Land — Business lease — Lessee erecting buildings at own expense — Construction of rent review clause — Lease providing for 10-year upward-only rent reviews — Open market rental value — Whether lease requiring rent to be assessed on open market value of land without buildings — Claim allowed
In August 1978, the claimant was granted a lease of land owned by the local authority for a term of 90 years at an initial rent of £2,500 pa. The lease provided for upward-only rent reviews every 10 years. By clause 3 of the agreement for lease, the claimant undertook to erect a public house on the land at its own expense. The defendant was entitled to the reversion expectant on the determination of the lease. It was common ground that the initial rent was far lower than the rack-rent and it was therefore revised to £11,500 with effect from 1 November 1988.
A dispute arose regarding the operation of the 1998 rent review. The claimant contended that the open market value should be determined on the site alone, without the benefit of the buildings. The defendant argued that account should be taken of both the land and the buildings.
The claimant applied to the court for a declaration that, on its true construction, the lease required the rent determined on review to be the open market value of the land alone. It argued that the term “demised premises” was defined as being the land and buildings. That was to be contrasted with the expression “the site comprised in the demised premises” within the definition of “open market value”. Unless the words “the site comprised in” were to be disregarded as surplusage, they indicated that something less than the demised premises was to be valued. That could refer only to the land.
That construction was supported by the facts. In circumstances where the claimant agreed to erect the buildings in advance of, and in contemplation, of the grant of the lease and at its own expense, it was unlikely that the parties had intended that the claimant should pay twice for the buildings: first by incurring the capital cost of their initial outlay and, second, by paying the market rental value of the buildings during the term of the lease.
Held: The claim was allowed.
Although decisions on the proper construction of rent review clauses in other leases afforded limited guidance, a number of general principles should be borne in mind: The lease should be construed against the relevant factual background known to the parties when it was agreed: prima facie, the rental value for rent review purposes was the value as at the review date and was that of the entire demised premises, including any buildings. Those were merely starting assumptions and the parties were entitled to depart from them. However, whether they had done so would depend upon the language used and whether a clear intention could be shown to have displaced the general rule: Ipswich Town Football Club Co Ltd v Ipswich Borough Council [1988] 2 EGLR 146; Ravenscroft Properties Ltd v Park [1988] 2 EGLR 164; Braid v Walsall Metropolitan Borough Council (1999) 78 P&CR 94l and Goh Eng Wah v Yap Phooi Yin [1988] 2 EGLR 148 considered.
In the present case, the terms of the lease in their relevant factual context disclosed, with sufficient clarity, that, for rent review purposes, the land without the buildings should be valued to determine the open market rental value of the demised premises. The natural meaning of the words “the site comprised in the demised premises” was apt to exclude the buildings. Had the parties intended to include the buildings, it would not have been necessary to refer to anything other than the “demised premises” as defined in the lease. Moreover, there was nothing in the lease to indicate anything other than the deliberate exclusion of buildings from the calculation of the open market rental value.
John McGhee QC (instructed by Eversheds) appeared for the claimant; Guy Fetherstonhaugh QC and Elizabeth Fitzgerald (instructed by Rossides Caine) appeared for the defendant.
Eileen O’Grady, barrister
