Landlord and tenant — Rent review — Construction of clause providing that reviewed rent of headleases was to be a proportion of the rents, service charges and other payments under occupational subleases
Westmoreland Place Shopping Centre, opposite Bromley South Railway Station,
consisting of a main office block, 23 shop units and other components, such as
parking centres, was divided into three sites, which were subject to headleases
and subleases — There were differences between the exact arrangements of the
different sites but the general idea was to provide machinery to ensure that
the subleases would have up-to-date rents of which the headleases would take
one-third — The rent revision clauses in the leases provided for the review
intervals of 25 years — The net rack-rental value was defined as the total of
the gross rents, service charges and other payments payable to the lessees by
the occupying tenants under the subleases — The total of these payments was
subject to a deduction on account of increases in the lessees’ expenditure on
repairs, maintenance and insurance and the provision of services and management
the headlessees account should be taken of rent reviews under the subleases
pending on the headlease review date or whether regard should be had only to
the passing rents; (2) whether the service charges should be taken to be the
amounts ultimately payable for the preceding service-charge year after the
necessary adjustments had been made or whether they should be the provisional
amounts payable in advance; (3) whether the lessees could rely on estimates of
expenditure where records had been lost or destroyed or whether they had to
provide strict proof; (4) whether, in cases where such a deduction fell to be
made, the amount was deductible only from the service-charge components of the
revised rent or whether it was deductible from the totality of the revised
rents
construction on issues (1), (3) and (4)
rent–(2) Service charges should be taken to be the amounts ultimately payable
for the preceding service-charge year, after necessary adjustments–(3)
Estimates of expenditure can be relied on where estimate lost–(4) The deduction
fell to be made from the totality of the revised rents
No cases are
referred to in this report
These were two
related actions in which the court’s determination was sought on the
construction and application of rent review clauses in the headleases relating
to the large development of shops and offices in the Westmoreland Place
Shopping Centre, Bromley. The plaintiff was Buyneat Ltd in both actions and the
defendants in the first were Tanap Investments (UK) Ltd and British
Telecommunications plc and in the second Tanap Investments (UK) Ltd.
David
Neuberger QC and Robert Farber (instructed by Clifford Chance) appeared on
behalf of the plaintiff; Terence Cullen QC and Alastair H Norris (instructed by
Bischoff & Co) represented the defendants.
Giving
judgment, JUDGE PAUL BAKER QC said: I have before me two related actions
concerning the rent review clauses in the headleases of a large development of
shops and offices in Bromley. Owing to negotiations and events which have
occurred since the actions began, the issues originally pleaded have narrowed
down to four points of construction of the review clauses in the leases. I can
state them briefly, prefacing them with the explanation that the reviewed rent
under the headleases is a proportion of the rents, service charges and other
payments payable under the occupational subleases.
The four
points are: first, whether one takes account of rent reviews under the
subleases pending at the headlease review date, as the plaintiff landlord says,
or whether one simply takes account of the passing rents at the review dates,
as the defendant lessees say; second, whether the service charges are the
amount ultimately payable for the preceding service-charge year after
adjustment, as the plaintiff says, or whether it is confined to the amount paid
and payable in advance for the years in which the review date falls, as the
defendants say; third, where a deduction falls to be made on account of an
increase in the cost of services, is it dependent on the continued existence of
records of expenditure, as the plaintiff says, or can estimates be adduced as
evidence if the records have been lost or destroyed, as the defendants say;
and, fourth, where such a deduction falls to be made, is it deductible only
from the service-charge component of the revised rent under the headleases, as
the plaintiff says, or is it deductible from the totality of the revised rent,
as the defendants say. That states the issues.
I now turn to
the facts. The Westmoreland Place Shopping Centre lies opposite Bromley South
Railway Station. It consists of a multi-storey office block and adjacent
shopping precinct on two levels. It was constructed in the 1960s around an open
square or piazza. The final layout plan, it seems, dates from 1963 and shows
the site divided into three sections known as sites 1, 2 and 3 respectively. As
developed, there was the main office block and some 23 shop units and other components
such as parking spaces. On March 12 1965 two leases were granted of site 1,
which included the main office block, one in possession and the other
reversionary. By the former Bromley Borough Council, the landowners, demised
the site to PIC (Bromley) Ltd, the developer, for 20 years from June 1 1964 at
an annual rent of £17,264 payable quarterly in arrears on the usual quarter
days.
