Landlord and tenant — Rent review provisions in lease of shop — Landlords’ rent review notice ‘shall specify’ the proposed review rent — Time declared to be ‘of the essence’ — Landlords’ notice served within time-limits laid down but not specifying the proposed rent — Whether notice valid and effective — Chichester Cathedral (Dean and Chapter of) v Lennards Ltd discussed and distinguished — Notice not valid
for a term of 20 years from December 25 1977 — It provided for a trigger notice
to be given by the landlords of not more than 12 and not less than six months
expiring at the end of the fifth, 10th and 15th year of the term, requesting an
upwards-only review to the open-market rent — It was stated that this notice
‘shall specify’ the proposed rent — In default of agreement on the reviewed
rent within three months after the service of the notice the rent payable was
to be determined by a single arbitrator — Time was said to be of the essence —
Among other provisions the lease contained two break clauses — The present
dispute concerned the notice served by the landlords in the 10th year of the
term, which was that expiring on December 25 1987 — This notice, which was
served within the time-limits laid down, did not specify the rent proposed —
The tenants’ solicitors challenged the validity of the notice on the ground of
this omission; hence the present proceedings in which the landlords were the
plaintiffs
contended that the failure to specify the proposed rent was not fatal — The
requirement that time was of the essence was satisfied by the service of the
notice in time; the specification of the proposed rent was, unlike the service
of the notice, not mandatory but merely directory — The landlords relied on the
Chichester Cathedral case, where a similar requirement that a notice must state
the suggested new rent was held to be directory only, so that its omission did
not invalidate the notice
however, held that the requirement in the rent review provisions that the
proposed rent ‘shall’ be specified was mandatory — There were features in the
present case which distinguished it from the Chichester Cathedral case — In the
present case there was a strict timetable for negotiation — As agreement had to
be reached within three months, it was important that the proposed figure
should be stated in the review notice in order to give negotiations a good
start — Among other indications, the express separate proviso that the notice
‘shall specify the yearly rent which the corporation proposes’ contrasted with
the much less forceful clause in the Chichester case — The latter merely said
‘Giving to the other at least three months’ written notice expiring at the end
of the 14th year of the term stating the suggested new rent to be reserved’ —
Having come to the clear conclusion that the requirement was mandatory, the
judge did not have to deal with arguments submitted by the tenants on the
effect of the break provisions in the lease, although he did discuss them to
some extent
mandatory requirement to state the amount of the proposed rent had not been
complied with in the landlords’ notice, the notice was declared to be invalid
The following
cases are referred to in this report.
Dean and
Chapter of Chichester Cathedral v Lennards Ltd (1977)
35 P&CR 309; 244 EG 807, [1977] 2 EGLR 78
United
Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904; [1977] 2 WLR 806; 91977] 2 All ER 62; (1977) 33
P&CR 220; [1977] EGD 195; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
In these
proceedings the plaintiff landlords, the Commission for the New Towns, sought a
decision on the true construction of rent review provisions in the lease of a
shop in Harlow, Essex, of which the tenants were the defendants, R Levy &
Co Ltd, trading as the Army & Navy Stores, Manor Park.
David Grant
(instructed by the solicitor to the Commission for the New Towns) appeared on
behalf of the plaintiffs; Stanley Burnton QC (instructed by Butcher Burns Balin
& Co) represented the defendants.
Giving
judgment, JUDGE PAUL BAKER QC said: This is another case, of which there
have been a large number during the last decade or so, concerning a rent
review. In this case it is a rent review clause contained in the lease of a
shop in the new town at Harlow, Essex. The landlords are the Commission for the
New Towns and are the plaintiffs here and the tenants are R Levy & Co Ltd,
trading as the Army & Navy Stores, Manor Park.
