by Delyth Williams
One of the facets of the rent review procedure which poses problems for the practitioner is the question of the form, contents and service of the rent review “trigger” notice or counternotice. The question of the validity of the landlord’s “trigger” notice is crucial, as, for example, the service of a notice which is held to be invalid may mean that the landlord loses the right to a rent review where time is of the essence. This article reviews the problems of rent review notices in the light of the continuing case law.
Form and contents of landlord’s “trigger” notice
(a) Written notice and specification of rent
The starting point in any analysis of the rent review procedure is usually a consideration of the landlord’s “trigger” notice and it is common for the rent review clause to contain the express provision that the notice be in writing and so forth. In Dean and Chapter of Chichester Cathedral v Lennards Ltd (1977) 244 EG 807, the lease of the demised shop premises provided for a rent review at the end of the 14th year. The clause provided that both the landlord and the tenant should have power to vary the rent of £1,500 “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”. Three months before the end of the 14th year the landlords gave the tenants notice of their wish to review the rent, but the letter did not state any figure for the suggested new rent. The tenants did not reply until the three months’ period had expired and contended that no written notice in the form specifically provided for in the lease had been received. The Court of Appeal held, inter alia, that the provision that the written notice should state the suggested new rent was not of the essence of the contract but was directory, so that the failure to stipulate a suggested figure did not invalidate the notice. To construe the stipulation as being directory and not mandatory accorded with the provisions of section 41 of the Law of Property Act 1925 (repealing the provisions of section 25(7) of the Supreme Court of Judicature Act 1873) to the effect that stipulations in contracts as to time or otherwise should be construed in accordance with the rules of equity. It is to be noted that Lord Russell was of the opinion that the requirement of a written notice was to be regarded as essential.
The question of the validity of the landlord’s trigger notice was in issue in Durham City Estates v Felicetti (soon to be reported in Estates Gazette). The main question before the Court of Appeal was whether a letter on behalf of the landlords purporting to commence the second rent review was an effective trigger notice. The provisions of the lease required the proposed sum to be “specified in a notice in writing signed by or on behalf of the lessor”. The notice specified a rent of “£8,850” whereas the rent specified in words was £100 less, namely “Eight thousand seven hundred and fifty pounds”. The tenants argued that this discrepancy meant that the notice was not sufficient to commence the rent review procedure. The Court of Appeal held that the correct test was whether the notice specified the amount of rent with sufficient clarity to prevent its recipients (or, in some circumstances, their professional advisers) from being misled.
Several requirements as to the contents of the “trigger” notice were considered in Taylor Woodrow Property Co Ltd v Lonrho Textiles Ltd [5] 2 EGLR 120; (1985) 275 EG 632, where there was no express provision that time was of the essence but the review clause contained a deeming provision that “if the Tenant shall fail to serve a counternotice within the period … it shall be deemed to have agreed to pay the increased rent specified in the Rent Notice”. The clause provided as follows:
Not more than Twelve months and not less than Six months before the expiration of the Fourteenth year of the term hereby granted the Landlord may serve on the Tenant a notice in writing (hereinafter called a “Rent Notice”) providing for the increase of the rent payable hereunder as from the expiration of the year of the term then current to an amount specified in the Rent Notice based upon the terms as if referred to an arbitrator as hereinafter mentioned and in such notice the Landlord shall specify that the Tenant may serve a counternotice in accordance with paragraph (a) of this Part and that in default the provisions of paragraph (b) of this part will operate and thereupon the following provisions shall have effect —
(a) the Tenant within one month after the receipt of the Rent Notice may serve on the Landlord a counternotice calling upon the Landlord to negotiate with the Tenant the amount of rent to be paid hereunder as from the expiration of the said year
(b) if the Tenant shall fail to serve a counternotice within the period aforesaid it shall be deemed to have agreed to pay the increased rent specified in the Rent Notice
(c) if the Tenant shall serve on the Landlord a counternotice calling upon the Landlord to negotiate with the Tenant as aforesaid then the Landlord and the Tenant 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 expiration of the said year but failing agreement within two months after service of such counternotice the question of whether any and if so what increase ought to be made in the rent payable hereunder as from the expiration of the said year shall be referred to the arbitration of a single arbitrator to be agreed between the Landlord and the Tenant or should there be failure of agreement application shall be made by the Landlord for an Arbitrator to be appointed by the President for the time being of the Royal Institution of Chartered Surveyors whose valuation shall be made as an expert and not as an arbitrator and the decision of such arbitrator shall be final and binding on the Landlord and the Tenant.
