Landlord and tenant — Rent review clause — Provision for review at intervals of five years — Lease with commencement date of term about three years and nine months before execution of lease — Question as to whether the first rent review was due to take place five years from the date of execution of the lease (as the tenant contended) or five years from the date from which the term was expressed to commence (as the landlords contended) — Guidance given by Vice-Chancellor in Bradshaw v Pawley as to back-dated terms — Intention of the parties must be collected from the wording of the lease as a whole — Landlords’ contention accepted — Although no payment to the landlords began until the date of execution, the first five-year period referred to in the review provisions ran from the date expressed as the date of the commencement of the term
This was a
summons by which the plaintiff landlords, Beaumont Property Trust Ltd, sought a
declaration against the tenant, Mr Choi Tai, in regard to the true construction
of a lease of shop premises at West Heath Shopping Centre, Congleton, Cheshire.
The lease was one with a back-dated term and the question was whether the first
review date under the rent review clause was a date five years from the
execution of the lease or five years from the earlier date fixed for the
commencement of the term.
Colin P F
Rimer (instructed by Ashurst Morris Crisp & Co) appeared on behalf of the
plaintiffs; Nigel J Howarth (instructed by McGuinness Elder, of Altrincham)
represented the defendant.
Giving
judgment, Mr VIVIAN PRICE QC said: By this summons the landlords of a property
at Congleton in Cheshire, Beaumont Property Trust Ltd, seek a declaration
against Mr Choi Tai, who is the tenant of premises known as Unit 6, West Heath
Shopping Centre, Congleton, Cheshire, that upon the true construction of a
lease relating to those premises dated December 17 1979, made between Harrison
Developments (Midlands) Ltd, the plaintiffs’ predecessors in title of the one
part, and the defendant Mr Tai of the other part, the first five-year period
referred to in clause 1 (a) of the said lease ran from the commencement of the
term of the lease, namely March 25 1976. As is immediately apparent, this is
one of those leases where the term of the lease, that is the date of execution
of the lease, is after the point in time from which the term of the lease is
said to run. I was not given any evidence on it. In this case the lease
relates, as I have said, to Unit 6 in a shopping centre and for reasons which
are not apparent upon the face of the documents, the lease being executed on
December 17 1979, the term of the lease is expressed in clause 1 of the lease
to be for a period of 25 years, not from December 17 1979 but from March 25
1976.
The dispute between
the parties stems from that simple matter, because the reddendum to the
landlords is (and I shall read the habendum as well):
TO HOLD the
same (Except and Reserved as aforesaid) unto the Lessee for a term of 25 years
from the 25th day of March 1976 yielding and paying therefore to the company:–
(a) during the first five years (from the date of the lease) of the said term a
yearly rent of two thousand five hundred pounds (£2,500) (b) for each
subsequent five years of the said term such rent as shall be determined as
hereinafter provided being the full market rental value of the demised premises
at the beginning of each period of five years or the yearly rent of two
thousand five hundred pounds (£2,500) whichever shall be the greater.
Then subclause
(b) goes on in terms about which there is some dispute:
The rent in
respect of each year to be paid in advance without any deduction on the usual
quarter days the proportion thereof for the period from the said [blank] day of
[blank] one thousand nine hundred and seventy-nine to the [blank] day of
[blank] one thousand nine hundred and seventy-nine having been paid on the date
hereof.
The matter in
fact in dispute was very clearly expressed in the correspondence that was
exhibited to an affidavit of Mr John Lawrence, sworn on behalf of the
plaintiffs, and also appears in the affidavit of Mr Malcolm McGuinness,
solicitor, acting on behalf of the defendant. I do not think I need read that
correspondence, nor do I need read that affidavit, because again the points emerged
very clearly and succinctly in arguments of counsel appearing before me.
