Landlord and tenant — Rent review clauses in lease — Question as to whether lessees had served a counternotice in accordance with the review provisions in response to the lessors’ trigger notice — Construction of letter sent on behalf of lessees — Whether letter stated plainly that the lessees did not agree with the lessors’ opinion as to the amount of rent as stated in the lessors’ trigger notice — Confusion caused by subsequent correspondence — Held that the letter did express clearly the lessees’ disagreement with the rent proposed and conformed with the requirements of the review clause — Consequently the provisions dependent on failure to serve a valid counternotice did not come into effect
question here was in fact an underlease but for convenience the parties will be
described simply as lessors and lessees — The subject-matter was supermarket
premises granted in 1978 for a term of 99 years less 3 days and the lease was
modified in 1985 by a deed of variation — There was a provision for rent
reviews at five-year intervals — The review machinery was of a fairly familiar
type — There was to be a trigger notice by the lessors, to which the lessees
could respond by a counternotice before the expiration of two months from the
lessors’ notice — Failure to respond meant that the amount of rent would be
conclusively fixed as stated in the trigger notice — If, however, within two
months from the service of the trigger notice the lessees served on the lessors
a counternotice ‘stating that the lessee does not agree with the lessor’s
opinion as to the amount’ of the review rent, negotiations could start, the
lessors and lessees using their best endeavours to reach agreement — If on the
expiration of one month from the date of service of the counternotice they had
failed to agree, the dispute would be referred to arbitration
question was whether a letter written on behalf of the lessees constituted a
valid and effective counternotice within the meaning of the above provisions —
If otherwise effective it was served within the time-limit laid down (the judge
had ruled that time was intended to be of the essence in this case) — The
controversy was therefore as to the terms of the letter — There followed some
correspondence and telephone conversations which suggested that negotiations on
valuation would take place — However, a shock was administered by a letter from
the lessors’ solicitors claiming that the lessees’ letter had not constituted a
counternotice within the meaning of the lease — The result, the solicitors
said, was that no effective counternotice had been served and the rent had
become fixed at the figure stated in the lessors’ trigger notice, namely,
£190,000 pa
question was, what would the letter from the lessees mean to an ordinary
landlord? The letter said ‘I note that
your assessment of rental is £190,000 per annum, which I consider to be
excessive’ — This was a plain statement that ‘the lessee does not agree with
the lessor’s opinion as to the amount of the review percentage’ (the words ‘the
review percentage’ had apparently a historical origin and did not refer to a
percentage at all, but to a sum of money) — Hence the letter did constitute a
counternotice within the meaning of the lease — An argument based on estoppel
on behalf of the lessees was unnecessary and inappropriate — Some authorites
were cited but were not of direct assistance — Declaration in favour of lessees
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
Mammoth Greeting Cards Ltd v Agra Ltd [1990] 2
EGLR 124; [1990] 29 EG 45
Nunes v Davies Laing & Dick Ltd
(1985) 51 P&CR 310; [1986] 1 EGLR 106; 277 EG 416
This was an application by the
plaintiffs, Barrett Estate Services Ltd, for the determination of the true
construction and application of provisions in the rent review provisions of an
underlease of supermarket premises at Tilehurst, near Reading. The plaintiffs
were the underlessors and the defendants, David Greig (Retail) Ltd, the
underlessees.
John Boggis (instructed by Anthony
Sandall, of Henley-on-Thames) appeared on behalf of the plaintiffs; Paul de la
Piquerie (instructed by Cannons) represented the defendants.
Giving judgment, MR SIMON GOLDBLATT QC
said: All too often litigation arises out of rent review provisions in
commercial leases and underleases. In days when we have become used to
progressive inflation there probably is not a modern such lease or underlease
that does not contain rent review provisions and generally at intervals of five
or even as little as three years. Given those provisions landlords look for ways
of exploiting them to the maximum to keep rents at the highest open market
level available. Tenants look for ways of putting off the evil day when they
have to change from an out-of-date rent to an up-to-date full market rent.
