Landlord and tenant — Rent review — Whether time of the essence of landlord’s notice to implement the review
By a lease
dated July 1 1976 the plaintiff landlord demised shop premises to the defendant
tenant for a term of 25 years. The rent review clauses of the lease provided
that ‘It shall be a condition precedent to the determination of the full market
rental value of the premises that the lessor shall give the lessee during the
first six months of the . . . fifteenth . . . year . . . of the said term notice
in writing of its desire that such value shall be agreed or ascertained . . .’.
In respect of the rent review for the commencement of the 15th year, the
landlord failed to give any notice seeking review within the first six months
of that year expiring January 1 1992, but purported to trigger the rent review
by two later notices. The landlord applied for declaration that the rent review
had been implemented on the ground that time was not of the essence of the
clause.
condition precedent’ was a clear contrary intention to rebut the presumption
that time is not of the essence of a rent review clause; the notice was
essential to the landlord’s right.
The following
cases are referred to in this report.
North
Hertfordshire District Council v Hitchin
Industrial Estate Ltd [1992] 2 EGLR 121; [1992] 37 EG 133
Phipps-Faire
Ltd v Malbern Construction Ltd [1987] 1 EGLR
129; (1987) 282 EG 460
United
Scientific Holdings Ltd v Burnley Borough Council
[1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33 P&CR 220;
[1977] EGD 195; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
This was an
application by the landlord, Chelsea Building Society, seeking a declaration as
to the validity of a notice implementing a rent review clause in a lease held
by the defendant, R&A Millett (Shops) Ltd.
Kirk Reynolds
QC (instructed by Bower Cotton & Bower) appeared for the plaintiff;
Jonathan Karas (instructed by Titmus Sainer & Webb) represented the
defendant.
Giving
judgment, RATTEE J said: This is a dispute about the true effect of a
rent review clause in a lease. The lease concerned was made on July 1 1976
between Chelsea Building Society (the plaintiff) as lessor, and R&A Millett
(Shops) Ltd (the defendant), as lessee. It was a lease of certain shop premises
in Cheltenham. It was expressed to be a lease for the term of 25 years from the
date of the lease, that is to say from July 1 1976. It reserved certain
specified rents during the initial period of the lease, and it then contained a
fairly usual rent review clause entitling the landlord, the lessor, to have the
rent periodically reviewed upwards only to what would be determined as a
current market rent for the time being at the operative date of the review.
The relevant
rent review provision commenced in these terms:
PROVIDED
ALWAYS THAT IT IS HEREBY AGREED that the said yearly rent of £17,500 shall at
the end of the fifth, tenth, fifteenth and twentieth years of the term
respectively be increased to the then current market rental value of the
premises as defined in the Schedule hereto and in this connection the following
procedure shall be adopted:
(a) At least six months before the end of the
fifth, tenth, fifteenth and twentieth years of the term respectively the Lessor
and the Lessee or their duly authorised representatives will endeavour to reach
agreement on the current market rental value of the premises and if they are
able to agree such current market rental value they shall certify the amount of
the then current market rental as agreed between them and a Memorandum of such
current market rental will be annexed to these presents and signed by duly
authorised officers of the Lessor and Lessee respectively
(b) In the event of the parties hereto failing to
reach agreement as to the then current market rental value by a date three
months prior to the fifth, tenth, fifteenth or twentieth year of the term as
the case may be then the matter shall be referred to an independent Surveyor or
Valuer to be appointed by the Lessor and Lessee in conjunction but failing
agreement upon such appointment within a further period of one month to be
appointed by the President for the time being of the Royal Institution of
Chartered Surveyors for assessment and not by way of arbitration and the
assessment of such independent Surveyor shall be communicated to the parties
hereto in writing and shall be final and binding upon them
(c) Upon the signing of the Certificate by the
duly authorised representatives of the Lessor and Lessee respectively or the
receipt by the Lessor and the Lessee of the independent Surveyors’ or Valuers’
written communication as to the then current market rental value the rent
hereby reserved shall as from the expiration of the fifth, tenth, fifteenth and
twentieth years of the term be increased to the amount so certified
(d) Under no circumstances shall this clause
operate to effect a reduction of the rent hereby reserved . . .
Then (e),
which I need not read, refers to fees payable to the independent valuer.
Clause 4 of
the lease, which is headed:
PROVIDED
ALWAYS AND IT IS HEREBY AGREED AND DECLARED as follows: . . .
contains in
subclause (6) the following:
It shall be a
condition precedent to the determination of the full market rental value of the
premises that the lessor shall give the lessee during the first six months of
the fifth, tenth, fifteenth or twentieth year (as the case may be) of the said
term notice in writing of its desire that such value shall be agreed or
ascertained as at the expiration of such fifth, tenth, fifteenth or twentieth
year in accordance with the provisions of the said Schedule hereto . . .
