Landlord and tenant – Rent review – Construction – Claimant landlord seeking proper construction of rent review provisions contained in subleases of flats – Whether machinery by which provision to operate breaking down following statutory changes – Ruling made
The claimant’s deceased husband held the headlease of a property in Cadogan Gardens close to Sloane Square in London. The claimant was the successor in title. The property had been built in the late 19th century in fairly quiet section of the street and faced communal gardens. It was divided into flats on the lower ground, ground floor and four upper floors which were sublet to the defendants or their predecessors in title. Both the headlease and the underleases were entered into shortly after the coming into force of the Rent Act 1977. The general scheme in the headlease and the underleases was that the rents were subject to an upward-only review every 10 years on the same date.
Clause 4 of the headlease contained the review provisions, including a cap limiting the ground rent to two-thirds of the rateable value of the property at the date when any variation was made. The underleases were in similar terms.
In April 1973, the local authority compiled its valuation list of properties within its area and assessed the rateable values of the property, applying the method of assessment laid down by section 19 of the General Rate Act 1967. No subsequent valuation list was compiled following the abolition of domestic rates in 1990 and their replacement by the community charge and then by council tax. In those circumstances, a question arose whether the cap limiting the ground rent to two-thirds of the rateable value applied and the claimant sought the determination of the court as to the true construction of the rent review provisions in the underleases. The court had to decide: (i) the proper construction of the proviso in the underleases; (ii) whether the machinery by which the proviso was to operate had broken down; and (iii) if so, what should be the substitute machinery.
The claimant argued that the proviso required that the increase in rent otherwise than in respect of rates, services, repairs, or maintenance, be capped at each review date at two-thirds of the valuation, as at the review date, of the demised premises, calculated in accordance with the definition and method of assessment set out in section 19 of the 1967 Act. The defendants said that the proviso required the increase in rent to be ascertained by taking the figures from the valuation list compiled in April 1973.
Held: The claim was allowed in part.
(1) The starting point for any consideration of the construction of the proviso was to ascertain the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract. The background included anything which would have affected the way in which the language of the document would have been understood by a reasonable man. The law excluded from the admissible background the previous negotiations of the parties and their declarations of subjective intent. Words had to be given their natural and ordinary meaning: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 applied.
Having regard to the factual background in the present case, properly construed, the proviso had to be read as preventing any increase in the rent payable under the subleases, otherwise than in respect of rates, services, repairs, or maintenance, beyond two-thirds of the sum shown as the rateable value of the relevant demised premises on the valuation list which was the valuation list being used, at the review date, by the local authority for the purpose of collecting domestic rates. The cap in the proviso did not impose a limit by reference to a valuation which happened to have been carried out in accordance with section 19 of the 1967 Act as at the relevant review date. Nor did it impose a limit by reference to the 1973 valuation list. There could be no necessary implication that, where parties came to an agreement, it had to be interpreted on the basis of the law as it stood when the agreement was made. It was part of the factual matrix known to both parties that both statute law and the common law developed over time. If they had been content to leave a matter to the general law, they had to be taken to have agreed that their agreement should be interpreted in the light of the general law from time to time: Lymington Marina Ltd v Macnamara [2007] EWCA Civ 151 considered.
(2) In all the circumstances, the machinery by which the proviso was to operate had broken down. There was no valuation list being used by the local authority for the purpose of collecting domestic rates because domestic rating had been abolished. The fact that it was possible to obtain a copy of the 1973 valuation list, perhaps from the archives of a local authority, did not give it the status of a valuation list being used by a local authority for the purpose of collecting domestic rates.
(3) When devising substitute machinery, the court had to consider the original purpose of the provision the machinery of which had broken down. The proper approach was to investigate the original purpose of the relevant provision. The purpose of the proviso in the present case was to ensure that premiums paid on assignments of the underleases were not tainted with illegality. Accordingly, the substitute machinery had to operate in each of the underleases so as to cap any increase in the rent, on each review, to the maximum amount that would not expose any person to the risk, as at the review date, of committing a criminal offence in relation to that premium or loan as the case might be, any person who, as a condition of a future assignment, might require the payment of any premium or the making of any loan (whether secured or unsecured); or any person who, in connection with a future assignment, might receive any premium: Sudbrook Trading Estate Ltd v Eggleton [1983] AC 444 and R & A Millett (Shops) Ltd v Leon Allan International Fashions Ltd [1989] 1 EGLR 138; [1988] EGCS 179 applied.
Robert Lamb (instructed by Brice Drooglever & Co) appeared for the claimant; Daniel Dovar (instructed by Child & Child) for the first, second and fourth defendants; The third defendant did not appear and was not represented.
Eileen O’Grady, barrister
