Landlord and tenant — Rent review clause in lease — Whether trigger notice valid — Discrepancy between rent stated in figures and rent stated in words — Appeal by tenants from decision of county court judge sitting as a judge of the High Court
authorities were cited in the Court of Appeal but were of little direct
assistance — The correct test was the one applied by the trial judge — Did the
notice specify the amount of the rent with sufficient clarity to prevent its
recipients from being misled? — The court agreed with the judge that the notice
passed this test — It may be noted that the court envisaged that in some circumstances
it might be appropriate to ask whether a party’s professional advisers were
likely to be misled — Appeal dismissed
The following
cases are referred to in this report.
Amalgamated
Estates Ltd v Joystretch Manufacturing Ltd
[1981] EGD 84; (1980) 257 EG 489, [1981] 1 EGLR 96, CA
Hammond,
Re Hammond v Treharne [1938] 3 All ER 308; (1938)
54 TLR 903
Norwich
Union Life Insurance Society v Sketchley plc
[1986] 2 EGLR 126; (1986) 280 EG 773
Nunes v Davies Laing & Dick Ltd (1985) 51 P&CR 310; [1986]
1 EGLR 106; 277 EG 416
Saunderson v Piper (1839) 5 Bing NC 425
Sheridan v Blaircourt Investments Ltd [1984] EGD 176; (1984) 270 EG
1290, [1984] 1 EGLR 139
This was an
appeal by the defendants, Emilio Felicetti and Massimo Mugnai, tenants of
premises at 21 Elvet Bridge, Durham, from the decision of Judge Hall, sitting
as a High Court judge, in favour of the plaintiffs (the respondents to the
appeal), Durham City Estates Ltd, the landlords, in regard to the validity of a
notice served by the landlords in pursuance of the rent review clause in the
lease of the premises.
J H Fryer
Spedding (instructed by Sharpe Pritchard, agents for Watson Burton Cooper &
Jackson, of Newcastle upon Tyne) appeared on behalf of the appellants; R E Fern
(instructed by J P Hall & Co, of Ferryhill) represented the respondents.
Giving
judgment, CROOM-JOHNSON LJ said: This is an appeal by the defendants,
Emilio Felicetti and Massimo Mugnai, from a decision of His Honour Judge Hall
sitting as a judge of the High Court. It is another case dealing with the rent
review clause in a lease. The plaintiffs are Durham City Estates Ltd and by a
lease made on July 17 1973 Joseph Percival Hall, who was the predecessor in
title of the plaintiffs and whose alter ego he is, let to the two
defendants premises at 21 Elvet Bridge in Durham for a period of 20 years
beginning on November 1 1972. The rent for the first six years was to be £700 a
year and there were provisions for rent reviews at six years and 13 years
respectively. The terms regarding rent in the lease are as follows:
TO HOLD the .
. . premises unto the Tenant from the First day of November One thousand nine
hundred and seventy two for the term of Twenty years thence next ensuing that
is to say until the Thirty first day of October One thousand nine hundred and
ninety two SUBJECT NEVERTHELESS to the provisoes for determination hereinafter
contained paying therefor during the said term yearly and proportionately for
any fraction of a year the rents hereunder set out:
(a) For the first six years of the said term the
yearly rent of Seven hundred pounds
(b) For the next seven years of the said term
either the yearly rent reserved in sub-clause (a) hereof or the open market
rental value of the demised premises at the review date whichever is the higher
and in either case the rent shall remain constant during the whole period
referred to in this sub-clause
(c) For the remaining seven years of the said
term either the yearly rent reserved in sub-clause (b) hereof or the open
market rental value of the demised premises at the review date whichever is the
higher and in any case the rent shall remain constant during the whole period
referred to in this sub-clause.
The lease then
defined the quarterly payments as follows:
. . . the
said rents shall in all cases be paid by equal quarterly payments in advance on
the First day of January the First day of April the First day of July and the
First day of October in every year without any deduction . . .
One curiosity
of the lease is that it sets quarter days which do not coincide with the annual
periods of the lease, and although nothing in
circumstances. Thus, although the 20-year term is due to expire on October 31
1992, the final payment of rent to be made in advance will be on October 1
1992.
There then
follows in proviso (i) a definition for the purposes of subclauses (b) and (c)
of what is meant by ‘open market rental value’. Proviso (ii) defines the
expression ‘review date’ as meaning:
the
expiration of the seventh year of the said term or the expiration of the
fourteenth year of the said term as the context requires for the purpose of
ascertainment of the open market rental value under subclause (b) or subclause
(c) hereof respectively.
