Landlord and tenant — Rent-review clause — Question as to whether tenant had given notice within the time-limit (time to be of the essence) that he required the substituted rent to be determined by a referee — Construction of correspondence between parties’ agents — Tenant’s agents wrote a number of letters indicating that they did not agree with the rent proposed on behalf of the landlords and reminding the landlords’ agents of the need for haste in reaching an agreement in view of the time-limit within which the tenant had to take action in regard to a referee — Finally, before the expiry of the time-limit, the tenant’s agents wrote to the landlords’ agents a letter headed ‘Without prejudice and subject to contract’ in which they ‘suggested’, in view of the obvious disagreement as to the amount of the rent, that ‘it would be appropriate to make application to the RICS for an independent valuer’ — Held that this last letter was not sufficient to indicate an intention to exercise the tenant’s right to require the rent to be determined by a referee, nor did it indicate that the tenant considered that in the previous letters he had already exercised that right — Decisions in Edlingham Ltd v MFI Furniture Centres Ltd and Amalgamated Estates Ltd v Joystretch Manufacturing Ltd cited — Furthermore, the heading ‘Without prejudice and subject to contract’ in the last letter referred to would, on the authority of Shirlcar Properties Ltd v Heinitz, be an additional reason for concluding that the tenant had not given an unequivocal intimation that he was exercising that right — Hence tenant’s claim failed
This
originating summons raised a question of construction of correspondence between
the agents of the plaintiff tenant, Bernard Sheridan, and the agents of the
defendants, Blaircourt Investments Ltd, the landlords, relating to the
rent-review clause in leases of property in Red Lion Square, London WC1, of
which the plaintiff was the tenant and the defendants were the landlords.
E J Prince
(instructed by Bernard Sheridan & Co) appeared on behalf of the plaintiff;
M L Kallipetis (instructed by Pattinson & Brewer) represented the
defendants.
Giving
judgment, NICHOLLS J said: This originating summons raises a question of
construction of some correspondence passing between the parties’ agents
regarding the rent-review provisions in two leases made between the parties.
The plaintiff, Mr Bernard Sheridan, is the tenant under those two leases and
the defendants,
Red Lion Square, London.
The first
lease is dated February 14 1980 and by it the defendant landlord let 14 Red
Lion Square to the plaintiff tenant for a term of 25 years from Christmas 1978.
The rent payable was to be the sum of £2,900 until Michaelmas 1979 and £12,500
from then until December 24 1983, and thereafter that rent, or any different
substituted rent ascertained under the provisions of clause 6, was to be
payable. The rent-review provision in clause 6 defined ‘review’ date as meaning
every fifth anniversary of the commencement date of the term, and ‘review
period’ as meaning the period between one review date and the ensuing review
date, or the end of the term as the case might be. Subclause (a) also defined
‘current rental value’ in unexceptional terms which I need not read.
Clause 6(b)
provided as follows:
The rent
payable in respect of any review period shall be ascertained in the following
manner:
(i) the Lessor by notice in writing served upon
the Lessee at any time not earlier than six months before a review date (time
to be of the essence) may specify a substituted rent in respect of the ensuing
review period and in the event of absence of agreement on a different sum under
(ii) below or determination of a different sum under (iii) below such sum so
specified shall be the substituted rent payable throughout the ensuing review
period.
(ii) the parties may agree in writing not later
than three months (time to be of the essence) after service of the notice under
(i) upon the substituted rent payable throughout the relevant review period.
(iii) the Lessee not later than three months (time
to be of the essence) after the service of the notice under (i) by
counternotice in writing served upon the Lessor may require the substituted
rent to be determined under the following subclauses (c) to (g) (inclusive) of
this clause and the sum so determined shall be the substituted rent payable
throughout the relevant review period.
Paragraph (iv)
of that subclause I need not read. Subclauses (c) and (d) provide as follows:
(c) The determination of a substituted rent
consequent upon the service of a counternotice under (iii) of the foregoing
subclause shall be effected by a referee agreed on by the parties or if not
agreed on by them within one month from the nomination in writing of a referee
by one party to the other appointed on the application of either party by the
President for the time being of the Royal Institution of Chartered Surveyors
(or of some other officer of that body if the President be unable to act).
