Rent review clause in lease of business premises — Effect of delay by the landlord in serving a ‘trigger’ notice in a case where time was not of the essence — Whether mere delay, even if unreasonable without evidence of prejudice or hardship, prevented landlord from relying upon his rights under the review clause — Appeal from decision of John Mowbray QC (sitting as a deputy judge) in favour of the landlord — Need for clarification of the law on this point in view of some doubt on the authorities — Held that mere delay does not destroy the landlord’s contractual right to rely on the ‘trigger’ notice in a case where time is not of the essence — Even (per Oliver LJ) delay plus hardship to the tenant would not disentitle the landlord unless the combination amounted to an estoppel — Distinction between construction of terms in a contract and considerations governing remedies for breach — No issue raised in Court of Appeal as to abandonment, but conception of unilateral abandonment criticised by Oliver LJ — Difficulty of seeing how it could bind a landlord save as a promise (promissory estoppel) or as a representation followed by reliance upon it (equitable estoppel) or as a consensual variation of the agreement or as a repudiation accepted by the other party — Telegraph Properties (Securities) Ltd v Courtaulds Ltd said to be wrongly decided in so far as based on simple delay or abandonment — No prejudice or hardship suffered by tenants in present case — In fact they benefited from delay — Appeal dismissed
This was an
appeal by tenants, James Walker (Goldsmith & Silversmith) Ltd, from a
decision of John Mowbray QC, sitting as a deputy judge of the Chancery
Division, in favour of the landlord, William John Amherst. The proceedings
concerned a rent review clause in a lease of business premises at 449 High
Road, Wembley. The decision of the deputy judge was reported at (1982) 262 EG
442 and previous proceedings at (1980) 254 EG 123, [1980] 1 EGLR 86.
Michael Rich
QC and R J Moshi (instructed by Bulcraig & Davis) appeared on behalf of the
appellants; John Hamilton (instructed by Macdonald, Stacey & Co, agents for
Thorne & Thorne, of Minehead, Somerset) represented the respondent.
Giving the
first judgment at the invitation of Lawton LJ, OLIVER LJ said: This is an
appeal from an order made by Mr John Mowbray QC, sitting as a deputy judge of
the Chancery Division, on October 12 1981,* declaring that on the true
construction of the lease referred to below and in the events which have
happened the plaintiff landlord is entitled to receive from the tenant as from
June 24 1975 rent at such rate as may be determined by an independent surveyor
nominated in accordance with the lease notwithstanding the failure of the
plaintiff to serve a notice of assessment of rent on the defendants prior to
December 25 1974.
*Editor’s
note: reported at (1982) 262 EG 442, [1982] 1 EGLR 121.
This is yet
another rent review clause case, but the history here is an unusual one. The
defendants are the lessees by assignment of certain commercial premises, 449
High Road, Wembley, demised by a lease dated August 29 1961 and made between
the plaintiff of the one part and Walton Hassel & Port Ltd of the other part
for a term of 28 years from June 24 1961. The original rent reserved was a sum
of £2,500 for the first 14 years of the term and thereafter a rent of £2,500 or
such higher sum as should be ascertained under the subsequent provisions of the
lease. The proviso to the reddendum, which is the only part of the lease that
matters for present purposes, is (so far as material) in the following terms:
Provided
always and it is hereby agreed that the yearly rent payable by the Lessee
during the second fourteen years of the term hereby granted (hereinafter called
‘the second period’) shall be the yearly sum of £2,500 aforesaid or such yearly
sum representing the rental value of the demised premises in the open market on
a Lease for fourteen years certain on the assumption that the premises are
available for letting with vacant possession and without the payment of a
premium whichever shall be the higher such assessment of the second period rent
to be made in the following manner, that is to say: (a) such assessment shall
be made in the first instance by the Lessor and submitted to the Lessee for
approval in writing on or before the 25th day of December 1974 . . .
There follow
certain provisions about what is to happen if the assessment is not agreed. If
they fail to agree the assessment before December 25 1974 (time being of the
essence for this agreement) then the matter is to be referred to an independent
surveyor appointed by the parties, but if they fail to agree on his appointment
by January 25 1975 (in respect of which, again, time is of the essence) then
the independent surveyor is to be appointed by the president of the Royal
Institution of Chartered Surveyors.
The clause is
a slightly unusual one, since it prescribes expressly that time is to be of the
essence for the two subsequent stages of the review machinery but does not so
prescribe in relation to the initiating assessment under subparagraph (a).