Mr N A Hytner QC (sitting as a deputy judge) held that the requirements (i) that the figure inserted in the trigger notice should be based upon the method adopted by an arbitrator; (ii) that the trigger notice should inform the tenants of their right to serve a counternotice; and (iii) that the trigger notice should inform the tenant of the consequences of failure to serve a counternotice, were not of the essence of the trigger notice.
(b) Notices inviting negotiation and “trigger” notices
The question of whether a landlord’s notice inviting negotiation on the matter of the revised rent could amount to a valid landlord’s trigger notice was considered in Norwich Union Life Insurance Society v Sketchley plc [6] 2 EGLR 126; (1986) 280 EG 773, where the lease was for a term of 21 years with provision for a trigger notice to be served “at any one time” after the commencement of the 14th year of the term. If no agreement were reached within three months from the date of the trigger notice, the landlords could require the matter to be referred to a surveyor (acting as an expert) by giving notice within three months thereafter. In August 1982, the landlords’ agents wrote to the tenant stating:
We have been instructed by your landlords … to negotiate with you in connection with the rent review contained in your lease which becomes effective as at September 29 1982.
It is our client’s proposal to increase the rental to £11,500 per annum exclusive with effect from this date.
We look forward to hearing from you at your earliest convenience that this increase is acceptable to you.
Negotiations took place, but no notice was served by the landlords within the six months’ time-limit, whereupon the tenants alleged that the procedure was spent as time was of the essence of that step. In November 1983, the landlords purported to serve a second trigger notice with the reference being made within the time-limit. Scott J held that there was no justification for departing from the strict literal meaning of the words, so that the landlords had not established their right to have the rent reviewed. The test for determining whether the letter of August 1982 was a valid trigger notice was: “Would a tenant reading the notice think it was intended to commence the rent review proces?” Applying this test, Scott J held that the notice of August 1982 was a valid trigger notice. As time was of the essence for the time-limit of making the reference, the notice given out of time was not effective and neither could the landlords serve a second trigger notice.
(c) Inconsistent “trigger” notices
It is clear that the serving of inconsistent trigger notices can lead to the loss of the rent review. In Cordon Bleu Freezer Food Centres Ltd v Marbleace Ltd [7] 2 EGLR 143; (1987) 284 EG 786, the difficulties arose from the assignment of the landlord’s reversion because, shortly after the assignment of the landlord’s reversion, the solicitors acting for the new landlords sent the tenants a trigger notice stating a rent of £30,000 pa and, on the same day, the agents who had acted for the old landlords (but who did not make it clear for whom they were acting) sent a trigger notice stating a rent of £45,000 pa. In response to the notice from the new landlords, the tenants gave a counternotice suggesting a rent of £16,000. In response to the notice from the old landlords’ agents, the tenants disputed its validity but, if they were wrong, they purported to give a “duplicate” counternotice of £16,000. The landlords applied to the president of the RICS to appoint a surveyor. Such an application was “out of time” if the effective counternotice were served in response to the new landlords but “in time” if served in response to the old landlords. The court held that the old landlords’ agents did not have authority to serve a trigger notice on behalf of the new landlords. The letter written by the tenants with a view to protecting their position if the trigger notice were served by the old landlords’ agents was upheld could not be regarded as an effective counternotice. The result was that the landlords’ application to the president was out of time and the rent for the review period was £16,000.
Notices served “without prejudice” and “subject to contract”
On several occasions, the courts have been asked to consider the validity of trigger notices and counternotices served on a “without prejudice” and/or “subject to contract” basis. One of the more important issues is whether the trigger notice or counternotice contains sufficient information to allow the party receiving it to deal with the matters. In Shirlcar Properties Ltd v Heinitz [2] EGD 131; (1982) 266 EG 126, the landlord’s letter was sent by his agents and read: “We act on behalf of your Landlord … and have been instructed to deal with the rent review …. The rent required as from the review date is £6,000 per annum exclusive, and we look forward to receiving your agreement.” Below the agents’ signature was the rubric “subject to contract”. There was no further communication between the parties until the three-month period for the service of a counternotice had expired, whereupon the landlord demanded rent at the level specified in this letter. The tenant refused to pay, alleging that the letter was merely an “opening shot” in negotiations and not a trigger notice. The Court of Appeal held that the use of the “subject to contract” rubric meant that the notice was equivocal, so that a reasonably minded tenant would consider it an invitation to negotiate. Further, the notice must indicate what the landlord is doing.