The lease is a
lease for a term of 20 years from December 25 1977 and, therefore, still has a
good period to go. It was, I infer, in a standard form for use in the shops all
over the new town because the particular lease here was, in fact, dated August
9 1979 although the term, as I have said, started in 1977. The rent was at a
low rent for the first few months until April 12 1978 and then rising to £6,700
‘subject to review as hereinafter provided’. I can pass over the entirety of
the tenant’s covenants and the landlord’s covenants and come to the review
provisions which are in clause 4(1):
Provided
always and it is hereby agreed as follows:
(1) The Corporation may, by giving to the lessee
not more than twelve months or less than six months notice in writing expiring
at the end of the fifth, tenth and fifteenth years of the term hereby demised,
such fifth, tenth and fifteenth years being reckoned from 25th December 1977,
request a revision of the rent hereby reserved and thereupon subject to the
following provisions of this sub-clause of this clause the rent hereby reserved
shall be revised to accord with amount equal to whichever shall be the greater
of . . .
either the
open-market rent or the rent then currently being paid. So that ensures that it
is an upwards-only review. I may say that when it refers to the provisions of this
subclause of this clause, subclause means the entirety of subclause (1) of
clause 4 of the lease.
Having got
that far subclause (1) proceeds as follows:
Provided that:
(a) a rent review notice given by the Corporation
under the terms hereof shall specify the yearly rent which the Corporation
proposes from the relevant date of review.
That, perhaps,
is the most important clause with which I am concerned. Then:
(b) In default of agreement of the reviewed rent
within three months after service of a rent review notice by the Corporation
under the terms hereof the yearly rent payable as from the relevant date of
review shall be determined by a single arbitrator.
I can pass over
the provisions as to the appointment of the arbitrator and I can merely
summarise paras (c) and (d) as providing for the case that if the new rent is
not determined by the end of the five, 10 or 15 years as the case may be, then
the old rent continues for the time being but when the rent ultimately is
determined then there is provision for repayment of the arrears as from the
review date.
There next
follow two break clauses which featured in the case although it is not the
central matter with which I have to deal. The first one, para (e) of the
provisos:
Within 28
days of agreement or determination of the reviewed rent the lessee shall have
the right to serve a notice on the Corporation to determine this lease on the
relevant date of review or three months after service of such notice, whichever
is the later.
Then it goes
on to state that immediately upon the relevant date of review or three months
after, as the case may be, the lease is to become void under the usual formula.
Para (f) is in these terms:
In the
eventuality that the Corporation shall not serve a rent review notice under the
terms hereof the lessee shall have the right to serve a notice on the
Corporation at least two months before the relevant date of review to determine
this lease on the relevant date of review and thereupon the present demise and
everything . . . (and so on) . . . shall cease.
So there is
one clause which seemed to be conditioned on the parties having reached an
agreement or the new rent having been determined, and the other one appears to
be conditioned on there being no service of a notice at all under the rent
review provisions. Then follow two other material clauses:
(g) For the purposes of this sub-clause of this
clause the term ‘the relevant date of review’ shall be construed as meaning the
date of the expiry of a rent review notice given by the Corporation hereunder.
It will have
been noticed as I have been reading it that this whole subclause is actually
littered with references to the relevant date of review and on its face this
subclause would appear to indicate that the relevant date of review is thrown
up by a notice given by the corporation under the clause and the date of expiry
specified in that notice. Just looking back at 4(1), what is required in
relation to the notice is that it shall be not more than 12 or less than six
months’ notice in writing expiring at the end of the fifth, 10th and 15th
years. So the date of expiry of a rent review notice is the relevant date of
review for that particular notice.
Finally,
subclause (h) — and this perhaps is the next most important clause after (a):
Time shall be
of the essence in relation to this sub-clause of this clause.
That is to say
the whole of clause 4(1). That is all I need to refer to in the lease itself.
It will be
recalled that one of the review dates was the 10th year of the term, which is
that expiring on December 25 1987. To take advantage of that date the
commission would need to serve a notice between Christmas time of 1986 and June
25 1987. Those are the dates of which time is declared to be of the essence.
