Landlord and tenant — Rent review clause — Arbitration — Landlords’ appeal against arbitrator’s award — Complaint that in calculating the market rental value, as defined in the review clause, by reference to the rents of comparable properties, the arbitrator made an incorrect adjustment to reflect a difference between the terms of the comparable and the hypothetical letting — The repairing covenant in the lease of the subject property (which was for 150 years with rent reviews at intervals of 21 years) required the tenant ‘to keep the demised premises in good and substantial repair and condition and when necessary to rebuild, reconstruct or replace the same’ — The arbitrator considered that this covenant placed on the tenant a more onerous obligation than the usual covenant to keep the demised premises in good and substantial repair — He accordingly made a downward adjustment of 27.5% to reflect the difference — It was submitted by the landlords that in so doing the arbitrator was in error — They argued that in the context of the repairing covenant the words ‘rebuild, reconstruct or replace’ must be confined to the rebuilding, reconstruction or replacement of subsidiary parts — Draftsmen often traditionally used many words to cover the general concept of repair — Lister v Lane and Collins v Flynn were cited in support of this view — The judge, however, pointed out that the lease in the present case was for 150 years and that it was not as inconceivable as it would have been in Lister v Lane that the tenant should have accepted an obligation to rebuild when the premises should come to an end of their natural life — It was a matter of impression, but the language indicated that the draftsman had two separate obligations in mind, first, that of repair and, second, that of rebuilding, reconstructing or replacing the entire premises — After considering the contrary arguments, the judge was of the same impression as the arbitrator — Appeal dismissed
The following
cases are referred to in this report.
Collins v Flynn [1963] 2 All ER 1068
Lister v Lane and Nesham [1893] 2 QB 212, CA
This was an
appeal by the landlords under the Arbitration Act 1979 from the award of the
arbitrator, Mr Graham Womersley FRICS, with reference to the rent review clause
in the lease of an office building, Sheaf House, and some surrounding land in
Sheffield for a term of 150 years less three days from Christmas 1964. The
landlords were Norwich Union Life Insurance Society and the tenants
(respondents) were the British Railways Board.
David
Neuberger QC (instructed by A J Hawker, Norwich Union Insurance Group) appeared
on behalf of the appellants; Kim Lewison (instructed by S K Osborne, British
Railways Board) represented the respondents.
Giving
judgment, HOFFMANN J said: This is an appeal from an award of Mr Graham
Womersley FRICS, sitting as an arbitrator pursuant to a rent review clause. The
lease is dated February 1 1968 and demises an office building in Sheffield and
some surrounding land for a term of 150 years less three days from Christmas
1964. The lease provides for rent reviews at intervals of 21 years and the rent
to be fixed at each rent review date is determined by the application of a
formula to the ‘market rental value’ of the premises upon that date.
The market
rental value is defined by clause 4(4) of the lease as:
The fair
annual rack rent at which the demised premises if vacant at the date hereof or
at the relevant rent review date as the case may be could be let at that
time in the open market by a willing lessor to a willing lessee in one or more
units but otherwise upon the same terms and conditions as this lease.
The arbitrator
calculated the market rental value by applying rentals derived from various
comparables and then making certain adjustments to reflect differences between
the terms on which the comparable properties were let and the terms of the
hypothetical lease for the purposes of the rent review.
One of the
differences for which the arbitrator made a downward adjustment of 27.5% was in
what (without prejudice to the issue in this appeal) I shall call the covenant
for repair. This is contained in clause 3(6) and reads as follows:
To keep the
demised premises in good and substantial repair and condition and when
necessary to rebuild, reconstruct or replace the same and in such repair and
condition to yield up the same at the expiration or sooner determination of the
said lease.
The arbitrator
said that this covenant imposed upon the tenant a much more onerous obligation
than the ordinary form of repairing covenant which appeared in the leases of
comparable properties. He sets out the matter thus in his reasons:
While a
covenant to repair would include the renewal or restoration of subordinate
parts at various times when this became necessary during the continuation of
the lease, it would not extend to rebuilding the whole. However, the words
‘rebuild, reconstruct or replace’ in clause 3(6) of the underlease extends the
lessee’s liability, in my opinion, far beyond that contemplated in a covenant
to keep the demised premises in good and substantial repair. To my mind these
words mean exactly what they say and place on the lessees an obligation to
rebuild, reconstruct and replace the demised premises in their entirety should
this become necessary, and in a lease of 150 years’ duration it is not
inconceivable that it might indeed become necessary at some point in this time
span no matter what the standard of construction of the original building might
have been.
Mr Neuberger,
who appears for the landlords, says that in thus construing the repair covenant
the arbitrator made an error of law. On its true construction he says that its
effect is no more than that of an ordinary covenant for repair. It is true that
in addition to the word ‘repair’ it speaks of ‘rebuild, reconstruct or
replace’. According to normal rules of construction the additional words should
be given some additional meaning. But Mr Neuberger says, with some
justification, that this rule can frequently not be applied in its full force
to documents such as leases, where a torrential style of drafting has been
traditional for many years. He contrasts the repairing covenant with the
insuring covenant which says that the tenant shall be obliged:
in the case
of loss or damage or destruction from any cause covered by any such insurance
immediately to expend all monies received by virtue of such insurance in
rebuilding, reinstating or replacing the demised premises or erecting
alternative new buildings approved by the lessor.
