Landlord and tenant — Rent review clause in lease of property in trading estate — Whether a letter to president of the RICS on behalf of landlords constituted an effective application for the appointment of an expert surveyor in accordance with the clause — Appeal by tenants from decision of Knox J in favour of landlords — In the events which had happened an application for such an appointment had to be made by the landlords before a named date, time being of the essence for this purpose; otherwise the rent review procedure would be abortive — Before the critical date the landlords’ surveyors wrote a letter to the president and the issue was whether the letter in question constituted an effective application — The letter, of which the tenants were not notified, stated that it was ‘an in time only application’ and, contrary to the RICS guidance notes, it was not accompanied by the prescribed fee or a copy of the lease — Subsequently, some months after the named date, the landlords’ agents completed the application form issued by the RICS and paid the required fee — Held by the Court of Appeal, upholding the judgment of Knox J, that the landlords’ application had been effectively made in accordance with the procedure of the RICS — The letter constituted a genuine application, despite the reference to making ‘an in time only application’ — The absence of an accompanying fee and copy of the lease merely deferred the processing of the application — There was no requirement that the application should be communicated to the tenants, who could always inquire as to whether an application had been made — The RICS had laid down no formalities for the validity of the application except that it must be in writing, although the official form was preferred — Tenants’ appeal dismissed
The following
case is referred to in this report.
Aly v Aly (1984) 128 SJ 65; 81 LS Gaz 283, CA
This was an
appeal by the plaintiff tenants, Staines Warehousing Co Ltd, who had sought a
declaration as to the true effect of a letter which the defendant landlords had
sent to the president of the Royal Institution of Chartered Surveyors. The
judge, Knox J, had dismissed the plaintiffs’ originating summons, holding that
the letter constituted a valid application under the review clause of a lease
of a property known as 18 Central Trading Estate, Staines, Middlesex. The
respondent landlords, defendants below, were Montagu Executor & Trustee Co
Ltd. The second defendant, Mr J E Cullis FRICS FSVA, the surveyor appointed by
the president of the institution, had not been represented and took no part in
the proceedings below or on appeal. The decision of Knox J was reported at
[1986] 1 EGLR 101; (1986) 277 EG 305.
John Colyer QC
and Kim Lewison (instructed by Knapp-Fishers) appeared on behalf of the
appellant; Michael Barnes QC and Kirlk Reynolds (instructed by Nabarro
Nathanson) represented the respondents.
Giving
judgment, FOX LJ said: This is an appeal by the plaintiff from a decision of
Knox J as to the effect of a time provision in a rent review clause. The lease
is an underlease of June 21 1971 for a term of 125 years at an initial rent of
£25,000 a year, with seven-year rent reviews.
The provisions
for review are in the second schedule. The relevant rent review date for the
purposes of those provisions in the second schedule, to which I shall refer,
was September 29 1984. Paras 2 and 3 of the second schedule are as follows:
2 If at any time not more than twelve nor less
than nine months before that one of the rent review dates then next ensuing
(hereinafter called ‘the relevant rent review date’) the Landlord shall give
notice in writing to the Tenant of its desire to vary the yearly rent payable
hereunder as from the relevant rent review date such yearly rent shall from and
after the relevant rent review date be whichever is the highest of:
there are then
specified three figures which I need not read because they are not material to
the issue.
3 If the
Landlord and the Tenant shall not have agreed the open market rent six months
before the relevant review date the open market rent shall be determined by a
Surveyor (hereinafter called ‘the Appointed Surveyor’) to be agreed upon in
writing by the Landlord and the Tenant not later than four months before the
relevant rent review date and in default of such agreement
and I
interpose that there was no such agreement
to be
nominated by the president for the time being of the Royal Institution of
Chartered Surveyors upon the application of the Landlord to be made not later
than three months before the relevant rent review date.
I omit paras 4
and 5. Para 6 is in these terms:
6 If the Landlord and the Tenant shall not have
agreed the open market rent six months before the relevant rent review date and
the Landlord shall neglect to make an application referred to in paragraph 3
hereof then (unless the parties hereto shall in writing agree otherwise) any
notice already given by the Landlord to the Tenant under the provisions of
paragraph 2 hereof shall be void and of no effect.