In fact the
landlord — or, to be more accurate, the solicitors then acting for him —
allowed December 25 1974 to pass without serving the triggering assessment.
They woke up to that omission fairly shortly afterwards and on January 25 1975
they wrote seeking an extension of time and asking for the matter to be
referred to an independent surveyor. Perhaps not altogether surprisingly, in
the light of the law as it then stood, the tenants declined to entertain either
of these suggestions. Nothing daunted, the landlord nevertheless, on February
10 1975, approached the president of the Royal Institution of Chartered Surveyors
to make an appointment but, after some correspondence, he, having learned that
the appointment was opposed by the defendants’ solicitors, declined to act in
the matter. That was in March 1975 and thereafter nothing further was done and,
indeed, nothing further could then have been done unless the landlord was
sufficiently hardy to start proceedings and litigate the matter to the House of
Lords. There the matter rested until 1978. In March of that year the House of
Lords gave their decision in the case of United Scientific Holdings Ltd
v Burnley Borough Council [1978] AC 904, which was reported first in The
Times newspaper and a few weeks later in the Weekly Law Reports. The
landlord’s then solicitors then wrote to the defendants’ solicitors on June 2 1978
calling on them to withdraw their objection to the appointment of an
independent surveyor. That received the perhaps predictable answer that,
whatever may have been the position in the United Scientific case, the
clause in the instant case was one where time was of the essence and
that accordingly, there having been no
operation. After some further correspondence up to the end of July 1978, the
landlord, on October 12 1978, issued an originating summons seeking, in effect,
declarations (a) that time was not of the essence with regard to the initiation
of a rent review and (b) that the defendants were not entitled to object to the
appointment of an independent surveyor.
Evidence was duly
filed on that summons which came on for hearing in May 1979 before His Honour
Judge Mervyn Davies (as he then was). He held that in the light of the United
Scientific case and on the true construction of the lease, time was not of
the essence of the review clause but that the occasion for the appointment of
an independent surveyor had not yet arisen since the letter of January 25 1975
was merely a request for an extension of time and was not the landlord’s
assessment of rent required to trigger the operation of the review clause. Thus
he granted the plaintiff the first declaration sought but refused the second.
The point that the January 25 letter did not operate as the necessary trigger
does not seem to have occurred to the plaintiff or his advisers until the
hearing and on May 9 1979 a belated attempt was made to rectify the omission by
serving a notice which specified a market rent of £16,000 per annum. The
learned judge declined to rule on the validity of that notice. He expressed a
view that there had been unreasonable delay in serving it and that if that had
resulted in prejudice to the tenant such prejudice might invalidate it, but
since the defendants had not come to court to meet a case of an ex facie
valid notice and therefore had not been given the opportunity to adduce any
evidence of prejudice, he felt himself unable to deal with the matter. The
defendants appealed to the Court of Appeal against the judge’s declaration that
time was not of the essence and on January 18 1980 that appeal was dismissed.
Thereafter the president of the Royal Institution of Chartered Surveyors was
persuaded to make an appointment, but the surveyor so appointed was, perhaps
not unnaturally, reluctant to enter upon a determination while there was still
a dispute about whether the notice which triggered the clause was a valid
notice.
Accordingly,
on October 1 1980, the plaintiff issued a further originating summons claiming
a declaration that the plaintiff is entitled to receive from the defendants
such rent as is determined by the surveyor appointed despite the failure to
serve a notice of assessment prior to May 9 1979. That summons came before Mr
Mowbray QC in October 1981 and the sole question which fell to be argued before
him was whether the delay which had occurred since December 25 1974 in serving
the triggering notice was such as to invalidate the notice of assessment. The
defendants did not rely upon any point of estoppel nor did they seek to adduce
any evidence to show that they had suffered any prejudice as a result of the
delay. The sole questions before the learned deputy judge were (a) whether the
delay amounted to an abandonment of the landlord’s right to serve a notice and
(b), assuming no abandonment, whether the delay (i) was unreasonable and (ii)
of itself invalidated the notice.
The learned
deputy judge found that the delay which had occurred was unreasonable. He gave
no independent reasons for this finding but adopted the reasoning of Judge
Mervyn Davies on the previous summons, which was, in effect, that the landlord
ought to have served his assessment notice before the issue of the first
originating summons (on October 12 1978) and that failure to serve between then
and May 9 1979 constituted unreasonable delay. He held, however, that such
delay, although unreasonable, did not invalidate the assessment notice as a
matter of law because mere delay, without proof of prejudice to the
tenant, does not prevent a landlord from relying out of time on a rent review
clause where time is not of the essence. He went on to hold, on the facts, that
the delay which had occurred was not evidence of abandonment. He accordingly
granted the plaintiff the declaration sought.