In the present case the premises with
which I am concerned are supermarket premises at Tilehurst near Reading. The
relevant underlease was granted on September 11 1978. The term is for 99 years
less the last three days and there is provision for rent reviews at five-year
intervals. The plaintiff, Barrett Estate Services Ltd, is the landlord. The
defendant, David Greig (Retail) Ltd, is the assignee of the underlease. There
has been created out of that underlease a subunderlease to which, I am told,
corresponding rent review provisions apply. During the 12 years or so since
this underlease was granted, the subunderlease has gone through a number of
different hands, I am told. For a period it was in the hands of persons at
arm’s length to the defendant, but for a period it was in the hands of a
company associated with the defendant. When that change of tenure came about,
although it is no longer the position, it was agreed between the two parties to
these proceedings that the rent review provisions in the underlease, which
until then had been tied to the subunderlease upon the assumption that arm’s
length treatment of the rent review would take place, should be varied so as to
provide a fair method of arriving at reviewed rent as between these two
parties.
The provisions which were agreed, and I
think they were agreed sometime in 1985, are incorporated in a deed of
variation. For the purposes of the present action I am concerned with the
schedule which is incorporated within that deed and with clause 2 of that
schedule. That paragraph provides, in terms which reflect language which has
already been considered in one of the cases to which I have been referred, that
a rent review will be triggered off by a notice served by the landlord not
earlier than six months before the review date as defined in the schedule. Once
a notice triggering off that rent review has been served on the lessee, the
lessee has the opportunity to serve a counternotice as provided in subclause
(3) of clause 2 of the schedule.
The quarrel between the parties in the
present case concerns whether, a trigger notice having admittedly been served
by the plaintiff, the defendant duly served a counternotice within the language
of the schedule. Subordinate to that question and arising if the defendant did
not duly serve such a counternotice are two further questions. The first of
these further questions is whether the two months which are allowed for the
purposes of service of a counternotice are a fixed period in respect of which
time is contractually of the essence. If they are such a fixed period, the
second further question is whether by reason of the events which happened in
the present case the plaintiff landlord is estopped from asserting that no
valid counternotice was served.
I should perhaps say that, except for a
witness shortly called on behalf of the defendant lessee, the present case has
really been argued on documentation — basically on the terms of the schedule
and on the letters including the actual or purported notices exchanged between
the parties.
It appears that the trigger notice by the
plaintiff was sent in triplicate. It is a notice dated June 27 1988, so that
the period for counternotice would expire towards the end of August 1988. I use
that vague phraseology because nothing turns on ascertaining the exact date of
expiry in this case. One of the trigger notices reached the property controller
of the defendant company, who referred it on July 15 to the estates manager of
the parent company with an indication that he, the property controller, had not
acknowledged the notice and he asked his estates manager to deal with the
matter. But, in fact, another of the notices had already reached and been
responded to by a Mr Dudley, the one witness who was called in this case, and
it is on the language of his letter of July 11 1988 that this case largely
turns. Mr Dudley told me in evidence that he would have seen the internal
memorandum between Mr Heythorne and Mr Preedy to which I referred a moment ago.
I draw the conclusion that that internal memorandum did not receive any
subsequent action, because Mr Dudley would have been the person to deal with it
and he had already dealt according to his fashion with the similar notice that
he had received.
Before I come to the language of Mr
Dudley’s letter I must draw attention to the specific language of clause 2 of
the schedule. I can leave out subclause (1) dealing only with the trigger
notice. Subclause (2) reads:
If on the expiration of two months from
the date of service of the lessor’s notice the lessee shall not have served on
the lessor a counternotice in accordance with subclause 3 hereof, the review
percentage shall be conclusively fixed as the amount stated in the lessor’s
notice.
Having read that, I will pause at this
point to dispose for present purposes of the first of the further questions —
namely, whether the contract in this case makes time of the essence with regard
to the two months’ provision. Looking at the language, it is very difficult to
see how a certain result could be conclusively fixed on the expiration of two
months if there were room for the lessee afterwards to challenge that
conclusive fixing by serving a counternotice out of time. There is really no
need for me to pursue the subject further, because language which is for
present purposes identical was considered by Mummery J about a year ago in the
case of Mammoth Greeting Cards Ltd v Agra Ltd [1990] 2 EGLR 124.
The learned judge in considering that language was driven to conclude,
notwithstanding that in a contract of this kind there is a rebuttable
presumption that time is not of the essence, that the parties intended time to
be of the essence in that particular case.
For the purposes of the hearing before me
Mr de la Piquerie, who represents the defendant, while reserving his position
should this case go further, acquiesces in the conclusion to which I come —
namely that I should follow the decision of Mummery J and hold that in relation
to the two months’ period time is contractually of the essence in this case.
That leads to this conclusion: that no
later counternotice will do, which from the defendant’s point of view might
turn out to be regrettable, because it did indeed serve a very formal-looking
and quite unchallengeable counternotice — that is to say, unchallengeable if
served in time — within a few days after the landlord took the point that no
valid counternotice had previously been served.
