Landlord and tenant — Rent-review clause — Appeal from decision of Bristow J — Whether time specified for tenants’ counternotice in response to landlords’ trigger notice was ‘of the essence’ — Difference of opinion in Court of Appeal — Review clause provided that if tenants failed to serve a counternotice within the prescribed time they ‘shall be deemed to have agreed to pay the increased rent specified in the rent notice as from the review date’ — Effect of ‘deeming’ provision on construction of review clause — Authorities considered, in particular Trustees of Henry Smith’s Charity v AWADA Trading & Promotion Services Ltd — Landlords submitted that the ‘deeming’ provision was a ‘contra-indication’ rebutting the presumption that, in accordance with United Scientific Holdings Ltd v Bromley Borough Council, the time-table in a review clause was not of the essence — Tenants argued that it was not such a contraindication and that their counternotice was valid, despite being out of time — Bristow J decided the point in favour of the tenants and the majority of the Court of Appeal (Eveleigh and May LJJ) agreed with him — Browne-Wilkinson J dissented, being in favour of allowing the appeal — His judgment contains an analysis of the contrasting approaches between the view that rent-review provisions are mere machinery to ensure the payment of a market rent throughout a long term, so that a failure to serve a notice in time is in principle not fatal, and the view that an express provision for a ‘default rent’ in the event of a failure to meet a time-limit should be strictly interpreted as making time of the essence — He would have allowed the appeal in the hope that clarity and consistency in the relevant law would be maintained — It was unsatisfactory that decisions should turn on the minutiae of drafting, leaving parties in doubt as to the legal consequences of their leases unless they resorted to ligitation — Appeal dismissed — Leave to appeal to House of Lords not given
This was an
appeal by the landlords, Renown Investments (Holdings) Ltd, the first
defendants below, from a decision of Bristow J determining in favour of the
tenants, Mecca Leisure Ltd, plaintiffs below and first respondents to the
appeal, matters of construction relating to a rent-review clause in a lease for
21 years of shop unit no 7, The Stonebow, York.
The second
respondents to the appeal, second defendants below, were Bracken Self Selection
Fabrics Ltd, subtenants of the first respondents.
Ronald
Bernstein QC and Charles Purle (instructed by D J Freeman & Co) appeared on
behalf of the appellants; Michael Essayan QC and Michael Driscoll (instructed
by M J Kusel & Co) represented the first respondents; John Male (instructed
by Allen & Overy) represented the second respondents.
Giving
judgment, EVELEIGH LJ said: We are concerned to determine whether time is of
the essence under a rent-review clause in a lease which provided as follows:
(8) That at
any time during the three months commencing nine months before and ending six
months before the expiration of the fifth tenth fifteenth twentieth and
twenty-first years of the term hereby granted the Lessor may serve on the
Lessee a notice in writing (hereinafter called ‘a Rent Notice’) providing for
an increase of the rent payable hereunder as from the expiration of the year of
the term then current as the case may be (hereinafter called ‘the review date’)
to an amount specified in the Rent Notice and thereupon the following
provisions shall have effect: (i) The Lessee within Twenty-eight days after the
receipt of the Rent Notice may serve on the Lessor a counter-notice calling
upon the Lessor to negotiate with the Lessee the amount of rent
serve a counter-notice within the period aforesaid it shall be deemed to have
agreed to pay the increased rent specified in the Rent Notice as from the
review date. (iii) If the Lessee shall serve on the Lessor a counter-notice
calling upon the Lessor to negotiate with it as aforesaid then the Lessor and
the Lessee shall forthwith consult together and use their best endeavours to
reach agreement as to the amount of the rent to be paid hereunder as from the
review date but failing agreement within twenty-eight days after service of
such counter-notice (or within such extended period as the Lessor and the
Lessee shall mutually agree) the question of whether any and if so what
increased rent should be payable hereunder shall be referred to the arbitration
of a single arbitrator (whose costs shall be borne in equal shares by the
Lessor and the Lessee) who (failing agreement between the parties hereto) shall
be nominated on the joint application of the Lessor and the Lessee (or if
either of them shall neglect forthwith to concur in such application then on
the sole application of the other of them) by the President for the time being
of the Royal Institution of Chartered Surveyors and such Arbitrator shall
determine the question so referred to him by ascertaining the annual rack
rental value of the demised premises at the review date that is to say the
annual rent or aggregate annual rents at which the demised premises might
reasonably be expected to let without premium in the open market as between
willing landlord and willing tenant or tenants on a lease or leases for a term
of years equivalent to the then unexpired residue of the term hereby granted if
the tenant or tenants covenanted to pay all usual tenant’s rates and taxes and
to bear the cost of the repairs insurance and other expenses (if any) necessary
to maintain the same in a state to command such rent or rents and assuming that
the Lessee had observed and performed all the covenants and conditions by it to
be observed and performed but disregarding:
(a) Any effect on rent of the fact that the
Lessee or any person deriving title under it has been in occupation of the
demised premises.
