Rent review clause in lease–Whether provision in clause for submission by lessor of a ‘trigger’ notice by a fixed date, for the purpose of bringing the review machinery into operation, made time ‘of the essence’–Time expressly stated to be of the essence for subsequent procedures under the clause, but not for the ‘trigger’ notice–Lessor failed to submit the notice by the specified date–Deputy High Court judge’s decision that time was not of the essence for the purpose of this provision in review clause upheld by Court of Appeal–United Scientific Holdings Ltd v Burnley Borough Council followed
This was an
appeal by the defendants, James Walker Goldsmith & Silversmith Ltd, from
part of a decision by Judge Mervyn Davies QC, sitting as a deputy High Court
judge in the Chancery Division, which was in favour of the plaintiff, William
John Amherst. The proceedings before Judge Mervyn Davies took the form of an
originating summons in which the plaintiff claimed declarations in regard to a
rent review clause in a lease dated August 29 1961. The judge did not make the
declarations claimed, but did declare that time was not of the essence so far
as concerned a provision in the rent review clause that an assessment of the rent
for the second period under the lease should be submitted by the lessor to the
lessee for approval in writing on or before December 25 1974. Subject to this
the judge dismissed the originating summons.
Richard Moshi
(instructed by Bulcraig & Davis) appeared on behalf of the appellants;
Roger Gray QC and John Hamilton (instructed by Macdonald, Stacey & Co)
represented the respondent but were not called on.
Giving the
first judgment at the invitation of Megaw LJ, SIR DAVID CAIRNS said: This is an
appeal from a decision of His Honour Judge Mervyn Davies, sitting as a deputy
judge of the Chancery Division. He had before him an originating summons
raising questions about a rent review clause in a lease. At the material time
the plaintiff was the lessor and the defendant company was the lessee. The
plaintiff claimed by his originating summons a declaration that, under the rent
review clause, he was entitled to receive increased rent from June 24 1975 and
he claimed a further declaration in support of that entitlement. At the
hearing, it became apparent that one question which was relevant was whether
the time specified in the lease for the submission by the plaintiff to the
defendant of an assessment of the increased rent that he wished to operate was
of the essence or not. The plaintiff was arguing that it was not; the defendant
was arguing that it was. The learned judge decided this issue in favour of the
plaintiff and made a declaration to the effect that time was not of the
essence. Save as to that, he dismissed the originating summons and awarded the
defendant company its costs of the proceedings. The plaintiff has not appealed
against that decision, but the defendant appeals from that part of the order
made by the learned judge containing the declaration that I have referred to.
The lease was
a lease made on August 29 1961 of the premises, 449 High Road, Wembley, and was
a lease for 28 years from June 24 1961 at a rent defined in this way, ‘during
the first fourteen years the yearly rent of two thousand five hundred pounds
and during the remainder of the said term either the yearly rent of two
thousand five hundred pounds or such higher yearly rent as shall be ascertained
in accordance with the proviso next hereinafter contained.’ This was the proviso:
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 two thousand five hundred
pounds 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
twenty-fifth day of December one thousand nine hundred and seventy four; (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 failing agreement as to such appointment by the twenty-fifth
day of January one thousand nine hundred and seventy-five (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 two thousand five hundred pounds per
annum whichever shall be the higher shall be the yearly rent payable for the
second period under the terms hereof.
I need not
read paragraph (c) of the proviso.
(d) It is hereby agreed that the fees payable to
the independent surveyor hereinbefore mentioned in respect of the assessment to
be made herein shall be borne by the parties hereto in equal shares.
The present
defendant company became lessee by having the lease assigned to it on December
16 1970. The lessor did not, before December 25 1974, submit any such
assessment as is mentioned in clause (a) of the proviso that I have read. Soon
after Christmas 1974 the solicitors acting for the lessor realised that the
time provided for giving such notice had arrived and had indeed been passed.
They accordingly wrote a letter to the defendant company on January 25 1975 in
these terms:
Dear Sir, Re:
449 High Street, Wembley. We act for Mr W J Amherst the lessor of the above
premises. We observe from the lease dated
–they give the
wrong date, October 29 1961: it ought to have been August–
that there is
a rent review in relation to the premises to come into effect on June 24 1975.