The difficulties of construing the effect of a rent review notice together with other correspondence is exemplified by the decision in Sheridan v Blaircourt Investments Ltd [4] EGD 176; (1984) 270 EG 1290, where the tenant’s agents wrote a number of letters to the landlords’ agents of the need to reach an agreement in view of the time-limit within which the tenant had to take action for the appointment of a referee. Before the expiry of the time-limit, the tenant’s agents wrote to the landlords’ agents a “without prejudice and subject to contract” letter suggesting an application be made to the president of the RICS for the appointment of an independent valuer. Nicholls J (as he then was) held that the last letter was not sufficient to indicate an intention to exercise the tenant’s right to require the rent to be determined by a referee nor did it indicate that in the previous letters he had already exercised that right. Finally, the use of the rubric “without prejudice and subject to contract” was an additional reason for concluding that the tenant had not given an unequivocal intimation that he was exercising that right.
In Norwich Union Life Insurance Society Ltd v Tony Waller Ltd (1984) 270 EG 42, the 21-year lease provided for a rent review to take place in the 14th year. Before the rent review date a letter was sent by the landlords’ agents to the tenant proposing a rental increase up to £11,500 pa, but such letter was on a “without prejudice” basis. In construing the effect of the letter with the “without prejudice” rubric, Harman J held, inter alia, that, as there was no dispute or negotiation in progress when the letter was served, its contents were not protected from disclosure. Further, the letter was equivocal and did not constitute a sufficient trigger notice for the purpose of the rent review clause. It is to be noted, however, that Harman J’s view that the rubric did not protect a letter which was an “opening shot” was disapproved by the Court of Appeal in South Shropshire District Council v Amos [6] 2 EGLR 194; (1986) 280 EG 635.
In Henderson Group plc v Superabbey Ltd [8] 2 EGLR 155; [1988] 39 EG 82, the rent review procedure in the lease in question provided that one of the methods of determining the rental value was by agreement between the parties. A letter from the landlords’ agent, on his professional notepaper, before the review date proposed to the tenants a rent of £26,944 pa for the property in place of the existing rent of £16,682 pa. This initial letter was headed “subject to contract” and also included the rubric “without prejudice”. The tenants replied that the proposal was acceptable, but neither the tenants’ reply nor any of the further correspondence contained either the “subject to contract” or the “without prejudice” rubric. The landlords then sent to the tenants a formal memorandum to record their agreement to the revised rent of £26,944 pa but, some weeks later, the tenants replied stating they could not agree to the rent proposed. Judge Leonard Bromley QC (sitting as a judge of the High Court) held that it was clear from the authorities that, when correspondence began with a definite “subject to contract” provision, subsequent correspondence was governed by that overriding condition. The letters did not, therefore, constitute a binding agreement.
Not every counternotice served on a “subject to contract” basis will be held to be insufficient to constitute a valid counternotice. In British Rail Pension Trustee Co Ltd v Cardshops Ltd [7] 1 EGLR 127; (1987) 282 EG 331, the machinery for the rent review in question was for the landlord to serve a notice stating his opinion as to the market rent and for the tenant, within eight weeks of receipt (time to be of the essence) to serve a counternotice stating his opinion as to the market rent and, if the tenant did not serve such a counternotice within the time-limit, the amount stated in the landlord’s notice was to be the market rent. If the tenant did serve such a counternotice within the time-limit, the two parties were then to seek to agree the market rent within seven weeks of the landlord’s receipt of the counternotice. If they failed to agree within that period, the landlord would apply to the president of the RICS to appoint a surveyor as expert. The landlords served a notice proposing a rent of £36,000 pa and, after some correspondence about comparables, the tenants sent a letter headed “subject to contract” stating that they were prepared to agree a rent of £24,000 pa — this letter being sent a short time before expiry of the time-limit. Vinelott J held that the letter was not part of machinery to “trigger off” the review, as in the Shirlcar case, or to exercise an election to have a rent determined by arbitration, as in the Sheridan case, since it merely started a period during which the parties were required to negotiate in good faith and which resulted in a reference to an expert only if they failed to agree. It would be unreasonable to read the letter as an offer to which the tenant expected a reply before deciding whether to serve a counternotice in the few days remaining before the expiry of the time-limit. The heading “subject to contract” could be explained either as a mistake (such mistakes are not uncommon) or as intended to ensure that the letter was not taken as an offer capable of acceptance.
