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Rent review — 1988 update

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by Delyth Williams

Since the last update on the recent developments in the rent review field appeared in Estates Gazette, at [8] 04 EG 22, at least 20 cases have been reported on the subject. While it is clear that the last 12 months have not witnessed the flood of litigation which has taken place in recent years, some significant developments have occurred. This article summarises these developments and it is hoped that it will act as a source of initial reference for the busy practitioner.

Time, notices and counternotices

Most practitioners will be aware that the general rule emanating from the decision in United Scientific Holdings Ltd v Burnley Borough Council (1977) 243 EG 43 and 127 is that time is not of the essence in the service of the rent review “trigger” and other notices. In Panavia Air Cargo Ltd v Southend-on-Sea Borough Council [8] 1 EGLR 124; [1988] 22 EG 82, land, an aircraft hangar and other buildings were demised from 1978 to 2035 at a rent of £2,700 pa with a review in 1985 and every subsequent five years. The parties were to agree (or determine) the current rack-rent during the seventh year and the rent for the next period was to be either 25% of that figure or £2,700 (whichever was the greater). If no agreement had been reached six months before the commencement date of the next five-year period, the landlord could require the appointment of a surveyor to determine the revised rent (or could apply to the president of the RICS to make such an appointment). The surveyor was to give his decision within two months of his appointment. However, if the review were not determined until after the commencement of the next period, the rent was to remain payable at the old rate until the next quarter day following the decision. Time was expressly stated not to be of the essence of the rent review schedule. If the revised rent had not been determined by a date 12 months after the commencement of the relevant period, the rent payable during the relevant period was to be the current rent plus 25%. Negotiations were opened in September 1984, but the landlord had not taken steps to ensure the appointment of a surveyor by January 1986.

Mr Edward Nugee QC (sitting as a deputy judge) [8] 1 EGLR 111; [1988] 01 EG 60 held that the landlord was entitled to have the amount of the rent payable for the review period determined by a surveyor and, further, it was open to the plaintiffs to make time of the essence of the final paragraph of the rent review provisions (namely the provisions concerning a delay of more than 12 months). This construction was accepted by the Court of Appeal and the tenants’ argument that the clause in question should be given its literal effect was rejected on the ground that its object was to give certainty and finality and protect a tenant from inordinate delay in pursuing a rent review. Further, the tenants could have made time of the essence by serving the appropriate notice. On the facts of the case, time was held not to be of the essence of the instant clause.

What amounted to a clear counternotice for the purposes of the rent review provisions was the main question at issue in Glofield Properties Ltd v Morley [8] 1 EGLR 113; [1988] 02 EG 62. In this case, the machinery for determining the revised rent stipulated that the “open market rental value” was to be:

  1. …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
  2. as shall within three months of such notice be agreed between the parties in writing in substitution for the said sum; or
  3. …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.” The issue before Hutchison J was whether the tenants’ agents’ letter was a sufficient counternotice and the learned judge held that the test was whether the letter clearly conveyed to the landlord that it was an election for independent determination. In the instant case, “Please accept this letter as formal objection and counternotice” was a sufficiently clear election.

In Glofield Properties Ltd v Morley (No 2) [8] 2 EGLR 149; [1988] 33 EG 59, the rent review clauses in question provided for the rent of a 15-year lease to be reviewed, in respect of the second and third five-year intervals, with a fixed rent for the first five-year period. The “open market rental value” for the purpose of the review was the sum which was “at the time of such determination the annual rental value of the Demised Premises in the open market” on a lease for a term equivalent to the residue of the actual lease at that date. The main question was whether the independent surveyor was required to determine the rental value as at the date when he actually made his determination (as the landlords contended) or as at the commencement of the relevant review period (as the tenants contended). Mr Michael Wheeler QC (sitting as a deputy judge) held, with some reluctance, that the landlords’ contention was correct, so that the rental value must be the value at the date of the independent surveyor’s determination. This view accorded with the language of the rent review provisions and the decision of the Court of Appeal in London & Manchester Assurance Co Ltd v G & A Dunn & Co (1982) 265 EG 39 and 131.

