Building lease granted in 1970 – Review of ground rent 28 years after date of grant – Rent review clause requiring hypothetical lessee to build in accordance with plans approved in 1970 – Corresponding provision in actual lease not so confined – Landlord contending that hypothetical obligation should follow wording of actual obligation – Whether commercial good sense should give way to clear wording – Landlord’s contention rejected
On 16 June 1970 an 85-year lease of a plot of land on an industrial estate in Leeds was granted on terms requiring the lessee to erect certain buildings. Clause 5(3) imposed an obligation on the lessee (the actual obligation) to execute the works in accordance with specifications and plans which, by clause 4(2), were to “be subject to the approval of the [lessor]”. The relevant plans had, in fact, been approved before the grant of the lease.
The annual rent for the first 28 years was £1,650. The rent for the following 28 years (the second period) was to be fixed in accordance with clause 2. This required the determination of the “yearly ground rent” at which the land could be let as a cleared site on 16 June 1998, where such letting was on the same terms (save as to the amount of rent) as the lease “including a covenant to erect a building in accordance with the plans which have heretofore been approved by [the lessor] as are contained in this present lease” (the assumed obligation).
In a dispute relating to the rent for the second period, the claimant lessee (who acquired the reversion from Leeds City Council after the start of the proceedings), relying on the precise words of the assumed obligation, contended that the appropriate amount should be substantially less than the rent otherwise obtainable, because most, if not all, (hypothetical) lessees would refuse to accept an obligation to erect a building in 1998 in accordance with plans that had been approved in 1970. The defendant landlord, maintaining that the hypothetical plans had to be approved at or after the relevant review date, pointed to the inconsistency between the wording of the assumed obligation and that of the actual obligation (which contemplated future approval). According to the landlord, the reference in the assumed obligation to plans approved in the past had to be ignored because: (i) clause 2 otherwise referred to the terms as actually contained in the lease; and (ii) the parties could not have sensibly intended to impose an obligation to put up an obsolete building.
Held: Judgment was given for the lessee.
1. Although the court had to attempt to give a commercially sensible construction to a rent review provision (see per Nichols LJ in Basingstoke and Deane Borough Council v Host Group Ltd [1987] 2 EGLR 147 at p153), the wording of the assumed building obligation led to the inescapable conclusion that the parties did indeed intend that the hypothetical tenancy should include an obligation to build in accordance with the approved 1970 plans. The court was not free to rewrite the bargain merely because the landlord might not have appreciated the commercial consequences.
2. As the question turned solely on the wording of the assumed obligation, it was immaterial that clause 4 (2) would otherwise have prevented the landlord from unreasonably withholding consent to build in accordance with modern plans.
Timothy Morshead (instructed by Porter Crossick) appeared for the claimant; Martin Rodger (instructed by Mills & Reeve, of Norwich) appeared for the defendant.
Alan Cooklin, barrister