On May 29
1987, which is, of course, fairly within that period, the commission wrote to
the then lessees. There has, since then, been an assignment of the lease but
nothing turns on that. The letter was in these terms:
It is the
Commission’s intention to revise the rent payable in respect of the
above-mentioned premises and a notice requiring a review of rent pursuant to
the terms of the lease referred to therein is enclosed by way of service upon
you. Please acknowledge receipt by forthwith returning the enclosed copy notice
with the endorsement in the margin thereof duly signed and dated with the date
of receipt. In due course the Commission’s estate department will be in
communication with you with a view to agreeing the revised rent.
The notice
that accompanied that reads as follows:
Pursuant to
the provisions in that behalf contained in clause 4 of the lease referred to in
the schedule . . .
the relevant
lease is mentioned there
. . . the
landlord of the above premises hereby gives you notice that it requires the
rent reserved by the said lease to be reviewed and to be revised from the 25th
day of December 1987.
Apart from the
schedule specifying the lease, that is the end of it. It will be noticed at
once that there is no mention in there of the yearly rent which the corporation
proposes should operate from the relevant date of review.
There was no
immediate acknowledgement of that notice. There was some exchange of
correspondence relating to the proposed assignment, but it was not until
January 13 1988 that the new lessees’ solicitors wrote contesting the validity
of the notice on the ground that it did not specify the yearly rent which the
landlords were proposing. Accordingly, the question has come before me as to
‘whether that notice constitutes a good and/or valid and/or effective notice
under clause 4(1) of the lease, having regard to the fact that such notice did
not specify the yearly rent and that not more than twelve nor less than six
months’ notice was given to the lessee before the 10th year of the term’.
The landlords
say that omission is not fatal to the notice because while they accept that
time is of the essence as regards the service of the notice the provision
requiring the rent to be specified in it is not of the essence. The notice,
they say, has set in motion the rent review process within the proper time — no
one is disputing that — and thereafter any further provisions, such as to the
statement of the required rent, are not mandatory provisions in the way that
the time provisions are, but are merely directory provisions.
That
submission has authority to support it, to which I must refer. The principal
case is the case of Dean and Chapter of Chichester Cathedral v Lennards
Ltd (1977) 35 P&CR 309 and also 244 EG 807, [1977] 2 EGLR 78. The rent
review provision in that case, which the Court of Appeal had to consider, reads
as follows:
Provided
always and it is hereby agreed as follows that after the expiration of the
fourteenth year of the term hereby created the landlords shall have power to
vary the rent hereby reserved and the tenant shall have power to apply to the
landlords for a reduction of such rent to such a figure as shall then be the
fair market rent of the property hereby devised . . . upon either party giving
to the other at least three months’ written notice expiring at the end of the
fourteenth year of the said term stating the suggested new rent to be reserved.
As in this case
so in that, the notice which was given pursuant to that clause failed to
suggest the new rent.
The hearing of
the Chichester Cathedral case in the courts straddled the hearing in the
well-known case of United Scientific Holdings v Burnley Borough
Council [1978] AC 904, which was ultimately decided by the House of Lords
in the spring of 1977, under which, as is well known, the House of Lords
decided that there is no absolute rule that time provisions in rent review
clauses were of the essence — indeed the presumption is the other way; the
presumption is that they are not of the essence but that they may be expressly
made so. Their lordships reversed a number of cases which, of course, were
binding on the trial judge, Graham J, in the Chichester Cathedral case.
He held that the notice was bad because it failed to specify the rent, but
though it was in time he held nevertheless that, time being of the essence, no
new notice could be served. In the Court of Appeal the court deferred handing
down their decision until the House of Lords had given judgment in the United
Scientific case and the upshot was that they applied the new rulings and
held in the Chichester case that time was not of the essence.