In Maraday Ltd v Sturt Properties Ltd [8] 2 EGLR 163; [1988] 46 EG 99 the validity of the landlord’s “trigger” notice was one of the matters in question in the construction of words in a lease of a warehouse. The lease for 15 years provided that, after an initial seven-year period at a stated rent, the remainder of the term should be divided into two periods of five and three years respectively, with the first review period commencing on March 25 1987 and expiring on March 24 1992. The part of the clause in issue provided that the open market rental value was to be such sum as should be specified in a notice in writing by the lessor “served at least six months before the expiration of the period in question”. The issue was as to the meaning of the phrase “the period in question”. The remainder of the lease after March 25 1987 had been divided into two periods of five and three years and these were defined as “the review periods”. The landlords’ notice proposing to exercise their right to review the rent was given to the tenants on January 26 1987. Hoffmann J held that, unless he was compelled to read “expiration” as “commencement”, the “period in question” must mean the review period which expired on March 24 1992, so that the landlords’ notice was served on time. It is to be noted that this meant that the rent could be reviewed retrospectively at a time when the whole of the rent review period would have expired and (in the case of the second review period) after the lease itself may have expired.

The effect of the rubric “subject to contract” on the rent review procedures was one of the matters in issue in Henderson Group plc v Superabbey Ltd [8] 2 EGLR 155; [1988] 39 EG 82. In this case, the rent review provisions in a lease 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 per annum for the property in place of the existing rent of £16,682 per annum. 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 “Without Prejudice” rubric. The landlords then sent to the tenants a formal memorandum to record their agreement to the revised rent of £26,944 per annum 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.

“Reviewing without review”

The question of whether the hypothetical lease upon which the valuer is asked to value contains a rent review(s) during the residue of the term has been the subject of litigation culminating in the decision of the Court of Appeal in Equity & Law Life Assurance Society plc v Bodfield Ltd [7] 1 EGLR 124; (1987) 281 EG 1448. Some of these matters were considered again in British Home Stores plc v Ranbrook Properties Ltd [1988] 1 EGLR 121; [1988] 16 EG 80, where the lease was for a term of 99 years from August 11 1977 and the rent review provisions were to the effect that the hypothetical tenancy was to be on the terms and conditions contained in the actual lease “save as to rent”. The main issue, therefore, was whether the hypothetical tenancy should itself include the rent review provisions contained in the lease. The tenants relied on the guidelines laid down by the Vice-Chancellor in British Gas Corporation v Universities Superannuation Scheme Ltd [1986] 1 EGLR 120; (1986) 277 EG 980, where he stated:

  1. words in a rent exclusion provision which require all provisions as to rent to be disregarded produce a result so manifestly contrary to commercial common sense that they cannot be given literal effect;
  2. other clear words which require the rent review provision (as opposed to all provisions as to rent) to be disregarded (such as those in the Pugh case [Pugh v Smiths Industries Ltd (1982) 264 EG 823]) must be given effect to, however wayward the result; and
  3. subject to (b), in the absence of special circumstances it is proper to give effect to the underlying commercial purpose of a rent review clause and to construe the words so as to give effect to … that purpose by requiring future rent reviews to be taken into account in fixing the open market rental under the hypothetical letting.

The landlords argued that the construction of a document should be approached without any preconceived ideas as to the purpose of any particular provision in it and it was only when there was doubt or ambiguity that it was proper to look at the commercial purpose. Warner J held that the words “the terms and conditions (save as to rent) herein contained” were at least ambiguous, so that they did not come within that category in the British Gas case which “must be given effect to, however wayward the results”. It was, therefore, legitimate to look at the underlying commercial purpose so that the words “the terms and conditions (save as to rent) herein contained” included the rent review provisions in the schedule to the lease.

Questions of construction

A “primitive form of rent review clause” raised several interesting questions of construction in Leigh v Certibilt Investments Ltd [8] 1 EGLR 116; [1988] 04 EG 127. The clause in question was contained in a lease of an industrial estate for 84 years from August 3 1965 at £75,000 per annum with provision for rent review every 21 years. The revised rent was to be equal to one-half of the “estimated aggregate rack-rental value of the demised premises”. The estate in question consisted of 18 separate units, the majority of which were individually sublet but some of which were vacant, and the purpose of the review clause was to enable the landlord to share with the lessee the increase in the underlying rack-rental value. The lease provided that the revised rent should be the aggregate rack-rental value of the demised premises and not the aggregate of the rack-rents actually received from the sublet units plus the rack-rental values of the parts not sublet.

