Landlord and tenant — Construction of a rent review clause — Whether time of the essence of an arbitrator’s determination of rent — Parties failed to agree rent — Application for declarations by landlord dismissed
is the owner of the reversion to two separate leases of the first and second
floors of premises at 326 Kensal Road, London W10 — By a lease dated September
18 1973 the defendant in the first action holds a 25-year term of the second
floor subject to five-yearly rent reviews — By a lease dated November 27 1973
the defendant in the second action holds a 25-year term of the first floor —
Subject to differences in dates, and one point, the two leases were in the same
terms — In each case the rent was to be reviewed to ‘the current market rental
value’ — That amount was to be agreed between the parties not later than three
months prior to the commencement of a relevant review period ‘or in the absence
of agreement (time to be of the essence of these provisions) as shall be determined
by an Arbitrator . . . [who] shall make his determination by a date three
months prior to the commencement of [the relevant rent review period]’ — In
neither case was there any agreement three months prior to the relevant rent
review periods — Although the plaintiff landlord applied for the appointment of
arbitrators to determine the rent, the defendant tenants contended that time
was of the essence of the date of the arbitrator’s awards, and those dates had
expired — The plaintiff landlord issued two originating summonses and contended
that time was of the essence only of the part of the rent review clause
relating to the agreement of the parties and was not of the essence of any part
of the machinery for determination of the rent by an arbitrator
relating to a clause which was for all practical purposes identical to the
provisions of the first-floor lease was considered in C B Bradley & Sons
Ltd v Telefusion Ltd — Walton J held that the words ‘time to be of
the essence of this provision’ applied to the part of the provision which
related to determination by arbitration — There was no room to distinguish that
case, and it was impossible to avoid the conclusion, as a matter of language,
that either by agreement or by arbitration the rent must be determined not
later than three months before the commencement of the relevant rent review
period — The words ‘these provisions’ in the plural in the case of the
second-floor lease strengthens the linguistic argument that time was of the
essence of the machinery for arbitration
The following
cases are referred to in this report.
Amherst v James Walker (Goldsmith & Silversmith) Ltd [1983] Ch
305; [1983] 3 WLR 334; [1983] 2 All ER 1067; (1983) 47 P&CR 85; [1983] EGD
157; 267 EG 163, [1983] 2 EGLR 108, CA
Bradley
(C) & Sons Ltd v Telefusion Ltd (1981)
259 EG 337, [1981] 2 EGLR 94
Essoldo
(Bingo) Ltd’s Underlease, Re (1971) 23 P&CR 1
Laing
Investment Co Ltd v Dunn (GA) & Co
[1982] EGD 252; (1981) 262 EG 879, [1982] 1 EGLR 129
Touche
Ross & Co v Secretary of State for the
Environment (1982) 46 P&CR 187; 265 EG 982, [1983] 1 EGLR 123, CA
United
Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33
P&CR 220; [1977] EGD 195; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
The plaintiff
lessor issued two originating summonses: West End Litho Ltd was the defendant
to the first summons and Tampo Supplies Ltd was the defendant to the second
summons. Each summons raised for determination the proper construction of the
rent review provisions in two leases concerning the first and second floors
respectively of premises at 326 Kensal Road, London W10.
Adrian Jack
(instructed by Cornillie & Co) appeared for the plaintiff; Kim Lewison QC
(instructed by Alsop Wilkinson) represented West End Litho Ltd; and John Male
(instructed by Wedlake Bell) represented Tampo Supplies Ltd.
Giving
judgment, FERRIS J said: There are two originating summonses before me,
each of which raises what is essentially the same question arising out of the
rent review provisions contained in separate leases of the first and second
floors of premises known as 326 Kensal Road, London W10.