It is against
that declaration that the defendants now appeal and in this court Mr Rich, who
appears for them, has not sought to found any argument on abandonment but has
been content to confine himself to the two propositions (a) that the delay
which took place was unreasonable and (b) that unreasonable delay — without
more, and, in particular, without any, evidence of prejudice or hardship to the
tenant — is fatal to the plaintiff. Thus this case raises directly for decision
a question which has been touched upon in a number of previous cases but
answered — or at least arguably answered — in only one of them, that being the
decision of Foster J in Telegraph Properties (Securities) Ltd v Courtaulds
Ltd (1981) 257 ESTATES GAZETTE 1153, a case explained by the learned deputy
judge on the ground that the delay there under consideration was so extensive
as to constitute an abandonment of the landlord’s rights.
In approaching
the problem the convenient course will, I think, be first to consider some of
the previous authorities in which there has fallen to be considered the
question of the effect of delay where time is not of the essence of the
contract. The question was touched on briefly by Lord Denning MR in C H
Bailey Ltd v Memorial Enterprises Ltd [1974] 1 WLR 728 and it seems
to have been his view that mere delay would not affect the landlord’s right
unless it had, in some way, induced the tenant to act to his detriment so as to
amount to an equitable estoppel. At p 732 of his judgment he observed:
It was said:
suppose the landlords did not apply for the rent revision for months or years
after the date when they became entitled to it. Would not this operate unfairly
on the tenant? In most cases it would
not do so. . . . But, if there was a case where the delay of the landlord did
prejudice the tenant, then I should think the tenant might well pray in aid the
principle of equitable estoppel to hold up the increase. It is to be
remembered, too, that it is always open to the tenant himself to take steps to
ascertain the increased rent.
On the other
hand, Megarry J (as he then was) in Kenilworth Industrial Sites Ltd v E C
Little & Co Ltd [1974] 1 WLR 1069 seems to have entertained the view
that mere delay might be fatal. He said at p 1072: ‘No doubt, as Mr Rimer
accepted, the landlord could not wait for several years after the first five
years had run, and then demand what in effect would be a retrospective increase
for the whole of the second five years.’
However, in a subsequent passage in the judgment, he expressly
disclaimed any decision as to the effect of a notice not served within a
reasonable time.
Both these
cases were cited by Goff J in his judgment in Accuba Ltd v Allied Shoe Repairs
Ltd [1975] 1 WLR 1559, where he had to deal directly with the question of
unreasonable delay simpliciter. What he said was, I think, strictly obiter,
because he decided on the facts that the delay in the case before him was not
unreasonable. Nevertheless, it seems clear that he was accepting in principle
that the landlord’s right to operate a clause of this sort in a case where time
is not of the essence can be defeated simply by unreasonable delay. He said at
p 1564 of his judgment:
The
submission for the tenants is that the landlords have a reasonable time and no
more and that was exceeded. Counsel for the landlords contends that notice
could be given at any time before the tenants gave notice making time of the
essence which they never did. I think the latter contention is too narrow: see Farrant
v Olver [1922] WN 47 where Sargant J said: ‘It was not necessary that
time should be made of the essence of the contract when the defendant had so
persistently and for so long refused to perform the contract.’ Sargant J there referred to refusal, but it
was not a case of positive refusal, rather of failure to perform.
The Accuba
case was referred to by their Lordships in the United Scientific case,
but this particular point was not commented upon and, indeed, Lord Salmon
appears to have been of the view that mere delay, however prolonged, was not of
itself fatal unless accompanied by prejudice to the tenant. At [1978] AC p 951
he observed that the provisions for rent review, in general, were directory
only, adding ‘nevertheless any unreasonable delay caused by the landlords and
which is to the tenants’ prejudice would prevent the rent being revised after
the review date’. That is reflected in a further passage in his speech at p
956.
This passage
from the speech of Lord Salmon was adopted by Slade J (as he then was) in an
unreported decision of Kirkland Properties Ltd v GRA Developments Ltd
(May 4 1978). He expressed the view that delay would defeat the exercise of the
right of review only if it caused hardship to the tenant or if it amounted to
abandonment by the landlord of his right. This, again, however, was obiter,
since in the case before him he held that time was of the essence.