So the
procedure for rent review would be brought to a halt and extinguished.
It is common
ground that time is of the essence for the purposes of the time provision in
clause 6. The time provisions, to summarise them, operated in the manner which
is conveniently set out in para 5 of the affidavit sworn by Mr Coward, a
director of the plaintiff company, of May 8 1985 as follows:
(1) Not later than December 29 1983 the
(Landlord) was required to serve a notice.
(2) If no agreement was reached between the
(Tenant) and the (Landlord) by March 29 1984 the rent was to be determined by a
surveyor.
(3) If the (Tenant) and the (Landlord) had not
agreed the identity of the surveyor by May 29 1984, he was to be appointed by
the president for the time being of the Royal Institution of Chartered
Surveyors.
(4) The (Landlord) was required to make an
application to the president for the appointment of such surveyor by June 29
1984.
The dispute
between the parties relates to the fourth stage, that is to say, the
application by the landlord to the president of the Royal Institution of
Chartered Surveyors for the appointment of a surveyor as an independent expert.
By a letter of
November 15 1983, the landlord’s solicitors wrote to the secretary to the
tenant as follows:
We act for the
Landlords of the above premises . . . In accordance with Clause 2 of the Second
Schedule to your Underlease of the premises dated June 21 1971 we should be
obliged if you would take this letter as notice of our
from September 29 1984.
Would you be
good enough to acknowledge receipt of this letter by signing and returning the
enclosed copy.
It is agreed
that that was an effective notice to set in motion the machinery for a rent
review under the provisions of the second schedule. However, no agreement was
reached between the landlord and the tenant by March 29 1984. Therefore the
rent had to be determined by a surveyor; but there was no agreement between the
landlord and the tenant regarding such an appointment, which leads one to the
crux of this case, which is that the landlords then made an application to the
president for the appointment of a surveyor by June 29 1984.
On May 30 1984
the landlord’s agents, Knight Frank & Rutley, wrote to the president of the
Royal Institution of Chartered Surveyors as follows:
We act for the
freeholder of the above factory, warehouse and office premises . . . The lease
is for a term expiring on September 29 2095, at a current rent of £43,400 per
annum, with provision for a rent review at September 29 1984.
The second
schedule to the lease requires that application be made to the President of the
RICS for the appointment of an expert surveyor to determine a revised rent
failing agreement between the parties six months prior to the review date. The
application to the President is to be made not later than three months prior to
the review date.
Whilst no
rent has yet been agreed in this case, negotiations are continuing between
ourselves and the tenants, and we are, therefore, writing in accordance with
the terms of the second schedule to the lease to make an in time only application
for the appointment by the President of an expert surveyor to determine a
revised rent for the above premises at September 29 1984.
We should be
grateful for your acknowledgment of this letter.
That letter
contains the statement that ‘negotiations are continuing between ourselves and
the tenants’, which appears to be incorrect, because at that time there were
not any negotiations between the parties.
The issue in
the case is whether that letter was an application to the president of the
Royal Institution of Chartered Surveyors under para 3 of the second schedule.
Knox J held that it was.
Continuing
with the history of the matter, the tenant was not informed by the landlord of
the letter of May 30 1984 to the president of the institution. The tenant in
fact remained in ignorance of the letter until late in 1984, when the landlord
completed a form issued by the institution for use on an application for
appointment, and paid a fee. There was then a gap of several months.
On February 3
1984 Knight Frank & Rutley wrote to the secretary of the tenant as follows:
We refer to
the formal notice which has been served on you by our client’s solicitors,
Nabarro Nathanson, dated November 15 1983, and would advise you that we have
been instructed to agree the new rent to be paid from September 29 1984.
Before
proceeding with the negotiations the writer, Mr J F Woolsey, would like to
inspect the premises and will be contacting your secretary shortly to arrange a
mutually convenient appointment.
There is then
a gap in the correspondence until September 4 1984, when Knight Frank &
Rutley wrote again to the company’s secretary, saying:
Further to my
recent inspection and following an extensive investigation of the comparable
evidence available, I am of the opinion that a fair rent in respect of the
premises you occupy at the above is £345,000 per annum.
