Rent review provisions — Hypothetical letting on open market on certain assumptions — Correct interpretation of assumptions — Whether permissible to take into account all prospective uses — Claimant tenant seeking valuation based upon current use only — Claim allowed
The claimant held a lease of commercial premises from the defendant landlord. As was common commercial practice, the premises had been let as a shell, with the lease providing for a rent-free period while the claimant fitted them out as a restaurant. Other uses within Class A1 and A3 of the Town and Country Planning (Use Classes) Order 1987 were also to be permitted with the defendant’s prior approval, which was not to be unreasonably withheld or delayed. The lease provided for rent reviews to an open market rent to be assessed by reference to a hypothetical letting on various assumptions. Assumption (iii) was that “the premises are let with vacant possession fit for immediate occupation and use for the uses for the time being permitted under this lease (or for the actual use or uses if attracting a higher value)”.
A dispute arose between the parties as to the meaning of the rent review provisions and the basis upon which the parties’ expert had to assess the market rent. In proceedings brought by the claimant, the defendant contended that, on a correct interpretation of assumption (iii), the expert had to take account of any prospective use of the premises for which the landlord might reasonably be obliged to give consent in the future, less a discount in respect of the fitting-out works that would be required to convert the premises for such a use. It submitted that assumption (iii), with its reference to fitness for immediate occupation for the permitted uses, was intended to ensure that the claimant did not benefit from a discount for fitting-out works that it had already carried out to the premises in connection with their present use. It argued that such an outcome might otherwise result should the expert envisage a hypothetical letting in accordance with the common commercial practice. The claimant argued that prospective uses should be disregarded, and that the purpose of the rent review provisions was to value the premises with their presently approved use.
Held: The claim was allowed.
The meaning of the rent review provisions was a matter of construction to be undertaken with regard to their commercial purpose. Since there was force in the purposes put forward by the landlord and the tenant, these were neutral on the meaning of assumption (iii). Looking at its wording, the question was whether the phrase “for the uses for the time being permitted under this lease” qualified the word “let” or the words “immediate occupation”. The natural meaning was the former: the assumption was directed to the rent payable, not to the condition of the premises. Moreover, the words “if attracting a higher value” would be irrelevant if the assumption were directed to the condition of the premises. Accordingly, the claimant’s interpretation was correct: Pontsarn Investments Ltd v Kansallis-Osake-Pankki [1992] 1 EGLR 148; [1992] 22 EG 103 and Basingstoke and Deane Borough Council v Host Group Ltd [1987] 2 EGLR 147; (1987) 284 EG 1587 considered.
Edward Francis (instructed by The Dispute Resolution Practice) appeared for the claimant; Barry Denyer-Green (instructed by Simmons Stein & Co) appeared for the defendant.
Sally Dobson, barrister