Form and contents of tenant’s counternotice
It is frequently the case that the rent review clause provides for the landlord to serve a trigger notice specifying the desired rent and for the tenant to serve a counternotice rejecting the landlord’s figure and electing for arbitration. This form of clause has been litigated on numerous occasions and the following is an analysis of only a few of those cases.
In Bellinger v South London Stationers Ltd (1979) 252 EG 699, the rent review clause provided that the revised rent was to be determined by way of the following procedure: (a) specified by the landlord’s notice in writing served not later than two quarters before the review date, or (b) agreed between the parties before the expiration of three months after service of that notice; or (c) “determined at the election of the lessees to be made by counternotice in writing served by the lessees upon the lessor not later than the expiration of the said three months by an independent surveyor appointed for that purpose by the parties jointly in writing …”.
Time was expressly stated to be of the essence and, when the landlord served the trigger notice, the tenants replied stating:
We formally acknowledge receipt of your notice of rent review for the above property, and we would hardly need to add that we do not accept your revised figure.
Goulding J held that the letter was not sufficiently specific to constitute a valid counternotice.
The question of what constituted a valid counternotice was considered by McNeill J in Edlingham Ltd v MFI Furniture Centres Ltd (1981) 259 EG 421, where the rent review clause was on the same terms as that in Bellinger (supra) and Amalgamated Estates Ltd v Joystretch Ltd (1981) 257 EG 489. In this case, the landlord served a trigger notice specifying the asking rent but, when the three-month period for agreement expired, the landlord claimed that the rent proposed in the trigger notice was the new rent, as the time for electing for arbitration had passed. The tenants alleged that, on the day that the trigger notice was received, they had written to the landlord as follows:
Will you please accept this letter as counternotice to the effect that we consider that the rent of £50,000 is excessive and will appreciate it if you will kindly forward to us comparables on which you have based this figure.
McNeill J held that the letter did not amount to a sufficient counternotice for the purposes of the clause, as it did not refer either directly or indirectly to arbitration or to the clause in the lease. The learned judge was of the opinion that the test for the validity of a tenant’s counternotice was:
the notice must identify the form of relief which the tenant is seeking and must do so unequivocally. If a notice may be read as an invitation to negotiate or as an election to arbitrate it seems to me to be a defective notice.
The proper test to be applied in construing the validity of a tenant’s counternotice was considered by Sir Nicolas Browne-Wilkinson V-C in Nunes v Davies Laing Dick Ltd [6] 1 EGLR 106; (1986) 277 EG 416, where the rent review clause provided for the revised rent to be the open market rental value which was such annual sum as shall be:
(a) specified in a notice in writing served on the Lessee at the demised premises at any time before the beginning of a clear period of two quarters of a year … immediately preceding the review date; or
(b) agreed between the parties before the expiration of three months immediately after the service of such notice; or
(c) determined at the election of the Lessee (to be made by counternotice in writing served by the Lessee on the Lessors not later than the expiration of the said period of three months) by an independent Surveyor ….
The landlords served a trigger notice within the time allowed, specifying an open market rental figure from the review date of £23,000 pa. The tenant’s agent replied, in a letter headed “In the matter of Rent Review as at July 1 1985”, that:
I am instructed by the tenants to give you hereby formal notice that the open market rental is £12,000 per annum and call on you under the terms of the above Lease to agree this. Please confirm that this is accepted as due notice.
The Vice-Chancellor was of the opinion that the test was whether the counternotice was sufficiently clear to bring home to the landlord what the tenant was purporting to do. The notice did not have to be unequivocal. In the event, the counternotice was valid, as it was headed “In the matter of the lease” and “In the matter of Rent Review as at July 1 1985” and used the words “formal notice”.
