Parties to long lease contemplating that lessee developer would sublet completed units and pay percentage of rent to lessor – Lessee disposing of units by way of assignment – Occupying tenant contending that no rents ‘receivable’ for purpose of agreed computation – Whether parties providing for valuation in such circumstances – Meaning of rack-rent – Appeal allowed
In 1969 the appellant council granted to a development company D, lease of the 14.5 acre site of an old cattle market for a term of 114 years, on terms requiring D to develop the site so as to create six industrial units fit for immediate occupation. No rent was payable for the first year. Thereafter the reddendum reserved a peppercorn rent until April 28 1970 followed by a yearly rent of £9,425 until December 25 1980. For the remainder of the term the reddendum reserved ‘such sum as may be agreed or determined as the fair market rent in accordance with . . . Clause 4 hereof . . ‘. Clause 4 provided that as at December 25 1989, and thereafter at the end of every 21-year period (the relevant renewal date), the yearly rent would be the highest of: (i) the sum of £9,425; (ii) the rent payable during the previous period; or (iii) or such sum as shall be equivalent to 8% of the rack-rents receivable by the lessee on the relevant renewal date, such figure of 8% to be certified by the lessee’s accountants. There was a full arbitration clause but no restriction on disposals by D nor any positive covenant by D relating to sublettings.
No sublettings were effected by D, who proceeded instead to dispose of each unit by way of assignment (at a premium) to the intent that each occupier should pay an apportioned rent directly to the council. One such unit was assigned in 1973 to KP Ltd, who subsequently assigned it to the respondent tenants. The dispute related to the rent payable for the period running from December 25 1989. The respondent contended that, as occupying tenant, he was only liable to pay the £702 pa payable over the previous period, there being on the relevant date no rents receivable by him for the accountant to certify. The trial judge (at [1995] 36 EG 141, sub nom Fraser Pipestock Ltd v Gloucester City Council) accepted that contention holding, inter alia, that the process contemplated by clause 4 was purely one of certification of actual rents received and that the word ‘receivable’ should be construed accordingly. The council appealed.
Held The appeal was allowed.
Whether ‘receivable’ as used in clause 4 bore the narrow meaning contended for by the tenant or the wider meaning urged by the council, capable of being received, depended upon the context : see Compton Group Ltd v Estates Gazette Ltd [1977] 2 EGLR 73; R&A Millet Shops Ltd v Leon Allan International Fashions Ltd [1989] 1 EGLR 138. In opting for the former, with its unjust result for the council, the judge had failed to give effect to the reddendum where reference to a ‘fair market rent’ to be ‘agreed or determined’ pointed strongly to a process of valuation rather than computation. The basic counter-inflationary purpose of rent review, by valuation, also emerged from the upwards-only provisions of clause 4 where the expression ‘rack rent’ should be taken , in the absence of a contrary intention, to mean the full rental value: see Compton Group (supra). Workable rent-fixing machinery could be found in the arbitration clause.
Nigel Davis QC and Stephen Bate (instructed by the solicitor to the Gloucester City Council) appeared for the appellants; Paul Morgan QC and Philip Rainey (instructed by Rowe & Maw) appeared for the respondent.