The Schedule
contains the definition of the full market rental value for the purposes of the
rent review provisions. Nothing turns for present purposes on that definition
and I need not read it.
In order to
comply with clause 4(6) of the lease in relation to any proposed rent review to
take effect as from the end of the 15th year of the lease, that is to say the
year ending on June 30 1991, it would have been necessary for the lessor to
have given the notice specified in clause 4(6) not later than January 1 1992.
In fact, as is accepted on behalf of the lessor, no notice was given within the
meaning of clause 4(6) before that date, although in fact apparently two
documents were subsequently served upon the lessee on each of which the lessor
relies as having been a notice for the purposes of clause 4(6).
The question
that arises in those circumstances on the originating summons before me is
whether the six-month period specified in clause 4(6) of the lease is a period
as to which time is to be treated as of the essence so as to disentitle the
lessor from putting into operation the rent review provisions of the lease as
from the end of the 15th year of the term, the lessor not having (as I have
indicated) in fact given any notice within that six-month period. Needless to
say the lessor’s submissions are to the effect that time should not be regarded
as of the essence of the provision in clause 4(6) and that, since notice was
served before time had been made of the essence by any notice given by the
lessee, the so-called condition precedent to the landlord’s right to have the
rent reviewed as from the end of the 15th year of the term is fulfilled. The
lessee on the other hand equally inevitably submits, in the situation which I
have described that the provision in clause 4(6) of
the result that the lessor not having given notice within the six-month
time-limit specified in that provision it has lost its right to have the rent
reviewed as at the end of the 15th year of the term.
Counsel for
the lessor, not surprisingly, based his submissions primarily on the decision
of the House of Lords in United Scientific Holdings Ltd v Burnley
Borough Council [1978] AC 904* in which the House of Lords held that in
relation to timetables laid down by rent review provisions in leases there is a
presumption that time is not of the essence, unless the parties have made it
plain by the provisions of the lease concerned that time is indeed to be
treated as being of the essence. There is no doubt that that principle is
established by that decision of the House of Lords and the only question that
arises in the present case is as to whether the terms of the lease entered into
between the parties are such as to indicate sufficiently clearly an intention
that time should indeed be of the essence in respect of the provision in clause
4(6) of the lease to rebut the presumption established by the United
Scientific Holdings case.
*Editor’s
note: Also reported at (1977) 243 EG 43 & 127, [1977] 2 EGLR 61.
Counsel for
the lessor further relied upon a dictum of Warner J in Phipps-Faire
Ltd v Malbern Construction Ltd [1987] 1 EGLR 129 in which at p131F-G
Warner J said:
The
authorities seem to me to show that the presumption that time is not of the
essence of a provision in a rent review clause is strong and that it will not
be rebutted by any contra-indication in the express terms of the lease unless
it is a compelling one.
The lessee’s
contention is that subclause (6) of clause 4 of the lease does indeed contain a
compelling indication that the parties in this case intended time to be of the
essence in relation to the six-month period specified for the service of the
notice by the lessor required by that subclause. In particular, the lessee
relies upon the opening words of subclause (6) of clause 4, namely:
It shall be a
condition precedent to the determination of the full market rental value of the
premises that the lessor shall give the lessee during the first six months of
[the relevant year] the [specified] notice in writing.
What clearer
indication, submits the lessee, could there be of an intention that compliance
with the time-limit set out in subclause (6) of clause 4 was intended to be
regarded as essential to the lessor’s right to have the rent review than to say
that it should be a condition precedent of that right that notice should be
given within the six-month period?
The lessor, on
the other hand, contends that the use of the words ‘condition precedent’ in
subclause (6) of clause 4 are not sufficient to oust the presumption that time
is not of the essence in respect of this particular provision of a rent review
clause.
Not
surprisingly, counsel on behalf of the lessor, relies strongly for that
submission on a recent decision of Mr Evans-Lombe QC (as he then was), sitting
as a deputy judge of this division, in North Hertfordshire District Council
v Hitchin Industrial Estate Ltd [1992] 37 EG 133, [1992] 2 EGLR 121† .
In that case the relevant provision being considered by the learned deputy
judge was in these terms:
It shall be a
condition precedent to any such variation of rent as aforesaid that the Council
or the Tenants shall be served twelve months’ written notice on the Tenants or
the Council as the case may require of their intention to vary the rent as
hereinbefore provided and the parties shall be deemed to be in default of
agreement if a rent shall not have been agreed in writing within four calendar
months after the date of service of such notice.
