two reasons. The first is — a point taken by Mr Wood — that equally the
landlords have contributed not only a site but a site which had some
development on it. They contributed buildings to this joint scheme, and it would
be strange if at the end of the day all they had got out of it was the rental
value of their land. But further, as a matter of authority, it is not
sufficient, to displace the presumption to which I have referred, merely to
show that the tenant has paid for the improvements on the land.
In the case of
Ponsford v HMS Aerosols Ltd [1979] AC 63, the point at issue was
somwhat different from that which I have. It was what meaning should be
attacted to a direction in the rent review clause that there should be a
reasonable rent for the demised premises. There is no such direction in this
clause. But at p 77 Viscount Dilhorne, who was one of the members of the
majority, puts it this way:
The rent
payable by the lessees will of course be rent for the demised premises but as I
see it, the task of surveyor is not to assess what would be a reasonable rent
for the lessees to pay but what is a reasonable rent for the premises. That,
when assessed, is payable by the lessees. If the effect of the improvements on
the rent payable is to be disregarded, then the lessees will not be paying a
reasonable rent for the demised premises but a reasonable rent for the demised
premises less the improvements; but it is recognised that the improvements are
part of the demised premises. If the effect on the rent of the improvements is
to be disregarded then in my opinion an express provision is required to effect
that as was necessary in the Landlord and Tenant Act.
He was
referring to the Landlord and Tenant Act 1954, section 34.
So when the
arbitrator is required to assess what increased rent should be payable the
implication there, in my judgment, is the rent of the demised premises, and it
would require some express exclusion such as mentioned by Viscount Dilhorne in
that passage for another view to be taken before one could give effect to the
circumstance that it was the tenant who had paid for the relevant improvement
to the premises rather than the landlord.
The second
point Mr Barnes takes is to point to the diversity of rent as between the
lease, which I have to consider, and the underlease, the lease which I have to
consider being at £1,100 and the underlease at £5,250. It has to be accepted
that the rent of the underlease is for the entirety of the premises, and
therefore we have to look, at most, to half that rent, to £2,650. So reduced,
it seems to me that that point is of very little weight, and indeed I would
accept Mr Wood’s submission that it is not a relevant factor to take into
account — it is not an admissible piece of evidence to take into account in
this exercise.
Coming to the
lease itself, and I think this is the only point actually on the wording of the
lease, it was said that the parties have drawn a clear distinction in the
parcels clause between the land and the building, and that should be a
sufficient indication to the arbitrator that it was the land only that he was
to value.
There is some
support for that in authorities. There was a case before the Vice-Chancellor, Ipswich
Town Football Club Ltd v Ipswich Borough Council [1987] NPC 64*,
concerning the football club, where the question arose as to whether the
buildings which the club had erected — stands for spectators costing a very
large sum of money — should be included in the review. It would appear, though
I have not seen the lease itself, that the Vice-Chancellor was able to come to
the conclusion that they should be excluded because on the lease before him
there was a carefully drafted document in which sports ground, on the one hand,
was differentiated from sports ground plus buildings, where it was necessary to
refer to them as such, on the other.
*Editor’s
note: See p 146 ante.
On the other
side of the line is a case in the Privy Council of Goh Eng Wah v Yap
Phooi Yin in the Malayan Law Journal of 1985 at p 329, which seems
to be the only report of it† . There there were these words:
The said land
together with the buildings erected thereon and known as Star Theatre . . . for
a term of 30 years.
† Editor’s
note: Now reported at p 148 ante.
In that case
there was not a sufficiently strong context, as there was in the case before
the Vice-Chancellor, to displace the normal presumption.
While I have
studied the guidance to be gained from these authorities, in matters of
construction they are of very limited use. One has to attend primarily to the
language. That language is nothing more nor less than what one would expect in
a lease of land and buildings, and especially in a case where the building is
to be divided between the two contiguous owners. One could not say ‘all that
piece of land and supermarket’; that would be inaccurate. In order to exclude
the building for the purposes of the review, if that were the intention, one
would have to put a special definition in of the building, when only half of it
had been erected on the material site.
I accept Mr
Wood’s comment on this, that this lease contains the normal sort of
conveyancing language which one would expect, and I do not think that one can
read into it that for the purposes of the rent review in some way the land was
being treated differently from the building and was a separate subject-matter
for certain purposes.
The final
point made is that there were very unusual circumstances here of a freeholder
of a piece of land on which a building is constructed which is shared between
the adjoining owners, and it is going to present difficulties to the arbitrator
when he comes to value half a building. It is not at all convenient so to value
it, and that is an indication, it is said, that only the land could have been
contemplated when requiring the arbitrator to address himself to the question
‘What increased rent shall be payable?’
having regard to the level of rents then prevailing in the open market.
That is not a
problem that is likely to defeat a surveyor. Far more complex problems of
hypothetical valuations come before them. It comes, I think, at the end, where
you get a bare expression that it requires:
a reference
to arbitration of the question what increased rent (if any) shall be payable
(having regard to the level of rents then prevailing in the open market).
That is the
question. There are two matters to be attended to. What is the subject-matter
and what is the level of the rent?
As to the
first, there is no specific guidance and I see nothing in the lease or the
circumstances to depart from the usual position, that it is the demised
premises as then subsisting.
On the level
of rent, there is the indication that it is the rents prevailing in the open
market. It seems to me a workable clause, if a somewhat bare one.
I propose in
answer to the originating summons to declare that the rent shall be determined
upon the assumption that the property demised by the lease includes the
building erected upon the demised premises as at each review date.