The main matters of construction determined by Millett J were as follows:

  1. The valuer was to treat the estate as divided at the material date and substitute for the actual rents, where appropriate, the rental value of each separate unit and, as to voids, he must embark on the normal inquiries and ask how the landlord would best deal with each void;
  2. The valuer must assess the rack-rental value of each unit by assuming the unit to be available for subletting with vacant possession;
  3. With regard to an option given to the lessee in certain circumstances to repair a building or demolish it, the valuer must treat the lessee as exercising the option in his best interests from the viewpoint of seeking to obtain the maximum rack-rental value of the premises.

A provision for the delay of the first rent review date in the event of certain roadworks not being completed was considered by the Court of Appeal in Ladbroke Group plc v Bristol City Council [8] 1 EGLR 126; [1988]23 EG 125. In this case, the lease was for 125 years from July 1973 (pursuant to a building agreement) under which there was to be a basic rent for the first seven years of the term (with subsequent reviews).

The clause in question provided that, if the roadworks had not been carried out by March 31 1973, the first review date should be delayed one year for every year (or part) of delay until completion of the works or notification by the landlords that they would not be carried out. The lease, when granted, repeated the proviso except that the tense was altered to the past because, by then, the works had not been carried out.

When, in 1981, the landlords gave notice that the works would not be carried out, the tenants argued that the period of delay of review was from March 31 1973 to the date of the notice, while the landlords argued that the period was from July 5 1980, being the earliest review date provided for by the lease. Part of one year elapsed between July 5 1980 and the landlords’ notice of February 10 1981, so that, according to the formula, the first review date fell to be deferred by one year to July 5 1981.

The Court of Appeal, reversing the view at first instance, accepted the tenants’ view that the first review date was July 5 1988. In all the circumstances, taking March 31 1973 as the starting point, the application of the formula resulted in July 5 1988 being the delayed date of the first rent review.

In Ipswich Town Football Club Co Ltd v Ipswich Borough Council [8] 2 EGLR 146; [1988] 32 EG 49, the 99-year lease provided for a rent of £3,000 for the first 14 years and thereafter to be revised to the “current market rental value of the sports ground” at seven-yearly intervals. The demised premises were:

… first all that piece or parcel of land … hereinafter separately called the main pitch …; second all that piece or parcel of land…hereinafter separately called the practice pitch … all which said pieces or parcels of land … are hereinafter collectively called the sports ground, together with the existing buildings and erections upon the sports ground.

The various covenants in the lease generally observed the distinction between the “sports ground” (meaning the land demised) and any buildings or erections thereon. Between 1969 and the first review date, the club spent £3.7m erecting a grandstand and other buildings on the sports ground. The issue between the parties was whether, at rent review, the independent surveyor should determine a rental value for the land only or for the land and buildings as they existed at the review date. Sir Nicolas Browne-Wilkinson V-C held that, as the lease was a carefully drafted document which distinguished between the “sports ground” on the one hand and the sports ground plus buildings on the other, as a matter of construction a valuation of the “current market rental value of the sports ground” required a determination of the rental value of the land without any buildings.

The question of the appropriate assumptions to be adopted by the arbitrator was the matter at issue in Ravenseft Properties Ltd v Park [8] 2 EGLR 164; [1988] 50 EG 52, where the plaintiff and defendant were the respective owners of two adjoining properties. In 1966, the plaintiff’s predecessor in title was granted a building lease of the defendant’s site for 99 years from December 31 1965 “in consideration of the expense to the tenant of erecting a supermarket”. The rent review interval was every 21 years, so that the first review fell to be determined at the end of 1986. The plaintiff-tenant argued that the revised rent must be determined on the assumption that the property demised was, as had occurred, land without buildings. Judge Paul Baker QC (sitting as a judge of the High Court) held that the plaintiff-tenant’s application failed because, where the lease is silent as to the appropriate assumptions at rent review, the arbitrator must take the premises as they stand.