This test was adopted in Glofield Properties Ltd v Morley (no 1) [8] 1 EGLR 113; [1988] 02 EG 62, where the machinery for determining the revised rent stipulated that the “open market rental value” was to be:
(a) … such sum as shall be specified in a notice in writing by the lessor to the lessee at any time not earlier than twelve months prior to the commencement of the review period, or the second review period, as the case may be, or
(b) as shall within three months of such notice be agreed between the parties in writing in substitution for the said sum or
(c) … determined at the election of the lessee by counternotice in writing to the lessor not later than three months after the lessor’s said notice, time to be of the essence hereof, by an independent surveyor …
In August 1982, the landlord’s agents gave the formal notice specifying a rent of £9,750 pa and, in September, the tenants’ agents replied that they acted for the tenants and concluded: “Please accept this letter as formal objection and counternotice. We would suggest an early meeting to discuss the matter in detail.”
The parties did not enter into any further communication within the three months’ period. Hutchison J held that the test was whether the letter clearly conveyed to the landlord that it was an election for independent determination. “Please accept this letter as formal objection and counternotice” was a sufficiently clear election because: (i) the letter was in terms a response to the landlord’s letter, which was a formal notice under the clause; (ii) the material sentence contained the word “formal”; (iii) the word “counternotice” was used; (iv) there was nothing in the letter which was inconsistent with its being a counternotice; and (v) looking at the letter as a whole it was impossible to contend that it was not intended as a formal counternotice. Hutchison J considered the decisions of McNeill J in Edlingham and the Vice-Chancellor in Nunes and held that he could not find any inconsistency between them but if there were indeed a conflict, the decision in the Nunes case would be followed.
Service of rent review notices
In general, a notice can be said to have been served only when it is “actually received” unless the context or some statutory or contractual provision otherwise provides. In the case of Sun Alliance & London Assurance Co Ltd v Hayman [5] 1 WLR 177; (1974) 233 EG 927, Lord Salmon, in considering the validity of a notice served under the Landlord and Tenant Act 1954 Pt II, was of the opinion that:
According to the ordinary and natural use of English words, giving a notice means causing a notice to be received. Therefore, any requirement in a statute or contract for the giving of a notice can be complied with only by causing the notice to be actually received — unless the context or some statutory or contractual provision otherwise provides.
In this context, regard can be had to the decision in Midland Oak Construction Ltd v BBA Group Ltd (unreported but noted in Bernstein & Reynolds: Handbook of Rent Review), where the provisions as to rent review provided that the revised rent should be such annual sum as shall be:
(a) specified by 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 its Registered Office at any time before [September 29 1980] and such notice shall be deemed (unless the contrary shall be proved) to have been received by the Tenant in due course of post.
The Court of Appeal held that the provision as to registered post was permissive but that the notice be addressed to the tenant was mandatory. The provision that the notice be sent to the tenant’s registered office was mandatory but overridden by section 196 of the Law of Property Act 1925.
In the more recent case of Ralux NV/SA v Spencer Mason, The Times May 18 1989, the Court of Appeal considered whether sending a document by fax was good service in the context of the Rules of the Supreme Court. The Court of Appeal held that, although the Rules of the Supreme Court did not provide that service of facsimile transmission of documents (fax) was good service, if a party could prove that a legible copy of a document which otherwise met the rules came into the hands of the party to be served, that was good service.
The question of the application of the provisions of section 196 of the Law of Property Act 1925 to the service of rent review notices has been considered in both Davstone (Holdings) Ltd v Al-Rifai (1976) 32 P&CR 18 and Amalgamated Estates Ltd v Joystretch Manufacturing Ltd (1981) 257 EG 489. Section 196 provides as follows:
(1) Any notice required or authorised to be served or given by this Act shall be in writing.
(2) Any notice required or authorised by this Act to be served on a lessee or mortgagor shall be sufficient, although only addressed to the lessee or mortgagor by that designation, without his name, or generally to the persons interested, without any name, and notwithstanding that any person to be affected by the notice is absent, under disability, unborn, or unascertained.
(3) Any notice required or authorised by this Act to be served shall be sufficiently served if it is left at the last-known place of abode or business in the United Kingdom of the lessee, lessor, mortgagee, mortgagor, or other person to be served, or, in the case of a notice required or authorised to be served on a lessee or mortgagor, is affixed or left for him on the land or any house or building comprised in the lease or mortgage, or, in the case of a mining lease, is left for the lessee at the office or counting-house of the mine.