What it was in
effect was this: that the landlords’ claim that on the true construction of the
lease, the rent review provision being for equal five-year periods, the first
rent review would be on March 25 1981, which is of course under five years from
the date of execution of the lease, but is for five years from the date from
which the term of the lease was expressed to run, namely March 25 1976. The
subsequent reviews would be at five-year intervals thereafter, namely March 25
1986, March 25 1991 and finally on March 25 1996, the lease itself coming to
its full term on March 24 in the year 2001. About that latter date there is no
disagreement. Essentially the disagreement is about when the
one-and-a-quarter-year first audit period shall be: shall it be at the
beginning of the actual running of the lease, as the landlords assert, or
should it be at the end of the full period, as the tenant asserts, because the
tenant asserts that the clear meaning of the words that I have already read
out, expressed in clauses 1 (a) and (b) of the lease, is that the first rent
review date is to be five years from the date of the lease. The date of the
lease there can be no doubt about — December 17 1979. So, says the tenant, five
years from the date of the lease, which is what the words state in clause 1
(a), means that the first review date is December 17 1984, and thereafter there
would be five-year intervals expiring on December 17 1989, 1994 and 1999,
leaving the one-and-a-quarter-year period from 1999 to March 24 2001.
What is the
correct approach to this matter? Of
course one has to read the document as a whole in order to find what the
intention of the parties was when they executed the lease. I was referred, if I
may say so with great respect, to a very helpful authority, and indeed it was
relied upon both by Mr Rimer for the plaintiffs and Mr Howarth for the
defendant tenant, and that is the judgment of the learned Vice-Chancellor, Sir
Robert Megarry, in Bradshaw v Pawley [1980] 1 WLR 10. I do not
need to go through the details of the case and I do
judgment, after reviewing the law, the learned Vice-Chancellor at the bottom of
p 16 sets out the principles of law which I should follow, and so far as they
are relevant to the circumstances of this case those are the principles that I
do follow. I shall read them out (p 16H):
In the
result, I think that where a lease creates a term of years which is expressed
to run from some date earlier than that of the execution of the lease, the
relevant law may be summarised as follows. (1) The term created will be a term
which commences on the date when the lease is executed, and not the earlier
date.
So, applying
this here, there is no doubt that in law the term created by this lease was
created on December 17 1979 and not on the date where the term is expressed to
run from in clause 1, March 25 1976.
(2) No act or omission prior to the date on which
the lease is executed will normally constitute a breach of the obligations of
the lease. (3) These principles do not prevent the parties from defining the
expiration of the term by reference to a date prior to that of the execution of
the lease,
So applying
that here, the principles that the learned Vice-Chancellor is expressing do not
prevent the parties from defining the expiration of the term of the lease, that
is 25 years, by reference to a date prior to the execution of the lease, that is
25 years from not December 17 1979 but March 25 1976, making, as I have said,
March 24 2001. Then continuing with principle (3), which is of course very
relevant here,
or from
making contractual provisions which take effect by reference to such a date, as
by defining the period for the operation of a break clause or an increase of
rent.
Of course that
is the very point that is for my decision here.
(4) There is nothing in these principles to
prevent the lease from creating obligations in respect of any period prior to
the execution of the lease. (5) Whether in fact any such obligations have been
created depends on the construction of the lease; and there is nothing which
requires the lease to be construed in such a way as to avoid, if possible, the
creation of such obligations.
As will be
seen, of those principles there set out by the Vice-Chancellor it is (3) that
principally occupies me and my attention.
As I said, the
arguments on behalf of both parties were very clearly and very succinctly put
to me, and I should first of all try to summarise those respective approaches.
First of all,
as must be quite clear, on both sides I was taken through the lease as a whole
in an attempt to see whether support could be given for one side’s contention
or the other. I start, of course, with the words of clause 1 itself. The
contention on behalf of the landlords is essentially that the words ‘from the
date of the lease’ in clause 1 (a) are there for the purpose of making it clear
that the payment to the landlords did not begin until the date of the lease,
that is December 17 1979, but had no other effect upon the meaning of the
expression ‘the first five years’. In other words, say the landlords, the term
expressed in the earlier words of clause 1 is 25 years from March 25 1976, and
the first five years of that term obviously run from March 25 1976 until March
24 or 25 1981. The words that I am dealing with are concerned with providing
for a payment to the landlords, and there is no other purpose in these words
but providing for payments. The payment that they are concerned with in clause
1 (a) is a payment during the first five-year period of the 25-year term. So the
payment is to be a yearly one of £2,500, but the words ‘from the date of the
lease’ are there in order to make absolutely apparent and beyond doubt that the
requirement for payment does not arise until the date of execution of the lease
in December 1979. I hope that I am summarising the way in which the landlords’
argument was so admirably expressed, with a clarity that I do not hope myself
to achieve.