By clause
2(24), the lessee covenanted not to grant on first letting any lease to extend
beyond June 1 1989. That was a date beyond the term granted by this lease and
foreshadows the contemporaneous reversionary lease. By that lease the site was
demised for 85 years from June 1 1984 initially at the same rent but subject to
revision from June 1 1989 in terms to which I shall have to return. By clause
2(24) of that lease, the lessee covenanted not to grant on first letting any
lease to extend beyond June 1 1989; so far it is identical with the covenant in
the other lease. The clause goes on:
and generally
arrange for general renewal of all leases or tenancies on or within five years
prior to the dates upon which the annual ground rent falls to be revised, in
accordance with clause 1(1) hereof and as far as practicable in
not less than 14 years.
By clause 28,
the lessee covenanted to give the corporation notice together with a copy of, inter
alia, all documents whereby the demised premises or any part should be
underlet. The other lease contained an identical covenant.
I now come to
the headlease of sites 2 and 3. It is between the same parties as the lease of
site 1, but it is dated over five years later, that is September 15 1969.
However, from a reading of clause 6 of the reversionary lease, its grant would
appear to have been regulated by an agreement of November 26 1962, hence the
material negotiations apparently date from the early 1960s, a factor which may
have some relevance when we come to consider the review clauses. By this lease,
sites 2 and 3 were demised for 100 years from June 1 1969 at the yearly rent of
£32,736 payable quarterly in arrears on the usual quarter days, subject to
revision in identical terms to those contained in the lease of site 1. The
aggregate initial rent of the two leases is thus £50,000 and both leases run
until June 1 2069.
The clause
2(24) regulating underlettings is in slightly different terms. The lessee is
not to grant on first letting any lease to extend beyond December 28 1990, as
distinct from June 1 1989. This may be a slip. I note that the date for the
commencement of the term had to be changed after engrossment, but I think that
nothing turns on this. The rest of the clause as to the renewal of the
underleases generally is identical, as is the clause requiring notices of
underlettings to be given to the lessor.
I now return
to the rent revision clause in the reversionary lease of site 1. As I have
said, that and the lease of sites 2 and 3 are identical, mutatis mutandis.
After providing for the initial rent of £17,264 and its payment on the usual
quarter days, the reddendum continues:
Provided
that, (1) the total annual ground rent payable by the lessee to the corporation
shall be revised from 1st day of June 1989, the 1st day of June 2014, the 1st
day of June 2039 and 1st day of June 2064.
Pausing here,
one notices that the review periods are very long by present-day standards,
that is 25 years. The present dispute arises from the revision due on June 1
1989. Having identified the dates from which the rent is to be revised, the
clause declares that:
The ground
rent shall represent one third of the then net rack rental value of the demised
premises (ascertained as hereinafter mentioned).
Mr Neuberger,
for the plaintiff lessor, places some emphasis on the word ‘value’, but the
mode of ascertainment to which I shall come does not depend on any means of
valuation. It further demonstrates its early unsophisticated form, as does the
proviso which now follows.
Provided
always that the yearly ground rent payable to the corporation throughout the
term of this lease shall not be less than £17,264.
This
upwards-only clause is fully effective only in the 1989 revision.
We now come to
the all-important definition of the net rack-rental value of the demised
premises. It
. . . means
the total of the gross rents, service charges and other payments payable to the
lessee by the occupying tenants under subleases and tenancies granted by the
lessee.
