Business lease — Rent review clause — Construction — Whether clause requiring arbitrator to disregard differences in value of comparables in certain areas attributable to geographical location — Whether such construction contrary to presumption of reality
The claimant was the landlord and the defendant was the tenant under a 25-year lease, dated March 1996, of an 111,815 sq ft distribution warehouse and ancillary offices in the Stone Business Park, Staffordshire. The business park was largely undeveloped at the time of letting. The initial rent was £428,000 pa, subject to upwards-only reviews in March 2001 and at five-year intervals thereafter.
In March 2001, the parties appointed a surveyor as arbitrator to determine the rent in accordance with the terms of the lease. These provided that the surveyor was required to assume that evidence of rental value of properties of a specified description “which are located in or within a five mile radius of Tamworth, Staffordshire or in or within a five mile radius of Minworth, Birmingham is evidence of Market Rental Value of the Premises as if those premises were situated upon the Stone Business Park”. An issue arose as to the correct construction of this clause, and the parties referred the matter to the court, with the surveyor’s consent, pursuant to section 45 of the Arbitration Act 1996.
The landlord contended that the clause required the surveyor to ignore the actual geographical location of comparable premises of the kind described and to substitute it with a location in the business park. This would mean that no discount or allowance could be made from the rent obtained on that letting attributable to the fact that the comparable premises were in a better or more highly rented location. The tenant argued that this would be contrary to the presumption of reality that applied to questions of construction with regard to rent review provisions. It submitted that the clause merely required the surveyor to include as relevant evidence premises of the kind described.
Held: Judgment for the claimant.
Although, unless otherwise stated, the court was to assume that the subject premises in any rent review fell to be valued upon the basis of what they actually were, it was now common for a landlord to manipulate reality in the terms of a lease: Basingstoke and Deane Borough Council v Host Group Ltd [1987] 2 EGLR 147 considered. It was clear from the clause at issue that the parties intended some adjustment to the normal valuation exercise. If the sole purpose of the clause was to require the arbitrator to include as relevant evidence lettings of similar premises in Tamworth and Minworth, the clause would not have been strictly necessary. Moreover, the final words, “as if those premises were situated upon the Stone Business Park”, would have been redundant.
It was clear from the fact that the lease had been granted when the business park was largely undeveloped that the landlord wished to achieve a reviewed rent that was on a par with the rents obtainable in comparable business parks in Tamworth and Minworth, which were then established trading centres. This was a perfectly intelligible commercial objective, even though, for the time being, it had the effect of requiring the tenant to pay a higher than market rent.
Jonathan Seitler QC (instructed by Mayer, Brown, Rowe & Maw) appeared for the claimant; Kirk Reynolds QC (instructed by Halliwell Landau) appeared for the defendant.
Sally Dobson, barrister