Then, say the
landlords, once you have decided that as being the intention of the parties,
you go through the lease and everything you then find is consistent with the
contention. It is not, of course, a matter of construing the words so much as
trying to find out what is the intention of the parties as expressed in these
words at the time when the lease was executed. And, say the landlords, if you
then go through the remaining terms of the lease you will find consistently
that, as I have said, the first five-year period for payment in fact ends no
more than one-and-a-quarter-years after the date of execution of the lease.
Although I was taken through the lease it does not seem to me that any useful
purpose is to be served by now going through the various points and places in
the lease where one finds the use of the said term and other matters which
reinforce or support the landlords’ contention, because this is exactly the
exercise that was carried out again so succinctly and clearly by Mr Howarth on
behalf of the tenant. What seems to me at the time to be the position was that
once you have made up your mind what the meaning of the words were in clause 1
(a) then that view was reinforced by the remaining portion of the lease. Of
course one is construing the document as a whole and it is very important that,
having formed a view, then you should review that preliminary conclusion which
you have formed by going through the rest of the document. The tenant, of
course, relies upon the plain words of clause 1 (a) in its first five lines,
which read as follows: ‘Yielding and paying therefor to the company (a) during
the first five years (from the date of the lease).’ . . . Reading it in that
way, as I have done, it is of course quite clear that in the first line they
are defining, says the tenant, the first five years as running from the date of
the lease, and he rejects the contention of the landlords that ‘from the date
of the lease’ is there to make it clear that there is no obligation to pay rent
prior to the execution of the lease.
Argument was
also addressed to me on this basis: that if I was in any doubt about what the
words mean, in other words that there is an ambiguity, then the words should be
construed against the grantor. Not surprisingly, both parties relied upon that
principle. On the one side, says Mr Rimer on behalf of the landlords, of course
this is the sort of case in which it is not the landlords who are the grantors,
it is the tenant who is the grantor in the particular case of these words in
the lease. No, says Mr Howarth on behalf of the tenant, you have got it quite
the wrong way round, and it is in fact the landlords’ grant here, and the words
must be construed against them. I was referred to a number of cases and to Halsbury’s
Laws of England and other authorities, which seem to me to provide a
fascinating subject for debate. But in the end, and I am bound to say in my
judgment at the beginning, there is no ambiguity in the words of this lease at
all. In my judgment although they could have been more felicitously expressed
the intention of the parties emerges very clearly from the words that are used,
namely that the term of the lease at its maximum will expire 25 years after
March 25 1976, but within that total period of 25 years there will be possible
breaks at five-yearly intervals. It so happens that the lease is executed after
the date when that 25-year term was expressed to be possibly beginning, namely
March 25 1976, but the first five-year period up to the break point, or
possible break point, is not affected by the later execution of the lease, the
first five-year period still expires five years after March 25 1976. The
trouble is caused by the words in brackets, ‘from the date of the lease’, in my
judgment being put in the wrong place; they should have been put earlier on in
the reddendum, ‘Yielding and paying (from the date of the lease) therefor to
the company’, and so on. Whether there would still have been a dispute between
the parties if the words had been moved from the place where they are to that
possible place I do not know, but in either case in my judgment the intention
of the parties clearly emerges, and in my judgment the plaintiff landlords are
entitled to the declaration they seek, namely that the first five-year period
referred to in clause 1 (a) of the said lease ran from the commencement of the
term of the lease, namely March 25 1976.