(b) Any goodwill attached to the demised
premises since the commencement of the term hereby granted by reason of the
carrying on thereat of the business of the Lessee or of any person deriving
title under it and
(c) Any effect on rent of any improvement
carried out by the Lessee or any persons deriving title under it otherwise than
in pursuance of an obligation to the Lessor.
and such
annual rack rent value so determined as aforesaid shall be the rent payable
hereunder as from the review date PROVIDED ALWAYS that at no time during the
term hereby created (after the Twelfth day of November One thousand nine
hundred and seventy-four) shall the rent payable by the Lessee to the Lessor be
less than Nine Thousand Pounds per annum or the rent established by the last
preceding review of rent pursuant to the foregoing provisions whichever shall
be the greater.
The lease was
for a term of 21 years at an initial rent of £9,000 a year. At the first review
on October 26 1976 the rent was increased to £12,400 a year. On the approach of
the second review date, October 26 1981, and on the last day provided for the
trigger notice under clause 5(8) the landlords gave notice by post specifying a
rent of £46,250. The notice was received in the tenant’s post department but
was lost and did not reach anyone of authority to deal with it. On July 6 the
landlords wrote to the tenant enclosing a copy of the notice and claiming that
the rent from October 26 1981 should be £46,250 a year.
The landlords
contend that the time specified for the tenant’s counternotice, namely, 28
days, was of the essence and that on the expiration of that period the rent was
finally determined under the review clause at the figure stated in the
landlords’ notice. The interpretation of stipulations as to time in a review
clause was considered by the House of Lords in United Scientific Holdings
Ltd v Burnley Borough Council [1978] AC 904. At p 930 Lord Diplock
said:
In the
absence of any contra-indications in the express words of the lease or in the
interrelation of the rent review clause itself and other clauses or in the surrounding
circumstances the presumption is that the time-table specified in a rent review
clause for completion of the various steps for determining the rent payable in
respect of the period following the review date is not of the essence of the
contract.
Lord Fraser at
p 958A said:
I consider
that section 41 should now be taken to mean what it appears to say and that the
law is correctly summarised in the following passage from Halsbury’s Laws of
England, 4th ed, vol 9, para 481: ‘The modern law, in the case of contracts
of all types, may be summarised as follows. Time will not be considered to be
of the essence unless: (1) the parties expressly stipulate that conditions as
to time must be strictly complied with; or (2) the nature of the subject matter
of the contract or the surrounding circumstances show that time should be
considered to be of the essence; or (3) a party who has been subject to
unreasonable delay gives notice to the party in default making time of the
essence.
Lord Salmon at
p 951 D-E said:
In my opinion
each lease constitutes, amongst other things, an agreement between the parties
that, at 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. Nevertheless any unreasonable delay caused by the landlords and
which is to the tenants’ prejudice would prevent the rent being revised after
the review date.
In this appeal
a number of cases have been cited to the court showing on the one hand where
time has been of the essence and on the other hand where it has not. In
particular the tenant relied upon Davstone (Holdings) Ltd v Al-Rifai
(1976) 32 P & CR 18 and Touche Ross & Co v Secretary of State
for the Environment (1982) 265 EG 982, [1983] 1 EGLR 123. In the former
case the clause provided:
If the lessee
shall raise no objection to the increased rental proposed by the lessor within
28 days of receiving such notice the lessee shall be deemed to have accepted
and agreed the same.
Goulding J held
that the tenant was not precluded by his delay from objecting to an increase of
rent.
