Please explain the extent to which “time is of the essence” in a rent review clause.
Tenants in business leases prefer to enjoy security of tenure for several years, but, because of the risk of inflation in the property market, it has become usual to include a rent review clause in such leases.
The rent review process is usually started by a “trigger notice”, issued by the landlord to the tenant, proposing a new rent. The tenant should either agree to the rent proposed by the landlord or oppose it. In the latter eventuality, the rent review clause usually provides for arbitration or valuation to assess the rack rent until the next review date. A workable rent review procedure is therefore important to both parties, because the landlord may wish to obtain (and the tenant to oppose) a considerable increase in the rent. (The increase proposed by the landlord in Henry Smith’s Charity Trustees v AWADA Trading & Promotion Services Ltd (1983) 269 EG 729 was an increase from £8,000 to £29,000 pa. In Amherst v James Walker Goldsmith & Silversmith Ltd [3] 2 All ER 1067 it was an increase from £2,500 to £16,000 pa.)
The rent review clause provides both the landlord and the tenant with a timetable. For example, the landlord may be required to issue a trigger notice not earlier than 12 (and not later than six) months before the end of each five-year period in the lease; and the tenant may be required to make his objection within one month of receiving the trigger notice.
In some instances, it may happen that the landlord sends the trigger notice only after the stipulated time-limit has expired. Alternatively, some other steps required by the prescribed procedure may not be carried out in time. It is therefore an important question whether the times stipulated in a rent review clause are of the essence or are flexible. If “time is of the essence” in rent review clauses, a belated trigger notice sent by the landlord (or a belated counternotice sent by the tenant) will be ineffective.
Presumption as to time
In Coventry City Council v J Hepworth & Son Ltd (1982) 265 EG 608, Lawton LJ observed that, from the late 1960s, the view had become common in the legal profession that “when there was a lease of commercial premises with a rent review clause … there was a presumption that time was of the essence”. But in United Scientific Holdings Ltd v Burnley Borough Council [7] 2 All ER 62 the House of Lords unanimously decided that, prima facie, the time for taking such steps in a rent review clause was not of the essence. The most quoted statement is that of Lord Devlin, who said:
In the absence of any contra-indication 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 timetable specified in the rent review clause … is not of the essence of the contract.
This decision, however, leaves open the following questions: (1) what things may be accepted as contra-indications? (2) what interrelationships between the rent review clause and other clauses in the lease may overthrow the presumption in question? and (3) what surrounding circumstances may rebut the presumption referred to by Lord Devlin?
Before discussing relevant cases it is necessary to dispose of some preliminary questions.
First, trigger notices must be clear and unequivocal. Thus, when a letter from the landlord’s solicitor to the tenant used the words: “I have been instructed … to negotiate with you in connection with the rent review” — this was held not to constitute a valid trigger notice: Norwich Union Life Insurance Society v Tony Waller Ltd (1984) 270 EG 42.
Second, the presumption that time is not of the essence applies to the tenant’s counternotice as well as to the landlord’s trigger notice: Mecca Leisure Ltd v Renown Investments (Holdings) Ltd (1984) 271 EG 989.
Third (in those cases where the presumption applies), even an unreasonable delay does not affect the validity of a trigger notice, unless it causes some injustice to the tenant: Amherst v James Walker Goldsmith & Silversmith Ltd [3] 2 All ER 1067 (four years’ delay) and Telegraph Properties (Securities) Ltd v Courtaulds Ltd (1980) 257 EG 1153 (six years’ delay). In the Amherst case, it was stated obiter that, unless the landlord actually induced the tenant to act to his detriment, mere delay should not affect the landlord’s rights.
Fourth, the fact that the lease may state that the tenant “shall be deemed to have agreed to the rent” proposed by the landlord if he fails to serve a counternotice within the stated time-limit does not (without more) rebut the presumption that the time-limit is not essential: Mecca Leisure Ltd v Renown Investments (Holdings) Ltd (1984) 271 EG 989 and Taylor Woodrow Property Co Ltd v Lonrho Textiles Ltd [5] 2 EGLR 120.
Rebutting the presumption
It is, of course, self-evident that the parties (when drafting the lease) may expressly provide that time shall be of the essence for the purposes of the rent review clause. This proposition is so clear that it needs no further discussion.
The remaining possibilities can be divided into: (1) “break clauses” in the lease; and (2) other circumstances in or relating to the lease.
Break clauses
A “break clause” is a clause which entitles the tenant to terminate the lease if he finds the revised rent to be too high. Such a clause will make time of the essence only if the timetable in the lease and the “break clause” are closely interlocked. In Edwin Woodhouse Trustee Co Ltd v Sheffield Brick Co plc (1983) 270 EG 548 a 21-year lease provided for rent reviews after 7 and 14 years. There was both an arbitration clause and a break clause, but the last date for serving a notice to break the lease was also the last date for agreeing to the new rent (and, hence, avoiding arbitration). Thus it was possible for the time for the service of a break clause notice to expire before the tenant knew what rent the arbitrator was going to award. This being so, the “break clause” could not be viewed as a safeguard to the tenant to avoid future high rent, and the landlord’s delay in serving a trigger notice did not cause any additional prejudice to the tenant. Thus the landlord’s trigger notice was upheld, even though it was served out of time.
Nevertheless, in a number of cases the courts have found a sufficient inter-relationship between the two types of clause to indicate that time was intended to be “of the essence”: Coventry City Council v J Hepworth & Son Ltd (1982) 265 EG 608; William Hill (Southern) Ltd v Govier & Govier (1983) 269 EG 1168; and Legal & General Assurance (Pension Management) Ltd v Cheshire County Council (1983) 269 EG 40.
Other circumstances
In Lewis v Barnett and Scarborough v Barnett (both reported at (1981) 264 EG 1079) there was a provision in the leases that, if the landlord and tenant had not agreed the open market rent by a stated date and if the landlord had not applied to the president of the RICS for the nomination of a surveyor to determine the rent, the landlord’s trigger notice should be void. The Court of Appeal held that the phrase “shall be void” was a sufficient indication that the parties intended to make time of the essence. Accordingly, the landlord’s failure to apply to the president within the stated time rendered his trigger notice void.
In Henry Smith’s Charity Trustees v AWADA (1983) 269 EG 729 a lease contained a schedule with a detailed timetable, and para 7 of this schedule stated that, if the landlord had not applied for the appointment of a surveyor within the prescribed time-limit, the amount stated in the tenant’s counternotice would be “deemed” to be the market rent. Although this “deeming” provision could not, by itself, make time of the essence, the Court of Appeal held that there were sufficient additional indications that it had been the intention of the parties to treat this particular time-limit as inflexible.
Retrospective increases
The House of Lords made it clear (in the United Scientific Holdings case) that a newly assessed rent (if assessed out of time) should, nevertheless, be paid retrospectively. The House disposed of the argument that the presumption against time being of the essence would cause injustice to a tenant. They stated that it was always open to the tenant to force the issue by serving a notice on the landlord, making time of the essence after the expiration of a reasonable time (named in the notice).
All the cases cited above arose out of leases which had been drafted before the House of Lords gave its judgment in the United Scientific Holdings case. The situation has now been improved by the Law Society and the RICS, who have (together) produced Model Forms of Rent Review Clause (in 1979). This booklet was amended in 1980 and 1985 to accommodate the latest case law. The booklet accepts the proposition that time is not generally to be of the essence, but it allows the tenant to make it so by means of a suitable notice.