(d) The referee agreed upon or appointed under
subclause (c) shall act as an arbitrator pursuant to the Arbitration Act for
the time being in force (save as modified by the provisions of this Clause) if
the Lessor shall so stipulate by notice in writing served upon the Lessee
within one month (time to be of the essence) of service of the counternotice
under (iii) of subclause (b) but shall otherwise act as an expert and not as an
arbitrator.
I do not think
I need to read subclauses (e), (f) or (g).
The second
lease is dated November 25 1980 and relates to the basement of 17 Red Lion
Square. That lease, I understand, is in all respects that are material for the
purposes of this application in the same form as the lease dated February 14 1980.
On September 1
1983 the landlords, through their agent, Messrs Savills, sent to the plaintiff
by recorded delivery two letters, one relating to each lease, enclosing formal
notices triggering the rent-review provisions. Those notices required the rent to
be reviewed up to sums totalling under the two leases £40,000 per annum. Thus
the three-month period referred to in clause 6(b)(iii) within which the lessee
might serve a counternotice commenced running at that time and expired on or
about December 1 1983. Following receipt of those two letters there ensued
correspondence between Savills and agents acting for the plaintiff, Robert
Burtsal & Co. It is with that correspondence that I am concerned, the
plaintiff tenant contending and the defendant landlord denying that within that
correspondence there is to be found a due exercise by the tenant of his right
under clause 6(b)(iii), or the equivalent provision in the lease of November 25
1980 (which I understand is numbered differently), to have the substituted rent
determined by a referee.
On December 8
1983 Savills wrote again directly to the plaintiff stating that, no
counternotices having been received, the rent payable under the review
provisions was the sum stated in the notice of September 1. It is common ground
that, if no counternotices were given, then the contention by Savills as to the
amount of rent payable in the future set out in their letters of December 8
1983 is correct. It is also common ground that if, on its true construction,
the correspondence does contain the requisite counternotices, then the
contention advanced by Savills must give way to the ascertainment of the
quantum of the rent by a referee. So the sole question is a short one of
construction of the correspondence.
For the tenant
Mr Prince relies particularly on four letters. Before going to the
correspondence, I should mention that each counsel propounded his own
formulation of the question of construction that the court is concerned to
answer. Mr Prince’s formulation was this: that the correct test is whether the
document or documents relied upon as constituting the counternotice were such
that, when read by a reasonably sensible businessman or his professional
adviser, they would have alerted him to the fact that the tenant wished to have
the revised rent determined by a referee in accordance with the lease.
Mr Kallipetis
for the landlords formulated the test somewhat differently but, subject to two
observations, for my part I would be disposed to accept as a sufficient guide
for the present case Mr Prince’s formulation. The two observations are these.
First, if and in so far as there is any difference between the expressions
‘wished’ to have the revised rent determined and (echoing the language of
clause 6(b)(iii), ‘required’ to have the revised rent determined, it seems to
me that what one is concerned to look for is the latter. Second, it must be
borne in mind, when construing the correspondence, that, if the wording used in
any document is equivocal, that will not suffice to alert, to use Mr Prince’s
word, the landlords or their professional advisers that the tenant has decided
to invoke his right under the lease to require the substituted rent to be
ascertained in a particular way.
Mr Prince very
helpfully referred me to a number of authorities and, in particular, to two
cases where the court was concerned to construe correspondence where the issue
before the court was, like the issue before me, whether a particular letter or
a series of letters constituted a notice by a tenant under a lease requiring
the rent to be determined by arbitration. In those cases the rent review
provisions were not unlike those of the present case. However, for the purposes
of this case it is sufficient to mention the decision of McNeill J in Edlingham
Ltd v MFI Furniture Centres Ltd which is reported in (1981) 259 EG
421. McNeill J, in the course of his judgment, summarised three earlier
decisions in which the same sort of issue had arisen, and in the course of his
review he mentioned the decision in Amalgamated Estates Ltd v Joystretch
Manufacturing Ltd, reported in (1980) 257 EG 489, [1981] 1 EGLR 96, where
Templeman LJ at p 493 said this regarding the construction of a document for a
purpose similar to that with which I am concerned:
It is true
that no magic formula is required but, in my judgment, the tenant must make it
clear to the landlord that he proposes to have the rent decided by arbitration
in accordance with the provisions of the lease.