(4) Any notice required or authorised by this Act to be served shall also be sufficiently served, if it is sent by post in a registered letter addressed to the lessee, lessor, mortgagee, mortgagor, or other person to be served, by name, at the aforesaid place of abode or business, office, or counting-house, and if that letter is not returned through the post-office undelivered; and that service shall be deemed to be made at the time at which the registered letter would in the ordinary course be delivered.
(5) The provisions of this section shall extend to notices required to be served by any instrument affecting property executed or coming into operation after the commencement of this Act unless a contrary intention appears.
(6) This section does not apply to notices served in proceedings in the court.
In the Al-Rifai case, the clause in an underlease of a flat provided that, if at the expiration of the first seven years the lessors anticipated that the yearly rent of £2,500 reserved was less than the yearly market rental and they desired to increase the rent to the full yearly rental from October 20 1974, they should:
…give to the lessee three months previous notice in writing expiring on the said October 20 1974, the parties hereto shall review the said rent and agree upon the said full yearly market rental which in default of agreement by August , 1974 shall be referred to a surveyor appointed for that purpose by the president for the time being of the Royal Institution of Chartered Surveyors by the request of the lessor or the lessee or both of them and the reference to such surveyor shall be a reference to him as an expert and not as an arbitrator and his decision shall be final and binding upon the parties and his costs in connection with the reference shall be paid by the lessor or the lessee or shared between them as such surveyor shall direct provided always that 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.
On June 19 1974, the lessors gave notice by a letter stating that they required the revised rent to be payable from October 20 1974 and that the rental was to be £12,500 pa. The lessors sent out four copies of that letter (two to the lessee’s addresses in London and two to his addresses in Kuwait). On August 9 1974, the lessee acknowledged receipt, objected to the increase and required “a full statement supporting [the] claim for review for submission” to his advisers. The lessors contended that no objection had been received with 28 days of the notice, so that the revised rent was payable from October 20 1974. Goulding J held, inter alia, that the proviso in the clause was to the effect that in the absence of objection in due time the lessee should be deemed to have accepted and agreed the increased rental proposed by the lessor, and there was no reason to read in anything that was not there and to say that the rent must be a rent capable of qualifying as the full yearly market value as defined by the clause, and that the notice on that point was valid. Further, that a requirement of three months’ previous notice expiring on a specified date meant notice of not less than three months expiring on that date and receipt of notice in writing, unless otherwise explained, meant receipt of the document and that it could not be said that notice was not served in due time, and as it was duly and sufficiently served on June 20 1974 the lessee must be deemed to have received it on that date for the purposes of the clause. Goulding J noted that the lessee conceded that the notices delivered to his last-known place of abode in the United Kingdom and his last-known place of business in the United Kingdom were effectively served by virtue of the provisions of section 196 of the Law of Property Act 1925.
In the Joystretch case, the rent review clause defined the “open market rental value” and then went on to provide, inter alia:
(3) The open market rental value shall be determined in manner following that is to say
(a) specified in notice in writing signed by or on behalf of the Landlord and posted by recorded delivery post in a pre-paid envelope addressed to the Tenant at the demised premises at any time provided that if a notice is posted after the review date the open market rental shall not be payable until the second quarter day following the posting the said notice and such quarter day shall be known for all purposes as the review date and such notice shall be conclusively deemed to have been received by the Tenant in due course of post or
(b) agreed between the parties before the expiration of three months immediately after the date of posting of such notice as aforesaid in substitution for the said sum of . . .
On the question of the operation of the provisions as to the service of the landlords’ trigger notice, Templeman LJ (as he then was) commented:
. . .it seems to me that this tenant has accepted a lease under which he runs the risk of non-delivery of a landlord’s notice just as under the Law of Property Act 1925 a tenant runs the risk that a notice may be delivered to the demised premises and yet never come to the attention of the tenant. At the same time, on general principles, I fail to see why a landlord cannot be content with the provisions of the Law of Property Act 1925, and I deprecate the inclusion in any lease of an express provision, such as we have in the present lease, whereby the tenant is conclusively deemed to have received a notice which he never had an opportunity to receive: for example, a notice which has been accidentally lost or destroyed by the Post Office authorities. That seems to me to be an unfair burden to put on any tenant.
