Landlord and tenant — Rent review clause in lease of business premises — Inclusion of wods ‘(time to be of the essence of this provision)’ — Question as to the application of this term — Lease provided for five rental periods — Amount of ‘current rental value’ to be agreed not later than six months prior to the commencement of each rental period — ‘In the absence of agreement (time to be of the essence of this provision)’ the amount was to be determined by an arbitrator whose award was to be made by a date three months prior to the commencement of the relevant rental period — Whether it was intended that time should be of the essence in relation to the whole clause, or to the time limited for agreement, or to the time by which the arbitrator was to make his determination — Held that the most sensible and natural meaning was the last of these three — Landlord therefore was, in the events which had happened, out of time
This was an
originating summons for the construction of the rent review clause in a lease.
The summons was taken out by the plaintiff landlords, C Bradley & Sons Ltd.
The defendants, the tenants, were Telefusion Ltd. The premises subject to the
lease were at 28 The Tything, Worcester. The terms of the lease and the
relevant dates are set out in the judgment of Walton J.
N Hague
(instructed by Sharpe, Pritchard & Co) appeared on behalf of the
plaintiffs; B C Maddocks (instructed by Turner, Peacock) represented the
defendants.
Giving
judgment, WALTON J said: This is an originating summons which hinges upon the
true construction of one clause in a lease dated June 13 1975, and made between
the plaintiffs, C Bradley & Sons Ltd, as landlords, and the defendants,
Telefusion Ltd, as tenants, being a lease of premises situate at 28 The
Tything, Worcester.
Fortunately,
it is only necessary to refer to a very small portion of the lease, but by that
lease the premises were demised to the tenant (the defendants) from December 25
1974 for the term of 25 years
yielding and
paying therefor unto the Landlord by equal quarterly payments in advance on the
usual quarter days in every year the first of such payments or a proper
proportion thereof to be made on the execution hereof:
(i) Until the Twenty-fifth day of December One
thousand Nine hundred and Seventy-nine the yearly rent of FIVE THOUSAND SEVEN
HUNDRED AND FIFTY POUNDS (hereinafter called ‘the initial rent’)
(ii) From the said Twenty-fifth day of December
One Thousand Nine hundred and Seventy-nine and until the Twenty-fifth day of
December One thousand Nine hundred and Eighty-four (hereinafter called ‘the
second rent period’) the yearly rent (hereinafter called ‘the second rent’) of
the same amount as the initial rent or such amount (whichever be the greater)
ascertained as hereinafter provided as representing the current market rent
value of the demised premises for the second rent period.
Then, as one
would expect, the third of these clauses deals with the third rent period, the
fourth deals with the fourth rent period and the fifth deals with the fifth
rent period. Then there follows (and this is the only other clause to which I
need refer) the clause dealing with the ascertainment of the current market
rental value. That clause provides:
The
expression ‘the current market rental value’ as hereinbefore used shall mean
such amount as shall be agreed between the Landlord and the Tenant by a date
not later than six months prior to the commencement of the second, rent period
or the third rent period or the fourth rent period or the fifth rent period (as
the case may be) as representing the current market rental value at such date
of the demised premises or in the absence of agreement (time to be of the
essence of this provision) as shall be determined by an Arbitrator as sole
arbitrator acting under the provisions of the Arbitration Act 1950 or any
statutory modification or re-enactment thereof for the time being in force to
be nominated by the President for the time being of the Royal Institution of
Chartered Surveyors on the application of the Landlord and so that in case of
any arbitration the current market rental value as at such date at which the
same is required to be ascertained shall be of such amount as shall in the
opinion of the arbitrator represent the rent at which the demised premises
might reasonably be expected to be let for a term equivalent to the then
unexpired residue of the term hereby granted as between a willing Landlord and
willing Tenant with vacant possession and taking no account of any goodwill
attributable to the demised premises by reason of any business carried on there
by the Tenant and in all other respects on the terms and conditions of this
Lease and in the case of any Arbitration the Arbitrator shall make his
determination by a date three months prior to the commencement of the second
rent period or the third rent period or the fourth rent period or the fifth
rent period (as the case may be) and all fees costs and expenses payable in
respect of such arbitration shall be borne by the parties hereto as the
Arbitrator shall direct . . .