In Wallace v McMullen [8] 2 EGLR 143; [1988] 28 EG 81, the rent review clause provided for increases of rent at seven-year intervals by reference to increases in the vacant possession capital value of the land which was the subject of the lease. Instead of the usual hypothetical lease the clause envisaged a hypothetical freehold with similar rights and obligations attached thereto and with a similar planning permission to that which was enjoyed by the actual freehold. The land demised was some 127 acres, which was leased in order to allow it to be laid out and used as a golf club. The actual lessees were a brewery company whose interest was not unconnected with the possibility of tying the club to a brand of beer to be consumed in the clubhouse. The intention was that the owners of the estate let the land to the brewers, who would then sublet it to the golf club. The lease was for 99 years from 1971, with the rent being £1,800 pa during the first seven years and thereafter (subject to variation under the review clause) £3,500 pa. The rent review clause required the rent to be increased (there being no provision for reduction) by the same percentage as the increase in capital value resulting from the hypothetical freehold formula and the main problem was as to what “rights and obligations” (in the words of the rent review clause) should be treated as attached to the land in question in determining the capital value. The tenants argued that all the tenants’ obligations under the lease (including that to lay out the golf course) should be taken into account, but the landlords countered that the “rights and obligations” were only those easements and mineral and sporting rights granted and reserved to the landlords.

The Vice-Chancellor was of the opinion that the indications were that what the parties had in mind was a valuation which determined the capital value of the freehold together with the benefit of the rights and easements stated in the relevant schedules to the lease but disregarding covenants applicable only as between landlord and tenant.

Several matters of construction arose in the complex case of Trusthouse Forte Albany Hotels Ltd v Daejan Investments Ltd (No 2) [9] 03 EG 78, where the plaintiff held an underlease of premises in London for a term of 75 years from July 5 1963. The initial rent was £550,000 pa and the underlease contained provisions for rent review at July 5 1979 and at the end of seven-year periods thereafter. The review clause provided that the revised rent was to be the aggregate of three items, including:

“the excess of the rental value on the relevant date above Two hundred and Fifty thousand pounds of those areas being parts of the ground floor and the basement of the demised premises as shown edged red on the plans annexed hereto and marked C and D (on the basis that those areas are actually let for or are available for letting for shopping and retail purposes) …”

Of the areas delineated by reference to the clause, the greater part was used as part of the Strand Palace Hotel and the other areas used for shopping and banking. The parties to the proceedings raised several matters of construction including, inter alia, whether the areas were available for letting separately or in aggregate; to the extent that they were sublet, whether they were to be assumed as available with vacant possession or otherwise; whether the areas were available for shopping and retail purposes only or for purposes permitted by the lease; and what terms were to be assumed in such hypothetical lettings.

Mr Michael Wheeler QC (sitting as a deputy judge) held that the decision in Basingstoke and Deane Borough Council v The Host Group Ltd [7] 2 EGLR 147 provided assistance as to the proper approach in construing rent review provisions. Although regard must be had to the language used by the parties in the lease, it is proper and sensible to have in mind what normally is the commercial purpose of a rent review clause. Unless the lease “otherwise, requires, expressly or by necessary implication, or there is some context indicating otherwise, the parties are to be taken to have intended that the notional letting assumed for the purposes of the rent review assessment was to be on the same terms … as those still subsisting under the actual, existing lease”. The user clause in the lease itself was permissive to the extent that it referred to certain uses of the demised premises, but the reference to shopping and retail purposes in the rent review clause was an instruction to the surveyor and impliedly recognised that, for rent review purposes, the use of the areas was for shopping and retail purposes only. Further, as there were four separate areas identified for shopping and retail purposes, each area must be regarded as let separately and the rental value was the aggregate of the values of the individual areas. Any area sublet at the relevant date was to be treated as being available for letting subject to any sublease. Finally, the provisions of the hypothetical lettings were not those that might be agreed in the open market but were to be derived from the terms of the existing lease: the term in each case was to be the same as the unexpired residue of the existing lease with the rent reviews at the same intervals and all other terms as contained in the lease so far as necessary for the purposes of the assumed lettings.