So the general
idea is simple. According to clause 2(24), all the underleases have to be
renewed on or within five years prior to June 1 1989, hence they will have
up-to-date rents of which the lessor takes a one-third share. However, that
leaves several questions. What if the leases are not renewable, but the rents
in them are reviewable in the way that has become common in recent years? What is comprised within service charges and
other payments and why should the ground landlords share in them in so far as
they represent a recoupment of expenditure incurred by the headleases? Some light is thrown on these questions by
the remainder of the rent revision clause. It goes on to declare that the total
of the gross rents, service charges and other payments is
subject to
adjustment in respect of:
(a) any increase in the Lessee’s average annual
expenditure during the last ten years of the relevant twenty-five year period
over the Lessee’s average expenditure during the first fifteen years of the
relevant twenty-five year period on repairs, maintenance, insurance and
provision of services and management (but no adjustment shall be made in
respect of sinking fund ground rent or property tax) . . .
The paragraph
concludes by declaring that the first 25-year period is deemed to have
commenced on June 1 1964. It is agreed that the purpose of this is to allow a
deduction from the net rental value or some element in it, where an increase
could be demonstrated, but its precise meaning and application is not wholly
clear and has given rise to the third and fourth questions before me.
By way of
introduction, I can make some general remarks about the paragraph. In the first
place it makes clear that the gross rents, service charges and other payments
in the definition are indeed to include payments by the underlessees by way of
reimbursement for the sums expended by the lessee on repairs, maintenance,
insurance and the provision of services. Second, it shows a direct relationship
between gross rents and service charges in the definition. This can be
demonstrated by considering repairs. Under the headlease, the lessee is to
repair the demised premises (clause 2(3)). That is not an obligation that can
be passed on or wholly passed on to the many occupying sublessees directly by
way of repairing covenant. The financial burden can only be passed on either by
setting the rent of the subleases at an appropriate level or by including it in
a service charge. Similar considerations apply to the lessee’s obligation to
cleanse, maintain and light the shopping precinct (clause 2(9)).
Following from
this, it seems to me that any adjustment required by para (a) should be made by
deduction from the total of the gross rents, service charges and other payments
and not from the service-charge element alone as the plaintiff landlord
suggests. There is no necessary and exclusive connection between that element
and the expenditure referred to in para (a).
Looking at
para (a) itself, one is required to discover whether there is any increase in
the average annual expenditure on the listed items during the last 10 years of
the 25-year period as compared with the first 15 years. The increase, when
discovered, is presumably deducted, although the paragraph does not in terms
say so. The saving for sinking fund and ground rent would seem to be an
abundance of caution. A sinking fund is not an expenditure but a saving against
eventual expenditure and the ground rent does not change throughout the 25-year
period. Be that as it may, the difficulty which has arisen with regard to the
application of this paragraph is an absence of records of expenditure for the
first six years of the period and for one half-yearly period in the 13th year.
It is said by the landlord that the lessee cannot take advantage of this
paragraph unless he can prove the actual expenditure. While it is in general
understandable that records of this nature are not kept for decades, in this
case it was clear from the outset that they were going to be required. Though
the present lessee has come on the scene only recently, it is said that it took
the lease with its eyes open and, if it did not or could not procure the
necessary records from its predecessors, it must take the consequences.
I cannot take
that strict view of the absence of the records. The lease contains no provision
that accounts are to be kept and made available for inspection. The sole
obligation set out later in the clause is to provide such information as the landlord
may reasonably require in respect of the expenditure. I take that as meaning
such relevant information as the lessee may have. If, say, the records of
one-half year had been accidentally destroyed, but all the rest had been
preserved, would that vitiate the whole exercise? Surely not. But that is the conclusion to
which the landlord’s submissions would lead. If there is evidence, say, of the
works done, but the financial records have been lost, I could see no objection
to expert valuation evidence from a building or quantity surveyor putting a
price on those works. The expert evidence proffered in this case employs a much
broader brush. Mr David Large [ARICS], the defendant’s surveyor, deposes that
efforts were made to procure records from the former lessee’s surveyors, but
unavailingly. All seems to have been done that reasonably could be done by the
lessee.
The first
available figure for the seventh year was £5,479.81. Mr Large has estimated
£5,000 for each of the preceding years. He explained it in para 11 of his
statement:
I took as my
starting point the earliest available actual figure, reduced it by 10 per cent
and applied it to all missing periods. As I acknowledged in my letter of June
16 this process made no allowance for inflation nor did it allow for the fact
that expenditure in early years may well have been lower because of the limited
maintenance necessary to what one can assume to have been new buildings.