Despite that,
the Court of Appeal still had to consider whether the notice which had been
served was a valid notice. Of course, having regard to the decision that it was
no longer time of the essence in relation to time of serving, a new notice
could have been served. But it was still relevant in that the party serving the
notice should be able to hold it. Therefore, the court went on to consider
whether the notice was invalidated by that omission. Having set out the history
as I have stated, and referred to a passage from Lord Salmon’s speech in the United
Scientific Holdings case in which his lordship said:
In my opinion
each lease constitutes, amongst other things, an agreement between the parties
that, at stated intervals, the rents shall be revised so as to bring them into
line with the then open market rent. The rent revision clauses specify the
machinery or guide lines for ascertaining the open market rent. These
provisions as to time are not in my opinion mandatory or inflexible; they are
only directory,
Lord Denning
MR goes on:
Lord Salmon
here applied the familiar distinction between ‘mandatory’ and ‘directory’. A
‘mandatory’ provision is one which must be fulfilled in all its strictness, so
that a failure to fulfil means that the whole thing falls. A ‘directory’
provision does not carry that consequence. Even though it is not complied with,
it does not mean that the whole thing fails. Sufficient may be done to enable
the courts to give effect to a requirement, when the justice of the case so
requires. In my opinion the provision here, that the notice must state ‘the
suggested new rent,’ is not mandatory but directory. The failure to mention it
does not invalidate the notice.
Lord Russell
of Killowen, who was sitting as a member of the Court of Appeal, said this
about it:
The short
question is whether the provision in clause 4(1), which apparently requires the
written notice to state the suggested new rent, is an essential stipulation or
can be ignored as not being of the essence of the contract. In my view that
stipulation is part of the mere machinery and is not of the essence of the
contract.
If that is
applicable to this case, of course, I would have to follow it and it would
resolve the question in this case in favour of the landlords. If I were bound
by that to hold that the requirement in this lease was directory only and hence
not of the essence, it would seem that that is a defect that could be cured
later by proposing a new rent or trying to reach agreement and it would not
lead to the declaring of the notice invalid.
I do not read
the decision as stating that inevitably a provision which requires the new
proposed rent to be stated in a notice is directory only. In the case before
the Court of Appeal they started from the premise that the time provisions were
not of the essence. If, on the other hand, time is of the essence, so that all
steps have to be done according to a strict timetable, then that of itself may
show that other provisions linked to that programme may also be of the essence,
eg a provision requiring statement of a proposed rent. That may follow as a
matter of construction.
One notices in
this case that there is a strict timetable. I have already set out the
time-span within which the notice has to be served and I have read out the
provision that in default of agreement of the reviewed rent within three months
of the serving of a rent review notice, then the rent payable has to be
determined by arbitration. So that the clause envisages a three-month period
for negotiation and thereafter the rent has to be settled by an arbitrator. As
agreement has to be reached, if at all, within the relatively short period of
three months, one can see the importance of at once stating, when the landlord
serves his notice, the figure which he proposes in order to give the
negotiations a good start. For this reason, in my judgment the direction in the
present case is mandatory.
Going back for
a moment to the Chichester Cathedral case, I have already indicated that
the trial judge, Graham J, having held that time was of the essence — and he
was constrained by the then binding authorities on him to do that — also held
that the provision as to the statement of the rent at that stage was also of
the essence. My attention was called to the comment of the Master of the Rolls
on that situation in which the trial judge found himself. In the other report
of the case, at p 808 of (1977) 244 EG 807, [1977] 2 EGLR 78, there is a
somewhat fuller passage of the judgment. Lord Denning says:
The judge had
heard the summons at a time when there were rulings of the Court of Appeal that
time was of the essence of a notice to review rent and that if a landlord
failed, even by a day, to give notice in time, he could not raise the rent at
all. Under the influence of the law then applicable to the time element, the
judge, as he (his Lordship) could well understand, thought the same reasoning
would apply to the provision about stating the suggested new rent.
