Landlord and tenant — Rent review — Deeming provision — Time of the essence — Time-limit for application to appoint expert — On expiration of time-limit rent deemed to be rent in tenants’ notice –Whether time of the essence
The defendant tenants held a lease, granted by the
plaintiff landlords’ predecessor in title, for a term of 15 years from June 24
1989 at a rent of £14,750 pa, subject to upwards-only rent reviews. The
plaintiffs acquired the reversion in December 1996, and in February 1997
proposed a revised rent of £25,500 in respect of the first rent review date of
June 24 1994. The defendant tenants’ surveyor proposed a rent of £14,750. The
lease provided that, unless the landlord applied within three months of such notice
to the president of the Royal Institution of Chartered Surveyors for the
appointment of an independent expert, the rent stipulated in the tenants’
notice should be the rent payable from the review date. The landlords failed to
make a timeous application. The issue between the parties was whether time was
of the essence in relation to the landlords’ right to apply to the president;
that issue concerned the application of one or other of the two conflicting
decisions of Visionhire Ltd v Britel Fund Trustees Ltd [1992] 1
EGLR 128 and Phipps-Faire Ltd v Malbern Construction Ltd [1987] 1
EGLR 129.
review clause, and the initial rent payable for the first review period could
no longer be increased. The decision of the Court of Session in Visionhire
Ltd v Britel Fund Trustees Ltd, where the parties to a lease with
terms relating to the effect of a notice had specified ‘a kind of ultimatum
procedure’ similar to the lease in question, was followed.
The following cases are
referred to in this report.
Bickenhall Engineering Co Ltd v Grandmet Restaurants Ltd [1995] 1 EGLR 110; [1995] 10 EG
123
CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16; [1984] 3 WLR 245;
[1984] 3 All ER 298
Henry Smith’s Charity Trustees v Awada Trading and Promotion Services Ltd (1983) 47
P&CR 607; [1984] 1 EGLR 116; [1984] EGD 103; 269 EG 729, CA
Huddersfield Police Authority v Watson [1947] KB 842; [1947] 2 All ER 193; (1948) 63 TLR
415
Lewis v Barnett
[1982] 2 EGLR 127; (1981) 264 EG 1079
Mecca Leisure Ltd
v Renown Investments (Holdings) Ltd (1984) 49 P&CR 12; [1984] 2 EGLR
137; [1984] EGD 271 EG 989, CA
Minister of Pensions v Higham [1948] 2 KB 153; [1948] 1 All ER 863; 64 TLR 376;
[1948] LJR 1438; 92 SJ 378
Phipps-Faire Ltd v
Malbern Construction Ltd [1987] 1 EGLR 129; (1987) 282 EG 460
United Scientific Holdings Ltd v Burnley Borough Council; Cheapside Land Development Co
Ltd v Messels Service Co [1978] AC 904; [1977] 2 WLR 806; [1977] 2
All ER 62; (1977) 33 P&CR 220; [1977] 2 EGLR 61; [1977] EGD 195; 243 EG 43
& 127, HL
Visionhire Ltd v Britel
Fund Trustees Ltd [1992] 1 EGLR 128; [1992] 10 EG 95, CA
Young v Bristol
Aeroplane Co Ltd [1944] KB 718; [1944] 2 All ER 293
This was the hearing of
an application by the plaintiffs, Andrew and Christopher Banks, for the
determination of questions arising under a lease held by the defendants,
Andreas and Maro Kokkinos.
Wayne Clark (instructed by Pinsent Curtis)
appeared for the plaintiffs; Edward Cole (instructed by Lindley Johnstone, of
Bristol) represented the defendants.