Foremost among
the cases referred to by the landlords was The Trustees of Henry Smith’s
Charity v AWADA Trading & Promotion Services Ltd, a decision of
this court dated December 2 1983.1
The clause in that case contained an elaborate time-schedule and
provided that the rent stated by the landlord be deemed to be the rent if the
tenants’ counternotice was not served in time, and, on the other hand, if a
counternotice was duly given and the landlord did not apply for the appointment
of a surveyor to determine the rent within a specified period, then the rent
stated by the tenants’ counternotice should be deemed to be the rent payable.
There was also an important provision for the payment of a provisional rent at
the figure stated in the landlord’s notice pending determination of the market
rent by a surveyor. There was also a provision to adjust the position between
the landlord and the tenant once the market rent was determined, but no
interest was recoverable by the party who had been out of pocket. In that case
time was held to be of the essence. I find no help at all from the facts of
other cases where there is a deeming provision, as in the present case, but
other terms in the review clause and the lease are different.
1Editor’s note: reported
at (1983) 269 EG 729, [1984] 1 EGLR 116. See Eveleigh LJ’s additional remarks
at the end of the judgments.
In accordance
with United Scientific v Burnley Council we have to start with
the presumption that time is not of the essence, then, on a consideration of
the lease itself and the surrounding circumstances, to determine whether the
parties have shown an intention to make time of the essence. As Lord Fraser
said at p 957:
. . . it is
proper to recall that the application of any general rule may always be
excluded if the intention to do so is expressed or clearly implied.
It is clear
from the review clause taken as a whole that the parties intended to provide
machinery for the determination of a fair rent. They clearly regarded it as
desirable if that rent could be determined by mutual agreement. They were to
‘use their best endeavours to reach agreement as to the amount of the
rent.’ It is ‘within twenty-eight days
after service of such counternotice (or within such extended period as the
Lessor and the Lessee shall mutually agree) . . .’ No time is laid down for the appointment of
the arbitrator and no time is laid down for the announcement of his decision.
As Dillon LJ pointed out in Touche Ross & Co at p 983:
Lord Fraser
at p 960 took into account in relation to one of the particular cases before
their Lordships’ House there, as a factor tending against time being of the
essence of the rent review clause, that steps fell to be taken which were not
under the control of the parties.
It is only
from the words of the deeming clause itself that any argument can be raised in
support of the contention that time was intended to be of the essence.
In The
Trustees of Henry Smith’s Charity Griffiths LJ said:
I do not
accept that the mere presence of a ‘deeming’ provision in a rent review clause
will in all cases be sufficient to make time of the essence of the contract.
Slade LJ
referred to the ‘comprehensive and stringent nature’ of the clause under
consideration in that case and he said:
While in
other contexts ‘deeming’ provisions may not necessarily connote finality, they
do so in the context of this lease.
I cannot regard
the mere presence of the ‘deeming’ clause as a firm indication that time is of
the essence. I read the clause as a whole and
clearly intending to arrive at a fair rent to be determined amicably if
possible. It seems to me that to hold otherwise would make the clause a trap
and the chosen machinery dangerous. In my opinion time is not of the essence in
this case.
My conclusion
does not mean that a ‘deeming’ provision is of no effect. It entitles the
landlords to make time of the essence by giving notice to that effect once the
28th day has expired. It is a useful part of the machinery in the hands of the
landlords.
We were
referred to the case of Raineri v Miles [1981] AC 1050. The fact
that a purchaser may sue for damages resulting from delay in completion by the
vendor, even though time for completion is not of the essence, has no relevance
to the present case. In that case there was no issue as to whether or not there
was an agreed and binding obligation to complete. We, on the other hand, are
concerned to determine whether there is a binding obligation to pay a rent as
stated in the landlords’ notice. Moreover, the deeming provision forms part of
the machinery devised to produce a fair rent and must be viewed in that
context. It is not to be seen as an independent clause creating a binding
obligation upon the happening of a particular event.
I therefore
would dismiss this appeal.