Against that
background and applying that approach, I turn to the relevant correspondence.
The first of the four letters relied upon by the tenant is a letter from his
agents dated September 15 1983. In that letter Robert Burtsal & Co wrote to
Savills informing Savills that they were acting for the tenant, and the letter
continued as follows:
Your Notice,
dated September 1, has been passed to us and you are no doubt aware that under
the Terms of the Lease it is necessary to agree the appropriate Rent with you
before December 1 1983.
We consider that
the Rent you have quoted is substantially higher than the present Market Value
and suggest that we should meet as soon as possible to discuss our Comparables
which would be used in Evidence. May we please hear from you with an
appointment.
It seems to me
that all that letter does is to show that the tenant’s agents were aware of the
provisions of clause 6 of the lease and of the time-limit set out in clause
6(b)(ii) for reaching agreement under that paragraph. The letter also shows
that Robert Burtsal & Co did not agree the rent proposed by the landlord
and suggested a meeting to discuss relevant comparables. I think it is
impossible to spell out of that letter an unequivocal indication that the
tenant was, in default of agreement, thereby requiring the matter to be
referred to a referee.
Some two weeks
later Robert Burtsal & Co wrote again to Savills. By the second letter on
which the tenant relies, dated September 30, Robert Burtsal & Co referred
to a meeting which had been arranged, at which it was proposed to discuss the
rental values of the property, and reference was made to certain improvements
which the tenant had carried out. The letter continued:
For the
record, perhaps you would kindly confirm that you received our letter of
September 15, notifying you that our Clients are in disagreement to the Rents
that you have proposed.
It seems to me
that that letter, particularly the third paragraph, shows only concern by the
tenant’s agents that the landlords’ agents
the landlords; but such a rejection of the landlords’ proposed rent does not
carry with it any necessary implication that the tenant had decided to exercise
his option under clause 6(b)(iii).
Savills
responded by confirming that they had received the letter of September 15, and
on November 1 Robert Burtsal & Co wrote again, this time heading the letter
‘Without prejudice’ and enclosing copies of comparables and other information
relevant to negotiations between the agents regarding the quantum of the rent.
On November 10
Robert Burtsal & Co wrote the third letter on which the tenant relies,
which was in these terms:
I have not
heard from you in connection with the above,
that is 14 and
17 Red Lion Square
and you will
appreciate that it is important for us to try to reach agreement before
December 1.
Before that
date, we are required under the Lease to appoint an Independent Surveyor, or
make Application to the RICS and I look forward to hearing from you.
It seems to me
that that letter is a reminder being sent to Savills, and Savills are being
told, or reminded, that there is a need for haste in view of the provision in
the lease that the period for reaching agreement would expire on December 1,
some three weeks ahead. The last paragraph in the letter, though strictly
inaccurate, does show that the tenant’s agents had in mind the provisions of
the clause regarding the appointment of a referee but, again, I do not think
that, from the language of that letter, read in the context of the
correspondence up to this date, one can find expressly or implicitly a
statement by the tenant’s agents that the tenant was thereby exercising, or had
already exercised, his option to have a substituted rent determined by a
referee.
On November 14
Savills replied by a letter headed ‘Without prejudice and subject to
contract.’ That letter dealt only with
quantum of the rent, the measurement of the relevant floor areas, and
comparables, and rejected an offer that had been put forward by the tenant’s
agents at a meeting.
On November 16
Robert Burtsal & Co wrote the fourth letter on which the tenant relies,
heading it: ‘Without prejudice and subject to contract’. The letter commenced
by setting out in a number of paragraphs matters relevant to the measurement of
the floor areas and the comparables. The penultimate paragraph of the letter
was in these terms:
In view of
the obvious disagreement between us, I suggest it would be appropriate to make
Application to the RICS for an Independent Valuer, because by no stretch of the
imagination can this building be worth £35,000 per annum, on a Full Repairing
Lease, ignoring my Clients’ Improvements. I am even more convinced that because
the Letting Market is very slow, my previous proposal is perhaps too high and
with recent experience of Independent Valuation in this area, I must advise my
Clients accordingly.