Giving judgment, MR NICHOLAS STRAUSS QC said: This case concerns a lease
of the ground floor and basement at 67 Park Street, Bristol. It was let by the
plaintiffs’ predecessor in title to the defendants, for a period of 15 years
from 24 June 1989 at a rent of £14,750 pa, subject to upwards-only reviews with
effect from 24 June 1994 and 1999. The provisions relating to the review of
rent are contained in the sixth schedule. After providing for reviews on the
dates referred to above, this continues as follows:
3. Such revised rent hereinbefore referred to may
be agreed at any time between the Landlord and the Tenant or (in the absence of
agreement) determined not earlier than one month before the commencement of the
review period to which it relates by a valuer to be nominated in the absence of
agreement by the President for the time being of the Royal Institution of
Chartered Surveyors on the application of the Landlord made not more than six
months before or at any time after the commencement of the relevant review
period so that in case of such valuation to be determined by the valuer who
shall act as an independent expert and not as an arbitrator shall be [and then
certain assumptions governing the determination are set out]…
Paras 5 and 6 of the schedule provide in effect
that, where a revised rent has not been agreed before the beginning of a review
period, the previous rent shall continue, and that once it has been revised,
any arrears should be paid on the next day of the payment of rent with
interest. The schedule then continues:
7. If and so often as a revised rent in respect
of any review period has not been agreed between the Landlord and the Tenant
before the first day hereby appointed for payment of the rent for the relevant
review period and the Landlord has not before that day made any application to
the President for the time being of the Royal Institution of Chartered
Surveyors… the Tenant may at any time thereafter serve on the Landlord notice
in writing containing a proposal as to the amount of such revised rent not
being less than the rent payable immediately before the commencement of the
relevant review period and the amount so proposed shall be the revised rent for
the relevant review period unless the Landlord shall make any such application
as aforesaid within three months after service of such notice and Paragraph 6
hereof shall apply accordingly upon the first day for payment of rent after the
expiration of such three months unless such application has been made within
such three months.
Nearly 2.5 years after the first review date, on 4
December 1996, the plaintiffs acquired the freehold reversion, no step having
been taken before that date to implement the provisions for the review of rent.
On 7 February 1997 the plaintiffs proposed a revised rent of £25,500.
Negotiations were suggested, but nothing came of this. On 16 July 1997
surveyors instructed by the defendants wrote a letter, pursuant to para 7 of
the sixth schedule, proposing that the rent payable for the relevant
review period should be £14,750, ie the same as the rent for the previous
period. The plaintiffs did not, as provided by para 7 of the sixth schedule,
apply to the president of the RICS for the appointment of an expert.
The issue between the parties is therefore a
familiar one: was time of the essence in relation to the plaintiffs’ right to
apply to the president of the RICS for the appointment of a surveyor to act as
expert?
The leading cases are of course the decisions of
the House of Lords in United Scientific Holdings Ltd v Burnley
Borough Council and Cheapside Land Development Co Ltd v Messels
Service Co, reported together at [1978] AC 904*, which have been considered
many times in cases in which parties to leases have disregarded the valuable
advice of Lord Diplock that they should make it clear in express terms whether
time is of the essence or not. However, the failure by the landlord to state
expressly that time is of the essence is not conclusive (see the decision of
the Court of Appeal in Lewis v Barnett [1982] 2 EGLR 127†) and
the principles of construction applicable to rent review clauses were
summarised by Slade LJ in Henry Smith’s Charity Trustees v Awada
Trading and Promotion Services Ltd [1984] 1 EGLR 116‡ at p120A, as follows:
(1) Where a rent review clause confers on a
landlord or tenant a right for his benefit or protection, as part of the
procedure for ascertaining the new rent, and that right is expressed to be
exercisable within a specified time, there is a rebuttable presumption of
construction that time is not intended to be of the essence in relation to any
exercise of that right.
(2) In a case where the presumption applies, the
other party concerned may, if he wishes to bring matters to a head after the
stipulated time for the exercise of the right has expired, give to the owner of
the right a notice specifying a period within which he requires the right to be
exercised, if at all; the period thus specified will, if it is reasonable, then
become of the essence of the contract (see the United Scientific case
[1978] AC 904 at pp933H-934A per Lord Diplock and Amhurst v James
Walker Goldsmith & Silversmith Ltd [1983] 3 WLR 334 at p344A per Oliver
LJ and p348B per Lawton LJ).
(3) The presumption is rebuttable by sufficient
‘contra indications in the express words of the lease or in the interrelation
of the rent review clause itself and other clauses or in the surrounding
circumstances’ (see the United Scientific case at p930 per Lord
Diplock).