The earlier of
these two leases is that in respect of the second floor. It was dated September
18 1973 and was made between Art & Sound Ltd (which is the plaintiff in
both originating summonses and to which I shall refer as ‘the lessor’) of the
one part and West End Litho Ltd (which is the defendant in action 1990 A No
10492) of the other part. By it the second floor was demised to West End Litho
for a term of 25 years from November 1 1973. A separate rent was fixed for each
successive five years of the term, the last four of which were referred to
respectively as the second, third, fourth and fifth rent periods, the rent
reserved during these periods being referred to as the second, third, fourth
and fifth rents respectively. The question raised in these proceedings concerns
the fourth rent, which is payable from November 1 1988 until November 1 1993.
Under para (d) of Part III of the schedule to the lease the fourth rent is to
be:
the same
amount as the third rent or such amount (whichever shall be the greater) as
shall be ascertained as hereinafter provided as representing the current market
rental value of the demised premises for the fourth rent period.
This formula
is then repeated as regards the fifth rent period, after which there follows
the clause with which I am concerned, which is in the following terms:
The
expression ‘the current market rental value’ as hereinbefore used shall mean
such amount as shall be agreed between the Lessor and the Lessee by a date not
later than three months prior to the commencement of the second rent period or
the third rent period or the fourth rent period or the fifth rent period (as
the case may be) as representing the current market rental value at such date
of the demised premises or in the absence of agreement (time to be of the
essence of these provisions) as shall be determined by an Arbitrator as sole
Arbitrator acting under the provisions of the Arbitration Act 1950 or any
statutory modification or re-enactment thereof for the time being in force to
be nominated by the president for the time being of the Royal Institution of
Chartered Surveyors on the application of the Lessor and so that in case of any
arbitration the current market rental value as at such date at which the same
is required to be ascertained shall be of such amount as shall in the opinion
of the Arbitrator represent the rent at which the demised premises might
reasonably be expected to be let for a term equivalent to the then unexpired
residue of the term hereby granted as between a willing landlord and a willing
tenant with vacant possession and taking no account of any goodwill
attributable to the demised premises by reason of any business carried on there
by the tenant and in all other respects on the terms and conditions of this
Lease and in the case of any Arbitration the Arbitrator shall make his determination
by a date three months prior to the commencement of the second rent period the
third rent period the fourth rent period or the fifth rent period (as the case
may be) and all fees costs and expenses payable in respect of such Arbitration
shall be borne by the parties hereto in equal shares.
What has
happened in the case of the second floor is that there was no agreement between
the parties as to the amount of the fourth rent, either three months prior to
the commencement of the fourth rent period or at all. On November 11 1988 (that
is to say more than a week after the commencement of the fourth rent period)
the lessor applied to the president of the Royal Institution of Chartered
Surveyors (‘RICS’) for the appointment of an arbitrator to determine the fourth
rent. An arbitrator was duly appointed on January 27 1989. Having regard to the
date of the application for his appointment there was never any possibility
that he could determine the rent by the time prescribed by the words I have
read, namely by a date three months prior to the commencement of the fourth
rent period. West End Litho, which remains the tenant of the second floor,
contends that time is of the essence of the requirement that the arbitrator
shall make his determination by that date and the lessor is not now entitled to
require the arbitrator to determine the rent. Pending the outcome of the
proceedings he has not done so. The originating summons in this matter was not
issued until October 8 1990. The delay between the arbitrator’s appointment and
the commencement of these proceedings is over 20 months, which is surprising,
excessive and unexplained. However, no special point is sought to be made as a
result of this delay.
The lease of
the first floor is dated November 27 1973. The parties were the lessor and a
company named Panel Printers Ltd. The demise was for 25 years from June 24
1973. Subject to differences in dates and one point which I shall mention in a
moment, the lease was, so far as material, in the same terms, mutatis mutandis,
as that of the second floor. The fourth rent period began on June 24 1988 and
ends on June 24 1993. The only material difference between the relevant
provisions of the two leases is that in the first-floor lease the words in
parentheses expressing time to be of the essence are ‘time to be of the essence
of this provision’. It will be recalled from the extract that I have read that
the equivalent words in the second-floor lease were ‘time to be of the essence
of these provisions’.