As the judge
pointed out, the conveyancer appears to have used a clause applicable to a
21-year lease for a 20-year lease without taking into account that it was the
first six years and not the first seven years which are tied to the additional
rent of £700 a year. In the event, no issue depends upon that in this appeal,
but it is part of the history.
The first
review seems to have been made after six years, and not after the end of seven,
when the rent was increased to £1,750. The issue which has arisen in the
present proceedings was what was to happen when the second review date came
under the terms of the lease.
The mechanism
for the rent review, which was set out at proviso (iii), was divided into three
paragraphs. It begins as follows:
The open
market rental value shall be determined in manner following that is to say it
shall be such annual sum as shall be
(a) specified in a notice in writing signed by or
on behalf of the Lessor and posted by recorded delivery post in a pre-paid
envelope addressed to the Tenant at the demised premises at any time before the
beginning of a clear period of two quarters of a year (commencing on one of the
quarter days hereinbefore mentioned) immediately preceding the review date (and
such notice shall be conclusively deemed to have been received by the Tenant in
due course of post) or
— and there
then follow two paragraphs, (b) and (c). Para (b) provided that the rental
market value could be agreed between the parties before the expiration of three
months immediately after the posting of the notice under para (a), while para
(c) provided that it could be:
determined at
the election of the Tenant (to be made by counternotice in writing [again
served by him] not later than the expiration of the [same] said three months)
by an independent Surveyor appointed for that purpose by the Lessor and the
Tenant jointly . . .
There was no
question in the present case as to whether there was an agreement — there was
not. There was no question as to whether a counternotice in writing requiring
the appointment of the independent surveyor was served by the tenants — they
did not. The whole point in the present case has been whether or not the notice
in writing under proviso (iii)(a), which required the open market rental value
to be determined, was a good notice or not.
When one looks
at the first review date stated in the lease as on the expiration of the
seventh year, that would be October 31 1979, and the new rent for the following
seven years would begin to be payable on November 1 1979. If the intention all
the time had been that the first review should take place after six years so as
to be in accordance with the form of the lease, that would be October 31 1978
and that seems to be in fact what the parties did.
Similarly, if
one looks at the second review date with which this appeal is concerned, that
would be seven years after the first, being on either October 31 1985 if the
first period is six years or October 31 1986 if the first period was seven
years. What happened was that on May 22 1984 the landlords wanted to initiate
the second review of rent. They sent on that date by recorded delivery of post
a notice that the rent was to be increased from ‘November 1 next’, that is to
say 1984, to the sum of £8,750. The notice actually gave that in figures and in
words. That notice was a bad notice for several reasons: first, it was sent to
two named people, one of whom (the second one) was not one of the tenants under
the lease, and, second, November 1 1984 could not in any event be the date on
which the new rent would become payable, because that was then only the
expiration of the 12th year of the term. Somebody seems to have appreciated
these mistakes and accordingly on the next day, May 23 1984, a second notice
was sent, also by recorded delivery, this time addressed to the two present
defendants, the two people who were truly the tenants under the lease. It reads
as follows:
RECORDED
DELIVERY
Dear Sirs
Re: First
Floor, 21 Elvet Bridge, Durham
On behalf of
your Landlords, Durham City Estates Limited, we hereby give you notice that we
require your rent for the above premises to be increased to
–then in
figures it says ‘£8,850’ and in brackets in words ‘(Eight thousand seven hundred
and fifty pounds)’–
Yours
faithfully J P Hall & Co
It did not
specify any date upon which the increase in rent was intended to take place.
The result of
those two notices — and I include this for the purposes of history — was that
on June 19 1984 solicitors acting for the two defendants wrote saying:
Dear Sirs
Felicetti
— that is the
first defendant —
21 Elvet
Bridge, Durham, Restaurant De Medici
We act for
the above named who has handed to us your letters of the 22nd and 23rd May.
They have considered the matter in detail, and would be prepared to offer,
subject to contract
— and a sum is
then mentioned —
Yours
faithfully.
The result of
that was that on August 1 1984 there was a reply from surveyors instructed by
the plaintiffs. They said that they had received instructions from the landlord
of the property, Mr J P Hall, to act on his behalf in negotiations, and they
replied to the suggested figure which had been put forward by the defendants’
solicitor, putting forward a counter-figure. Those negotiations, which were
clearly being initiated under proviso (iii)(b), came to nothing. On August 3
1984 the defendants’ solicitors wrote:
We thank you
for your letter of the 1st instant, the contents of which we note and we are
taking our Clients’ further instructions.