Agreeing that
the appeal should be dismissed, MAY LJ said: In this appeal the court has yet
again to consider the time provisions in a rent-review clause in a lease. The
general rule has been established by the House of Lords in United Scientific
Holdings Ltd v Burnley Borough Council [1978] AC 904, where Lord
Diplock expressed it in this way at p 930G:
. . . in the
absence of any contra-indications in the express words of the lease or in the
interrelation of the rent review clause itself and other clauses or in the
surrounding circumstances the presumption is that the time-table specified in a
rent review clause for completion of the various steps for determining the rent
payable in respect of the period following the review date is not of the essence
of the contract.
In support of
his argument that in the instant case there are sufficient contra-indications
to rebut the presumption, counsel for the appellant landlords referred us in
particular to the hitherto unreported decision of this court on December 2 1983
in The Trustees of Henry Smith’s Charity v AWADA Trading &
Promotion Services Ltd. In that case the relevant rent-review clause laid
down a detailed time-table for the parties to follow on each review: this court
held that there was in it sufficient to rebut the presumption, and that
consequently time was of the essence of that clause.
Counsel drew
our attention to the fact that in the Henry Smith’s Charity case the
rent-review clause contained, first, a subparagraph which provided that in the
event that the tenant should fail to serve a counternotice within a month of
the landlords’ ‘trigger’ notice, then the rent stated in that landlords’ notice
should be deemed to be the market rent and thus the rent payable by the tenant
after the relevant review date. Further, another subparagraph of the
rent-review clause provided that, if within two months after the service of the
tenant’s counternotice the parties had not agreed in writing an amount to be
treated as the market rent and the landlord had not applied to the president of
the Royal Institution of Chartered Surveyors for the appointment of an
independent surveyor to determine it, then the amount stated in the
counternotice should be deemed to be the market rent.
Counsel drew
our attention to the similarity between these two sub-paragraphs in the clause
in the earlier case and clause 5(8)(ii) of the lease in the present case. This
also provides that, should the tenant fail to serve a counternotice within 28
days after receipt of the landlords’ trigger notice, he shall be deemed to have
agreed to pay the increased rent specified in that first notice. Counsel argued
that for practical purposes the two rent-review clauses were in substantially
the same terms and that, as another division of this court had held time to be
of the essence of one of the clauses, so we should take the same view of the
other.
While I
respectfully agree that decisions on this type of dispute should not turn upon
fine distinctions (per the Master of the Rolls at p 12B of the transcript of
the Henry Smith’s Charity case), it is I think also important in
deciding questions of construction to distinguish between principle on the one
hand and argument on the other. That there is a presumption against time being
of the essence in rent-review clauses is principle; that where a particular
rent-review clause contains ‘deeming’ provisions this will nevertheless suffice
to make time of the essence of that clause is argument. As such, it can validly
be used in respect of any rent-review clause containing similar provisions: it
does not necessarily follow that it will succeed in every such case.
Further, in
the earlier case I think that it is clear that the members of the court took
somewhat different views of the importance to their ultimate decision of the
presence of the ‘deeming’ provisions in the clause. I infer that for his part
the Master of the Rolls thought them well-nigh decisive. At p 12 of the
transcript he said:
It is highly
undesirable that decisions of this type of dispute shall turn upon fine
distinctions and I reject the suggestion that there is a difference between a
rent review scheme which, in the event of default in adhering to the timetable,
avoids the whole process (Lewis v Barnett) and one which
automatically resolves the dispute, albeit in a somewhat draconian way (the
instant appeal). Both make precise and, in the case of the instant appeal,
elaborate provision for exactly what shall happen if one of the parties shall
fail to exercise his rights within the specified period of time. In neither
case would it be possible seriously to write into the clause after each
specified period of time words such as ‘or such longer period as shall elapse
before the expiration of reasonable notice making time of the essence of the
contract’. Accordingly, in my judgment, the parties must be deemed to have
intended that in the case of their lease the general rule should not apply and
that time should be of the essence of the contract.
It may well
be thought unwise to have a strict timetable review clause which, in the event
of default, may have the effect that an unreal rent put forward for negotiating
purposes becomes the contractual rent. This I would accept, but it is for the
parties to make their own contract.3
3(1983) 269 EG 729 at p 731, [1984] 1 EGLR 116.