(4) Though the best way of rebutting the
presumption is to state expressly that stipulations as to the time by which
steps provided for by the rent review clause are to be taken is to be treated
as being of the essence (see ibid at p936G-H per Lord Diplock and at p947E-F
per Lord Salmon), this is not the only way. Any form of expression which
clearly evinces the concept of finality attached to the end of the period or
periods prescribed will suffice to rebut the presumption. The parties are quite
free to contract on the basis that time is to be of the essence if they so wish
(see, for example, Drebbond Ltd v Horsham District Council (1978)
264 EG 1013 and Lewis v Barnett (1982) 264 EG 1079).
*Editor’s note: Also reported at [1977] 2 EGLR
61; (1977) 243 EG 43 and 127
†Editor’s note: Also reported at (1981) 264 EG
1079
‡Editor’s note: Also reported at (1983) 269 EG
729
It may fairly be said on the authorities that the
courts have shown considerable reluctance to find that, on the proper
construction of rent review clauses, the parties have rebutted the presumption
and made time of the essence. The reason for this is that the substantial
bargain between the parties in such cases is that, as from the review date or dates,
the rent should be changed to a current market rent, and the provisions that
are being construed relate merely to the procedural machinery for achieving
this. If a landlord’s inadvertence results in his being left with the old rent
in circumstances in which the current market rent is higher, the tenant (who
has ex hypothesi not brought matters to a head by giving notice
requiring the landlord to exercise his right) obtains an unmerited windfall;
the parties are not to be taken as having agreed to this unless very clear
words are used. The same applies where the suggested construction of the terms
would result in the tenant being required to pay the rent proposed by the
landlord without independent assessment by reason of his failure to serve a
counter-notice in good time. This approach can be seen, for example, from
passages in the speech of Lord Fraser in the United Scientific case at
pp961F-962C and in the judgment of Griffiths LJ in the Smith’s Charity
case at p119C.
In the present case, although I have been provided
with full and very interesting arguments on the proper construction of the
sixth schedule, what I have to decide is a question of judicial precedent. This
is because there are two previous decisions in which the same issue has arisen
on rent review provisions which are indistinguishable from those in the present
case. In Phipps-Faire Ltd v Malbern Construction Ltd [1987] 1
EGLR 129* Warner J held that the ‘contra indications’ were insufficient to
rebut the presumption that time was not of the essence. In Visionhire Ltd
v Britel Fund Trustees Ltd [1992] 1 EGLR 128† the Inner House of the
Court of Session took the opposite view and did not follow Warner
decision, holding that the parties had specified ‘a kind of ultimatum
procedure’ and had made time of the essence. This was not attributable to any
difference between English and Scots law. It is clear from the discussion at
p13lM in the judgment of the Lord President that, although in Scots law the
issue is regarded simply as a matter of construction rather than one which is
governed by a presumption, there is no essential difference between English and
Scots law; indeed, the lord president concluded this passage in his judgment by
referring to:
sound practical considerations for adopting a common
approach to the construction of these clauses and for taking notice of the case
law in England where it may assist towards understanding the effect of what has
been provided as the machinery for the rent review.
*Editor’s note: Also reported at (1987) 282 EG
460
†Editor’s note: Also reported at [1992] 10 EG 95
It is common ground between the parties that I
should follow one or other of these decisions, whatever my own view may be.
There, regrettably, the common ground ends. Mr Edward Cole, on behalf of the
defendants, submitted that I should follow the decision of the Court of
Session, which was later in time. He relied upon the decision of Denning J in Minister
of Pensions v Higham [1948] 2 KB 153, in which Denning J found
himself faced with a decision of the Court of Session (it is not entirely clear
whether it was the Inner or the Outer House) which was inconsistent with his
own previous decision. This had resulted in one war pensions claimant taking an
accommodation address in Scotland in order to found jurisdiction before a
tribunal there. In the circumstances, Denning J decided to follow the decision
of the Court of Session rather than his own previous decision (at p155):
I lay down for myself therefore the rule that,
where the Court of Session has felt compelled to depart from a previous
decision of this court, that is a strong reason for my reconsidering the
matter: and if on reconsideration I am left in doubt of the correctness of my
own decision, then I shall be prepared to follow the decision of the Court of
Session, at any rate in those cases when it is in favour of the man, because he
could be given benefit of the doubt. In this respect I follow the general rule
that where there are conflicting decisions of courts of co-ordinate
jurisdiction, the later decision is to be preferred, if it is reached after
full consideration of the earlier decision. I trust that, by the application of
this principle, the few differences that have arisen between the Court of
Session and this court will be solved.