I turn away from that point and back to
the language of the schedule, subclause (3):
If within two months from the date of
service of the lessor’s notice the lessee shall serve on the lessor a
counternotice stating that the lessee does not agree with the lessor’s opinion
as to the amount of the review percentage as stated in the lessor’s notice, the
lessor and the lessee shall use their best endeavours to reach agreement as to
the review percentage but if on the expiration of one month from the date of
service of such counternotice the lessor and the lessee shall have failed to
agree the review percentage the dispute in respect thereof may at any time
thereafter be referred to arbitration in accordance with the provision of
clause 5 hereof.
Then there is a proviso which I need not
read.
Pausing again at that point, all that the
counternotice has to state is that the lessee does not agree with lessor’s
opinion as to the amount of the review percentage as stated in the lessor’s
notice. It is difficult to imagine a much more informal formula in a formal
legal document. Just a word on the phrase ‘the review percentage’. It is a phrase
used for historical reasons. It is defined in the schedule and surprisingly, if
one follows ordinary English and expects the result to correspond
with the English used, the result is a sum of money and not expressed as a
percentage at all.
So the landlord’s notice will propound a
sum of money as the new rent, and the lessee’s counternotice will say that the
lessee does not agree with the landlord’s opinion as to that sum of money.
Inevitably the tenant will say: ‘I think it should be less.’ No tenant would challenge a landlord’s notice
if he thinks it should be more. If the counternotice is served, the schedule
contemplates that both parties shall use their best endeavours to agree the
appropriate sum of money and if they cannot agree within a month then either
can resort to arbitration in order to fix the amount of the rent as reviewed.
Going on to subclause (4) of clause 2:
The rent payable by the lessee for the
demised premises on and from the review date shall be (a) the review percentage
as conclusively fixed by the relevant lessor’s notice or as agreed between the
lessor and lessee or as determined by arbitration as the case may be or (b) the
rental of the demised premises payable immediately before the review date
whichever shall be the greater.
Like so many commercial leases this one
does not contemplate a reversing of inflation or, should inflation be reversed,
that the landlord shall be any the worse off in actual sterling amounts as a
result. Note that the subclause provides for arriving at the reviewed rent, the
review percentage, in one of three ways — by conclusive fixing, if there is a
notice triggering and no counternotice; by agreement, if a counternotice is
served and leads to agreement; and by arbitration, if there is no agreement
following a counternotice and one party refers the dispute. Notice, too, that
after all that has been gone through the rent of the premises is the old rent,
should that turn out to be higher than the new.
Then there is subclause (5), which covers
the position between the coming of the review date and the subsequent
determination by agreement or otherwise of the review percentage. Under the
terms of the schedule the tenant goes on paying the old rent until
determination of the new. Indeed, when this action began it was an action on
the footing that the difference between the new rent and the old was due from
the defendant to the plaintiff. It is agreed by both parties that the position
has changed since the date of the bringing of the action, because there has been
a further assignment of the defendant’s interest in the premises to which the
landlord has assented on the terms that until determination of the review
percentage for present purposes the full rent required by the landlord’s
trigger notice should be paid. I am told that it has been so paid. That is not
a position reflected by the actual pleadings in the case, but it is agreed on
both sides that my decision should be reflected in a declaration indicating
whether the tenant’s counternotice was a valid one contractually or, in the
alternative, whether the landlord is estopped from contending the contrary.
With that review of the contractual
provisions I turn back to Mr Dudley’s letter of July 11 1988. It is addressed
to Boys, Turner & Burroughs. They are solicitors to the plaintiff, and it
is those solicitors who served the triplicate trigger notices on behalf of the
landlord, albeit the actual notices were signed by the landlord itself. The
letter of July 11, stamped with a received date stamp for July 13, is captioned:
‘Re Honey End Lane, Tilehurst, Rent Review, 30th June 1988.’ It is written by Mr Dudley as estate
surveyor, and the text reads:
On behalf of our subsidiary company,
David Greig (Retail) Ltd, I acknowledge receipt of your notice dated 27th June 1988
calling for a rent review under the terms of the lease dated 11th September
1978 as varied by a deed dated 5th February 1985 at the 30th June 1988.
That is a very careful directing of the
mind to the contractual background to this particular trigger notice. It will
be noted, too, that the writer is acknowledging that notice using the first
person singular but writing on behalf of the subsidiary, the actual defendant.