However,
Griffiths LJ took a different view. At pp 15 and 16 he said:
I cannot
accept the submission that the decision of the Court of Appeal in Lewis
v Barnett (1981) 264 EG 1079, [1982] 2 EGLR 127 provides a foundation
for any general rule that whenever in a rent revision clause provision is made
for what is to happen in default of a time-limit this will of itself be
sufficient to make time of the essence of the contract. I do not read Lewis
v Barnett as laying down any such general rule. I regard it as no more
than a decision on the construction of a particular rent review clause, the
language of which was wholly different from that with which we are concerned. .
. . I do not accept that the mere presence of a ‘deeming’ provision in a rent
review clause will in all cases be sufficient to make time of the essence of
the contract.
But then at p
18 he returned to the point in this passage:
And, finally,
although, as I have been at pains to point out, not necessarily conclusively,
the express inclusion of the deeming provisions does add some weight to the
view that this schedule should be read as though time is of the essence,
particularly as the deeming provisions apply to both landlord and tenant.4
4Ibid, at p 732.
In his turn,
Slade LJ at p 22 expressed his view that it was the fact that the ‘deeming’
provisions in the rent-review clause were bilateral which was of great
importance, if not decisive, in that case. Later in his judgment, at p 27, he
said:
I think that
the ‘deeming’ provisions of para 4 of this particular rent review clause are
quite inconsistent with the survival of any right of the tenant to serve a
counternotice after the expiration of the one-month period designated in that
paragraph. Likewise, I think that the deeming provisions of para 7 are quite
inconsistent with the survival of any right in the landlords to apply for the
appointment of a surveyor after the expiration of the two-month period therein
specified. While in other contexts ‘deeming’ provisions may not necessarily
connote finality, they do so in the context of this lease.5
5Ibid, at pp 735-736.
The effect,
therefore, of the Henry Smith’s Charity case is in my opinion that,
although the fact that a rent-review clause does contain a ‘deeming’ provision
is a contra-indication which may be sufficient to rebut the general principle,
whether it does so or not remains in the end a matter of the proper
construction of the particular clause concerned.
The argument
that the presence of a deeming provision in such a clause should be sufficient
to make time of the essence can in my opinion be put in a somewhat different,
but nevertheless persuasive, way, although counsel for the appellant landlords
was not prepared to adopt it when it was proffered in the course of the
argument as enthusiastically as we might have expected. As Lord Diplock
demonstrated in the United Scientific case, the courts have frequently
held that time provisions in a bilateral contract are not of the essence of the
bargain — that strict compliance with them is not a condition precedent to the
obligation of the other party to perform his part of the contract. So far as I
am aware, however, there is no
held to alter the substantial contractual obligations of the parties otherwise
than as to time. (Cf Raineri v Miles [1981] AC 1050.)
On its face,
clause 5(8)(ii) of the lease in the present case provides that if the tenant
fails to serve his counternotice in time, then he shall be deemed to have
agreed to pay the increased rent specified in the landlords’ trigger notice,
that is to say, that once the 28 days from the service of the latter have
passed without the service of any counternotice, the landlords become entitled
to receive, and the tenant becomes obliged to pay, that increased rent. To hold
that that 28-day period is not of the essence of the bargain, and that
consequently the tenant is entitled to serve an effective counternotice at
least within any reasonable time after the end of that period, is to alter the
substantial contractual obligations of the parties: the rent reserved by the
lease ceases to be that specified in the landlords’ trigger notice and becomes
either that thereafter agreed-between landlord and tenant or that ultimately
determined by the single arbitrator under clause 5(8)(iii).
The actual
decision in Raineri’s case was that, although time was not of the
essence of a clause in a contract for the sale of land providing for completion
on a specified day, nevertheless a failure by the vendor to complete on that
day was still a breach of contract entitling the injured party to damages if he
had suffered damage. It was held that the completion clause could not be
construed as meaning that completion could take place within a reasonable
period after the date fixed. In my opinion the decision and the reasoning in
the speeches in the House of Lords in Raineri’s case do provide
substantial ground for an argument that where there is not merely a stipulation
as to time in a rent-review clause, but also a deeming provision of the nature
to which I have referred, the presumption that time is not of the essence is
sufficiently rebutted and cannot prevent the deeming provisions from taking
effect according to its terms.