The relevant
events in relation to the first-floor lease are as follows. On or about August
15 1985 Panel Printers Ltd assigned the lease to Tampo Supplies Ltd, which
remains the tenant and is the defendant in action 1990 A No 10494. It seems
that there was a suggestion at about the time of the assignment that it was
unlawful by reason of failure to obtain the lessor’s consent, but this was
disputed and the lessor has long since accepted Tampo Supplies as its tenant.
Accordingly nothing turns on this. The fourth rent was not agreed by the
prescribed date or at all. On March 25 1988, which was the day after the last
date for agreement, the lessor applied to the president of the RICS for the
appointment of an arbitrator. The arbitrator was appointed on May 19 1988. He
has not determined the fourth rent because of the objections of Tampo Supplies
Ltd, which are the same as those of West End Litho. The originating summons was
not issued until October 8 1990, 30 months after the arbitrator’s appointment.
I make the same comments as regards delay as in the case of the second-floor
lease.
The tenants
under each lease accept that the effect of United Scientific Holdings Ltd
v Burnley Borough Council [1978] AC 904* is that there is a presumption
that, in the absence of contra-indications, time is not of the essence of the
machinery established by the rent review provisions. But the parties to a lease
may expressly provide that time is to be of the essence and where they do so
the court will give effect to their expressed intention, as Lord Diplock
specifically stated in the United Scientific case at p 923. There is no
doubt that there is, in each of the present leases, an express provision that
time is to be of the essence. The question is whether time is of the essence of
the whole of the procedure provided for by the passage
so, which part.
*Editor’s
note: Also reported at (1977) 243 EG 43 & 127, [1977] 2 EGLR 61.
Both sides
recognise that the passage which I have cited provides for a procedure in two
parts but there is a dispute whether these parts were envisaged as being
successive or concurrent. The first part is that which relates to agreement.
The second part is that which relates to the determination of the rent by an
arbitrator. The contention of the tenants is that time is of the essence of
both parts or, alternatively, of that part relating to determination of the
rent by an arbitrator. The contention of the lessor is that time is of the
essence only of the part relating to the agreement of the parties and that time
is not of the essence of any part of the machinery for determination of the
rent by an arbitrator.
The argument
of the tenants begins with the submission that the two parts of the procedure
are separated by the words ‘or in the absence of agreement’. The crucial words
as to time being of the essence occur after this separation and grammatically
they belong to the second part. Alternatively they apply to both parts, this
being particularly relied upon on behalf of West End Litho, where the relevant
words are ‘time to be of the essence of these provisions’. This linguistic
argument is said to be reinforced by a number of considerations. In particular,
it is said to be virtually meaningless to say that time shall be of the essence
of a stipulation that rent shall be fixed by agreement, because if the parties
were to agree the rent after the prescribed time the fact that time was
expressed to be of the essence would be no impediment to their giving effect to
their agreement. It was also pointed out that it is in the tenant’s interests
that it shall know what rent it has to pay before the commencement of the
relevant rent period, because the need to pay considerable arrears after a late
determination may give rise to hardship. Accordingly, there is good reason for
making time of the essence of the arbitration determination, particularly when,
as here, it is only the lessor who can apply for the appointment of an
arbitrator, so that if time were not of the essence the lessor could delay the
process of initiating a determination.
Against these
considerations it is urged on behalf of the lessor that it is grammatically
possible to read the words ‘time to be of the essence of this provision’ in the
first-floor lease as referring back to the provision for determination by
agreement rather than forward to the provision for determination by
arbitration. This is also said to be possible in the case of the second-floor
lease, where the concluding words are ‘these provisions’, because the
stipulation for determination by agreement is to operate on four separate
occasions, namely in respect of the second, third, fourth and fifth rent
periods, and it is as aptly referred to by the plural ‘these provisions’ as by
the singular ‘this provision’.