The effect of a user covenant and restrictions in a licence to assign were the main matters considered by Mervyn Davies J in SI Pension Trustees Ltd v Ministerio de Marina de la Republica Peruana [8] 1 EGLR 119; [1988] 13 EG 48. In this case, the hypothetical letting was to be a letting in the open market for a term equal to the residue of the lease with vacant possession without a premium and subject to provisions similar to those contained in the lease. The lease contained a user covenant restricting the use of the demised premises to offices in connection with the lessee’s business of mortgage finance and insurance consultants. The licence to assign to the present defendants restricted the user to offices occupied for the purposes of the assignee’s diplomatic mission. It was argued on behalf of the defendants that the user should be deemed to be restricted to use as offices for the purpose of the diplomatic mission of [blank], with the blank to be filled in when the name of the hypothetical diplomatic lessee was known, but the learned judge rejected this submission and held that the “provisions of the lease” in the rent review clause meant the original provisions were unaffected by the personal arrangements made in the licence respecting the current tenants, with the result that the decision in Law Land Co Ltd v Consumers’ Association Ltd (1980) 255 EG 617 was partly distinguished. Mervyn Davies J held that it should be assumed that a mortgage finance and insurance consultant tenant had been found intending to use the premises as offices and, further, that the hypothetical tenant would be bound not to use the premises save in connection with his business as a consultant, so that any assignee from the hypothetical tenant would be subject to the same user provision.

The question as to the terms of the hypothetical lease in a complex case involving two underleases granted to the same tenant was one of the main issues in Toyota (GB) Ltd v Legal & General (Pensions Management) Ltd [8] EGCS 148. In this case, the defendant was the landlord of warehouse premises the subject of two underleases granted in June 1973. These underleases were granted on the same day to the same tenant. The first underlease was for a term of 16 years expiring at Lady Day 1989 and the second was an underlease of the expectant reversion commencing at Lady Day 1989 and for a term of 34 years. The second lease was on the same terms as the first and subject to the first’s not having been forfeited. The two underleases thus gave, in effect, terms amounting in aggregate to 50 years. The five-year rent review provisions in the first underlease required the rent to be determined on the assumption of a lease for a term of years equivalent in length to the “residue unexpired” at each rent review date and that all restrictions relating to security of tenure should be disregarded. The plaintiff contended that, at the 1988 rent review, it should be assumed that the hypothetical lease was for one year, as this was the same as that unexpired under the 16-year term of the first underlease. For the landlord, it was submitted that the unexpired term must include the 34-year term of the reversionary underlease that was to follow the current underlease.

Knox J held that, in construing the first underlease, it was legitimate to have regard to the contemporaneous execution of the reversionary underlease and to treat the two as forming two parts of one overall transaction. However, the references in the first underlease to the “term” must, as a matter of grammar, be references to the term granted by the first underlease alone, so that the hypothetical term for the purposes of the 1988 rent review was a letting for one year only. The terms of the underleases were too explicit to let in the general principle that rent review clauses must be construed so as to require the tenant to pay for what he actually gets, as was held in the case of Basingstoke and Deane Borough Council v The Host Group Ltd [7] 2 EGLR 147. Further, the requirement in the rent review provisions that there should be disregarded all restrictions whatsoever relating to security of tenure contained in any statute or order, rules or regulations thereunder had a meaning in the context evincing an intention to have regard to the rights at common law of the hypothetical tenant without regard to statutory intervention concerning security of tenure.

The construction of the length of the hypothetical term and various other questions of construction were considered in Ritz Hotel (London) Ltd v Ritz Casino Ltd [8] EGCS 142, which concerned an application under section 2 of the Arbitration Act 1979 for leave to appeal. The lease in question, which was originally granted for a term of 21 years from July 1977 and was held at the present time by the assignee tenant, was of hotel premises with a casino licensed under the Gaming Acts. The five-yearly rental reviews were to be upwards only and based upon:

