Landlord giving notice out of time — Whether time of the essence — High Court holding that it was not — Court of Appeal reversing that decision — Right to review lost by failure to serve timely notice
By a lease dated December 7 1971 offices at The Grove, and Edwin Street, Gravesend, Kent, were demised to the Secretary of State for a term of 42 years from September 29 1971. The initial rent was £21,750 pa. There were provisions for a rent review after 14 years and then every seven years. The amount of the reviewed rent was the greater of: (a) £21,750 pa; and (b) the open market rental value at the review date. The reviews were not automatic. Each party to the lease had the right to serve notice in writing upon the other requiring a review not less than 12 calendar months before the commencement of the relevant period (a trigger notice). By clause 4(3) either party might determine the lease at the end of the 21st year (September 29 1992) by giving to the other at least six months’ notice in writing.
A dispute arose concerning the rent review for the third period, ie from September 1992 to September 1999. A trigger notice had to be served no later than September 29 1991. No notice was given by either party at that date. The landlords purported to give notice dated April 14 1992, which was out of time. The tenants contended that time was of the essence, therefore the notice was invalid and ineffective. The High Court found for the landlords. The tenants appealed.
Held The appeal was allowed.
1. As a general rule, the presumption was that the timetable specified in a rent review clause, for completion of the various steps for determining the rent payable following review, was not of the essence of the contract: see United Scientific Holdings Ltd v Burnley Borough Council [1978] 1 AC 904.
2. In the United Scientific case the House of Lords had expressly approved, as a paradigm of a rent review clause in which time was of the essence, the terms of the lease in question in the case of C Richards & Son Ltd v Karenita Ltd (1972) 221 EG 25. The more nearly the terms of a rent review clause in another lease approached the lease in that case, the more likely it would be that the time for service of the notice would be held to be of the essence.
3. In that case the rent review clause was triggered by a notice from the landlords only, was upward only and was followed by a period in which the tenants alone might consider whether to serve a notice to determine the term.
4. There were material differences in the present case in that there were four rent reviews, but only one break clause; and both the rent review and the break clauses could be triggered by both the landlords and the tenants. But the fact was that the late service of the notice claiming rent review deprived the tenants of any opportunity to consider the review before deciding whether to put an end to their lease.
5. The pattern of the lease was such that the clause governing the review of rent for the third period was one in which time was of the essence.
Michael Barnes QC and Mark Cunningham (instructed by the Treasury Solicitor) appeared for the tenants; David Neuberger QC and Erica Foggin (instructed by Harkavys) appeared for the landlords.