Then the letter
continued by making further reference to matters relating to the measurement of
the floor areas in question.
It seems to me
that the penultimate paragraph, which is the one relied on by the tenant,
really cannot be construed in the way the tenant urges upon me. It is to be
noted that what is said is this: that Robert Burtsal & Co suggest
that, in view of the obvious disagreement, it would be appropriate to
make application to the RICS for an independent valuer. I do not think a form
of words which is limited to the tenant’s agents making a suggestion is
language appropriate to the exercise by the tenant of an option; and the
precatory nature of this paragraph is confirmed by the language which follows,
namely: ‘It would be appropriate to make application.’ It seems to me that this letter also, fairly
construed, is not itself an exercise of the tenant’s right under clause
6(b)(iii), nor can I find in it an indication that, by necessary implication,
the tenant is proceeding on the footing that he has already exercised that
right. There is this further consideration: the letter, as I have mentioned, is
headed: ‘Without prejudice and subject to contract.’ In this regard, my attention was drawn to a
decision of the Court of Appeal in Shirlcar Properties Ltd v Heinitz
reported in (1983) 268 EG 362, [1983] 2 EGLR 120, where the court had to
determine whether a letter from the landlord’s agents requiring a rent review
which contained at its foot the legend ‘Subject to contract’ was effective as a
notice triggering the rent review provisions. Lawton LJ at p 364 concluded
that:
. . . it
cannot be said that the tenants, on receiving this letter, would necessarily
and reasonably have inferred that it was an effective trigger notice for the
purpose of the lease.
Dillon LJ on
the same page said this:
The question
is then as to the effect of the words ‘subject to contract’. They are wholly
inapposite to a trigger notice given by landlords under this particular rent
review clause. My initial inclination, therefore, was that they should be
disregarded and that a reasonable tenant would take the view that they were
merely meaningless. On consideration, however, I think that these time-hallowed
words ‘subject to contract’ would leave the tenant in doubt as to whether the
figure of £6,000 a year was being put forward as a firm figure specified by the
landlords under the rent review clause or was merely being put forward as a
provisional figure which, if not agreed by a binding contract such as is
envisaged by the words ‘subject to contract’, the landlord might reserve the
right to revise. If it is merely a provisional figure, then it is not enought
to trigger the rent review clause.
On the whole
I feel that a reasonable tenant might regard this as merely a provisional
figure. Therefore the meaning of the notice is not so plain that the notice can
be taken as a valid stipulation of a rent which sets the review provisions in
operation.
For the
tenant, Mr Prince has submitted that that case is distinguishable on the ground
that what the lease there required as a trigger notice was a notice which
specified the proposed new rent, whereas in the present case there is no such
requirement. All that is required here for the document to be a counternotice
is that it should sufficiently evince an intention by the tenant to require the
substituted rent to be determined under subclauses (c) to (g).
I have already
reached the conclusion on the construction of the letter, without regard to
this consideration, that the tenant’s contentions with regard to it cannot
succeed. Were it necessary for me to consider this further point, I would, in
the context of the correspondence in this particular case and having regard to
the heading of the letter, have come to the conclusion that, for this reason
also, it would not be possible to construe the wording in this letter as an
unequivocal intimation to the landlords’ advisers that the tenant was requiring
the ascertainment of the substituted rent to be referred to a referee.
The
correspondence continued after November 16, but it has not been submitted to me
on behalf of the tenant that anything in the further correspondence really
assists the tenant’s case. Accordingly, in my judgment, read in their context, the
letters relied on by the tenant do not either alone or read together constitute
a counternotice for the purposes of the two leases. I have little doubt that
the tenant’s failure to give counternotices was a slip on the part of the
tenant or his advisers and that the landlords and their advisers are well aware
of this. But be this so: in this field the court does not have any jurisdiction
to relieve one party from the consequences of a mistake, and this
consideration, of course, does not require or enable me to do other than
construe the correspondence fairly and properly, having regard to the matrix of
facts (to use a now familiar expression) in which it is set.
For these
reasons, in my judgment, the plaintiff’s claim fails and the defendants’
counterclaim for appropriate declaratory relief succeeds.
Judgment was
given in favour of the defendants with costs.