One cannot
read too much into that, but it rather looks as if, had that case been heard by
the Court of Appeal without the benefit of the United Scientific case,
they would have held that the time was of the essence, having regard to their
own earlier decisions, and in those circumstances would also have held that the
provision of the contents of the notices was of the essence. But, as I say, one
cannot attach too much to that, but that would seem to be the tenor of that
judgment. At all events it confirms me in the view I have reached in this case
that the requirement to state the proposed rent is mandatory. Further, in
addition to the timetable I rely on the following points as indicating the
mandatory nature of the requirement. Clause 4(1) provides that after service of
the notice requesting a revision of the rent ‘thereupon, subject to the
following provisions of this subclause the rent hereby reserved shall be
revised’. It cannot be revised unless the following provisions are complied
with requiring inter alia the specification of the new rent.
Finally, I
rely on the wording of the all-important proviso (a). I regard this as much
more definite than the statement in the Chichester case. It is set out
as an express provision not incorporated, as in the other case, in a general
clause. Here there is a separate proviso that the notice ‘shall specify the
yearly rent which the corporation proposes’, which is immediately followed by
the provision ‘that in default of agreement of the reviewed rent within three
months after service of a rent review notice’ the rent ‘shall be determined by
a single arbitrator’. That emphatic language to my mind stresses that proviso
(a) is mandatory and part of the necessary machinery of setting the rent under
this lease.
I contrast it
with a very much less forceful clause in the Chichester case, which
merely said:
Giving to the
other at least three months’ written notice expiring at the end of the
fourteenth year of the term stating the suggested new rent to be reserved.
There is
nothing there that it shall state it or must state it.
It is on those
points that I come to the conclusion that the provision as to the statement of
the rent is also of the essence as well as the time provisions. Having reached
that conclusion, I do not have to deal with the arguments submitted to me by Mr
Burnton on the effect of the break of provisions. That there is some infelicity
in these provisions is, I think, clear. The first clause is straightforward and
quite common in leases that if, after the revised rent is fixed, the tenant
finds that it has come out at a much higher figure than he can afford, then he
is given an opportunity to give up the lease. That is a very common provision
in leases and that is adequately provided for and fits in with the time
provisions.
Para (f) is
much less usual. As it is drafted it would seem to indicate that the tenant is
to have a right to break the lease in any event because if the landlord does
not serve a notice the lessee can break it under para (f). If the landlord does
serve a notice then the tenant can break under para (e). One would think that a
draftsman faced with the proposition that the tenant was to be allowed to break
in any event would not have put these two clauses in in that form.
The bold
suggestion of Mr Burnton for the tenants is that the word ‘not’ in the first
line is spurious and that it is intended to cover the case where the
corporation has served a rent review notice and the lessee wants to get out
straight away without waiting for the review. He supports that by the forceful
argument that the reference to the relevant date of review makes sense, having
regard to the definition of it, only if a notice has been served because the
relevant date of review is defined by reference to a date specified in the
notice given under this clause.
In answer to
that, Mr Grant says that that reading involves a measure of duplication. If the
landlords serve a notice the tenant can at once serve his notice under para (f)
or, alternatively, he can wait and reach agreement or determination and then
serve.
For myself I
do not see that this is really a fatal weakness in Mr Burnton’s argument. It
would seem to me that the tenant might have an inkling that the rent is going
to be too expensive for him whatever the determination and will want to give up
without incurring the expense of going through the motions of getting the rent
agreed. But on the other hand the provisions will also meet the case of where
the tenant wants to wait and see what the rent is before he makes his decision.
Mr Burnton’s view of the matter would involve this, that the tenant could not
give up if the corporation is happy to go along with the rent which is being
currently charged.
Bold though it
is, if I had to determine this I would accept Mr Burnton’s arguments. It seems
to me that there is a slip which can be cured by construction there. Its
relevance is that there being these rights in connection with a review of the
break clause then certain authorities would indicate that that reinforces the
case for the provisions in the review clause itself to be of the essence. As I
say, my decision does not turn on that; it turns on the fact that on the true
construction of this lease I regard the proviso in para (a) to subclause (1) as
going to the essence of the contract and not merely directory.
Therefore,
taking that view of the matter, I shall declare that the notice requiring a
review of rent dated May 29 1987 did not constitute a good and valid notice
under clause 4(1) of the lease.