I would also
comment that not all the buildings may have been completed by 1965. The lease
of sites 2 and 3 was not granted until 1969, so the cost of servicing of what
was there in 1965 would presumably be less. Accordingly, I would accept Mr
Large’s methods.
Any further
inquiries as to the precise state of the buildings and what in fact was done is
likely to result in a reduction of Mr Large’s
increase referred to in para (a).
I now come to
the remaining two issues, which were of considerable difficulty and arise from
the definition of the net rack-rent itself. To deal with them, I shall have to
look at some further provisions of the review clause, examine the overall
structure of the review procedure and set out the material facts as to the
subleases. We have just seen that the total of the gross rent, service charges
and other payments was subject to adjustment in respect of increases in average
annual expenditure on repairs and so on. It was also subject to the three
further adjustments. Para (b) states:
Premiums,
surrenders or other considerations, paid rendered payable or receivable for or
under the subleases or tenancies which said premises . . .
That is an
obvious slip for ‘premiums’. It is correctly stated in the other lease.
. . . which
said premiums surrenders or other considerations shall be equated over the
period of the sublease or tenancy in respect of which they were paid accepted
or given.
The purpose of
this provision is obvious. The interest lies in the simple but crude way in
which the adjustment is made: a division of the premiums by the number of years
in the term. If the premium had not been paid, presumably the rent would have
been higher than the adjusted rent to reflect the deferred payments. The third
adjustment reads as follows:
any part of
the demised premises occupied by the Lessee or by its associated or subsidiary
companies at less than its full rack rental value or any vacant or unlet part
of the demised premises PROVIDED that for the purpose of this clause such parts
of the demised premises shall be deemed to be let for the period during which
they are let at a reduced rent vacant or unlet at the full rack rent or average
full rack rent at which they were last previously let (or if not previously let
at a full rack rent at their gross value for rating purposes).
This again
provides a simple way of bringing subleases not let at arm’s length and voids
into account. It is done by reference to historic rents or rateable value.
There is no question there of valuation.
The fourth
adjustment (d) states:
rents which
are due to vary during the currency of a sublease or tenancy in which case the
rent shall be taken to be the average annual rental throughout the terms of the
sublease or tenancy.
This provides
for the case of a rent subject to fixed increases throughout the term. When it
is recalled that the headlease contains a covenant requiring subleases to be
renewed or granted on or shortly before the review date, this provision could
not have been applied to rents which were to be fixed on some future review.
The overall
structure of the rent review provisions displays the following features. First,
there is no element of valuation. The review takes the form of calculations
from present or historic facts. Second, by modern standards the review periods
are very long. If the negotiations for the grant of the headleases took place
before 1962, as seems likely, it was before the present widespread system of
frequent reviews at market valuation became apparent. Third, the lessee’s
covenant required the renewal of all leases at or shortly before the review
date. They were to be for substantial terms if possible. The purpose of this,
as I see it, is to ensure that the maximum rent is likely to be paid. If the
rent is fixed throughout the term, the initial rent is likely to be higher than
the rent for a short term. Alternatively, the rent might be set at fixed levels
throughout the term. Yet again, the lease might command a premium. These
possibilities are all catered for. What is not contemplated is subleases
subject to a rent review determined by valuation. The covenant requires all
subleases to terminate before the review date and to be renewed.
Fourth, the
draftsman also, as it seems to me, contemplated that the service charge and
other payments referred to in the definition should be of some fixed sum,
although possibly subject to later variation. The service charges there
referred to must be those payable under the renewed leases, whereas the
adjustment under para (a) relates to expenditure during the currency of the old
leases. In effect, the lessee is getting an allowance in the subsequent period
for his excess expenditure in the earlier. It is very rough and ready.
Although, for
reasons I have given, the headleases required the grant of new or renewed
subleases at determined rent for substantial terms, commencing on or within
five years before the renew date, the actual subleases, or some of them, did
not comply with this requirement. In particular, they contained review
provisions of the now familiar kind; that is for an open market rent to be
assessed by arbitration, if not agreed. In the case of three of them, the
arbitration procedure had not been completed or the new rent had not been
agreed on June 1 1989, although when the procedure was completed or the rent
agreed, the new rent would be payable from June 1 or some date prior to it.