“the market rent of the demised premises taking no account [of] (i) any effect on the rent of the fact that the Tenant or any company within the same Group … or its or their predecessors in title has been in occupation of the demised premises … (iii) any goodwill attached to the demised premises by reason of the business carried on thereat at the review date and it is expressly agreed that in assessing the market rent no account shall be taken of the turnover or profits of the business carried on by the Tenant in the demised premises … But having regard insofar as possible to the rental values then current for similar properties let on similar terms with vacant possession for a term equivalent to the term hereby granted … on the basis that at the time when the market rent falls to be agreed or determined the Tenant does not hold but will immediately obtain a licence under the Gaming Act 1968…”

Vinelott J held, inter alia:

  1. it must be assumed that the hypothetical lease was for a term of 21 years commencing in 1977 at the same time as the actual lease;
  2. the use of profits in the valuation as well as rental values of comparable premises was permissible only in the absence of comparable rental values;
  3. when considering the information available in the open market about the turnover of holding and other companies in the same group as the tenant, the arbitrator must have in mind the prohibition in the lease and must not take notice of anything revealed about the tenant;
  4. no account was to be taken of goodwill, as this had a consequence on values that an arbitrator must consider;
  5. there was little significance in the use of upper-case “T” in “Tenant” in relation to a gaming licence, as the words “will immediately be able to obtain” a licence were present to avoid the risk and delay which were to be assumed in Daejan Investments Ltd v Cornwall Coast Country Club [5] 1 EGLR 77;

  6. it must be assumed that a tenant under the hypothetical lease would have no gaming licence but could get one.

Arbitration and other issues

A challenge to an arbitrator’s order on the grounds of alleged misconduct or procedural mishap was successful in Control Securities plc v Spencer [8] EGCS 44, where an arbitrator was appointed to determine the rental value of the last seven years of a 21-year lease of a sports shop. On his appointment, the arbitrator proposed certain rules of procedure which included the following rules, namely that the parties had to submit their respective opinions of rental value and comparables; and that the general rules of evidence applied to the comparables, which had to be within the direct knowledge of the surveyor concerned, supported by documentary evidence or agreed between the parties. An opportunity was given for counter-submissions, following which the arbitrator was of the opinion that “I will allow no further correspondence but will make contact with the parties to discuss whether the matter should proceed by hearing or written submission”. All communications were to be through the arbitrator.

Submissions made by the tenant’s surveyor contained details of a number of shops but gave no indication whether the surveyor had direct knowledge of the transactions. The arbitrator wrote to the surveyor on September 22 1987 drawing attention to this omission and the landlord’s surveyor, in his counter-submissions of October 5 1987, made the same point. The tenant’s surveyor dealt with these points in his counter-submissions of October 6 1987, saying “we have been involved directly in the majority of the rent review negotiations and we believe that these more accurately represent true rental values in the area” and he also referred to a letter he enclosed written by his client commenting on the property. Although the arbitrator sent the tenant’s counter-submissions to the landlord’s surveyor, he failed to send the tenant’s letter. The arbitrator did not contact either party to discuss whether an oral hearing should be held and published his award on November 18 1987. Hoffmann J held that there was misconduct of the proceedings or a procedural mishap. Although the landlord’s surveyor might have objected at the time to the receipt of inadmissible evidence and to the failure to send a copy of the tenant’s letter, the arbitrator had proceeded to an award without an oral hearing and this was contrary to the indication that he would discuss with the parties whether an oral hearing was required. The landlord’s surveyor was entitled to assume that he should wait for the arbitrator to contact him about that matter.

In Railstore Ltd v Playdale Ltd [8] 2 EGLR 153; [1988] 35 EG 87, Knox J considered the guidelines laid down by Sir Nicolas Browne-Wilkinson V-C in Lucas Industries plc v Welsh Development Agency [1986] 1 EGLR 147 as to the exercise of the judge’s discretion to grant leave to appeal under section 1 of the Arbitration Act 1979. In this case, the lease was for 99 years from 1965 and provided for a rising rent for the first three years and thereafter four rent reviews at 21-year intervals during the residue of the term. In determining the rent the arbitrator had to disregard any effect on rent of any improvement carried out by the lessees and, in the instant case, three parcels of land fell within the disregards. Two pieces of land had buildings erected upon them and one was without any building on it and the arbitrator determined that the two former parcels should be valued at site value and the latter parcel at nil value. Knox J held that he had no real doubt that the arbitrator was correct in his determination and the learned judge gave his reason for this view, namely the fact that the rent review clause did not require the arbitrator to disregard not only the existence of the buildings but also the planning situation.

