Rent variation clause in lease–Requirement that suggested new rent was to be stated in notice–New rent not stated but notice otherwise in compliance with terms of lease–Specification of new rent held not to be mandatory–Notice valid
This was an
appeal by landlords, the Dean and Chapter of Chichester Cathedral, from a
decision of Graham J (1977) 241 EG 311, [1977] 1 EGLR 55, dismissing their
originating summons against Lennards Ltd, tenants of premises in Chichester,
asking for a declaration that the omission of a statement of suggested rent
from a notice dated September 17 1975 did not invalidate the notice for the
purpose of a variation clause in a lease.
John Mills QC
and Paul Batterbury (instructed by Thomas Eggar & Son, of Chichester)
appeared for the appellants; Gerald Godfrey QC and Joseph Harper (instructed by
Paisner & Co) for the respondents.
Giving
judgment, LORD DENNING MR said that the 21-year lease dated from Christmas 1961
when the yearly rent was £1,500 "subject to variation as hereinafter
provided." The variation clause,
the rent review clause, provided that after the expiration of the 14th year of
the term the landlords should have power to vary the rent and the tenant to
apply for a reduction of such rent "upon either party giving to the other
at least three months’ written notice expiring at the end of the 14th year . .
. stating the suggested new rent to be reserved" and in default of
agreement the amount of the new rent was to be fixed by an agreed arbitrator
or, failing agreement, by the president of the Royal Institution of Chartered
Surveyors.
Fourteen years
later the market rent for the premises had increased enormously; a figure of
£9,000 had been mentioned. The landlords’ advisers sought to operate the
variation clause. The question was whether a letter which they wrote well
before the three months stated in the variation clause, on September 17 1975,
was sufficient for the purpose. The letter did not mention any suggested new
rent.
The tenants
said nothing until after the three months had gone. Then on January 2 1976, by
which time Great Universal Stores Ltd had taken over the tenants’ interest,
they wrote saying that the notice was bad because, by the deadline of September
quarter day, no written notice in the form specifically prescribed by the lease
had been received and that "our clients are therefore advised that the
formal notice purported to be given by your letter of September 17 is not good
for the purposes of the lease. Accordingly, we do not see the value of
continued negotiations as to rent."
The landlords
took out a summons for a declaration that the notice was valid. Graham J held
that it was bad because, though it was given in time, it did not state the new
rent to be reserved; it did not give any figure for the new rent. The judge had
heard the summons at a time when there were rulings of the Court of Appeal that
time was of the essence of a notice to review rent and that if a landlord
failed, even by a day, to give notice in time, he could not raise the rent at
all. Under the influence of the law then applicable to the time element, the
judge, as he (his Lordship) could well understand, thought the same reasoning
would apply to the provision about stating the suggested new rent. He said that
by the lease the parties had defined the time limit within which the notice
must be given; the date when it must expire; that its form must be in writing;
and that "one of the items it must contain is the amount of the suggested
new rent." He had regarded all
those matters as being of the essence and mandatory and held that the notice
was bad because it did not suggest the new rent.
The landlords’
appeal had been held over pending the decision on cases then going to the House
of Lords about time. The decisions were on March 23 1977–United Scientific
Holdings Ltd v Burnley Borough Council and Cheapside Land
Development Co Ltd v Messels Service Co [1977] 2 WLR 806. It was
held that provisions as to time in rent review clauses were not of the essence
of the contract and that the requirement as to time was not mandatory but only
directory, so that a failure to keep to the time did not invalidate the
notices, and even if a notice was late a rent review could be held and the
raised rent would relate back to the time when it should have come into
operation.
In view of
those decisions Mr Mills, for the landlords, submitted that they should alter
the court’s approach to the present case. He (his Lordship) agreed. The court
had to look at rent review clauses afresh. Lord Salmon in the House of Lords
had said (supra at p 836) that "each lease
stated intervals, the rents shall be revised so as to bring them into line with
the then open market rent; the rent revision clauses specify the machinery or
guidelines for ascertaining the open market rent. These provisions as to time
are not, in my opinion, mandatory or inflexible; they are only directory."
A mandatory
provision was one which must be fulfilled in all its strictness, and failure to
perform it meant that the whole thing failed; whereas a directory provision did
not require that degree of strictness; even though it was not complied with,
the whole did not fail; it could still be regarded as valid and effective. That
was how the House of Lords regarded the time provision in the rent review
clause in those cases.
Did that new
approach apply to the provisions about the suggested new rent? He (his Lordship) thought that it did. That
was confirmed by the Judicature Act in 1873 when Parliament had enacted that
"stipulations in contracts, as to time or otherwise, which would not
before the passing of this Act have been deemed to be or to have become of the
essence of such contracts in the Court of Equity, shall receive in all courts
the same construction as they would have heretofore received in equity";
and that was repeated in substantially the same words in section 41 of the Law
of Property Act 1925.
Applying those
principles, the letter of September 1975 should not fail merely because it did
not state the actual figure of the suggested new rent. It gave the tenants good
notice that the landlords desired that the rent should be raised to correspond
to the market values of September 1975. The tenants were not in the least
misled. It should not be held invalid simply because of the omission of one bit
of machinery.
LORD RUSSELL
OF KILLOWEN and EVELEIGH LJ gave judgments concurring in allowing the appeal.