In James
v Heim Gallery (London) Ltd (1980) 256 EG 819, [1980] 2 EGLR 119 the
matter of abandonment was very briefly touched on by Buckley LJ in his judgment
but without expressing any view about whether, in fact, a right could be
defeated in this way, and the only reported direct decision on the effect of
delay is that of Foster J in Telegraph Properties (Securities) Ltd v Courtaulds
Ltd (1981) 257 EG 1153. There something over six years had elapsed between
the date fixed by the lease for giving notice and the date on which notice was
actually given. Foster J rejected any suggestion that the defeasance of the
right in the case before him was attributable to a promissory estoppel. He
said:
In my
judgment the plaintiff has been guilty of such a delay as to make it
unreasonable for it to call on the defendant for a rent review and to do so
would be of necessity unfair to the defendant . . . I therefore need not go
into the facts in regard to the matters which have been put in evidence as to
the effect both on the plaintiff and the defendant if the notice is not held to
be good.
Thus the
learned judge clearly there was adopting what seems to have been the view of
Goff J in the Accuba case and rejecting the suggestion implicit in the speech
of Lord Salmon in the United Scientific case that prejudice or hardship
to the tenant is essential before delay can operate to defeat the landlord’s
right. Mr Rich naturally prays this decision in aid in the instant case and it
is certainly consistent with the argument which he has advanced before this
court. The learned deputy judge took the contrary view, because he regarded
Foster J’s decision as being consistent only with his having formed the view
that the plaintiff in that case had abandoned his rights. I do not, for my
part, find the decision explicable on that ground and, as appears hereafter, I
have the gravest reservation, despite dicta to the contrary, whether any
such concept as unilateral abandonment can exist. In my judgment Foster J’s
decision was a direct decision on the point in Mr Rich’s favour and the
question which has to be squarely grasped in this court is whether it was
correct.
Mr Rich, in a
most skilful and persuasive argument, has submitted that it was and his
reasoning may be summarised as follows:
(1) A stipulation as to time in a contract is a
term of the contract just like any other term and it means exactly what it
says.
(2) If, therefore, the party who is obliged under
the contract to perform by a certain time fails to do so, he is in breach of
contract and the other party is prima facie entitled to treat himself as
discharged from the performance of his obligation.
(3) Prior to the Judicature Act 1873, however, a
court of equity would nevertheless still decree specific performance at the
instance of the party in default — and indeed would restrain an action at law
based upon the failure to perform — if, in all the circumstances, it was
equitable to do so. Instances of its being inequitable to do so would be, for
instance, cases where the parties themselves had in terms agreed that the time
stipulation was to be essential or cases where the nature of the property was
such as to indicate that time was of critical significance.
(4) The effect of section 41 of the Law of
Property Act 1925 is merely that in all contracts stipulations as to time are
to be treated as governed by the equitable rule, that is to say, it has to be
asked in each case whether it would be equitable for the contract to be
specifically enforced notwithstanding that the stipulated time-table has not
been adhered to.
(5) In answering that question the court has
simply to apply the ordinary rules of equity and if, therefore, the other party
shows that there is some ground upon which specific performance should be
refused, the party in default will not be entitled to enforce the contract.
(6) Delay in applying for the remedy of specific
performance is one ground upon which the remedy may be refused. Accordingly, in
a case where a rent review date has been allowed to pass and where unreasonable
delay has taken place in seeking to invoke the clause, the court should, by
analogy, hold that the right to rely upon it has been lost.
It is, Mr Rich
submits, only by an analysis along these lines that it is possible to explain
the references by Lord Salmon in the United Scientific case and by Slade
J in the Kirkland Properties case to hardship to the tenant, for if, as
a matter of construction of the contract, the stipulation as to time is
effectively deleted, save as fixing the earliest date at which the given event
may occur and the date after which the other party may call for performance if
he requires it, then hardship cannot come into the matter. These references
show, therefore, he submits, that after the contractual date has passed there
is an alteration of the contractual right. It becomes a right which can only be
exercised under the control of the court, and in exercising its control the
court will have regard to the ordinary principles applicable to specific
performance actions, one of which is that prolonged delay, of itself and by
itself, may operate as a bar to specific performance, without regard to any
consideration of whether it causes unfairness or hardship to the other party.