Several interesting issues were raised in Thomas Miller & Co v Richard Saunders & Partners [8] EGCS 160, which concerned separate rent reviews taking place between the landlord and tenant and the tenant and subtenant: the defendants (represented by K) acted for the plaintiff-tenants in both negotiations. Both rent reviews were referred to arbitration by way of the written representation procedure — and to the same arbitrator — the written representations on behalf of the plaintiffs being prepared by the defendants. The award in the sublease rent review excluded certain corridors from the calculations, but the later award in the headlease rent review included those corridors. The plaintiffs, as intermediate landlords, were left with paying the rental value of the corridors without the right to recover that value from the subtenant. In the earlier arbitration, between the plaintiffs and the subtenant, it was alleged that the defendants, through K, were negligent in reaching an agreement with the subtenant’s surveyor to exclude the corridors before there was a similar agreement in relation to the headlease arbitration. In relation to the later headlease arbitration, it was alleged that there was negligence in the conduct of the arbitration because of K’s alleged failure in relation to the earlier arbitration to submit evidence to show the necessity of the corridors for fire precaution reasons.

Rougier J dismissed the claim because, on the evidence, although there was an error of judgment on the part of K, there had been no negligence in reaching an agreement with the subtenant’s surveyor to exclude the corridors in issue from the valuations and representations submitted to the arbitrator in relation to the earlier sublease arbitration. There was a risk that a similar agreement might not be achieved in relation to the headlease arbitration, but it was not negligence. Further, on the evidence, there had been negligence in the conduct of the headlease arbitration, as K had a “trump card”, the evidence of the necessity of the corridors for fire reasons, which he had failed to use in the sublease arbitration.

However, that breach of duty of care was not the cause of the damage suffered by the plaintiffs, as the chain of causation between negligent act and the damage was broken by the decision of the arbitrator in his award in the headlease arbitration.

Miscellaneous matters

Whether the appointment of an independent surveyor by the president of the RICS was valid was one of the issues in question in Darlington Borough Council v Waring & Gillow (Holdings) Ltd [8] 2 EGLR 159; [1988] 45 EG 102. In this case, there was provision for rent review at five-year intervals with the current market rental value to be agreed by the parties; if not agreed six months before the commencement of the relevant five-year period, the landlords could, during that six months, require the appointment of an independent surveyor to determine the rent. There was a certain amount of inconclusive correspondence but no application was made within time to the president. However, an application was subsequently made out of time and a surveyor appointed and rent determined. Mr Terence Cullen QC (sitting as a deputy judge) held that the rent review procedure in the lease had not been properly invoked, with the result that the rent for the next five years was the “passing” rent.

The very interesting, and important, question of issue estoppel at rent review was examined in Arnold v National Westminster Bank plc [8] 2 EGLR 161; [1988] 45 EG 106, which was a further stage in the litigation which began with the decision of Walton J in National Westminster Bank plc v Arthur Young McClelland Moores & Co [1985] 2 EGLR 13; (1985) 275 EG 717. In those proceedings, Walton J decided that the hypothetical lease should be construed as not containing any provision for rent review but refused leave to appeal and refused to grant a certificate under section 1(7)(b) of the Arbitration Act 1979. The lessees commenced proceedings for rectification of the lease and/or, in the alternative, a declaration as to the true construction of the rent review clause (namely the very point decided by Walton J). Sir Nicolas Browne-Wilkinson V-C was of the opinion that there were exceptional circumstances preventing the issue estoppel rules operating, namely that the first decision was impeachable on some ground such as fraud or collusion or that it was a default judgment or that relevant new material (not available at the time of the first decision) had become available. The Vice-Chancellor held that justice required that the matter be relitigated on the grounds that, if the prior decision were unchallengeable, it would affect four further rent reviews and also that the peculiarities of the rules applicable to appeals from arbitrators meant that the decision of Walton J put an end to the matter.

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