Although it would be possible to distinguish this
decision, on the basis that it related solely to war pensions matters, I do not
think it would be right to do so. I think that Denning J intended to apply the
general practice governing decisions of courts of co-ordinate jurisdiction to
cases in which there were inconsistent English and Scottish decisions (unless
of course this was due to a difference between English and Scottish law).
Accordingly, prima facie, I would be inclined to follow the decision in Visionhire,
especially as it is a decision of the Inner House, unless I were sure that
Warner J’s decision were right. In fact, I am in doubt as to the correctness of
Warner J’s decision. As can be seen by reading the judgments in both cases,
there are powerful arguments in favour of either construction.
Mr Wayne Clark, however, submitted that I should
not follow the decision of the Court of Session because, on a wider analysis of
all the authorities:
(1) there was a conflict between the decision of
the Court of Appeal in the Henry Smith’s Charity case and the later
decision of the Court of Appeal in Mecca Leisure Ltd v Renown
Investments (Holdings) Ltd [1984] 2 EGLR 137*;
(2) in accordance with the general rule, I should
follow the later decision: see for example CCC Films (London) Ltd v Impact
Quadrant Films Ltd [1985] QB 16; and
(3) the decision of the Court of Session was
inconsistent with the later decision in the Mecca case and I should
therefore follow the ordinary rule and apply Warner J’s decision as a matter of
judicial comity: see Huddersfield Police Authority v Watson
[1947] KB 842 at p848.
This involves consideration of the two decisions
of the Court of Appeal to which I have referred, and a third decision of a
two-man Court of Appeal, Bickenhall Engineering Co Ltd v Grandmet
Restaurants Ltd [1995] 1 EGLR 110†.
*Editor’s note: Also reported at (1984) 271 EG
989
†Editor’s note: Also reported at [1995] 10 EG 123
In the Smith’s Charity case, the Court of
Appeal held, in the context of a complex rent review schedule, that time was of
the essence in provisions that, in the event of the tenant’s failure within a
specified time to serve a counter-notice, the amount stated in the landlord’s
notice ‘shall be deemed to be the market rent’ and that, in the event of the
tenant having served a counter-notice but of the landlord failing within a
specified time to apply for the appointment of a surveyor, the amount stated in
the counter-notice ‘shall be deemed to be the market rent’. The Master of the
Rolls held that the parties had made ‘elaborate provision for exactly what
shall happen if one of the parties shall fail to exercise his rights within the
specified period of time’, that decisions in this type of case should not turn
upon fine distinctions and that time was of the essence. It is at least
arguable that, on a fair reading of his judgment, he held that time would be of
the essence whenever the parties made provision for what was to happen in the
event of a default. Griffiths LJ, however, clearly held that there was no such
general rule and declined to accept that a ‘deeming’ provision would, in all
cases, be sufficient to make time of the essence, although it did add some
weight to the view that time was of the essence in the particular case. He was
driven ‘reluctantly’ to the conclusion that time was of the essence by the
wording of the rent review provisions before him, and in particular the unusual
feature that, where the tenant had to pay a higher rent subsequently determined
to be too high, repayment of the excess carried no interest; this he regarded
as a ‘powerful pointer to the intention of the parties that this timetable
should be strictly adhered to’.
Slade LJ held that, on the proper construction of
the ‘stringent’ provisions of the particular lease, the only meaning that could
be attached to the phrase ‘shall be deemed to be the market rent’ in the
context was ‘shall be conclusively presumed to be the market rent’. However, he
made it clear (in particular at p121D and F-G) that his decision was based upon
the particular rent review clause before the court and that, in another
context, a ‘deeming’ provision might not necessarily lead to the conclusion
that time was of the essence.