The second paragraph reads:
I note that your assessment of rental is
£190,000 per annum, which I consider to be excessive. The review provisions are
somewhat complicated and allow your client to assess the rental on the greater
of two different bases. Can you please confirm on which basis your clients have
made their assessment of the rent review percentage. I look forward to hearing
from you or your clients’ surveyors in due course.
Yours faithfully.
The decision which I am called upon to
make can be summarised really in this way. What would that letter mean to an
ordinary landlord? I will not shrink
from answering that question very firmly, but I shall come back to it, first of
all reviewing what follows. There is a letter acknowledging from Boys, Turner
& Burroughs. It is written a week after receipt of the previous letter.
That is dated July 20. It bears the same caption. It is addressed to the
estates surveyor of the parent company:
Thank you for your letter of 11th July.
The matter of the rent review negotiations will be dealt with by our clients’
agents, Messrs Healey & Baker . . .
Address and telephone number given. And
then there are two contact names given as well.
Yours faithfully.
Two days later one of those contact names
writes in a letter headed ‘Tilehurst, Honey End, Gateway’:
We have been instructed by Barrett Estate
Services to act on their behalf in the matter of the rent review on the above
premises effective from June 30 1988. We are in receipt of your letter dated
July 14 (sic) addressed to Messrs Boys, Turner and Burroughs.
Again this is a letter going addressed to
Mr Dudley at the parent company’s address. Then the letter goes on to explain
on which formula the surveyors’ assessment of a revised rental of £190,000 per
annum is based. It ends:
I hope that the above clarifies the
situation for you, and I look forward to hearing from you with your comments in
the near future.
What happens between that date and the
next letter of August 25 1988 is two or three telephone conversations between
Mr Dudley and the writer, Anne Clark. If that seems like slow progress, Mr
Dudley explained that he had perhaps 150 premises in which the parent
corporation was interested, because this is a large supermarket chain, and that
his job was to deal with rent reviews for all of these 150 premises. I have no
doubt that there is quite a lot in the way of rent review pending at any one
time. I should add about Mr Dudley that he no longer is estates surveyor for
this corporation. He ended that job and left for other things towards the end
of 1989.
All that Mr Dudley wrote on August 25
under the caption ‘Honey End Lane, Tilehurst’ was this:
I refer to our most recent telephone
conversation and apologise for the delay in providing you with a formal
response. Bearing in mind that Collier & Madge have had an historic
involvement with these premises, I have decided to ask them to act on our
behalf in the negotiation of the rent review. I hope that you will bear with us
in the meantime whilst they prepare a report.
Mr Dudley could not remember much about
his telephone conversations. He could remember some discussion about the basis
of the calculation. He can remember the provision of some comparable
information upon that basis and can remember a reference to taking clients’
instruction. I have no reason to doubt that all of those matters were discussed
between Mr Dudley and Anne Clark. It is quite clear that the only reason why
comparables would enter into question at all would be if surveyors on each side
were negotiating as to the proper level of revised or reviewed rent for these
premises as at the review date. I am quite satisfied that there were actual
negotiations going on over the telephone, albeit at not a very pressing pace
during the period leading up to August 25.
Passing on with the correspondence, on
September 14 Anne Clark writes to nudge Collier & Madge and says:
When you have had an opportunity to
inspect the premises and investigate rental levels, perhaps you would contact
me again and we can commence negotiations with a view to resolving matters as
quickly as possible.
It is quite obvious what Mr Dudley on one
side, Healey & Baker on the other and, presumptively, Collier & Madge
thought that they were instructed to do. That is to try to agree the new review
percentage or rental level for the premises in the context that there was
argument about the correctness of the £190,000.
The next letter in the bundle is October
13 1988 from the original solicitors acting and it purports to spring a trap.
It bears the same caption as the original notice:
We refer to our letter of 27th June with
which was enclosed the rent review notice signed by our client and dated also
27th June both of which were served on you on 28th June and which were
acknowledged by your parent company, the D Corporation PLC, on 11th July. The
letter of 11th July from the D Corporation PLC, while being an acknowledgement
of the service of the rent review notice, does not itself constitute any
counter-notice pursuant to the terms of the lease dated 11th September 1978 as
varied by the deed dated 5th February 1985. As no effective counter-notice has
been served, the rent is now fixed as stated in our client’s notice at £190,000
per annum with effect from 30th June 1988.
Then a paragraph that I need not read.