Now there was
no deeming provision in either of the rent-review clauses which fell to be
considered in the United Scientific case. However, in their speeches in Raineri’s
case, Lord Edmund-Davies and Lord Fraser of Tullybelton, with both of which
Lord Russell of Killowen and Lord Keith of Kinkel agreed, referred expressly to
the earlier case and found nothing inconsistent between the two decisions.
In the result,
therefore, I think that the problem in this case remains one of the
construction of the rent-review clause as a whole, bearing in mind on the one
hand the presumption that time is not of the essence of the clause, but on the
other that there is in the deeming provision in clause 5(8)(ii) that ‘element
of finality’ to which Slade LJ referred in the Henry Smith’s Charity
case providing some contraindication that the presumption should not apply in
this case.
In approaching
the construction of this, and indeed any other similar rent-review clause, I
gratefully adopt the following passage on p 14 of the transcript from the
judgment of Griffiths LJ in that latest decision of this court:
When they
enter into a lease such as this the expectation of both landlord and tenant is
that a fair market rent will be paid throughout the lease, and unless driven to
do so by the wording of the lease I am loath to construe the machinery provided
for arriving at a fair market rent as forcing either the tenant to pay an
exorbitantly high rent or the landlord to receive a ridiculously low rent,
neither of which bears any relation to a fair market rent because one or other
of them was one day late in observing the timetable set out in the rent review
provisions of the lease.6
6(1983) 269 EG 729 at p 732, [1984] 1 EGLR 116.
In my opinion
one must consider the provisions of the whole of clause 5(8) in the present
case as providing the machinery to enable the parties to arrive at the fair
market rent to be paid and received respectively from a given rent review date.
I do not think that one does any real violence to that machinery if one
construes clause 5(8)(ii) as entitling the lessee to serve a counternotice even
after the stipulated 28 days has expired. Having regard to the scheme of the
machinery provided in this rent-review clause, it had to contain some such
provision as that in clause 5(8)(ii); otherwise the landlords’ trigger notice
would be left, as it were, hanging in the air if the tenant served no
counternotice at all.
In my opinion
the potential detriment to the tenant, if time is held to be of the essence of
the material part of the clause, if he serves his notice a day or a week late
and is thus fixed with perhaps a wholly unreasonable rent specified in the
landlord’s trigger notice, far outweighs any potential harm to the landlord
from any tardiness on the tenant’s part. If, having served his original notice,
the landlord receives no timeous counternotice from the tenant, the remedy is
in his own hands: all he need do is to serve a further short notice on the
latter making time of the essence of the procedure. I respectfully agree with
the learned judge below that, in the circumstances of the instant case, the
deeming provision in clause 5(8)(ii) is not sufficient to up-rate it from what
he described as a ‘simple nuts-and-bolts provision’ to one where time is of the
essence.
In these
circumstances it is unnecessary to consider in detail the alternative
submission of the respondent based on section 27 of the Arbitration Act 1950.
Suffice it to say that in my opinion that section cannot apply to the facts of
this case and the terms of the rent-review clause which we have to consider.
For these
reasons I agree that this appeal should be dismissed.
Dissenting,
BROWNE-WILKINSON LJ said: This appeal raises the question whether the principle
that time is not normally of the essence of time provisions in a rent-review clause
applies in cases where the rent-review clause itself fixes the rent to be paid
in the event that a notice or counternotice is not served within a specified
period. The same question was raised in Henry Smith’s Charity Trustees v
AWADA Trading & Promotion Services Ltd (1983) (unreported), which
was decided after this case was heard by Bristow J.
In my judgment
there are two possible views as to the correct answer to this question. The
first view is that the decision of the House of Lords in United Scientific
Holdings Ltd v Burnley Borough Council [1978] AC 904 establishes
that provisions for rent review are mere machinery for ensuring the payment of
a market rent throughout a long term and that, in the absence of
contra-indications in the terms of the lease or the surrounding circumstances,
failure to serve a notice before the date specified in the lease does not
preclude the service of such notice within a reasonable time thereafter. Then,
it can be said, a provision in the machinery that, in the event of a failure to
serve a notice by the specified date, a rent not necessarily being the proper
market rent (‘the default rent’) shall be payable is not of the essence of the
parties’ bargain but merely part of the machinery designed to fill the gap
unless and until a notice (albeit strictly out of time) is served. Therefore
the existence of a provision for a default rent is not, by itself, a
contra-indication sufficient to displace the presumption that time is not of
the essence.