That covenant,
he says, shows that when the draftsman intends to impose an obligation to erect
an entirely new building he uses express words to say so.
Accordingly,
his submission is that in the context of the repairing covenant the words
‘rebuild, reconstruct or replace’ must be confined to the rebuilding,
reconstruction or replacement of subsidiary parts. Such an obligation would
fall within the normal meaning of repairing the building taken as a whole.
A similar
approach was taken by Sir Brett Cloutman VC in the case of Collins v Flynn
[1963] 2 All ER 1068, where the word ‘renew’ had been included in a similar
catalogue of words in a repairing covenant. The learned official referee said:
I feel that I
can give a separate meaning to the word ‘renew’ only by holding that it
includes rebuilding the whole property demised, and I think if this were
intended much stronger and more specific words would have been used.
In this case
Mr Neuberger also prays in aid the terms of the side note, which are
‘maintenance and yielding up’. That does not suggest that the clause is likely
to be anything more than an ordinary repairing covenant.
Now I accept
that in the construction of covenants such as this one cannot, for the reasons
I have already given, insist upon giving each word in a series a distinct
meaning. Draftsmen frequently use many words either because it is traditional
to do so or out of a sense of caution so that nothing which could conceivably
fall within the general concept which they have in mind should be left out. I
also accept that if the language is not entirely clear the covenant should not
readily be assumed to impose unusual obligations. In the ordinary way a
covenant in a lease to rebuild the entire premises would be unusual. Thus in Lister
v Lane [1893] 2 QB 212 the question was whether a covenant to ‘repair,
uphold, sustain, maintain, amend and keep’ the demised premises, contained in a
lease of a house for a term of seven years, included an obligation to rebuild
the whole house. It is perhaps not surprising that the Court of Appeal thought
it very unlikely that such an obligation would have been intended. Lord Esher
MR went so far as to say:
However large
the words of the covenant may be, a covenant to repair a house is not a
covenant to give a different thing from that which the tenant took when he
entered into the covenant.
I think, with
respect, that the language of the opening phrase is perhaps a little
extravagant. Strictly construed, it is either tautologies (‘a repairing
covenant is a repairing covenant’) or false. But in the context of the case one
can easily see what the learned Master of the Rolls had in mind.
This is,
however, a lease for a term of 150 years, and it seems to me that in such a
case it is not as inconceivable as it would have been in Lister v Lane
that the tenant should have accepted an obligation to rebuild the premises when
they come to the end of their natural life.
One therefore
returns to the language of the covenant. The use of ordinary language to convey
meaning often involves subtle discriminations which for most people are
intuitive rather than capable of lucid explanation. An explanation of why
ordinary English words in a particular context convey a given meaning is
frequently more likely to confuse than to enlighten. Perhaps this is what
judges mean when they say that questions of construction are often matters of
impression. I could therefore perhaps say no more than that in my judgment the
language of the covenant is clear and indicates that the draftsman had two separate
concepts in mind: first, that of repair and, second, that of rebuilding,
reconstructing or replacing the entire premises. Both of these were intended to
be imposed upon the tenant. I must, however, in fairness to Mr Neuberger, deal
with some of the contrary submissions which he advanced.
First, he
relied upon the words ‘when necessary’ as showing that that branch of the
clause was simply a subordinate part and elucidation of the obligations imposed
by the word ‘repair’. I myself derive a contrary impression from those words.
It seems to me that having imposed the normal continuing obligation to keep the
premises in repair the draftsman recognised that the obligation to rebuild,
reconstruct or replace was an extraordinary and unusual obligation and therefore
prefaced it by the words ‘where necessary’.
Second, Mr
Neuberger said that the final part of the clause requiring the tenant to yield
up the premises ‘in such repair and condition at the expiration or sooner
determination of the said term’ does not include any reference to what on the
tenant’s construction was the obligation imposed by the words ‘rebuild,
reconstruct or replace’. As a matter of language I think that that is true, and
I suspect that the words ‘and when necessary to rebuild, reconstruct or replace
the same’ have been interpolated into an existing precedent by a draftsman who
wished to enlarge the tenant’s obligations. However, whether or not the
language of the last part of the clause is apt to cover the whole of what went
before, it cannot, in my judgment, detract from the clarity with which the
obligation to rebuild the premises has been imposed. The same applies to the
side note referring to maintenance and yielding up.
Finally, I do
not gain much assistance from the contrast between the repairing covenant and
the insurance covenant. If anything the words ‘rebuilding, reinstating or
replacing’, which are in my view intended to include the reconstruction of an
entire building destroyed by fire, would seem to match, though slightly imperfectly,
the words ‘rebuild, reconstruct or replace’ in the covenant for repair. The
reference to erecting alternative new buildings is directed not so much to the
buildings being new, as they would also be if the old building were simply
reconstructed, but to their being ‘alternative’ — that is to say, buildings of
a different kind from those which had originally stood there. This is plainly
to cover the case that for one reason or another both parties might not wish an
exact replica to be constructed.
After all that
analysis, however, I come back to what seems to me to be the plain question:
what as a matter of ordinary English do the words of the covenant mean? On that point my impression is exactly the
same as that of the arbitrator. For that reason the appeal must be dismissed.
