Rent review clause in lease — Further proceedings following decision of Court of Appeal that time was not of the essence for the purpose of a ‘trigger’ notice — Court of Appeal had indicated that, although time was not of the essence, the notice might none the less be invalid on account of delay — The present proceedings instituted by the landlord required a determination of this point — Review of case law by deputy judge — In order to establish that the notice was invalid by reason of delay it was necessary to show either that the delay was both unreasonable and caused prejudice or hardship to the tenants or that it was so great as to be evidence of abandonment — The tenants in the present case had not shown
This was an
originating summons in which the plaintiff was the landlord, William John
Amherst, and the defendants the tenants, James Walker (Goldsmith &
Silversmith) Ltd. The proceedings concerned the lease of business premises at
449 High Road, Wembley. They followed upon a previous originating summons between
the same parties which came before Judge Mervyn Davies (as he then was),
sitting as a deputy High Court judge, and subsequently before the Court of
Appeal. The Court of Appeal (1980) 254 EG 123, [1980] 1 EGLR 86 upheld the
judge’s decision that time was not of the essence for the purpose of the
landlord’s ‘trigger’ notice in the review clause of the lease. The present
originating summons sought a declaration that the landlord was entitled to
receive, as from June 24 1975, rent at a rate to be determined by arbitration,
notwithstanding that the notice was not given until May 10 1979.
John Hamilton
(instructed by Macdonald, Stacey & Co) appeared on behalf of the plaintiff;
R J Moshi (instructed by Bulcraig & Davis) represented the defendants.
Giving
judgment, JOHN MOWBRAY QC said: The plaintiff in this originating summons is
the landlord, and the defendant company is the tenant by assignment of business
premises in Wembley, under a lease for 28 years from June 24 1961. The rent for
the first 14 years was £2,500. Thereafter, during the 14 years from June 24
1975, the rent was to be the market rent, to be assessed as follows:
(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;
(b) In the event of the parties hereto failing to
reach such agreement as aforesaid on or before the date appointed (in respect
of which time is to be deemed to be of the essence of the contract) then the
yearly rent for the second period shall be fixed or assessed by an independent
surveyor appointed for that purpose by the parties hereto, or failing agreement
as to such appointment by the 25th day of January 1975 (time in this respect to
be deemed to be of the essence of the contract) then by an independent surveyor
appointed for that purpose by the President for the time being of the Royal
Institution of Chartered Surveyors. The assessment fixed by the independent
surveyor shall be communicated to the lessor and lessee in writing and
immediately upon such communication the yearly rent so assessed as a reasonable
rent for the second period or £2,500 per annum, whichever shall be the higher,
shall be the yearly rent payable for the second period under the terms hereof.
On a previous
originating summons between the same parties (1978 A No 3087) the Court of
Appeal has upheld a decision by Judge Mervyn Davies, sitting as an additional
judge of this court, that time for giving the landlord’s assessment notice
under paragraph (a) of that proviso was not of the essence. The Court of Appeal
indicated that the assessment notice might none the less be invalid on account
of delay, but that if it was not invalid then either party could go straight to
the president of the RICS and ask for the appointment of an independent
surveyor.
I have to
decide whether the delay has been such as, in the relevant circumstances of the
case, to invalidate the assessment notice, which was given on May 10 1979. Mr
Moshi for the defendant company concedes that this question is not res
judicata. He contended that on the previous originating summons it was
decided that the giving of the landlord’s assessment notice under paragraph (a)
was a condition precedent to the rent review. Mr Hamilton for the plaintiff,
rightly in my view, did not contend the contrary.
The
circumstances of the case are these. The landlord’s family solicitors allowed
the due date, December 25 1974, to pass without giving the landlord’s
assessment notice under paragraph (a) of the proviso. On January 25 1975 they
wrote a letter to the tenant company, which was not an assessment notice within
that paragraph either, inviting the tenant to agree on the appointment of an
arbitrator. The tenant would not co-operate in that, and on February 10 1975 the
landlords asked the president of the RICS to appoint an arbitrator. The tenant
objected and the president, in a letter from the then RICS administrative
secretary dated March 5 1975, declined to act but indicated that if a court
ruling were obtained setting aside the time-limit he would be pleased to make
an appointment. In those days there was a body of first instance and Court of
Appeal authority distinguishing between ‘trigger’ or option provisions in rent
review clauses on the one hand and mere ‘machinery’ provisions on the other and
holding that time was of the essence of trigger provisions. Paragraph (a) of
the proviso here was a trigger provision for the purpose of those authorities,
or at least could very well have been considered a trigger provision at the
time. The landlord took no steps towards obtaining a court order nor did he
communicate with the tenant for some time.