Under the terms of the lease the landlord was required to assess the rent by
submitting a notice in writing before December 25 1974 but if for any reason
the rent was not agreed before that date then the rent should be fixed or
assessed by an independent surveyor appointed by the landlord and tenant by
January 25 1975, and on failure to agree such independent surveyor an
independent surveyor should be nominated by the President for the time being of
the Royal Institution of Chartered Surveyors. As no notice had been given to
you of the proposed increase of rent it seems to us that prior to January 25
1975 steps should be taken to endeavour to agree the name of an independent
surveyor in accordance with the terms of the lease. We are instructed to inform
you that our client is prepared to nominate Mr A C W McKenna of Messrs Healey
& Baker to act as such independent surveyor. If you are not able to agree
to his appointment or are prepared to nominate someone else we would be
prepared to consider any person whom you are prepared to nominate. We
appreciate that the notice given is rather late and we would be prepared to
agree to the time specified in the lease being extended so that no application
need be made to the President for the time being of the Royal Institution of
Chartered Surveyors until February 25 1975. If we do not hear from you by
January 25, in order to protect our client’s position we will make application
to the President of the Institution without prejudice to any agreement which
may be reached as to the parties deciding on an
without prejudice to the procedure which has been laid down in the lease, our
client is prepared to negotiate with you as to the amount of rent
and then
suggesting communicating with a Mr Allan in that connection.
The defendant
company did not agree to that course. On February 10 the lessor’s solicitors
wrote to the president of the institution asking for a nomination of an
independent surveyor. The president did not comply with that request, having
been informed by the lessees’ solicitors that the lessees were of opinion that
the lessor’s application was out of time. Nothing further happened after that
until June 2 1978 when the solicitors for the lessor wrote to the lessees’
solicitors, recalling the earlier correspondence and mentioning the decision
which had taken place in the meanwhile in the leading case in this field of
rent review clauses, United Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904. The lessees were called upon by that letter to
withdraw their objection to the appointment of an independent surveyor. They
refused to do so and the lessor’s solicitors thereupon issued the originating
summons in this case.
The
declarations that they asked for, as appear from the summons, were:
(1) A declaration that on the true construction
of the lease and in the events which have happened the plaintiff is entitled to
receive from the defendant as from the 24th day of June 1975, rent at such rate
as may be determined by an independent surveyor appointed by the President for
the time being of the Royal Institution of Chartered Surveyors notwithstanding
the fact that the plaintiff did not submit to the defendant a written
assessment of rent for approval on or before the 25th day of December 1974 in
pursuance of the terms of the lease. (2) A declaration that the defendant is
not entitled to object to the said appointment of an independent surveyor by
reason only of the plaintiff’s failure to submit to the defendant a written
assessment of rent as aforesaid.
The learned
judge held that the time for the plaintiff to submit an assessment of rent by
December 25 1974 was not of the essence, but he did hold that the assessment
(what has been called in some of the earlier cases a ‘trigger’ notice) must be
submitted before any rent review could operate and accordingly the plaintiff
was not entitled to the main declaration which he was claiming asking for the
court to say that he was entitled immediately to an increase in rent. The
plaintiff attempted in the course of the hearing to get over the difficulty of
there having been no ‘trigger’ notice served at all by serving one while the
hearing was in progress–I think Mr Moshi has told us that while he was actually
on his feet in court that notice was served. The learned judge, however, said
that he could not, in those proceedings, give any effect to a notice which had
been served so long after the issue of the originating summons.
Looking simply
at the wording of this proviso in the rent review clause, it seems to me, on the
face of it, that the provision for the submission of the ‘trigger’ notice by
December 25 1974 is not of the essence of the contract. I say that for two
reasons. First, where you have an agreement which specifies the time for doing
three things and two of the three are stated to have a time-limit which is of
the essence of the contract and the other one is not, then it follows that, in
all probability, where it is not stated that it is to be of the essence, it is
not intended to be of the essence. If the parties, when they wish something to
be made of the essence, say so in terms, then obviously it is of the essence if
they do say so and the probability is that, where they do not say so, it is not
intended to be of the essence.
That view is,
to my mind, strongly supported by the decision of the House of Lords in the United
Scientific case, to which I have referred, where the unanimous decision of
the House, overruling the previous decision of the Court of Appeal, was to the
effect that in these timetables in rent review clauses prima facie the
times given are not of the essence and they are to be regarded as being of the
essence only if they are expressly, by some clear indication in the document
itself, made to be of the essence. Therefore, where, in relation to this
particular part of the procedure, there is no indication that it is to be of
the essence, it seems to me that the conclusion is that it cannot be so
regarded and that it would be contrary to the actual decision in the House of
Lords to hold that it was.