In the Mecca case the Court of Appeal had
to consider a rent review clause in a significantly different form, including a
provision that, in the event of the lessee failing to serve a counter-notice,
‘it shall be deemed to have agreed to pay the increased rent specified in [the
landlord’s notice] from the review date’. The Court of Appeal held that time
was not of the essence. Eveleigh LJ, having referred to the Smith’s Charity
case, and in particular to the passages in the judgments of Griffiths and Slade
LJJ in which they made it clear that the presence of a ‘deeming’ provision was
not conclusive, held that, on the proper construction of the provisions before
him, the deeming provision merely entitled the landlords to make time of the
essence by giving notice to that effect once the period had expired. May LJ
referred to the same passages in the judgments of Griffiths and Slade LJJ in
the earlier case and made the point that Slade LJ had based his view, at least
in part, on the consideration that the ‘deeming’ provisions in the rent review
clause were bilateral. He too held that, on the proper consideration of the
whole of the machinery of the rent review clause in the instant case, time was
not of the essence. Browne-Wilkinson LJ dissented. He referred to the passage
in the judgment of the Master of the Rolls in the Smith’s Charity case
in which he deplored the making of ‘fine distinctions’ and held that it was
necessary to choose, in all cases where there was express provision for what
was to happen in default of service of a notice or counter-notice within a
specified time, either that the provisions were merely part of the machinery
and that time was not of the essence, or that time was of the essence: ‘Justice
and common sense support the first view: logic and precedent the second’. He
then held that, whichever view was correct, it was not possible to distinguish
the earlier decision.
In the Bickenhall case the Court of Appeal
held that, on the proper construction of the particular provisions, there was
no provision for the relevant notice to be served within any particular time,
so that the question of whether time was of the essence did not arise. The case
is, however, relevant in the present context because it was suggested by Simon
Brown LJ at p115H-J that there was a conflict between the decisions of the
Court of Appeal in Lewis v Barnett and in the Smith’s Charity
case on the one hand, and the decision in the Mecca case on the other,
and that the court in Bickenhall would have had to choose between them,
in accordance with Young v Bristol Aeroplane Co Ltd [1944] KB
718, if it had reached the conclusion that there had been a provision for the
notice to be served within a specified time. This passage in his judgment is
clearly obiter and I must express my view, with diffidence, that it is
not right. In my view, the ratio decidendi of Griffiths and Slade LJJ in
the Smith’s Charity case was that, on the proper construction of the
provisions before them, time was of the essence, but that this was not
necessarily so whenever a provision for service of a notice within a particular
time specified what was to happen in default. No general rule was laid down.
This was the view taken by the majority in the Court of Appeal in the Mecca
case and — as I read his judgment — by Neill LJ in Bickenhall. Nor do I
think that Browne-Wilkinson LJ is to be taken as saying, in his dissenting
judgment in Mecca, that the court in the Smith’s Charity case had
held that a default or ‘deeming’ provision was conclusive on the time of the
essence question; he merely found no acceptable basis for distinguishing the
earlier decision, and agreed with the Master of the Rolls that there should be
no ‘fine distinctions’.
Turning to the decision of the Court of Session in
Visionhire, while it is true that the lord president was somewhat
critical, at p132G-L, of a passage in the judgment of Eveleigh LJ in Mecca,
I do not think that he went so far as to say that Mecca was wrongly
decided. In my view, the decision of the Court of Session was based upon its
view that the particular provisions before it, like those in the Smith’s
Charity case, imposed an ‘ultimatum procedure’ in which time was of the
essence (see in particular p132F, K and M).
Accordingly, I am not able to accept Mr Clark’s
submission that, if I take the course suggested by Denning J in the Minister
of Pensions case, this would involve my disregarding the decision of the
Court of Appeal in Mecca. I have therefore decided to follow the
decision of the Court of Session in Visionhire and, accordingly, I hold
that time is of the essence and that the initial rent is payable for the first
review period and can no longer be increased in accordance with the provisions
of the sixth schedule.