To treat the
words as producing this result would, it was said, produce a result which
accords with commercial common sense, whereas the tenants’ construction flouts
commercial common sense. The basis of this submission was that both the
language of the provision and common sense suggest that determination by
arbitration is to take place only after there has been an opportunity for
determination by agreement. There was no attempt to resurrect the argument
which failed in Re Essoldo’s Underlease (1971) 23 P&CR 1, which was
not cited to me but was referred to in passing in the course of argument. Thus
it is accepted that the words ‘in the absence of agreement’ are to be construed
literally and do not require that there must be some attempt at agreement or
that the matter must be allowed to run until the last day for agreement.
Nevertheless, it was submitted that the two parts of the relevant provisions
are to operate sequentially and not simultaneously. If it were otherwise the
lessor would probably need to initiate an arbitration some 15 months before the
commencement of the relevant rent period, because the dates in this case show
that it takes between two and three months to obtain the appointment of an
arbitrator and neither party has any real control over the speed of the
arbitration. If the argument of the tenants is right the two parts of the
provisions cannot operate sequentially, although that is how one would expect
them to operate. They must operate simultaneously, which is extraordinary.
I was referred
to Touche Ross & Co v Secretary of State for the Environment
(1982) 46 P&CR 187*, where the Court of Appeal referred to the fact that
appointment of an arbitrator and the performance of the arbitration functions
were outside the control of the parties as being a pointer against time being
of the essence. But the issue in that case was whether it could be implied from
the language of the rent review machinery as a whole that time was to be of the
essence. Here, the question is how words which undoubtedly make time of the
essence are to operate. If grammatically they apply to the part of the
provisions that relate to determination of the rent by arbitration then the
fact that the parties have thereby made time of the essence of a procedure over
which they have little or no control does not appear to me to be of any real
relevance. This factor may, however, be of some relevance if the words are
fairly capable of two different meanings, because it may be that I should then
prefer the meaning which does not attribute to the parties an unlikely
intention.
*Editor’s
note: Also reported at (1982) 265 EG 982, [1983] 1 EGLR 123.
The question
which I have to consider is not free from authority. In C Bradley & Sons
Ltd v Telefusion Ltd (1981) 259 EG 337, [1981] 2 EGLR 94 Walton J
had to consider the same question in relation to a clause in which for all
practical purposes were terms identical to the provisions of the first-floor
lease in the present case, save that the time by which the parties were to
determine the rent by agreement was not later than six months prior to the
commencement of the relevant rent period. The time by which the arbitrator was
to make his determination was the same as that prescribed by the two leases
with which I am concerned, namely a date three months prior to the commencement
of the period. Accordingly there was a possibility that an arbitration
initiated after a failure to agree by the first prescribed date could lead to a
determination by the second prescribed date although the timetable was, as
Walton J observed, a very tight one. Walton J held that the words ‘time to be
of the essence of this provision’ applied to the part of the provision which
related to determination by arbitration. Three considerations led him to this
conclusion. First, he attached no significance to the tight timetable, having
regard to the power of the court under section 13(2) of the Arbitration Act
1950 to extend the time for making an award. Second, he took the view that it
would be meaningless to make time of the essence of the provision for the
determination of the rent by agreement of the parties, having regard to the
fact that if the parties were agreed they could perfectly easily make and give
effect to their agreement after the stipulated time. Third, reading the clause
as a whole, he found that the vital words applied grammatically to what was to
come (namely the determination of the rent by arbitration), not to what had
gone previously (namely the provision for determination of rent by agreement).