On March 23
1977 the House of Lords allowed landlords’ appeals in United Scientific
Holdings Ltd v Burnley Borough Council and Cheapside Land
Development Co Ltd v Messels Service Co (later reported in [1978] AC
904). I shall call the decision in both those cases ‘the House of Lords
decision’. The House of Lords decided, contrary to the existing authorities in
the lower courts, that in the absence of a contrary indication time was not of
the essence of trigger provisions in rent review clauses. I am told that this
was reported in The Times newspaper on March 24 1977 and it was
subsequently reported in different law reports. It reached the Weekly Law
Reports in April. On June 2 1978 the landlord’s new solicitors wrote to the
tenant’s solicitors asking them, in the light of the House of Lords decision,
to withdraw their objection to the appointment of an arbitrator. This they
declined to do, and on October 12 1978 the landlord issued the previous
originating summons (1978 A No 3087) that I have referred to. No assessment
notice had been given, and none had been given on May 9 1979 when the
originating summons came on for hearing before Judge Mervyn Davies in this
court. Mr Hamilton for the landlord nobly shoulders the responsibility for
this. He took the view that he could go straight to arbitration without such a
notice. When it appeared that the learned judge took a different view, an assessment
notice was given. It was given on May 10 1979, as I have said. That was before
judgment, but after the originating summons, and the learned judge said, ‘It
seems on the facts of this case as now before me that the landlord has delayed
unreasonably in not serving the subclause (a) notice. It should have been
served at least before the commencement of these proceedings.’
Because of the
way the hearing had gone, the learned judge declined to decide whether that
notice was with or without effect, and dismissed the rest of the originating
summons, with costs, but he none the less declared that time for giving the
notice was not of the essence. That was the order that was approved by the
Court of Appeal, which gave judgment on January 18 1980. It was enough to
persuade the president of the RICS to appoint an arbitrator, which he did on
March 20 1980. The landlord and tenant are discussing the amount of the market
rent and the arbitrator has not yet made an award.
On October 1
1980 the landlord issued the present originating summons, seeking a declaration
that he is entitled to receive, as from June 24 1975, rent at a rate to be
determined by arbitration, notwithstanding that his assessment notice was not
given until May 10 1979, and other relief.
Mr Moshi for
the defendant, in a persuasively moderate argument, attacked the May 10 1979
assessment notice in two ways. First, he argued that the landlord must be taken
to have abandoned his right to review the rent, after the RICS letter of March
5 1975 declining to appoint an arbitrator, and before the landlord’s
solicitors’ letter of June 2 1978 reviving the claim. Secondly, he argued that
the landlord’s delay between December 25 1974, the due date, and May 10 1979,
when he finally gave his assessment notice, was unreasonable and that such
unreasonable delay of itself invalidated the notice. I use the words
‘unreasonable delay’ here to mean delay which is beyond reason, but not so long
as to indicate any abandonment of his rights by the party guilty of it. For
completeness I should add that the defendant did not rely on any point of
estoppel.
It is
convenient to deal first with Mr Moshi’s second line of attack. I adopt the
finding of Judge Mervyn Davies that the landlord’s delay in giving his
assessment notice was unreasonable in the sense I have mentioned. If it adds
anything, having considered the circumstances drawn to my attention in argument
I respectfully agree with that finding. More important, Sir David Cairns,
towards the end of his leading judgment in the Court of Appeal on the previous
originating summons, expressly endorsed the reasoning of the learned judge with
the rest of his reasons. But in my judgment even unreasonable delay by the
landlord in giving his notice does not invalidate the notice, unless the delay
prejudiced the tenant or caused him hardship. There are four reasons.
The first is
the analogy of contracts for the sale of land. There, where time for completion
is not of the essence, even unreasonable delay in completion by one party does
not excuse the other from his contractual duty to complete: it merely entitles
him to serve peremptory notice on the party in default to complete within a
further reasonable time.