In support of this proposition Mr Rich relies upon Cotton LJ’s statement in Mills
v Haywood (1877) 6 Ch D 196 at p 202 that ‘a party cannot call upon a
Court of Equity for a specific performance unless he has shown himself ready,
desirous, prompt, and eager’ and upon the decision of Sargant J in Farrant
v Olver [1922] WN 47 where he is reported as having held that ‘it was
not necessary that time should be made of the essence of the contract when the
defendant had so persistently and for so long refused to perform the contract’.
While not
doubting the proposition that prolonged and unexplained delay in seeking
specific performance may, in a proper case, be a ground for refusing that
relief, I doubt in fact whether it emerges from that particular decision, where
in fact a notice to complete had been given and the only question was whether
the plaintiff, having elected to sue for specific performance with an
alternative claim for rescission, could, in default of defence, opt for the
alternative relief at the hearing.
In my
judgment, however, the analogy which Mr Rich so persuasively urges upon us is
itself fallacious, and for several reasons. First and foremost, although no
doubt the practice of courts of equity to grant specific performance forms the
historical basis for the rule that time is not of the essence of the contract,
it is, in my judgment, a fallacy to test the rights arising under a contract as
a matter of construction by reference to what the consequences would be in a
hypothetical action for specific performance if such an action were
appropriate. Secondly, even if that were the proper approach, I am not sure
that I see any logical reason why the equitable principles governing the
circumstances in which the court may withhold the remedy of specific
performance where it is needed to enforce the mutual rights and obligations
arising out of a contract should necessarily be applied to the rather different
question of whether a unilateral privilege reserved by one party to a contract
has been extinguished. Thirdly, the argument, in my judgment, involves a
confusion between the initial construction of the contract and the remedies
which may be available for its breach. It assumes that the moment that the date
specified in the contract is past the party who has allowed it to pass is
seeking an indulgence which he can only get through the intervention, notional
or actual, of the court. That may have been true in 1872 but it does not, in my
judgment, accurately reflect the position today.
It seems to me
that Mr Rich’s argument seeks to revive and to perpetuate the very error which
Lord Diplock, in the United Scientific case, was seeking to lay to rest.
At p 924 of his speech in that case he points out that when one speaks of time
being ‘of the essence’ of a contract one is speaking of a stipulation
compliance with which is to be treated as a condition precedent to performance
of the contract by the other party, so that default may itself be treated as a
repudiation by the party in default of his obligations: and at p 926 he rejects
specifically the contention (based upon a passage from the speech of Lord
Parker in Stickney v Keeble [1915] AC 386 at p 417) that in each
case one has to inquire whether prior to the Judicature Act a court of equity
would have granted relief. At p 927 of his speech he draws attention to the
danger involved in treating the expression ‘the rules of equity’ as anything
more than a description of the source from which the current rules of
substantive or adjectival law are derived. Section 41 of the Law of Property
Act 1925 provides in terms that ‘Stipulations . . . as to time . . . which
according to rules of equity are not deemed to be or to have become of the
essence of the contract, are also construed and have effect at law in
accordance with the same rules’. Essentially, as it seems to me, the question
is one of construction not of remedies and what one has to ask is whether, as a
matter of construction of the contract, compliance with the time stipulation is
so essential to the contract that any failure to comply with it entitles the
other party, without more, to treat the contract as repudiated. Of course, that
does not mean either that the contract is to be treated for all purposes as if
the time had never been mentioned or that, when it comes to exerting any
remedies for breach of contract, the ordinary rules of specific performance are
suspended or abrogated. Thus, albeit the contract is not to be construed as if
time were essential, damages may still be obtained for failure to comply with
the fixed date for completion if damage can be shown (Raineri v Miles
[1981] AC 1050).
Equally where,
as a matter of construction, time is not of the essence, it does not follow
that the party in default may not, by extensive delay or other conduct,
disentitle himself from having it specifically performed (see, for example,
Cornwall v Henson [1900] 2 Ch 298; MEPC Ltd v Christian-Edwards
[1978] Ch 281.
But the
question of how the contract should be construed and the question of whether a
party in default may have deprived himself of a right to rely on the contract
must now, in my judgment, be treated as logically distinct and separate
questions, whatever may be the historical origin of the rule of construction.