Mr Jack, on
behalf of the lessor, sought to persuade me to reach a conclusion different
from that reached by Walton J on two grounds. First, he sought to distinguish
the Telefusion case on the ground that, while in that case there was at
least an interval of three months between the latest date for agreement of the
rent and the latest date for the determination of the rent by arbitration, in
the present case there is no such interval at all. In this case the timetable
is not merely tight but impossible. Although at first sight this may appear to
be an important distinction, I have come to the conclusion that in this case it
points in the opposite direction from that contended for by Mr Jack. In the Telefusion
case the fact that there was an interval of three months between the latest
dates for the two operations left scope for the assumption, which I think
Walton J made, that determination by arbitration was to be consequent upon, and
in succession to, a failure to reach agreement. But in the present case there
is no room for the equivalent view. Whether or not time is of the essence, the
provision in both the leases which I have to consider prescribes the same date
as the latest date for determination of the rent by agreement or by
arbitration. I find it impossible to avoid the conclusion, as a matter of
language, that either by agreement or by arbitration the rent must be
determined not later than three months before the commencement of the relevant
rent period. This negatives the view that arbitration was to be consequent only
upon a failure to agree within the prescribed period. Both leases with which I
am concerned seem to proceed on the basis that an attempt to agree and
arbitration would proceed contemporaneously. This is somewhat unusual but it is
by no means impossible, because the parties could always settle an arbitration
by agreement. However this may be, the meaning of the language used is not
changed by regarding time as not being of the essence. All that this would do
is to mitigate the consequences of failure to act in accordance with the
language. But if, as I think, the language does not envisage the two stages as
being necessarily consecutive there is nothing in the timetable which gives
rise to any need to depart from the ordinary meaning of the words used in
respect of time being of the essence. I respectfully agree with Walton J that
the more natural reading of the provision as a whole requires that the words
‘time to
arbitration.
The second
ground on which Mr Jack invited me to differ from Walton J was that, in the
light of subsequent decisions, I ought to accept that it was not as improbable
as Walton J had thought it to be to treat the stipulation that time should be
of the essence as applying to that part of the provision which relates to the
determination of the rent by agreement.
Mr Jack referred
me to the decision of Peter Gibson J in Laing Investment Co Ltd v G A
Dunn & Co (1981) 262 EG 879. It appears from the judgment in that case
that the judge had initially been strongly inclined to make an implication as
to time being of the essence because, if he did not do so, an express
stipulation would have made time of the essence only of a provision for the
determination of the rent by agreement which, following Walton J in the Telefusion
case, he thought would serve little practical purpose. However, after being
referred to the decision of the Court of Appeal in Amherst v James
Walker (Goldsmith & Silversmith) Ltd (1980) 254 EG 123, [1980] 1 EGLR
86, he concluded that it would be wrong to make such an implication. In the
result he accepted that the stipulation as to time being of the essence applied
only to determination of the rent by agreement. While I accept this as a
correct analysis of the Laing case I do not find it to be of assistance
in the cases which I have to consider. It provides no basis on which I can give
anything other than what I have indicated to be the natural meaning to the
stipulation as to time in the leases which are before me.
In the result
I find no ground for distinguishing or departing from the decision of Walton J.
In my view, the argument presented on behalf of the lessor not only goes
against the actual and grammatical meaning of the clause but abandons a
timetable under which determination by arbitration was required to be completed
three months before the relevant rent period in favour of a timetable under
which arbitration may well not be begun until after that time. I think that
this involves a rewriting of the clause, not merely the construction of the
words used.
This reasoning
applies to both the cases before me. In the case of the second-floor lease the
fact that the crucial words refer to ‘these provisions’ in the plural
strengthens the linguistic argument which, like Walton J, I accept. I do not
think that the use of the plural can be explained as a reference to the
repeated operation of a single provision. If it were relevant to do so I would
hold that in the case of the second-floor lease time is of the essence of both
parts of the clause. However, I do not think that in practical terms this takes
the matter any further.
I apprehend
that the consequential order which I must make is to dismiss both originating
summonses, although I will hear counsel about this.