These are solicitors writing. The letter
may be contrasted both in its
solicitors.
Now what I have been reading in this
later letter is not a recitation of the landlord’s reaction to the letter of
July 11 but a lawyer’s argument as to the precise language used and its purport
and effect. I have been referred very helpfully in the course of argument to a
number of cases on various aspects of rent review litigation. None of the cases
suggests that a construction which a lawyer could put upon a letter as a matter
of argument provides any real guidance as to the effect of the letter itself.
One has to go back to the purported counternotice and see what it means to the
ordinary landlord as a matter of plain commonsense.
Going back to that letter as a matter of
plain common sense, the defendant writing to the plaintiff lessor is saying
through the mouth of Mr Dudley, ‘I consider £190,000 to be excessive’. It is
difficult to think of a plainer way in which the landlord can be told by the
tenant: ‘I, the tenant, do not agree with your assessment of £190,000.’ That really is the beginning and end of the
argument in this case, because once the landlord has been told that, the time
for notices and counternotices has come and gone and the time for negotiation
with a view to agreement with possible arbitration to follow has taken its
place. To demonstrate that this letter means exactly what I have just held one
can see that that is precisely the meaning that the solicitors themselves took
when they responded to the letter and when, obviously with their client’s
authority, the matter was referred to surveyors for rent review negotiations to
take place.
I am quite sure that upon receipt of the
letter of July 11 everybody — solicitors, client (that is, the plaintiff
landlord) and the surveyors dealing with the matter — took the view that the
tenant had made plain to the landlord its objection to the figure of £190,000
so as to set in motion the machinery for determining what the review rent
should be.
Of the two cases on this matter to which
I was primarily referred, both of them were concerned with whether the tenant
was showing a firm intention to have a valuer or surveyor appointed to
determine the new rent. In the first of those cases, Amalgamated Estates Ltd
v Joystretch Manufacturing Ltd* the Court of Appeal reached the
conclusion that language which referred only to a contest as to the amount of
rent did not make known the lessee’s intention to invoke the right to have a
surveyor determine the rent independently in unequivocal terms so as to bring
home that intention to the landlord’s mind. In the second of the cases, Nunes
v Davies Laing & Dick Ltd† it
was held by the Vice-Chancellor in 1984 that a letter, which gave the landlord,
referring to the lease and to the rent review, formal notice that the open
market rental figure is X — that is, a figure less than the landlord’s trigger
notice and ‘call on you under the terms of the above lease to agree this.
Please confirm that this is accepted as due notice’, was quite sufficient to
bring home to the landlord the tenant’s intention to invoke the option of
having a surveyor determine the new rent. The decision in that case perhaps had
to read quite a lot into the language of the letter sent by the tenant there.
*Editor’s note: Reported at (1980) 257 EG
489, [1981] 1 EGLR 96.
† Editor’s note: Reported at [1986] 1
EGLR 106.
By contrast, in this case it does not
seem to me that anything has to be read into the letter. The mere reference to
the £190,000 per annum being excessive as considered by the tenant is ample
indication to the landlord of what the tenant’s view is. That, after all, is
all that the tenant has to bring home. It seems to me to be rather regrettable,
in the light of that very plain letter and of the plain sense in which it was
understood by the parties at the time that it was received, that this technical
argument should have been dreamed up by lawyers in the case in order to give
rise to the present litigation.
These rent review provisions are
commercial provisions entered into between commercial men and, as in every
aspect of the commercial field, the law does its best to give effect to the commonsense
intention of the commercial men who enter into these bargains. If they know
what they mean and act accordingly, that is really all that is required in
order to resolve matters of dispute.
I have heard by way of alternative
argument an argument addressed to estoppel on the footing that the
counternotice meant something other than I have held that it does mean. Mr
Dudley supported that contention by saying that had he not received a letter in
terms of the letter of July 20 he would have taken other steps. For example, he
would have gone back to the lease to make sure that he had complied with its
provisions. Given that the meaning of the counternotice is clear, I really see
no room for the application of the doctrine of estoppel here. Indeed, it was
conceded by the plaintiff at the outset that if my answer to the first question
put to me, ‘Did the tenant serve valid counternotice within the period of two
months?’ was ‘yes’, then nothing else
arises for decision. I agree with that. The case is a clear one, and it is one
in which the tenant succeeds in showing that a valid counternotice was served.
I shall, accordingly, make a declaration to that effect in such terms as may be
agreed to be appropriate.