I should be
pleased to learn that this proposed rent is acceptable to you, whereupon I will
instruct our solicitors to prepare a suitable Memorandum of Agreement.
By that time
the letter of May 30 had been written.
On December 4
1984 the landlord’s agents signed the form of application to the president
which is issued by the institution and, so far as material, it is in this form,
being headed: ‘The Royal Institution of Chartered Surveyors — Application for
Use in Rent Review cases for the appointment of an Arbitrator/Independent
Expert by the President of the Royal Institution of Chartered Surveyors.’ It then has two alternative clauses. The
first is ‘We’ (and the name is to be filled in) ‘hereby request the President
of the Royal Institution of Chartered Surveyors to appoint an
Arbitrator/Independent Expert to act in the case below’. But that was struck
out in the present case.
The second,
and alternative, form is in these terms: ‘The application for the appointment
of an Arbitrator/Independent Expert to which the following details refer was
made in a letter from . . . dated May 29 1984.’
Then a reference number is given. There is no doubt — and it is not in
dispute — that this document, which was signed by Knight Frank & Rutley,
was intended to refer to the letter of May 30 1984. It was therefore, in its
terms, an application for the appointment of an independent expert ‘to which
the following details refer’ — which was made in the letter of May 30 1984.
There then follow below spaces for information relating to the property in
question to be specified, the parties to the lease and other matters, including
rent.
At the bottom,
above the space for a signature, it is signed by Knight Frank & Rutley on
December 4 and then follows:
Except for
cases in which the President is designated by statute as the appointing
authority or the appointment has been made by order of the Court, a fee of £69
that is to say
£69 plus VAT
which is
solely for administrative costs, must accompany all applications for
appointment by the President. The fee is non-returnable whether or not the
President makes an appointment, eg if the matter is settled by agreement. We
enclose a cheque for £69. We undertake to be responsible for payment of the
professional fees and costs of the surveyor appointed.
As appears, the
fee was sent but was not sent with the letter of May 30.
I should now
refer to the Guidance Notes which are issued by the institution in
relation to applications for the appointment of arbitrators or independent
experts. The material provisions in this printed document are paras numbered
2.1.1. and 2.1.2. Para 2.1.1. is headed: ‘Application to the President for
appointment,’ and reads:
Application
to the President for the appointment of an Arbitrator or Independent Expert
should be in writing and preferably made on the form obtainable on application
to the RICS.
Para 2.1.2. is
headed: ‘Document(s) and fee on application’ and reads:
The
application will not be processed until the appropriate non-refundable fee,
currently £40 plus VAT,
which fee was
higher at the relevant date
has been
received together with a copy of the lease or other document conferring on the
President power to make the appointment.
The form
having been completed and the fee paid, on December 4, shortly after the
president made an appointment of an independent surveyor — who is in fact the
second defendant to these proceedings but who takes no part in them — notifying
the tenant accordingly. The appointment takes effect upon the date when the
president actually signs the appointment.
In these
circumstances the tenant says that there was no effective application to the
president for the appointment of a surveyor within the time-limits specified by
the second schedule, of which it is admitted that time is of the essence. The
letter of May 30, if it was valid as being an application for the appointment,
is well in time by a month.
The judge in
his judgment put the essence of the matter as he saw it thus:
This is a
very short point. In my judgment, the true construction of this is that the
landlord’s agents were taking the step that they understood to be necessary to
comply with the time-limit and that it was in that context that they used the
words in the phrase ‘an in time only application’. In my judgment, having set
out the framework of the clause and made it clear within what limits they were
operating, the landlord’s agents indicated that they were making an application
but that it was an application on which they hoped it would not be necessary
for the president to appoint an expert surveyor who would then determine the
rent, simply because there were negotiations on foot. It really comes down to
this, in my judgment: whether or not this was a genuine application. In my
judgment, it just passes the test.
However, as I
have mentioned, the judge was incorrect in saying that there were negotiations
on foot. The statement in the letter of May 30 from Knight Frank & Rutley
to the president states that is the position, but it is accepted that that is
not correct.