† Editor’s
note: Also reported at [1992] 2 EGLR 121.
I should say,
as I think is probably obvious from that citation, that the reference there to
the ‘council’ is a reference to the lessor of the particular lease under
consideration.
The learned
deputy judge heard argument as to whether the effect of those words, and in
particular the words ‘It shall be a condition precedent’, was to make the
giving of the 12 months’ notice required by that provision an essential term of
the lease, in the sense that time was of the essence in relation to the giving
of that notice. The deputy judge held that the words used, and in particular
the words ‘It shall be a condition precedent’, did not indicate a sufficiently
clear intention to make time of the essence in respect of the provision which
those words introduced to oust the United Scientific presumption. The
judge in that case referred, in the course of his judgment, to the fact that
his attention had been drawn to certain passages in the speech of Lord Diplock
in the United Scientific case in which the words ‘condition precedent’
appeared and in particular to a passage appearing at p925F of the report of the
United Scientific case in which Lord Diplock said:
The first
thing to be observed about each of these sub-sections [subsections of section
25 of the Supreme Court of Judicature Act 1873] is that they are concerned with
matters in which before the Unifying Act came into force there had been a
variance between the ways in which they were dealt with in courts of law and
courts of equity respectively. Outside the field of mortgages and contracts for
the sale of land, there were other kinds of contracts in which by 1875 some
stipulations as to time were not treated in courts of law as being ‘conditions
precedent’ — which was then the common lawyer’s way of saying that the
particular stipulation as to time was not of the essence of the contract.
Counsel for
the tenant in the North Hertfordshire District Council case relied upon
that dictum of Lord Diplock as indicating that a reference to a time
provision being a condition precedent was to be treated as synonymous with a
reference to time being of the essence in respect of that provision. The
learned deputy judge rejected that submission. He said in the course of his
judgment with reference to it:
I cannot
accept this submission. Whatever may have been the meaning ascribed to the
words ‘it shall be a condition precedent that’, by a 19th century draftsman, I
do not think that those words can be given a meaning equivalent to ‘time shall
be of the essence’ in a lease drafted in 1969. I do not think that the passages
in the speech of Lord Diplock in the United Scientific case, in
particular the passage I have cited
— I interject
to say that that is the passage I myself have just cited —
can be taken
to establish that such would be the meaning of those words today.
Thus the
learned judge in that case decided that the use of the words ‘It shall be a
condition precedent’ in respect of a giving of notice within a specified time
was not sufficient to indicate a contrary intention to oust the United
Scientific case presumption that time was not of the essence in the
provisions of a rent review clause. However, the learned deputy judge went on
to decide the case before him on an alternative basis, even if, he said, he was
wrong in his first conclusion to the effect that the use of the words ‘It
should be a condition precedent’ did not make time of the essence; and the
alternative basis on which he decided the case was that in any event the
provision which I have cited from the lease that was being construed by him did
not actually require service of the notice concerned within any particular
time-limit. All that it required was that the notice should be 12 months’
written notice, without any requirement as to the date by which that 12 months’
notice should be given. However, it is plain that the learned deputy judge did
adopt as one of the reasons for his decision in that case the conclusion that
the use of the words ‘It shall be a condition precedent’ in the provision being
construed by him was not a sufficient indication of an intention to make time
of the essence to oust the presumption.
That
conclusion of the learned judge, of course, is not binding upon me. On the
other hand, it is a conclusion which I treat with great respect and would
differ from with reluctance. I cannot follow that conclusion in the present
case because, in my judgment, the words of subclause (6) of clause 4 of the
lease do indeed express what might almost be called the clearest possible
intention on the part of the parties to the lease that the lessor should not
have a right to have the rent reviewed at any given review date unless the
lessor first gave notice, as required by subclause (6) of clause 4, within the
first six months of the relevant year of the term. In my judgment, to say that
the giving of such a notice within such a time is a condition precedent of the
lessor’s right to have a new market rent determined is equivalent to saying
that that right of the lessor shall not arise unless he gives notice as
required by subclause (6) of clause 4 within the period therein specified. In
my judgment, to say that that right of the landlord is not to arise unless
notice is given within the specified time does amount to saying that the
parties intended that the giving of notice within the specified time was
essential to the existence of the landlord’s right. That, in my judgment,
amounts to precisely the same thing as saying that time is of the essence in
respect of that particular provision of the lease.