Then on
October 2 1984 the defendants’ solicitors wrote again to say:
Further to
the above matter, we have now had the opportunity of discussing the same with
our clients agents and they rightly point out that the review date is November
1985 and not November 1984. It would seem appropriate, therefore, that any
negotiations should be delayed for a further 12 months period and we suggest
that a fresh notice be served nearer the time.
That brought
any contact for the time being to an end. It has become common ground in this
case that the review date was all the time November 1985 and not November 1984.
But no fresh notice was served nearer the time in accordance with the
suggestion of the defendants’ solicitors. It did not matter. If the first
notice of May 22 had really been a notice intended to operate in 1984, it would
have been bad for a third reason because it was not sent in time to take effect
for that date. But if the notice which was sent on May 23 1984 was capable of
taking effect on the proper review date of November 1985, it may have been
served something like nine months too early and it might have complicated the
work of anybody who had to decide what the market rental really was. But it did
not matter if it were served too early provided it was served more than the two
necessary quarters before the proper review date. So that the question
therefore is and still remains whether the notice sent on May 23 1984 was or
was not a good notice for the purposes of this lease.
Nothing seems
to have happened after the defendants’ solicitors’ letter until April 1 1986,
when a writ was issued claiming arrears of rent at the rate of £8,750 per annum
for two quarters from November 1 1985, the date on which the defendants’
solicitors had said, and the plaintiffs had apparently agreed, was the review
date.
The defendants
put in a defence. It is only necessary to deal shortly with three of the
paragraphs in the defence. Para 2 said:
The said
Lease
— which was
admitted in para 1 —
contains
provisions whereby the rent payable thereunder may be reviewed with effect from
November 1 1985 but the Defendants deny that the Plaintiff has brought those
provisions into effect.
Para 3: In the
premises the Defendants aver that the rent of £1,750 per annum payable
immediately prior to November 1 1985 remains payable at the said rate for the
residue of the term of years granted by the said Lease.
And in para 4
the defendants say that they have gone on paying their rent at the old rate of
£1,750 and therefore deny that they were indebted to the plaintiffs in any sum.
Before the
learned judge there was an argument addressed to him, to which I shall not
refer in detail, based upon the construction of the lease as meaning that the
review date should have been at the end of
November 1 1986. The learned judge, pointing out the admissions and averments in
the defence, which I have just read, and saying that it was not really open to
the defendants to take such a point, nevertheless dealt with it on its merits
and dismissed it. There was no application at the trial for any amendment of
the defence in order to cover that argument.
On the other
hand, application was made by counsel for the defendants at the outset of this
appeal for leave to amend. What he wanted to do was to delete the date of
November 1 1985 in paras 2 and 3 of the defence and to substitute for it
November 1 1986. When it was pointed out that this might cause consequential
difficulties requiring consideration of whether there had been embarrassment to
the plaintiffs at the time when the action was brought, it was suggested by
counsel that the objections might be met, that paras 2 and 3 might simply be
deleted, leaving open to the defendants to argue the points that they wished to
argue.
We refused
leave to amend. In my view, that application came much too late. Not only was
the date of the review of November 1 1985 the one initially, and in my view
properly, put forward by the defendants right at the beginning, but it had been
responsible for the whole way in which the action was framed, and moreover if
the review date had really been a year after that then the plaintiffs’ writ
would have been issued prematurely and all sorts of complications might have
arisen in seeing whether this action was properly constituted or not. No
application had been made to amend before the learned trial judge and to make
the amendment with all the complications which would have ensued at the
beginning of this appeal in our view came far too late. Accordingly, the appeal
has proceeded on the one simple question of whether or not the notice sent on
May 23 1984 was a good notice within proviso (iii)(a).
The point
which has been substantially taken and must be considered is that in that
letter there was the discrepancy between the written figures of £8,850 and the
spelt-out figures of £8,750 in writing, and that accordingly for that reason it
was a bad notice.
We have been
referred to a considerable number of other cases dealing with rent review
clauses. Some of them have been on clauses in not the same form as the present
clause; some of them have been on the questions of whether counternotices in
writing which required to be served by the tenant within a certain time had
been valid counternotices conveying to the landlords what it was that the
tenant wished to achieve. I do not think it is unfair to say that almost every
one of those cases turned very much not only upon its own facts and upon the
remedy which was being sought but also upon the wording of the notices which
were being discussed, and perhaps in some cases on the course of the
negotiations which had been taking place between the parties, normally, I would
say, for the purposes of seeing whether the rent could be agreed, as most of
those rent review clauses required. But we have had some assistance in looking
at the cases in order to see what is the general approach which should be
adopted by courts in deciding whether notices in circumstances such as these
are good notices or not. Very often the language varies and is adapted and
adaptable to the circumstances of an individual case.