Thus the
question has arisen whether for the purpose of determining the net rack-rental
value under the headleases, one takes the rent actually being paid on June 1 or
whether one takes into account the review rent as and when it becomes known.
I must briefly
refer to the three subleases. The most significant is an underlease made on
November 21 1979 by PIC (Bromley) Ltd to the Post Office, now British Telecom,
for 50 years and one month from June 1 1964. The rent for the first 25 years,
that is to say to May 31 1989, was £128,150 payable quarterly in arrears on the
usual quarter days. From June 1 and for the rest of the term, that is to say 25
years and a month, the rent was:
a rent equal
to a fair yearly rent for the demised premises as at the last quarter day but
one before the end of the last preceding rent period the amount of such fair
yearly rent to be agreed between the Lessor and the Lessee at least one year before
the end of the first period of twenty five years or in the absence of agreement
to be determined by an arbitrator to be nominated by the President for the time
being of the Royal Institution of Chartered Surveyors on the application of the
Lessor before but not more than two quarters before the end of the first period
of twenty five years . . .
The parties
could not agree and consequently an arbitrator was appointed. The proceedings
leading to the appointment were set in train in the middle of May 1989 and it
was not until December 11 1989 that the arbitrator made his award. It was in
the sum of £1,057,000.
By clause 6 of
the underlease, British Telecom had the right to terminate the lease on June 1
1991 if the reviewed rent was greater than £128,158, as it was. It exercised
that right and quitted the premises on that date; that is to say June 1 1991.
Under the terms of the break clause, the new rent had to be paid from June 1
1989 to June 1 1991.
The next is an
underlease made on May 10 1965 to Barclays Bank for 50 years and one month from
June 1 1964. The rent for an initial period of 16 years to 1960 was £7,500. The
rents for the following period of nine years 1980 to 1989 and then the periods
of 18 years and seven years and one month were to be determined by the same
formula as in the Post Office lease. In 1980 the rent was agreed at £28,000,
which was the rent being paid on June 1 1989. At that time the parties had not
agreed the rent for the following period. On June 1 1989 it was the subject of arbitration.
The arbitrator’s award was £75,500, which was recorded by a memorandum dated
August 15 1990. Unlike the Post Office underlease, rents under this underlease
were payable quarterly in advance; also there was no break clause.
The third
underlease was made on September 21 1977 to Derek John Weatherley for a term
from September 30 1976 to September 28 1999, paying the rent specified in the
fourth schedule quarterly in advance on the usual quarter days. The fourth
schedule provides for a rent of £2,500 pa, up to and including September 28
1981, and for the residue of the term it provides for:
. . . a
reviewed rent determined and calculated in accordance with clause 7 hereto or,
if the rent is not reviewed in accordance therewith, the rent payable prior to
the last previous date of review (whether such rent is itself a reviewed rent
or not).
Clause 7 is a
slip for clause 8. Clause 8(1) says:
On the 29th
September 1981 1st June 1989 and 29th September 1994 (hereinafter referred to
as the dates of review) the Landlord shall have the right to review the yearly
rent then payable hereunder . . .
Subclause (4)
shows that the procedure for review is set off by a notice by the landlord
given not earlier than 18 months before the date for review but may be given after
as well as before the date for review. In default of agreement, the rent is to
be determined by an arbitration.
By subclause
(5), if the reviewed rent is not determined prior to the date of the review,
then in
respect of the period of time (hereinafter called ‘the interval’) beginning
with the said date of review and ending on the quarter day immediately
following the date on which such determination shall have been made as
aforesaid the rent payable hereunder shall continue to be paid at the same rate
as prior to the date of review PROVIDED that at the expiration of the interval
there shall be due by way of additional rent payable by the Tenant to the
Landlord on demand a sum of money equal to the amount whereby the reviewed rent
shall exceed the rent prior to the date of renewal, but duly apportioned in
respect of the interval together with interest thereon on the amount
outstanding during the interval.