Secondly, Lord
Salmon said in the United Scientific case at p 951(E) and again at p
953(G), and p 956 (above C) that if a landlord is guilty of unreasonable delay which
prejudices the tenant the landlord forfeits his rights. Mr Moshi submitted
that this is obiter and does not mean that prejudice to the tenant is a
vital element. But it must be, or Lord Salmon would not have proceeded on p 956
to consider whether there was any prejudice in the case he was considering. He
found, at p 956(C-D) that in that case (as in this and others) the tenants were
benefited by the delay, because they had the use of the extra rent
interest-free until the new rent was fixed. (Oliver L J added at the end of his
judgment in James v Heim Gallery (London) Ltd (1980) 256 ESTATES
GAZETTE 819 at p 826 that when the tenant does pay the difference it is in
depreciated currency.) Furthermore, the
sentence in Lord Salmon’s speech between G and H on p 953 of the report could
not be explained in the way that Mr Moshi suggested.
Thirdly, Slade
J in the obiter remark numbered (3) towards the end of his unreported
judgment of May 4 1978 in Kirkland Properties Ltd v GRA Developments
Ltd made it clear that he thought prejudice to the tenant was a necessary
element.
Fourthly,
Judge Mervyn Davies in the present originating summons seems to have thought
so, since he dismissed most of the summons on the tenant’s application partly
on the ground that the tenant had not had an opportunity to prove prejudice,
and Sir David Cairns in the Court of Appeal endorsed this and all his
reasoning.
The defendant
argued here that, if detriment or hardship is required, the effect is to punish
a tenant who is foresighted and prudent enough to set aside the extra rent and
favour a feckless tenant who does not. But if there is no detriment, there is
no punishment. The true explanation is that equity intervenes only where it is
necessary to protect the tenant from some actual misfortune induced by the
landlord’s delay.
In Telegraph
Properties (Securities) Ltd v Courtaulds Ltd (1981) 257 ESTATES
GAZETTE 1153, where there was apparently total silence about the review from
the landlord between the due date for notice on October 1 1972 and the notice
of October 11 1978, Foster J said (at p 1154) ‘In my judgment the plaintiff has
been guilty of such a delay as to make it unreasonable for him to call on the
defendant for a rent review and to do so would be of necessity unfair on the
defendant’. As even quite a considerable delay normally benefits the tenant, I
think Foster J must have been relying on something stronger which would make it
unfair for the landlord to change tack. I think that must be treated as a case
where there was not only unreasonable delay but such delay as indicated to the
tenant that the landlord had abandoned his right to a review. That would make
it unfair on the tenant to treat a subsequent trigger notice as valid. The
learned judge did not merely say that the delay was unreasonable; he
said it was such a delay as to make it unreasonable and of necessity unfair for
the landlord to call for a review. I think only delay amounting to abandonment
could have that as a necessary effect where there was no specific detriment to
the tenant. Moreover, Foster J’s reference, just after the passage I quoted, to
the Heim Gallery case reads to me as though he was considering the
abandonment aspect of that case.
I conclude
then that even unreasonable delay by a landlord in serving his trigger notice,
if it was not so long as to amount to evidence of abandonment, would not
invalidate the notice, unless it also prejudiced the tenant or caused him
hardship. The tenant had an opportunity to prove detriment on this originating
summons, but no such evidence is before me. In my judgment the tenant was
benefited in the way I have mentioned. Therefore this first line of attack
fails and I turn to the question of abandonment.
In James
v Heim Gallery (London) Ltd Buckley LJ left open the question whether
long delay could lose the landlord the right to serve his notice on the ground
of abandonment, but I think that a landlord’s delay can disentitle him to serve
a trigger notice if it has been, not only unreasonable in the sense I have
mentioned, but so long and inexplicable as to amount to sufficient evidence
that he has abandoned his right to a review. Again there are four reasons and
again I start with the analogy of a contract for the sale of land where time is
not of the essence.
Delay in
completion in such a case may be so extended as to indicate abandonment of the
contract by the party guilty of it. If that was the vendor, the purchaser could
recover his deposit at common law and equity would not interfere. This was not
a mere question of laches barring equitable relief, but a case of abandonment
of contractual rights.