In those
circumstances I look at the matter in this way: what the second schedule
requires in default of agreement is the determination by a surveyor to be
nominated by the president for the time being of the institution, upon the
application of the landlord to be made not later than three months before the
relevant review date. The question is: Was such an application made? One cannot determine whether an application
has been made without reference to the procedure of the body to which the
application is required to be made — be that body a court or a tribunal or the
Royal Institution of Chartered Surveyors.
In the case of
an application to the president for the appointment of an independent surveyor
or expert, there are no formalities laid
para 2.1.1., which says that it should be in the prescribed form for
preference, but the only requirement is that it should be in writing. Thus far,
therefore, there is no reason why, for the purposes of the Royal Institution of
Chartered Surveyors, the letter of May 30 should not be regarded as an
application. It is true that that letter was not accompanied by a fee, but
there is no such requirement made by the institution. The only effect of not
sending a fee is that the application will not be processed until the fee has
been paid and a copy of the lease sent. So until those requirements have been
carried out, the president will not proceed to make an appointment. However, I
will return to that aspect of the matter shortly.
It is clear
from its published documents, therefore, that the institution regards an application
as having been made whether or not the fee and a copy of the lease are in fact
sent with it. That is evident from paras 2.1.1. and 2.1.2. because para 2.1.1.
says:
Application
to the President for the appointment of an Arbitrator or Independent Expert
should be in writing and preferably made on the form obtainable on application
to the RICS.
Para 2.1.2.
says:
The
application will not be processed until the appropriate non-refundable fee . .
. has been received together with a copy of the lease . . .
In my view
that is accepting, for the purposes of the institution, that an application has
been made, but is indicating that the president will not proceed to process it
and make an appointment until the fee has been paid and a copy of the lease has
been provided.
The form of
application which was signed on December 4 by Knight Frank & Rutley is
quite consistent with that; it contemplates that an application will be made,
either by the form itself or by a previous written application followed by
completion of the form. I have already read the introductory part of the form
which contains the alternative paragraphs and the second of those (which is
applicable to this case) plainly supposes that an application can be made,
followed at a later date by completion of the form itself. Its language does
not contemplate, and indeed proceeds upon the opposite basis, that the
application is not required to be made by the completion of the form.
In using the
RICS documents in the way I have indicated as a guide to a solution of this
matter, I do not use them to construe the terms of the lease, but primarily as
an indication of the procedure adopted by the RICS and as part of the
background against which the application was made.
It is said by
Mr Colyer that the words in the letter of May 30, namely ‘this is an in time
only application’ have the effect of preventing the letter from having any
effective content at all in that it is said the immediate appointment of an
expert was not intended or contemplated by the writer of the letter.
For myself, I
do not regard that as being a valid point. It is evident, for the reasons
already indicated, that the institution regarded an application as having been
made, even though it was not to be processed and proceeded with until a later
point in time — namely with the provision of a fee and a copy of the lease.
In my view
there is no doubt that what Knight Frank & Rutley were saying in the letter
of May 30 1984 was that their client has to make an application in time, and
here it is; but it may be that, in the end, it will not be necessary to proceed
with it. However, they were wrong in saying that negotiations were continuing,
because they were not. But certainly the matter was nowhere near resolution and
a settlement remained a possibility, having regard to the situation as it then
existed.
In commercial
terms, in my view it was sensible to make what the RICS regarded as an
application and to proceed with it (if necessary) at a later stage. It did not
matter that negotiations were not taking place, because the situation in
existence at that time is one which may occur frequently, namely that
time-limits have to be complied with, but that a certain time may elapse before
the parties decide whether to fight or not. To proceed immediately with an
arbitration in that situation could well be a waste of time for the parties
involved, for the arbitrator and for the institution.
In the
affidavit of Mr Rosshandler sworn on July 9 1985, in para 2 he says:
So far as
paragraphs 8, 9 and 10 of Mr Coward’s said affidavit are concerned the first
defendants contend that the letter dated May 30 1984 which is contained in
Exhibit ‘GHC2’ was a valid application for an appointment pursuant to the
second schedule to the underlease. There is no requirement for that application
to be made on any particular form or to be accompanied by any particular fee,
nor is the fact of such application to be communicated to the plaintiffs. In my
experience of these matters it is normal practice for the initial application
to be made by letter in this way and for the official application form to be
filled in, and then to be returned with the appropriate fee, only at a later
stage.
