Arbitrator — Lease — Open market rent — Valuation of premises upon rent review — Options contained in deed supplemental to lease — Whether option should be taken into account in valuing premises — High Court holding provisions calling for surrender of parts of demised premises to be taken into account in determining rent.
The applicants were the landlords of 41 Evecham Walk, Redditch, under a lease dated April 25 1978. The tenants were the respondents. Clause 2(H) of the lease defined the expression “open market rent” as rent payable under the lease which was to be reviewed by arbitration in default of agreement and was “the greater of: (a) the annual rental value of the demised premises in the open market … at the review date on a lease for a term of years certain … such lease being on the same terms and conditions (other than as to amount of rent and length of term) …; and (b) the rent payable (thereunder) immediately prior to the review date”.
By a supplemental deed dated December 11 1991 the tenants surrendered part of the demised premises; the amount of the rent and service charge payable and the dates of each subsequent rent review under the lease was varied; and the landlords were granted options to call for the tenants to surrender further parts of the demised premises. A question arose whether the arbitrator on a rent review pursuant to the provisions of the lease was required to take into account the options conferred on the applicants by the deed. It was agreed that those options were not merely personal to the parties to the deed, but were enforceable by and binding on, the successors in title to the landlords and the tenants.
Held The option provisions were to be taken into account in determining the open market rent.
1. The words “on the same terms and conditions … as this present demise” included terms and conditions contained otherwise than in the lease creating the demise, but relating to the demised premises and binding upon the landlords as such and the tenants as such and their successors in title. That construction accorded with the commercial purpose of rent review clauses: see Pearl Assurance plc v Shaw [1985] 1 EGLR 92; Basingstoke v Host Group Ltd [1987] 2 EGLR 147.
2. There was a presumption in favour of reality: see Lynnthorpe Enterprises Ltd v Sidney Smith (Chelsea) Ltd [1990] 1 EGLR 148.
3. That presumption favoured taking into account rights, obligations and restrictions binding on a landlord and tenant as such and their successors in title at the relevant date for rent review rather than ignoring them and assessing rent on the basis that one or other party was not subject to the restrictions or obligations and did not enjoy the rights, which he was in fact subject to or did enjoy.
4. The presumption was subject to the express terms of the rent review provision in question which require the rent to be assessed on a basis which did not entirely reflect the actual rights and obligations of the parties at the review date. However, the lease did not require the options, as agreements between the landlords and tenants and binding on them as such, to be disregarded.
5. In this case, the options had a substantial affect on the rental value of the demised premises. The presumption was that they should be taken into account.
Kirk Reynolds QC (instructed by Stones Porter) appeared for the landlords; Jonathan Gaunt QC (instructed by Marcus Barclay Simon Alswang & Co) appeared for the tenants.