Secondly,
Slade J said in the obiter remark numbered (5) in the unreported
judgment in the Kirkland Properties case I have referred to that the
right to enforce a rent review could be lost, even in the absence of hardship
to the tenant, by delay in enforcing it so great as to amount to evidence of
abandonment. He cited some sale of land cases.
Thirdly, I
think that, as I said, the decision of Foster J in Telegraph Properties
(Securities) Ltd v Courtaulds Ltd ought to be treated as based on
abandonment.
Fourthly,
there is the judgment of Goff J (as he then was) in Accuba Ltd v Allied
Shoe Repairs Ltd [1975] 1 WLR 1559. That case was decided before the House
of Lords decision, but Goff J treated the relevant provision as one of which
time was not of the essence; so, as Mr Moshi rightly said, the persuasive force
of this judgment is not substantially diminished by the House of Lords
decision. Buckley L J treated this decision as based on abandonment in the Heim
Gallery case, and I think I should do so too. Goff J used the word
‘unreasonable’ to describe the necessary delay, but I think he must have been
using the word to mean something more than I am — something amounting to
abandonment. Buckley L J in the Heim Gallery case also used the word in
that strong sense.
Before turning
to the facts I should add that, though I think the analogy of contracts for the
sale of land is persuasive, the circumstances are different. In delaying
completion a party to such a contract is breaking his contractual duties, but a
landlord is under no contractual duty to review his rent. Also, with a rent
review there is a continuing relationship anyhow and the review usually
benefits the landlord alone. So I consider that a shorter delay will indicate
abandonment of such a contract than would be needed to show abandonment of a
right to a review.
Then was the
landlord’s delay here enough to indicate abandonment? Delay before March 23 1977, the date of the
House of Lords decision, is irrelevant for this purpose except perhaps as the
historical background of the delay. That was the reason why the Court of Appeal
in the Heim Gallery case held the delayed notice in that case to be
valid. The landlord is not to be assumed to have intended to abandon a right
that no one knew he had got. If Foster J in the Telegraph case regarded
the period of delay before the House of Lords decision as more than historical
background, I do not think that can stand with the Court of Appeal decision. If
we discount the period before the House of Lords decision in the present case,
that leaves at most the period between March 23 1977 and the landlord’s new
solicitors’ letter of June 2 1978, that is, under 14 1/2 months.
The state of
the authorities is this. Foster J said in the Telegraph case that a year
and a half’s delay after the House of Lords deci-
took no steps at all, and Foster J seems to have taken that into account. The
previous delay here was only from about March 1975, just over two years, if
delay before the House of Lords decision is relevant at all. In the Accuba
case Goff J held valid a notice given after 18 months’ delay in the context of
a seven-year review period, as opposed to the 14-year period in the present
case. He said it was on the borderline. The Accuba case is not mentioned
in the report of the Telegraph case, though it was mentioned in the Heim
Gallery case, which was cited in the Telegraph case.
In my view
quite a long time should be allowed after such a distinct change in the
prevailing view of the law as was brought about by the House of Lords decision
here, before further delay should be taken to indicate abandonment. The
landlord’s advisers need to learn of the decision, turn their minds to its
application to the lease in question, advise their client, and put things in
train for renewing the claim to review the rent. There may also be other
possible claims, for instance against an agent or solicitor who allows the due
date for a notice to slip by, which will need to be considered and probably discussed
with those responsible, and even their insurers, before the landlord’s
solicitors can be sure precisely what approach should be made to the tenant.
Mr Moshi
criticised the landlord’s evidence in the present case for not dealing with any
of these points, or even making a blanket statement that the landlord had not
abandoned his rights, though abandonment was argued in the tenant’s evidence. I
do not consider this criticism to be justified. The tenant’s evidence contained
no new or contradictory facts, and so no reply was called for. Like Goff J in
his case I think the delay here is on the borderline, but on balance I do not
consider that it is quite long enough by itself to show that the landlord
intended to abandon his valuable right to a reviewed rent for the whole 14
years. So I am prepared to make a declaration favourable to the landlord and
will hear counsel on the appropriate wording.
The judge
awarded costs against the defendant company.