One such case
was Norwich Union Life Insurance Society v Sketchley plc [1986] 2
EGLR 126. That again was like the present case: a question of the initial
notice served by the landlord being what is called a ‘trigger notice’ — in
other words, something which triggers off the rent review procedure. If one has
a rent review procedure such as was contained in the present lease and the
landlord served a good notice under proviso (iii)(a) and then there is no
agreement under proviso (iii)(b) and no counternotice served under proviso (iii)(c),
then all that is left for the tenant to face up to is that he has received a
good notice under proviso (iii)(a) and that is the rent that he has to pay. As
I have said, proviso (iii)(b) and (c) do not arise for consideration in the
present case. But the Norwich Union case concerned a trigger notice and
was decided by Scott J. In dealing generally with the strictness with which
notices should be looked at and the way in which they should be construed, he
said at p 128F:
I would
respectfully accept that where a notice from one party will require action from
the other party, the recipient of the notice, in order that the latter may
protect his position, the document which is said to constitute the notice must
be sufficiently clear in its terms as to avoid the recipient being led into an
error as to its intended effect.
In other words,
what was being said there was that there must be clarity in what is in the
notice so as to let the other party, in that case the tenant, not be misled.
Another case,
decided at first instance by Sir Nicolas Browne-Wilkinson V-C, was called Nunes
v Davies Laing & Dick Ltd [1986] 1 EGLR 106. The Vice-Chancellor
entered into a considerable discussion as to what was the strictness of the
test which required to be adopted, even examining the language used in the
giving of notices. He was concerned there with a counternotice and, after
referring to a case called Amalgamated Estates Ltd v Joystretch
Manufacturing Ltd (1980) 257 EG 489, [1981] 1 EGLR 96, he said at p 107K:
In my
judgment, the test is that applied by the Court of Appeal in the Amalgamated
Estates case, namely that the counternotice should be in terms which are
sufficiently clear to bring home to the ordinary landlord that the tenant is
purporting to exercise his right under para (c), and that is the test which I
propose to apply.
The third case
to which I would like to refer is Sheridan v Blaircourt Investments
Ltd (1984) 270 EG 1290, [1984] 1 EGLR 139, decided by Nicholls J (as he
then was). He said:
Mr Prince’s
formulation
— of the test
is —
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.
He went on to
say a little lower down:
. . . when
construing the correspondence
— which had to
be construed in that case —
. . . 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.
It is of
interest to see that in that case Nicholls J was fully prepared, as he needed
to be in construing correspondence, to include the parties’ professional
advisers as people to whom the notices should carry the required meaning. But
that does not justify itself when one looks at the clause, much relied upon by
the defendants in this case, which requires the notice to be in writing. I
repeat the words with which proviso (iii) begins:
The open
market rental value shall be determined in manner following that is to say it shall
be such annual sum as shall be (a) specified in a notice in writing signed by
or on behalf of the Lessor and posted by recorded delivery . . .
In other words,
it is the figure which is going to be rent payable by the tenant if the
remaining steps in the review procedure are not carried out, as they were not
in the present case, and therefore there must be a figure, an annual sum, which
must be specified by the notice in writing, and accordingly the mere fact that
the tenant is put on guard by receiving a notice will not avail the landlord in
the present case. What the defendants say in this appeal is this: that the
letter of May 23 1984 did not specify a sum. It is a fine point and a very
narrow one and it is really the only one which needs to be considered in the
present case. What has been said with great skill on the defendants’ behalf is
that it is specifying two sums. It is specifying £8,850 in figures and £8,750
in words, and that accordingly it is not a sum specified in accordance with
proviso (iii) in the lease. The respondents’ counsel says that the result in
specifying two sums would mean that the lower of the two figures would be the
figure which would be the new rent as a result of the new rent review, and that
would have to be adopted out of fairness to the tenants, who could be entitled
to say that they would pay the lower of the two sums.
In my view,
that again is not the right test. In my view, this matter can be disposed of
quite shortly, but not in the way in which the appellants would have it done.