Mr Rich’s submission
treats the service of a renewal notice after the time stipulated as a
submission to the court of the issue whether or not the contract should be
performed. But the landlord, in serving notice, is not invoking the aid of the
court to perform the contract. He is exercising the right which the contract,
as properly construed, confers upon him. If it is to be construed in the sense
that time is of the essence, he has no right to serve the notice. If it is not,
then the right subsists, unless the tenant can show either that the contract,
or that part of the contract, has been abrogated or that the landlord has
precluded himself from exercising it. He may do that by showing that the
contract has been repudiated — for instance, where he has served a notice
calling upon the landlord to exercise his right within a reasonable time or not
at all and such notice is ignored — or that some event has happened which
estops the landlord from relying on his right. But I know of no ground for
saying that mere delay, however lengthy, destroys the contractual right. It may
put the other party in a position where, by taking the proper steps, he may
become entitled to treat himself as discharged from his obligation; but that
does not occur automatically and from the mere passage of time. I know of no
authority for the proposition that the effect of construing a time stipulation
as not being of the essence is to substitute a fresh implied term that the
contract shall be performed within a reasonable time and even if such a term is
to be substituted the passage of a reasonable time would not automatically
abrogate the contract. It is, I think, important to distinguish between that
which entitles a party to treat the contract as at an end and that which
entitles the party not in default to enforce it. No one contests that, once the
stipulated date is passed, proceedings may be instituted to enforce the
agreement (see, for example, Woods v Mackenzie Hill Ltd [1975] 1
WLR 613), but that is quite a different question.
Mr Rich warns
us against the dangers which, he suggests, lie in the notion that the effect of
construing a time clause as not being of the essence is, in effect, to write
the clause out of the contract altogether. I see no such danger. As has been
pointed out on more than one occasion the remedy of the party who feels he may
be prejudiced by delay lies in his own hands.
In my
judgment, therefore, the learned deputy judge was right in the conclusion at
which he arrived, although I would in fact go further and suggest that, despite
what Lord Salmon said in the United Scientific case, even delay plus
hardship to the tenant would not disentitle the landlord to exercise the right
which he has, on the true construction of the contract, unless the combination
amounted to an estoppel. In my judgment, the contractual right continues to
exist unless and until it is abrogated by mutual agreement or the contract is
discharged by breach or, to adopt the example of Lord Diplock in the United
Scientific case, by the obligor being substantially deprived of the whole
benefit that it was intended that he should have (which I take to be a
reference, in effect, to frustration or failure of consideration and which I
cannot envisage as arising in this sort of case). Apart from these circumstances,
the only way in which I can envisage the landlord as being precluded from
relying upon the clause is by an estoppel and I think that that must have been
what Lord Salmon had in mind in the passages to which I have referred.
In particular,
I cannot, speaking for myself, see how the right can be lost by ‘abandonment’.
So far as I am aware, this is not a term of art, but I take it to mean the
unilateral signification of an intention not to exercise the contractual right
in question. If that be right, then I cannot see how it could bind the landlord
save as a promise (promissory estoppel) or as a representation followed by
reliance (equitable estoppel) or as a consensual variation of the agreement or
as a repudiation accepted by the other party. I know of no ground for importing
into the law of contract the notion that mere non-exercise of a contractual
right is to be treated as analogous to an abandonment of chattels or of an
appurtenant right such as an easement. It follows that, in my judgment, the Telegraph
Properties case, in so far as it rests (as I believe that it does) on
simple delay or, alternatively, on abandonment, was wrongly decided.
I should add
that I am not, for my part, persuaded that in fact the instant case is one
where ‘unreasonable’ delay has occurred. The expression ‘unreasonable delay’
does, I think, require some definition. It must, I think, mean something more
than ‘prolonged delay’ and it may, I suppose, be used to express the notion
either of delay for which no acceptable reason can be advanced or delay which
no reasonable man would incur acting in his own interest. But if this is its
meaning then the absence of reason has no necessary relation to duration. If on
the other hand, as I suspect, the phrase is used to describe such delay as it
would not in the circumstances be reasonable to expect the other party to put
up with, then it seems to me that it contains within it, by necessary
implication, the notion of hardship or prejudice, for how otherwise is the
other party harmed by it?
In the instant
case certainly no prejudice is shown nor does it seem to me that there has been
any substantial delay which is not perfectly rationally accounted for. The
landlord’s solicitors tried to rectify their omission within a month of the
contract date and they can hardly be blamed, in the state of the law as it then
stood, for not pursuing the matter further prior to 1978. If, thereafter, they
had appreciated that their original letter did not, in fact, comply with the
lease not only as to date but in point of form also, they could, no doubt, have
issued a fresh notice before issuing the first originating summons, so that all
matters could be dealt with in one set of proceedings. That they did not do so
may be unfortunate, but it has been extremely beneficial to the tenants, who
got a further uncovenanted reprieve; but I cannot, speaking for myself, regard
their failure to do so as ‘unreasonable’.