Mr Moshi, on
behalf of the defendant company here, has sought to rely upon a passage in the
speech of Lord Dilhorne in that case, in which he took a view which had already
been taken in the Court of Appeal, that where a step to be taken was something
which the landlord, and the landlord only, was, under the provisions of the
agreement, in a position to take, time should be regarded as of the essence. Mr
Moshi asks us to accept the decision of the Court of Appeal and the language of
Lord Dilhorne as sufficient authority for that proposition. The first thing
that has to be said is that the expression of opinion, both in the Court of
Appeal and by Lord Dilhorne, in relation to that matter was all obiter
dictum. The case in question is not the United Scientific case
itself but another case which the House of Lords heard along with it, Cheapside
Land Development Co Ltd v Messels Service Co. In that case, although
these opinions were expressed, they were obiter, because the notice that
had been given in that case was in fact in time within the terms of the
contract. Not only that, but while Mr Moshi is, of course, entitled to rely on
the expression of opinion (obiter though it be) in this court and by one
member of the House of Lords in support of his argument, the great weakness in
his argument is that three members of the House of Lords took the opposite
view. Lord Diplock, Lord Salmon and Lord Fraser, in their speeches, took the
view that it made no difference whether it was a notice which the landlord alone
was entitled to give or whether it was one that could be given on either side.
So that one must take the view, when the majority view in the House of Lords is
to that effect, that, with the respect that we must, of course, pay to any such
expression of opinion by Lord Dilhorne, the weight of authority must be deemed
to be that of the three members of the House of Lords who said that that was
not a material consideration.
So far as
other matters are concerned, I think that the most effective part of Mr Moshi’s
argument before us was to this effect, that, unless we hold that the taking of
the first step was one which had to be taken by a specified date, the lessee
was put in difficulty in relation to the later steps, because there was a fixed
date which could not be departed from, because it was provided to be of the
essence of the contract, up to which he was entitled to agree either as to the
amount put forward by the landlord for the rent or as to the surveyor who was
to be appointed to fix that rent. The difficulty of that argument appears to me
to be this, that, putting it at its highest, assuming that it could be said
that the period for the ‘trigger’ notice was subject to an absolute limit of
December 25, there is certainly nothing in the agreement to say that it must be
given before December 25. If the date is to be of the essence of the contract
at all, it is on or before December 25; it is quite impossible to put it at a
reasonable time before December 25. So that, in effect, even if it were regarded
as being of the essence of the contract, the position is that, if the notice
were given by the landlord at the last moment, one would immediately be into
what may be called the second stage.
It seems to me
that the true meaning of this lease is that, if the notice is not given by
December 25, it can still be given at a later date. It may well be that the
later date would have to be within a reasonable time, but as to that I express
no more than a tentative opinion. But if notice is given thereafter and if it
is not given so late that it can be said it was not given within a reasonable
time and that that makes it invalid, then the position would be that, indeed,
in effect, the second and third stages are concertinaed and we come straight on
to the position where either party can go straight to the president of the RICS
and ask for the appointment of an independent surveyor.
That I think
is the meaning and effect of the agreement between the parties and, in my view,
the learned judge came to the right conclusion in a very careful judgment and
the conclusion which he reached, for reasons which I would have been prepared
to adopt as my own. I would dismiss the appeal.
Agreeing,
EVELEIGH LJ said: I find some difficulty in seeing that, in a case like the
present, a ‘trigger’ notice has any real part to play, certainly once the date
specified in the lease has passed. But we are not concerned to determine the
effect of that; we are concerned simply with the question whether time is of
the essence in the making of the assessment in the first instance by the lessor
and submission by him ‘to the lessee for approval in writing on or before the
twenty-fifth day of December one thousand nine hundred and seventy four.’
For the
reasons stated by my Lord, I agree that time is not of the essence for that.
Also agreeing,
MEGAW LJ said: I think that it emerges from the speeches in the United
Scientific case that there was some measure of confusion in the development
of that case through the courts by reason of submissions having been made to
the effect that the cases there in question–rent review cases and the law of
landlord and tenant–were to be treated as being matters of a commercial
character. In one sense of the word, of course, letting contracts and the law
of landlord and tenant are of a commercial character, but they are not
contracts which fall within the narrower meaning of ‘commercial’ which usually
is accepted in the law. No one, for example, would dream of expecting to find
in a textbook on commercial law discussion of the law of landlord and tenant.