Notice invalid as being “out of time”
The question of whether a landlord’s rent review trigger notice is invalid as having been served “out of time” is dependent upon the answer to the question of whether time is of the essence of the service of the notice. The question of time of the essence was considered in detail by the present author in an article entitled Time of the Essence? (1987) 284 EG 28; the main principles to note can be summarised as follows, but the practitioner must refer to the previously referenced article and the main case law therein referred to.
(a) The general rule is that time is not of the essence in the service of notices during the rent review procedure: United Scientific Holdings Ltd v Burnley Borough Council [7] EGD 195; (1977) 243 EG 43.
(b) The case law on the subject is not easy to reconcile, but several principles emerge. In Power Securities (Manchester) Ltd v Prudential Assurance Co Ltd [7] 1 EGLR 121; (1987) 281 EG 1327 Millett J enunciated the following:
(1) The correct approach to a rent review clause is to begin with a presumption that time is not of the essence of the time-limits laid down for the various steps to be taken for the determination of a revised rent or, it may be added, of any component element in its calculation.
(2) This presumption will be displaced if, on a consideration of the lease as a whole, and in particular of the provisions of the rent review clause as a whole, it appears that the parties have evinced a contrary intention.
(3) Where the parties have not only required a step to be taken within a specified time but have expressly provided for the consequences in case of default, this provides an indication, of greater or less strength, that time is to be of the essence, but it is not necessarily decisive. Whether it is so or not must depend on all the circumstances of the case, including the context and wording of the provision, the degree of emphasis, the purpose and effect of the default clause and any other relevant consideration.
(4) In the end, the matter is one of impression to be derived from a consideration of the rent review clause as a whole, together with any other relevant considerations, avoiding fine distinctions but giving effect to every provision in the lease.
(c) Where time is expressly made of the essence of one step in the rent review procedure, generally time will not be of the essence of any of the other steps: Accuba Ltd v Allied Shoe Repairs Ltd [6] EGD 31; (1976) 237 EG 493.
(d) It may be possible for the landlord or tenant to attempt to make time of the essence of a provision(s) in a rent review clause. In Factory Holdings Group Ltd v Leboff International Ltd [7] 1 EGLR 135; (1986) 282 EG 1005 the court held that, where a rent review clause contains time-limits in respect of which time is not of the essence, it is none the less open to one party to serve a notice making time of the essence in circumstances where it is fair that he should have the right to do so. As the tenant could himself have applied for the appointment of an arbitrator to the president of the RICS, it was not fair for him to be able to make time of the essence.
(e) Time may be of the essence where there is an inter-relationship between the rent review clause and some other clause in the lease: Al Saloom v Shirley James Travel Services Ltd [1] EGD 404; (1981) 259 EG 420. Time will not be impliedly of the essence in those cases where there is sufficient interrelationship between the rent review clause and some other clause in the lease: Metrolands Investments Ltd v J H Dewhurst Ltd [1986] 1 EGLR 125; (1986) 277 EG 1343.
(f) There has been some uncertainty over the interpretation of the clause to the effect that, if the tenant does not serve a counternotice to the landlord’s trigger notice within a stipulated time, “he shall be deemed to have accepted and agreed the same”. The deeming provision has been held to be a sufficient contra-indication in Henry Smith’s Charity Trustees v AWADA Trading & Promotion Services Ltd [4] EGD 103; (1983) 269 EG 729 and in Greenhaven Securities Ltd v Compton [1985] 2 EGLR 117; (1985) 275 EG 628. The deeming provision was held to be insufficient in Mecca Leisure Ltd v Renown Investments (Holdings) Ltd [1984] EGD 200; (1984) 271 EG 989 and a similar decision was reached in Taylor Woodrow Property Co Ltd v Lonrho Textiles Ltd [1985] 2 EGLR 120; (1985) 275 EG 632 and Phipps-Faire Ltd v Malbern Construction Ltd [1987] 1 EGLR 129; (1987) 282 EG 460.
“Abandoning” the rent review?