The reviewed
rent for this underlease was agreed on September 15 1990 at £9,000 pa and a
memorandum to that effect was endorsed on a lease on December 7 1990.
I now return
to the question whether the rents of the subleases, as settled subsequently to
June 1 1989, are to be taken into account. Mr Neuberger, for the landlord, says
that one must not shut one’s eyes to the commercial purpose of the review
clauses in the headleases. The provisions for review in the subleases on June 1
1989 demonstrate that they were entered into with an eye to the headleases. The
parties must have envisaged that reviews might not take effect until
subsequently. If one takes one’s stand at June 1 1989 and asks what is the rent
then payable, the answer would be the pre-existing rent subject to review. Mr
Cullen, for the lessee, says that one has to find the total of the gross rents,
service charges and other payments payable on one specified day, June 1 1989;
that is to say, the rental rates per annum payable on that day. It was not
contemplated that one would wait for some unspecified date but that on June 1
1989 all the data would be available and hence the new rent would be payable
and normally could be paid on the following quarter day, June 24.
In my
judgment, the submissions of the lessee are correct. I have already indicated
reasons for saying that the headleases contemplated that the initial
underleases would be terminated before the review date and replaced by others,
which were so structured that the rent or rents payable under them would be
known from the outset. The hallmark of the rent revision provision in the
headleases is the attempt to attain precision and predictability over long
periods of 25 years. Very little is left to tests where more than one view is
possible. A question might arise under para (c) as to whether lettings to
subsidiary or associated companies are at less than the full rack-rental value,
but unlikely. Such a rent would probably clearly be below the market value. A
question might arise with regard to good estate management under clause 2(24).
All else is made to depend on arm’s length negotiations between the headlessees
and the occupying subtenants with nothing left to be determined by some outside
body. Yet leases containing review clauses requiring arbitration in default of
agreement have become commonplace.
It would be
consistent with clause 2(24), as I see it, for an underlease to be granted or
renewed four years before June 1 1989 for 25 years, with five-yearly reviews of
the common type. The initial rent would almost certainly be lower than the
subsequent rents. It might even be artificially low, yet it will be the rent on
June 1 1989. It will not be possible to apply para (d) where the subsequent
rents cannot be known until they are respectively agreed or determined.
Another gap is
the absence of any consideration of the effect of Part II of the Landlord and
Tenant Act 1954. If the subleases have all to be terminated before June 1 1989,
some of them may be subject to proceedings under that Act on June 1 1989. The
reference to not less than 14 years, more than the court can award,
demonstrates an absence of any thought given to the Act.
The actual
underleases with which I am particularly concerned stray even further from the
discernible rent revision scheme of the headleases. They would all seem to be
in breach of clause 2(24). They are all granted for terms extending beyond June
1 1989. So far from arranging for a general renewal of the Post Office
underlease on or within five years prior to June 1 1989 for a substantial term,
that underlease gives the underlessee the right to break it, if the rent is
increased. In the case of that underlease and that of Barclays Bank, the
underlessee may defer going to arbitration until immediately before June 1.
Furthermore, in the third case the procedure can be deferred until after the
review date. It is true that either expressly or by implication the rent when
determined is back-dated to on or before June 1 1989, but that is not what the
rent revision scheme contemplated.
Faced with
such failure to contemplate the cases which have occurred and which might have
been foreseen, the court can do one of two things: it can apply the revision
provisions strictly or it can attempt to extend them to cover the cases which
have arisen. That of course has its attractions. Though the underleases are in
breach of clause 2(24), an attempt has been made to secure the revision of the
rent on June 1 1989. Further, the landlord is powerless to influence the
negotiations. Nevertheless, I have to reject it. It is no function of the court
to remake contracts. In so far as the grant of the underleases is in breach of
the covenants in the headleases, the landlord has or did have remedies.
Moreover, as regards the Post Office underlease, I do not think that the court
could simply accept the subsequent rent without taking some account of the
break clause which has been exercised. But, in my judgment, the court should
not interfere at all.