Finally, I am
encouraged to find that the view that I have formed as to the way in which this
type of problem should be approached coincides (save in the one respect of the
possibility of abandonment as a separate legal concept) with the views
expressed by Slade LJ in the recent decision of the court in London &
Manchester Assurance Co Ltd v G A Dunn & Co (1982) 265 EG 39,
[1983] 1 EGLR 111 where he said (at p 135):
In the
absence of binding authority compelling a different conclusion, I am satisfied
that delay on its own, even if unreasonable, will not in general disentitle a
landlord from invoking a rent review clause in a case where time has not been
made of the essence of the contract. There is, I think, no general principle of
the law of contract that mere delay in the enforcement of a contractual
right, or in the performance of a contractual duty, by one party to a contract
(‘A’) will entitle the other party (‘B’) to regard himself as discharged from
the obligation to recognise such right or from the contract as a whole (as the case
may be). If in such circumstances A has been guilty of unreasonable delay, then
ordinarily the prudent and proper course for B to adopt, if he wishes to bring
matters to a head, will be to serve a notice on A fixing a reasonable period
within which A must exercise his right (if at all) or must perform his part of
the contract (as the case may be). In some circumstances, of course, the delay
on the part of A may be so gross and inexplicable as to make it so clear that
he does not intend to exercise his right or to perform his part of the contract
that any such notice is unnecessary. But, ordinarily, it will be necessary for
B to serve a notice on A or at least to have some communication with him before
he can properly and safely regard himself as being absolved.
It is true
that in the circumstances of that case what Slade L J said was obiter,
but it forms part of a carefully reasoned analysis which I gratefully adopt.
In my
judgment, the appeal fails and should be dismissed.
Agreeing,
ACKNER LJ said: The rent review clause in this lease, which was for a term of
28 years, enabled the landlord to ensure that for the second half of the term,
viz 14 years, he received the rent reserved in the lease — £2,500 or the market
rent for the premises, whichever was the higher. Since the clause could only
enure for his benefit, understandably the trigger mechanism, as it is
conveniently called, could only be operated by him. The lease provided that the
rent review for the second period was to be initiated by an assessment made by
the landlord of the market rent, such assessment to be submitted in writing on
or before December 25 1974 to the tenants for their approval. It made further
provision should the tenants not approve the landlord’s assessment.
Once it was
established, by an appeal heard in this court in January 1980, that, following
the decision in United Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904, that time was not of the essence in relation to
operating the trigger mechanism, the resolution of this dispute seems
relatively simple. The landlord having not lost his opportunity to implement
the rent review clause by not serving a written notice of his assessment of the
rent on or before December 25 1974, the question is — has anything occurred thereafter
to disentitle him from invoking the clause?
Mr Rich, on behalf of the tenants, contended that the landlord was
obliged to give the notice of the assessment within a reasonable time after
December 25 1974, and having failed so to do, he has thereby lost the right
given to him under the lease. But what is a reasonable time is a question of
fact to be determined in the light of all the circumstances, and the
circumstances of this case are most unusual. If a reasonable time had elapsed
the tenants could have given a notice fixing a time for
hypothesi, a reasonable time for performance had, in the view of the
tenants, already elapsed. Such a notice would operate as evidence that the tenants
considered that a reasonable time for performance had elapsed by the date of
the notice and as evidence of the date by which they considered it reasonable
for the notice to be given. In such a situation the tenants would have been
saying: ‘Unless you give your notice of assessment by such and such a date we
shall treat your failure as a refusal to invoke the clause.’ (See the observations of Lord Simon in the United
Scientific case cit supra at 946 E-H.) However, the tenants never gave such or any
notice. They were content to let matters be until the landlord took the
initiative. In such circumstances it cannot lie in the tenants’ mouth to
contend that the landlord has refused to exercise his rights.
In this appeal
the tenants have not sought to suggest that the landlord waived or abandoned
his entitlement to invoke the clause. Moreover, they have not sought to contend
either that the landlord’s delay in ultimately giving the notice of assessment
amounted to an express or implied representation that the landlord accepted
that the rent for the second period should remain at £2,500. Nor have the
tenants sought to argue that they have in any way been prejudiced by the delay
described by Oliver LJ. On the contrary, it has to be accepted that they have
gained by such delay, because their obligation to pay the market rent, which
one may assume to be higher than the rent reserved in the lease, has been
delayed several years and they have had the use of that money in the meantime.
Thus no possible question of an estoppel can arise.
