Lessor’s notice — Lessee’s counternotice — Whether time of the essence for service of lessee’s counternotice — Presumption that time not of the essence — County court holding that presumption rebutted — Court of Appeal deciding that no sufficient contra-indication to rebut presumption
The lessor was the freehold owner of 8 Hill Rise, Richmond upon Thames. By a lease dated January 14 1986 the lessor demised the premises to the lessee. The lease was for a term of about 17 years expiring on March 24 2003. The annual rent for the premises was £4,700. Clause 4 of the lease contained provisions for the rent review. Under clause 4(1) the lessor should give notice in writing to the lessee specifying the market rent payable. Under clause 4(8) if the lessee did not serve a counternotice specifying an alternative rent, the market rent specified in the lessor’s notice stood as the market rent payable at and from the review date and should be paid accordingly. The parties could not agree on the revised rent.
On September 23 1991 the lessor issued a writ claiming arrears of rent the for March and June quarters of 1991, totalling £6,500 rent and £1,251 by way of interest. It was based on the difference between the rent claimed by the lessor (at the rate of £25,000 pa) and the rent paid by the lessee (at the rate of £12,000 pa). An issue arose whether time was of the essence for the service of the lessee’s counternotice. Judge Oddie decided that the presumption that time was not of the essence had been rebutted and gave judgment for the lessor for the rent claimed and interest. The lessee appealed.
Held The appeal was allowed.
1. There was a rebuttable presumption of construction that time was not intended to be of the essence in relation to the provisions of a rent review clause: see United Scientific Holdings Ltd v Burnley Borough Council (1977) 243 EG 43.
2. That presumption should apply not least to the construction of a clause which might constitute a deeming provision, ie an express provision for a default rent in the event of a failure to serve a notice within a specified time: see Mecca Leisure Ltd v Renown Investments (Holdings) Ltd (1984) 271 EG 989; Trustees of Henry Smith’s Charity v AWADA Trading & Promotion Services Ltd [1983] 47 P&CR 607.
3. In the present case, clause 4(8) was not a deeming provision; it begged rather than answered the critical question arising under clause 4(4) as to whether the counternotice must be served within five weeks.
4. In the absence of any express terms specifying what was to happen in default of the exercise of the rights given to the parties within the permitted areas of time (ie the absence of a deeming provision), the presumption applied: time was not of the essence unless and until it was made so and in the result a time stipulation could not be strictly enforced against whoever failed to observe it.
5. In the event of dispute whether there was such an express deeming provision, the presumption applied as a rule of construction to assist the resolution of that dispute.
6. Assuming that the doctrine of time being of the essence applied to rent review clauses, the principle that provisions for the serving of notices and counternotices within specified times constituted mere machinery for the ascertainment of the open market rent from time to time required one to apply the presumption unless the contradictions were clear.
7. In the present case, clause 4(8) contained no specific mention of the time within which a counternotice had to be served.
David Neuberger QC and Thomas Leach (instructed by Travers Smith Braithwaite) appeared for the lessee; Paul Morgan QC and Basil Yoxall (instructed by Stafford Young Jones) appeared for the lessor.