The learned judge in giving his judgment applied what, in my view, was the
proper test at p 3 of his judgment:
That leaves
only one ground on which the notice has been criticised by the defendant. Does
the notice specify an annual amount as the market rent? In one way it can be said that the notice is
over-generous in this respect, because it specifies two such sums, £8,850 in
figures and £8,750 in words. This is clearly a typographical error, but I do not
think that anybody can have been misled by it,
and that was
the basis upon which the learned judge initially decided the case.
A test which
has to be applied in seeing whether this was a good
professional advisers, would be misled by what was the figure which was
required.
It has been
urged upon us that the defendants, as they are, are two Italian restaurateurs
in Durham without any legal knowledge of their own, it may be, or any knowledge
of case law or the rules of construction of deeds, and that looking at a
document which specified two figures would leave them in some doubt. My own
view is that if one looks at the matter from the point of view of the two
restaurateurs on receiving the notice, it was giving a clear indication to
them, first of all, that there was a rent review coming at a time which was not
dated but which they could ascertain quite easily by looking at their own copy
of the lease; second, that the landlord wanted them to pay £8,750 a year. If
they compare the figures and the words they would naturally go by the words, as
the judge held. They would regard the document as meaning that they had to pay
anyhow £8,750 — at least that.
The
respondents to this appeal do not rely upon this difference of £100 as being de
minimis but say that the fact that this was a typographical error would
have been obvious, and I entirely agree with the learned judge that it would
have been. There was no room for doubt as to what was required.
Reference has
been made in this appeal, and indeed was made before the learned judge, to the
case of Saunderson v Piper (1839) 5 Bing (NC) 425. That was a
case in which a bill of exchange was written out in which the heading was that
it was for £245 and the body of the bill of exchange said ‘six months after
date pay to our order £200 for value received’, and there was therefore a clear
discrepancy between what was said in figures and what was said in words. The
court held that where there was a discrepancy of that kind which was a patent ambiguity,
external evidence was inadmissible in order to show which of the two figures
was the right one, but that in such circumstances the correct way of construing
the document was to prefer the words spelt out to the figures which were
written in, and accordingly they said that the bill of exchange amounted in the
end to a bill of exchange for the sum of £200.
Reference was
also made by the appellants’ counsel in the present case to Re Hammond,
Hammond v Treharne [1938] 3 All ER 308, which was a case where there
was a discrepancy in a will. There, Lord Simonds (as he then was, Simonds J)
sitting as a trial judge construed the figure of the legacy as being the later
figure rather than the earlier figure. It happened to be the higher one, but
that was the test which he said was the proper test to be applied in the case
of the construction of wills, and therefore we were invited to say that
questions of the construction of this notice should not be resolved by
principles of law which would not have been understood in any event by the two
Italian defendants in the present case. That may be. I have already said that
in my view the proper construction of the letter was that which was put upon it
by the trial judge as quite clearly meaning £8,750, and therefore Saunderson
v Piper and Re Hammond might not be matters which would have
influenced their minds. Nevertheless, I think it is worth pointing out that
when the document was put in front of the defendants’ solicitor he seemed to
have no doubt at all that this was a good notice, and notwithstanding that it
contained the discrepancy in the two figures.
I say that,
and I have excluded from my own mind the fact that in the first notice given on
May 22 1984 the correct figure of £8,750 was there. This was a point which was
relied upon to some extent by the learned judge. I myself would not use that as
any indication in the interpretation of the notice in the present case. It was
not addressed to the same people and, so far as one can see, that first notice
was just a nullity and was, by all concerned, agreed to be regarded as such.
But that being
so, whereas in the present case I do not think it is necessary to rely upon the
view taken of the meaning of the notice of May 23 by the appellants’ solicitors
(the two defendants’ solicitors), nevertheless I would not exclude in an
appropriate case the chance that indeed, as Nicholls J expressly said, the
professional advisers of the parties must be taken into consideration in seeing
whether the notice which is given is clear and sufficiently indicates what it
is either as to figures or as to the action which is to be taken by people as
the result of its being delivered or for any other purpose necessary for the
proper interpretation of their actions in the context of the contract which is
then under consideration.
Having said
that, in my view the learned judge came to the right conclusion in this case
and for my part I would dismiss this appeal.
Agreeing, LLOYD
LJ said: This lease was very carelessly drawn. So were the two letters of
May 22 and May 23 1984. But that cannot, in my judgment, affect the result.
Like Croom-Johnson LJ I regard the second of the two letters as being a good
notice under the rent review clause. It makes clear to the defendants that they
were going to have to pay at least £8,750 by way of rent.
Accordingly,
I, too, would dismiss the appeal.
BALCOMBE LJ agreed and did not add anything.
The appeal
was dismissed with costs.