In such
circumstances, there seems to me to be no basis on which the tenants could
effectively claim that the landlord has lost his right to invoke the rent
review clause.
I, too, would
accordingly dismiss this appeal.
Also agreeing,
LAWTON LJ said: During the hearing of this appeal there were many references to
‘the rules of equity’ and to ‘equitable relief’. The use of these phrases
obscured the issue. In United Scientific Holdings Ltd v Burnley
Borough Council [1978] AC 904 Lord Diplock pointed out that nowadays
perpetuating a dichotomy between rules of equity and rules of common law is
conducive to erroneous conclusions as to the ways in which the law of England
has developed in the last 100 years (see pp 924-927). I do not intend in this
judgment to use either of these phrases.
The question
whether the plaintiff landlord’s rent assessment notice given on May 10 1979
operated to start the rent review procedure provided for in the lease made on
August 29 1961 can only be answered by construing it. Neither the landlord nor
the tenants had any rights or obligations towards one another save those which
were given or imposed by the lease itself. What these rights and obligations
were depended upon the terms of the lease when construed in accordance with the
ordinary canons of construction and the provisions of section 41 of the Law of
Property Act 1925. In my judgment there is no justification for reading into
the lease an implied term that if the landlord did not serve a rent assessment
notice on or before December 25 1974 he had to do so within a reasonable time
thereafter. Such an implied term would not have been necessary to give business
efficacy to the lease. The landlord would not have wanted it and the tenants
benefited by not having it. Any delay on the landlord’s part would mean that
the tenants went on paying the original rent until such time as the landlord
did serve a notice. If for any reasons of their own, such as a general fall in
rental values, they had wanted the landlord to come to a decision about the
service of a rent assessment notice they themselves could have served what has
come to be known, inaccurately, as a notice ‘making time of the essence of the
contract’: see Stickney v Keeble [1915] AC 386 and the United
Scientific case (supra).
By the
judgment given on January 18 1980 this court adjudged that on its true
construction time was not of the essence of the rent review provisions in this
lease. It followed that the landlord’s failure to deliver a rent assessment
notice on or before the stipulated date did not bring the lease to an end. The
tenants continued to be bound by it. They had taken benefits under it and had
agreed to pay an increased rent if the landlord did serve a rent assessment
notice, even though it was not served on or before the fixed date. On May 10
1979 the landlord did serve a rent assessment notice. As the tenants were still
bound by the lease, they continued to be subject to the obligations contained
in it, one of which was to pay a higher rent in the specified circumstances.
They could only be relieved of this obligation in a way known to the law. One
way was by agreement with the landlord. There was no such agreement in this
case. Another way of their getting relieved of their liability to pay a higher
rent would have arisen if they could have shown that the landlord’s conduct had
been such that he was estopped from relying on the rent assessment notice which
he did serve. He would only have been estopped if the tenants could have proved
that by his words or conduct he had represented that he did not intend to ask
for the payment of a higher rent and in reliance on that representation they
had altered their position to their prejudice. In my judgment nothing short of
estoppel would have relieved the tenants from their liability to pay a higher
rent. The concept of abandonment has been referred to in some of the rent
review cases. I do not regard it as a term of art apt to describe a defence to
a landlord’s claim for a higher rent. If a landlord by his words or conduct
leads his tenant reasonably to infer that he did not intend to claim a higher
rent he makes a representation to that effect so that the foundation of an
estoppel is laid; but the landlord will not be estopped unless the tenant has
acted on the representation to his prejudice. A landlord who over a long period
makes no attempt to set a rent review procedure in motion may be adjudged to
have represented that he did not intend to exercise his rights; but whether he
did would be a matter of inference from the circumstances in which the delay
had occurred, not from the mere fact of the delay. I can see no reason why mere
delay, not amounting to a representation, can be a bar to a landlord in this
kind of case claiming a higher rent. He has his contractual rights to a higher
rent and the tenant has an obligation to pay it unless he can prove that there
is some good reason why he should not. Mere delay would not be a good reason.
On the facts of this case, as Mr Rich admitted when opening the appeal, there
was no evidence which would have founded an estoppel.
In this
judgment I have tried to deal with the issue from principle as enunciated in
the United Scientific case. I had the advantage of reading in draft the
judgment which Oliver LJ has delivered. He has examined and commented on all
the relevant cases. I agree with what he has said. I, too, would dismiss the
appeal.
The appeal
was dismissed with costs. Leave to appeal to the House of Lords was refused.