The second
view is that an express provision for a default rent in the event of a failure
to serve a notice within a specified time necessarily shows that time is of the
essence of the service of the notice. This view could be reached by two
different routes. First, it can be said that the provision for a default rent
is the clearest possible indication of the parties’ intention that the service
of the notice in time should be of the essence, because the parties have
expressly fixed what is to happen if no proper notice is served within that
time-limit. Second (and to my mind more powerfully) it could be said that the
whole doctrine of time not being of the essence cannot apply to such a case.
Hitherto the doctrine has only operated so as to allow one party to perform
obligations laid down in the contract at a later date: it has never operated so
as to alter the substantive terms of the contract entered into between the
parties, other than the terms as to time. Thus in the present case if the
counternotice served by Mecca out of time is treated as validly served under
clause 5(8)(i) and in due course a proper market rent is fixed by the
arbitrator under clause 5(8)(iii), presumably the rent thereafter payable will
be the proper market rent as fixed by the arbitrator. Yet the doctrine that
time is not of the essence does not affect the construction of the lease (see Raineri
v Miles [1981] AC 1050), and it is clear that on the true construction
of the reddendum and clause 5(8)(ii) the rent payable under the lease is the
rent specified in the landlords’ notice of April 22 1981, ie £46,250. It is not
clear to me how this conflict between the expressed terms of the bargain and
the rent which will be payable if Mecca’s counternotice is held to be valid is
to be reconciled. To hold that time was not of the essence of Mecca’s
counternotice would involve not simply extending the time-limits within which
the parties’ bargain could be performed but involve an alteration of the
parties’ bargain itself.
For reasons
which will appear, I do not find it necessary to decide which of these two
views is correct. Justice and commonsense support the first view: logic and
precedent the second. But in my judgment one or other of the two views must
represent the law applicable to all rent-review clauses providing for a
default rent. There must now be many thousands of leases containing rent-review
clauses in many different forms which provide for a default rent. It would in
my judgment be most undesirable if in every case where a notice is served out
of time the parties were in doubt as to the legal consequences. In commercial
and property law it is in my judgment of the highest importance that the
parties should know the legal consequences of their acts without having to go
to court for them to be determined. Therefore, with regret, I cannot agree that
the matter depends in each case on the exact detailed drafting of the
rent-review clause, the existence of a provision for a default rent being
merely one of the factors to be taken into account in deciding whether time is
of the essence.
For myself, in
order to avoid the fine distinctions in this field which the Master of the
Rolls deplored in the Smith’s Charity case (at p 12B), I am not prepared
to distinguish this case from the Smith’s Charity case. I accept, of
course, that the rent-review clause under consideration in the Smith’s
Charity case was much more detailed than that in the instant case and had
certain features which are not present in the instant case. But, for the
reasons I have given, I do not think that the right answer can depend on
comparatively small differences in drafting. As I read the Smith’s Charity
case, Griffiths LJ did not treat the provisions for a default rent as being a
very important, let alone decisive, factor, ie he preferred what I have called
the first view. The Master of the Rolls, on the other hand, adopted what I have
called the second view and treated the default rent as being decisive. Slade
LJ, although looking at all the features of the rent-review clause in that case
in coming to the view that time was of the essence, undoubtedly treated the
provisions for default rents (which he called ‘the deeming provisions’) to be
of ‘critical’ importance (p 23F) and ‘quite inconsistent with the survival of
any right’ to serve a notice out of time (at p 27). In my judgment the ratio
decidendi of the decision of the majority was that the provision for a
default rent was a decisive, or virtually decisive, contra-indication
displacing the presumption that time was not of the essence.
Therefore, although
I differ with considerable diffidence, for myself I would not have been
prepared to draw narrow distinctions between this case and the Smith’s
Charity case and would have allowed the appeal in the hope that clarity and
consistency in the relevant law would be maintained.
EVELEIGH LJ:
Since writing our judgments we have been told that the case of Henry Smith’s
Charity was reported in ESTATES GAZETTE (1983) 269 EG 729, [1984] 1 EGLR
116.
The appeal
was dismissed with costs. Leave to appeal to the House of Lords was refused.