There is no
doubt, in accordance with the principles laid down by the House of Lords in the
United Scientific case (and this is quite properly accepted on behalf of
the lessor), that if in subclause (6) of clause 4 the parties had said ‘and
time shall be of the essence as to the giving of this notice’, the effect would
indeed have been to oust the presumption that time was not of the essence in
relation to that provision. In my judgment, to say that the giving of a notice
within a specific time is a condition precedent to the lessor’s right to have
the rent reviewed is to say precisely the same thing as that time shall be of
the essence in respect of the giving of the notice within the specific time. I
reach that conclusion with all due respect to the decision of Mr Evans-Lombe QC
(as he then was).
There are, in
my judgment, two other passages in the speech of Lord Diplock in the United
Scientific case which suggest that Lord Diplock himself regarded the use of
the term ‘condition precedent’ in relation to a time stipulation as being
equivalent to saying that time was of the essence in respect thereof. At
p927E-F Lord Diplock said:
Contemporaneously
with this development of the rules of equity by the Court of Chancery, the
courts of common law were in process of developing for themselves a not
dissimilar rule in relation to stipulations as to time in other contracts, but
were reaching their solution by a different route. They did so by a growing
recognition of exceptions to the rule which had been fostered in the early part
of the 18th century by the necessity for the plaintiff under the then current
rules of pleading to aver performance or willingness or ability to perform all
stipulations on his part in the precise words in which they were expressed in
the contract. This rule treated all promises by each party to a contract as
‘conditions precedent’ to all promises of the other: with the result that any
departure from the promised manner of performance, however slight that
departure might have been, discharged the other party from the obligation to
continue to perform any of his own promises. The history of the development by
common law courts of exceptions to this rule is traced in the judgments of the
Court of Appeal in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen
Kaisha Ltd [1962] 2 QB 26 from its origin in Boone v Eyre 1
Hy Bl 723n in 1779 to the judgment of Bramwell B in Jackson v Union
Marine Insurance Co Ltd (1874) LR 10 CP 125, 147 on the eve of the coming
into force of the Supreme Court of Judicature Act 1873.
My Lords, I
will not take up time in repeating here what I myself said in the Hongkong
Fir case, except to point out that by 1873;
(1)
stipulations as to the time at which a party was to perform a promise on his
part were among the contractual stipulations which were not regarded as
‘conditions precedent’ if his failure to perform that promise punctually did
not deprive the other party of substantially the whole benefit which it was
intended that he should obtain from the contract; . . .
I need not go
on to refer to the remainder of the passage of Lord Diplock’s speech in which
he deals with other points arising in the Hongkong Fir case. But, a
little later in his speech, at p928G, Lord Diplock said:
Both in the
Court of Chancery and in the courts of common law the rules that have been
developed about particular stipulations not being of the essence of the
contract or not being ‘conditions precedent’ applied to synallagmatic contracts
only. They did not apply to unilateral or ‘if contracts’, of which the example
most germane to the instant appeals is an option.
In my
judgment, in particular in that last passage which I have cited from the speech
of Lord Diplock, it is plain that Lord Diplock regarded a condition precedent
as being something which is of the essence of the contract. In my judgment,
with great respect, that must be right; and, by the same process of reasoning,
by making the giving of notice within the specified six-month period a
condition precedent to the landlord’s right to have the rent review provisions
operated, subclause (6) of clause 4 of the lease in the present case made it
quite plain that the giving of such notice within that time was of the essence
of the contract. In other words, time was of the essence in respect thereof.
Counsel for
the lessor put forward an alternative contention that if (as for the reasons I
have endeavoured to explain in my judgment is the case) the use of the words in
subclause (6) of clause 4 ‘It shall be a condition precedent’ had the effect of
making the giving of a notice by the lessor an essential provision of the
contract, none the less time was still not of the essence in the sense that the
words ‘It shall be a condition precedent to the determination of the full
market rental value of the premises’ should not be construed as extending to
the time, the six-month period, within which subclause (6) of clause 4 said
that the notice should be given. All that was made, if anything was made, an
essential term of the contract by clause 4(6), says counsel for the lessor, was
the actual giving of the notice and time is still presumed not to be of the
essence in respect of that provision. I do not accept that contention. It seems
to me perfectly plain as a matter of natural construction of the words of
subclause (6) of clause 4 that the parties were saying that it should be a
condition precedent to the arising of the landlord’s right to have the rent
reviewed at the end of any relevant year of the term that the lessor should
give the lessee the notice required by subclause (6) of clause 4 within the
time-limit there specified.
In the present
case the lessor has failed to give a notice within the time there specified. In
my judgment, the lessor’s right to have the full market rental value of the
premises determined as at the end of the 15th year of the term has not arisen
and cannot now arise. Accordingly, the lessor’s claim in the originating
summons for declarations to the contrary must fail.
Application
dismissed with costs.