Where time is not of the essence and the landlord delays the service of the rent review trigger notice, the question that is sometimes posed is whether such delay can amount to abandonment of the landlord’s rights. In some of the decisions preceding Amherst v James Walker (Goldsmith & Silversmith) Ltd (no 2) [3] EGD 157; (1983) 267 EG 163, the courts had held that unreasonable delay by itself could lead to the loss of the rent review. In the Amherst case, the rent review provisions stipulated that the “trigger” notice should have been served by December 1974 but was not in fact served until January 1985. Following previous litigation (reported at (1980) 254 EG 123 and (1981) 262 EG 442), the landlord sought a declaration that he was entitled to receive the rent determined by the independent arbitrator. The Court of Appeal held that, where time was not of the essence, a mere delay, however lengthy, could not preclude the landlord from exercising his contractual right to proceed with the rent review provisions. Further, the court also rejected the submission that, where time was not of the essence, the landlord had to serve the “trigger” notice within a reasonable time. Oliver and Lawton LJJ were of the opinion, obiter, that delay even with hardship would not lead to the loss of the rent review by the landlord unless it could lead to an estoppel on behalf of the landlord.
Rectification of errors
Where there has been an error in the rent review notice, some assistance may be available from the operation of section 27 of the Arbitration Act 1950. The provisions of this section have the effect that, where an agreement stipulates that a reference to arbitration shall be barred unless notice to appoint an arbitrator is given or an arbitrator is appointed or some other step to commence arbitration proceedings is taken within a time fixed by the agreement, the High Court may extend that time “if it is of the opinion that, in the circumstances of the case, undue hardship would otherwise be caused”.
There is a difference of judicial opinion as to the application of section 27 of the 1950 Act to rent review notices. In the case of Amalgamated Estates Ltd v Joystretch Ltd (supra) the applicability of section 27 of the 1950 Act was assumed by both Lawton and Templeman LJJ and the matter has been further considered in at least three later cases. In Chartered Trust plc v Maylands Green Estate Co Ltd [4] EGD 154; (1984) 270 EG 845, an application was made under section 27 of the Arbitration Act 1950 to extend the time within which the tenants could serve a notice requiring the rent to be determined by arbitration. The lease provided for a counternotice to be given by the tenants within three months of the landlords’ “trigger” notice, time being of the essence of this procedure. A counternotice was not served within the time-limit. Fresh “trigger” notices were served by the landlords, but no counternotices were served by the tenants within the time-limits. Vinelott J held that, by reason of the delay on the part of the tenants, relief under section 27 of the 1950 Act would not be given in respect of the second absent counternotice.
This view was not accepted by Peter Gibson J in Tote Bookmakers Ltd v The Development & Property Holdings Co Ltd [5] 1 EGLR 94; (1984) 274 EG 585. In this case, correspondence had taken place between the parties’ agents as to the revised rent and, during this period, the time allowed to the tenants to serve a counternotice electing to invoke the arbitration procedure under the review clause expired. The tenants served a counternotice and sought an extension of time on the ground of hardship under section 27 of the Arbitration Act 1950. The court held that an essential element in an arbitration agreement was the existence of bilateral rights of reference and, in the present case, the clause conferred the right of election on the tenant alone, so that the tenants could not rely on the 1950 Act.
The operation of section 27 of the Arbitration Act 1950 was considered by the Court of Appeal in Pittalis v Sherefettin [6] 1 EGLR 130; (1986) 278 EG 153, namely whether the tenant could invoke section 27 to obtain an extension of time to give notice of election under a rent review clause in a lease to have the open market rent determined by arbitration. The rent review clause provided for the lessors to give notice to the lessee of the amount of the open market rent but with the right in the lessee not later than three months after notification (time to be deemed of the essence) to require the open market rent to be determined by arbitration. The lessee did not serve notice of election and applied for an extension of time under section 27. After giving judgment for the lessors, the county court judge had second thoughts, recalled his first judgment and gave judgment in favour of the lessee and extended the time. The Court of Appeal held, inter alia, (i) the parties were entitled to agree to confer a unilateral right to require arbitration and the court had jurisdiction to extend the time, (ii) in the exceptional circumstances of the case, where the judge decided almost immediately that his first thoughts were wrong (and there was no detriment to the plaintiffs), he had acted correctly. The Court of Appeal concluded that the decision of Peter Gibson J on the Tote Bookmakers case was incorrect.