Reading that
clause for the moment au pied de la lettre, the time schedule is a very
tight one. The second rent period, as we know, commenced on December 25 1979,
so that the date for agreement between the landlord and tenant expired,
according to the words of the clause, on June 25 1979, and the landlord was
then free, if he was not free before, to apply for the appointment of an
arbitrator. But the arbitrator had to make his determination by a date three
months prior to the commencement of the second rent period, so he only had a
period of three months all told, and that period expired on September 25 1979.
In fact, it was not until November 5 1979 that the landlord’s surveyors woke up
and started to make noises about the renegotiation of the revised rent. After
an initial period of slight uncertainty, the tenants simply took up the
position: ‘Sorry, you are too late’.
Hence there is
this originating summons in front of me, which was taken out by the landlords
on October 16 of last year asking for ‘A declaration that the plaintiff is now
entitled to apply to the president of the Royal Institution of Chartered
Surveyors for the appointment of an arbitrator to determine the current market
rental value of the premises demised by the above-mentioned lease for the
second rent period. (2) A declaration that the determination of the said market
rental value by such arbitrator appointed pursuant to such application be valid
and binding on the plaintiff and the defendant as to such market rental value
notwithstanding that such determination will not be made before September 25
1979’ — that being the date, as I have already indicated, three months prior to
commencement of the said second rent period. And thirdly: ‘A declaration that
such market rental value (if greater than the initial yearly rent of £5,750
reserved by the said lease) will be recoverable by the plaintiff from the
defendant as rent under the said lease with effect from December 25 1979 for
the remainder of the said second rent period.’
There is
really no dispute of any substance at all between the parties as to the law
applicable, I think, having regard to the recent House of Lords cases on the
point. The law in relation to all such rent review clauses now stands at this,
that time is not of the essence of any provision therein contained unless, by
necessary implication or by express wording, there is to be found an intention
that time should be of the essence. As an example of that latter, I was cited
the case of Drebbond Ltd v Horsham District Council (1978) 37 P
& CR 237, where the learned Vice-Chancellor held that the words ‘but not
otherwise’ had the effect of making time of the essence. But I do not think
that that case is of any more value to me than an illustration of the law which
both parties accept.
In the present
case, there is no doubt of the presence of the words ‘(time to be of the
essence of this provision)’, and there are really three possible ways of
reading that: one, that it relates to the whole of the clause; two, that it
relates to what has gone before; and, thirdly, that it relates to what is to
come. Mr Maddocks, for the defendants (the tenant), points out — and it is
indeed a circumstance worthy of considerable reflection — that there is no
conceivable point to be served by putting in a provision relating to time being
of the essence of the provision really unless it applies throughout the
provision, because the only point of putting such a clause in is to tie the
parties down to a tight time schedule, not for the mere sake of tying them down
to a tight time schedule (which, as an end in itself, would be pretty useless
and meaningless) but for the purpose of ensuring that the result of the
operations — that is to say, the ascertainment of the rent — is made by a
particular date, and that, therefore, it would be rather surprising to find
that in part of the provision time was not of the essence — so that one can
waste as much time as one likes in that part — but that time was of the essence
in some other proportion because the two did not tie up. Mr Maddocks did not go
on to say, but I think it does follow from those general submissions of his,
that if there is to be any real doubt at all as to whether something which does
not apply to the whole of the provisions applies to the beginning or to the
end, one would more naturally expect it to apply to the end, because if it
applies to the end then it has some purpose, but if it applies only to the
beginning then it certainly does not have any ascertainable purpose.
I regret that
I cannot agree with what is really Mr Maddocks’ main overall submission that,
in the light of those considerations, the words ‘time to be of the essence of
this provision’ relate to the whole of this clause. I do not think that if
those words had been intended to relate to the whole of the clause they would
have been found where they were. It seems to me a totally unnatural way to deal
with the matter if that is what is intended. Therefore, it seems to me that
those words either relate, as Mr Hague submits, to the beginning of the clause
— the beginning provision — or it relates to the end, but it does not relate to
both. This is, as Mr Hague conceded, a matter very largely of first impression.