The final
question concerns the computation of the service-charge element in the revised
rent. Is it the amount of the charge ultimately payable in respect of the last
service-charge year ending before the review date, as the plaintiff says, or is
it the amount payable in advance for the year in which the review date falls,
as the defendants say? I have already
said that it appears to have been contemplated that the service charge in the
underleases should have been at some fixed sum, in which case the defendants’
contention would have been correct. However, the underleases actually granted
took the form of the variable charge as is common. I have seen only the
underleases to which I have already been referred. In the Post Office
underlease, the underlessee covenanted to pay: (a) the due proportion of the
insurance premium on the quarter day following its payment by the underlessor;
(b) a due proportion of the costs incurred by the underlessor in cleansing and
lighting the forecourt to be paid by equal quarterly payments on the usual
quarter days; and (c) a due proportion of the costs incurred by the underlessor
in complying with its repairing covenant. There are no provisions as to the
mode of payment of the third element.
The underlease
to Barclays Bank is similar to that of the Post Office underlease in respect of
the insurance and cleansing charges, but contains no provision for the
reimbursement of the cost of repairs.
The third
underlease contains more elaborate provisions in relation to the service
charge. A proportion of the insurance premium is reserved as rent. The tenant
covenants to pay on demand the service charge as defined in clause 4(1). That provides
for payment of a fair contribution in respect of anticipated or actual payments
or costs of a list of items including repairs and maintenance of the forecourt.
The year runs to March 31. There is a provisional sum payable quarterly which
is subject to adjustment after the end of March, upwards or downwards,
according to the actual cost. If the tenant has been undercharged, the excess
is payable on demand; if he has been overcharged, the excess is credited
against the net quarterly payment of rent.
It would
appear that many of the underleases contain similar provisions. At all events,
the provisional sums, where payable during the year which includes June 1 1989,
amount to £22,260 in all. The total of the amounts payable in respect of the
previous year to March 31 1989 amounted to £119,750.07. I think there has to be
some small adjustment to that, but I will leave that for the moment. That of
course includes sums payable under those underleases which do not allow for a
provisional sum to be paid in advance.
In my
judgment, the latter figure is the correct one for the following reasons. (a)
To take the provisional figures would not be the true service charge. It does
not include some of the charges where no advance payment is provided for. It is
liable to adjustment when the true cost of the services for the year April 1
1989 to March 31 1990 became known. (b) As the service charge for the year in
which the review date falls cannot be known for a long time afterwards, I
consider that the charge for the preceding year can properly be regarded as
then payable. For example, the insurance premium is paid only once a year. It
is not payable on June 1 1989. Thus one is compelled to look to the past
payment, similarly as to the other charges. To read ‘payable’ as ‘are’ or ‘have
been payable’ seems consistent in this case with the purpose of the review
provision. I note the provision for bringing voids into account based on past
facts. On the other hand, to read it as ‘will be payable’ would be to introduce
an unwarranted element of uncertainty into the operation of the provision, on
which I have already commented in relation to the gross rents.
My conclusion
is that on the first question I shall declare that it is not permissible to
take account of the reviews pending on June 1 1989. The part of the pleadings
which seems to relate to that would appear to be the 1990 action, para 5(1) of
the statement of claim. It is not otherwise specifically dealt with.
The second
question, the one with which I have just been dealing, about the amount of
service charges payable, would seem to come under the statement of claim in the
first action, para 11. I think that I should make a declaration along the lines
that the amount of the service charge payable within the meaning of the
aforesaid provision is the amount of service charges ultimately payable in
respect of the service-charge year ending immediately before the relevant
review date, taking into account any balancing charge or credit made after the
end of that year.
Under the
third question, determining the average annual expenditure for the purposes of
para (a) of clause 1(1) of the lease, I shall declare that the lessees can rely
on estimates where records are
12(1), although of course the declaration would be in the opposite sense in
that case.
In relation to
the fourth question, I shall declare that deductions are permitted to be made
from the total of the gross rents, service charges and other payments and are
not limited to any specific element of that. I think that that is covered by
the statement of claim 12(2), the declaration of course being in the opposite
sense to the declaration there sought.
The judge
made the appropriate declarations and ordered the plaintiff lessors to pay
three-quarters of the costs.