Lord Diplock,
in his speech in the United Scientific case supra, p 924 at B,
said this:
I shall have
to examine rather more closely what are the legal consequences of ‘time being
of the essence’ and time not being of the essence; but I do not think that the
question of principle involved in these appeals can be solved by classifying
the contract of tenancy as being of a commercial character. In some
stipulations in commercial contracts as to the time when something must be done
by one of the parties or some event must occur, time is of the essence; in
others it is not. In commercial contracts for the sale of goods prima facie
a stipulated time of delivery is of the essence, but prima facie a
stipulated time of payment is not (Sale of Goods Act 1893, section 10(1)); in a
charterparty a stipulated time of payment of hire is of the essence. Moreover a
contract of tenancy of business premises would not appear to be more of a
commercial character than a contract for sale of those premises. Nevertheless,
the latter provides a classic example of a contract in which stipulations as to
the time when the various steps to complete the purchase are to be taken are
not regarded as of the essence of the contract.
I refer to
that passage in Lord Diplock’s speech in order to emphasise that, in my view,
the considerations which apply in deciding whether or not time is of the
essence in a contract of the nature with which we are here concerned are by no
means necessarily the same as are the considerations affecting contracts which
are more strictly of a commercial nature. The decision of the House of Lords in
the United Scientific case has shown that, in contracts of the nature
with which we are concerned here, the general bias is against treating time as
being of the essence.
Subclause (a)
provides that: ‘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
twenty-fifth day of December one thousand nine hundred and seventy four.’ In my view, as a matter of
construction–though I do not think it matters whether this is right or
wrong–those words mean that the date December 25 1974 is the final date for the
approval in writing and not for the submission by the lessor of the assessment.
If that be right, then it would follow that the intention of the parties in
that clause must have been that the assessment by the lessor should be
submitted to the lessee at some date before December 25, so as to enable the
lessee to have the opportunity to express his approval or his disapproval on or
before December 25. That is to say, this clause does not purport to lay down
any specific date on which the lessor’s assessment is to be sent, save, of
course, that it would be implied that it had to be sent at some date before
December 25.
Subclause (b)
provides that: ‘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). . . .’ I should accept that ‘the date appointed’
must be taken (because I do not see what other meaning can be given to it) to
be December 25 1974 and that the subclause is dealing with a case in which the
approval of the lessee has not been given before that date. It would, of
course, be absurd to suggest that if the lessor had given his assessment well
before December 25 and the lessee had simply done nothing by way of
acknowledging or considering or replying to it, it could then be said that
time, being of the essence, had expired on December 25 and that the lessor had
thereby, through no fault of his own, lost his right to have a higher rent
during the remaining 14 years of the contract. That is not, and could not be,
suggested. It follows, however, that what the subclause is dealing with is the
time of the approval and not the time of the giving of the notice by the
lessor. In those circumstances, it seems to me that it would be extremely
difficult, in any event, to read the words used here as imposing upon the
lessor, by implication, the consequence that, if he fails to give his
assessment in whatever is the reasonable time before December 25, the lease
thereafter has to continue for the remaining 14 years at the original rent.
I refer,
simply in order to emphasise that point, to a passage in a judgment in a
commercial case, properly so called. It is, therefore, the sort of case in
which the law, as I have already suggested, would be more ready to hold time as
being of the essence than in a case of the nature with which we are concerned.
It is a sale of goods case, Bremer Handelsgesellschaft v Vanden
Avenne-Izegem PVBA [1978] 2 Lloyd’s Rep 109. One of the questions which the
House of Lords had to consider was whether, in an exemption clause in a
contract, a provision that notice should be given without delay if a party
sought to rely on the exemption, was a condition of the contract: so that, if
the notice was not given without delay, the person who sought to rely on it
would be held, without more ado, not to be entitled to the protection of that
clause. The House of Lords held that the clause was not to be so treated, even
though it was a clause in a commercial contract. There were passages in the
speeches of each of their Lordships to the same effect. I simply cite that of
Lord Salmon. In the report at p 128 in the left-hand column he said this:
In the event
of shipment proving impossible during the contract period, the second sentence
of cl 21 requires the sellers to advise the buyers without delay of the
impossibility and the reasons for it. It has been argued by buyers that this is
a condition precedent to the sellers’ rights under that clause. I do not accept
this argument. Had it been intended as a condition precedent, I should have expected
the clause to state the precise time within which the notice was to be served,
and to have made plain by express language that unless the notice was served
within that time, the sellers would lose their rights under the clause.
So also in the
present case, a fortiori, I should have expected that, if the intention
had been that for which Mr Moshi contends, the latest date by which the lessor
was required to give his assessment would have been expressly stated and not
left to be, by implication, a reasonable time before December 25; and the
clause would, by its express terms, have made it clear that, if that action was
not taken within that time, the lessor would lose his rights.
I agree that
this appeal falls to be dismissed.
The appeal
was dismissed with costs. Leave to appeal to the House of Lords was refused.