But his bald point really in a sense was this, that, having regard to the incredibly
short period of time which is allowed for the landlord to make the application
to the president for the time being of the Royal Institution of Chartered
Surveyors for the appointment of an arbitrator, and for the arbitrator to hear
the arbitration and come to his conclusion, which is a matter of only three
months, it cannot really have been intended that that is what those words
should refer to. To that, Mr Maddocks replies: ‘Well, of course, it is a short
period but if anything goes wrong, such as, for example, the arbitrator dying
or for any reason being genuinely unable to make his award in time without
there being any default on the part of the landlord, the court has a statutory
jurisdiction under the terms of section 13(2) of the Arbitration Act 1950 to
extend the time. That subsection is in these words: ‘The time, if any, limited
for making an award, whether under this Act or otherwise, may from time to time
be enlarged by order of the High Court or a judge thereof, whether that time
has expired or not.’ Therefore, in a
sense, the landlord is completely covered.
Mr Hague then
submitted to me that, however that may be, it would be a rather strange way to
construe the clause, as it were, against the background of that clause of the
Arbitration Act of 1950. In other circumstances, that submission, or a similar
submission, would have had very great attraction, but, as I have already read
out that clause, it will have been seen that the clause itself refers to the
Arbitration Act of 1950 and to the arbitrator as acting under the provisions of
that Act. Therefore, it does not seem to me in any way a remarkable matter to
assume that the parties, when fixing upon these provisions, had that Act in
mind. Therefore, for my part I cannot get anything out of the fact that there
is only this three months’ period for the whole appointment, arbitration and
award to take place, having regard to the fact that that is to some extent only
in terrorem, having regard to the provisions of section 13(2) of the
1950 Act.
That, however,
by itself, of course, does not solve the question whether one goes backwards or
forwards. But I think one may be able to get some assistance from this general
consideration, namely: What on earth would it mean to make time of the essence
of the provision that the amount had to be agreed between the landlord and the
tenant by a date not later than six months prior to the commencement of the
second rent period? It seems to me that
it would be meaningless to make time of the essence of that provision, and for
this very simple reason, that the landlord and the tenant might one day later
than the six months agree upon the rent which was properly payable, and if they
wanted so to agree, why on earth should they not? They could do so, notwithstanding any prior
agreements that they have made. So that it seems to me that to make time of the
essence of that particular provision would be totally nonsensical. Of course,
on a clause differently framed, one might come to the conclusion nevertheless
that time had been made of the essence of that provision so as to ensure that
upon that breaking down, as it were, the landlord was then free to appoint the
arbitrator. But I find nothing in this clause which would tie the landlord down
to any particular time as to when the arbitrator is in fact appointed. Even if
time were not of the essence of the six months’ period (for the reasons which I
have already given) it seems to me that the tenant could not possibly complain
if, when that six months’ period had expired, the landlord applied to the
president for the appointment of an arbitrator. It would be quite idle for the
tenant to say: ‘Oh, but time is not of the essence of that six months’ period,
therefore you must wait before applying to the president of the Royal
Institution of Chartered Surveyors’. The doctrine that time is not of the
essence does not work that way round at all. If somebody wishes to stick to the
time-limit and it is in his power to make the next move, of course, then he is
entitled to.
So I have come
to the conclusion that the words ‘time to be of the essence of this provision’
would be totally meaningless if they were to be applied to the first part, the
agreement of the rent between landlord and tenant.
Equally, it
seems to me, that if one reads the clause as a whole, even without taking that
consideration into effect — which I really use to confirm the decision which I
have arrived at, I freely admit, as a matter of first impression of the clause
— it seems to me that time to be of the essence of this provision is looking
forwards, not backwards. It seems to me it is looking forwards and not
backwards because it occurs after the disjunction in the provision. That is an
argument upon which Mr Maddocks seized and, in my view, properly seized. The
clause is in two parts. There is first what may be called the ‘agreement’ part
and then there is the ‘arbitration’ part, and those are separated by the word ‘or’
— ‘or in the absence of agreement (time to be of the essence of this
provision)’. It seems to me that the more natural way of reading ‘time to be of
the essence of this provision’ is that it is applying to what is to come, not
what has gone previously. When one adds to the fact that if it did apply to
what had gone previously, it would, in my view, be virtually making an absolute
nonsense of the provisions. It seems to me beyond all cavil that is really the
way in which this clause ought to be read. And so reading it, it is, of course,
quite clear that the landlord is now hopelessly out of time.
So, for those
reasons, I am afraid that the originating summons falls to be dismissed.
