Lease — Rent review — Market rent — Provision for additional rent — Arbitrator determining market rent by including additional rent — Whether arbitrator in error — Appeal allowed
The appellant was the landlord of property of which the respondent was the tenant under a long lease for a term of years from 1 January 1973 to 21 March 2054. The lease provided for five-year, upwards-only rent reviews.
Clause 2(d) defined the market rent as the rent at which the demised premises might at the commencement of the period in question reasonably be expected to be let in the open market by a willing landlord by a lease for a term equivalent to the then unexpired residue of the term with vacant possession, and subject to the same incidents as applied to the existing lease.
By clause 2(g), the lessee was required to pay a supplementary rent of £11,230 pa during the first 15 years, which sum was not to be subject to review.
An arbitrator was appointed to determine the rent from 1 January 2003. He held that the hypothetical lease referred to in clause 2(d) should be assumed to include a requirement that the supplementary rent would apply as in the terms of the existing lease. He therefore deducted that amount from his determination of the yearly rental value for the property.
The appellant appealed against the arbitrator’s award, contending that it was obviously wrong within section 69(3)(c)(1) of the Arbitration Act 1996 and asking the court to reinstate the additional rent as part of the market rent.
Held: The appeal was allowed.
The arbitrator’s decision was wrong. In cases involving long leases, where an additional rent was payable by the tenant, the court had consistently held that the hypothetical lease for the purpose of determining a fair market rent should be deemed not to contain an obligation to pay any additional rent.
In the absence of any contrary indication, a fair market rent had to be assessed in the light of the terms of the rent review clause as they subsisted at the date of the rent review. To achieve the commercial purpose of the lease in question, the hypothetical lease had to reflect the fact that the supplementary rent was no longer payable by the rent review date: Lister Locks v TEI Pension Trust [1982] 2 EGLR 124; (1982) 264 EG 827, Guys’n’Dolls v Sade Brothers Catering [1984] 1 EGLR 103; (1983) 269 EG 129 and Buffalo Enterprises v Golden Wonder [1991] 1 EGLR 141; [1991] 24 EG 171 considered.
Since it would be unfair for the appellant to be bound by a decision that was obviously wrong, the arbitrator’s award would be varied under section 69(7) by deleting the subtraction of the supplementary rent, leaving the market rent at £58,278.
Judith Jackson QC (instructed by Cyril Jones & Co, of Wrexham) appeared for the appellant; Jonathan Brock QC (instructed by Ross & Craig) appeared for the respondent.
Eileen O’Grady, barrister