In terms of
commercial reality, I can see nothing impracticable or unsatisfactory in the
form of procedure adopted, and in my view that procedure (in accordance with
the published documents of the institution) represented an application.
It is now
necessary to consider the position of the tenant. It does not seem to me that a
procedure of this sort is going to prejudice the tenant. It is true that in the
present case the tenant was not told by the landlord that the letter of May 30
had been written. But it is always open to a tenant to inquire, either from the
landlord or the appointing body, whether an application has been made. The
importance of the application from a time point of view is obvious — and,
indeed, after June 30 the request for information as to whether an application
had been made could have been pursued by the tenant without danger of awakening
a ‘sleeping’ landlord because after that date the time-limit expired and there
was no possibility of the landlord being able to serve an effective notice. In
my view the tenant is not placed in any situation of risk, because in practice,
if he wishes, he can discover whether an application has been made or not.
Mr Colyer
referred the court, in his helpful argument, to an unreported decision of the
Court of Appeal, Aly v Aly, December 8 1983, where at p 5
Eveleigh LJ said:
Consequently,
one can only treat the words ‘apply to the court’ as meaning doing all that is
in your power to do to set the wheels of justice in motion according to the
procedure that is laid down for the pursuit of the relief which you are asking.
That procedure in this case is by way of summons. All that the party could do,
the defendant in this case, was to apply for it in the manner laid down by the
court; that he did, and he therefore in my judgment applied to the court for
the relief which he was asking within the period of 14 days from the notice of
intention to defend the proceedings.
However, I do
not find that case really of assistance in deciding the present case. In my
view the test which is applicable in either case may vary considerably. I do
not regard this passage in Aly as being intended to lay down any general
principles which are applicable to cases such as the present.
For the
reasons which I have set forth there was in my view an application made to the
president in due time, being within the provisions of the second schedule.
Accordingly, in my view Knox J came to the right conclusion, and this appeal
should be dismissed.
Agreeing,
NOURSE LJ said: The lease requires an application to be made by the landlord to
the president of the Royal Institution of Chartered Surveyors not later than a
certain date. Mr Barnes, for the landlord, submits that one cannot know whether
that requirement has been satisfied or not without knowing whether the
particular approach (to use a neutral word) which has been made is or is not an
application for the purposes of the internal procedures of the RICS for the
time being in force. He draws an analogy between this provision and one which
makes a contract conditional upon the making of an application for planning
permission. He submits that in the latter case the question whether an
application has been made or not would depend on whether what had been done was
or was not an application for the purposes of the procedural provisions of the
planning legislation for the time being in force — provisions which, let it be
said, are not unknown to vary from time to time.
I find that
analogy a compelling one. Indeed, I do not see upon what other basis effect
could reasonably be given to the material provision in this case.
Having got to
that stage, we are led to look primarily at paras 2.1.1. and 2.1.2. of the
current Notes for Guidance issued by the RICS which my lord has read. As
Knox J observed at p 8D to E of the transcript, the provision that the application
will not be processed until further steps have been taken seems to recognise
the existence of the application. That recognition is mirrored and perhaps
reinforced by the terms of the second alternative in the pro-forma application
which, for the purposes of this case, was signed by Knight Frank & Rutley
on December 4 1984.
These
materials are in my judgment sufficient to demonstrate that the approach which
was made to the president by the letter of May 30 1984, albeit that it
described itself as an ‘in time only application’ and was not one which could
have been processed there and then, was nevertheless an application for the
purposes of the internal procedures of the Royal Institution of Chartered
Surveyors currently
For these
reasons, as well as for those given by Fox LJ, with which I wholly agree, I
consider that Knox J came to a correct decision in this case and I, too, would
dismiss this appeal.
SIR DENYS
BUCKLEY agreed with both judgments and did not add anything.
The appeal
was dismissed with costs. Leave to appeal to the House of Lords was refused.
