Rent review clause contains express disregard of voluntary improvement effected by tenant — Tenant enters into absolute covenant against alterations — Terms of lessor’s licence deems permitted works to be carried out under obligation — Whether resulting improvement should be taken into account at rent review
Under the terms of a 20-year lease of a restaurant in Loughborough the defendant tenant was absolutely prohibited from carrying out alterations, there being no provision for the obtaining the licence of the landlord. Rent was subject to periodic review on terms, inter alia, that there should be disregarded “any improvements carried out … by the tenant except in pursuance of any obligation to the Landlord (whether or not arising under this Lease)”. Some time before the first review and notwithstanding the covenant against alterations, the landlord granted a licence permitting the tenant to straighten out a diagonal wall and so increase the capacity of the restaurant. Clause 2 of the licence provided that it was granted “to the intent that the works … shall be deemed to be carried out in pursuance of an obligation to the Lessor”. On the first review the question arose whether the improvement, by then completed, fell to be disregarded under the terms of the lease or whether the licence had effectively converted a voluntary improvement into an obligatory one falling outside the disregard.
Held The improvement could not be disregarded.
1. Although a court would be slow to find that a tenant should incur an income expense on top of his capital outlay it should not shrink from such a conclusion if that was what was clearly agreed. Though possibly unfair to the tenant, the deeming provision in the licence could not be faulted for absurdity or ambiguity and was accordingly effective to take the improvement out of the disregard relied on by the tenant.
2. The tenant could not rely on the otherwise favourable decision in Historic Houses Hotels Ltd v Cadogan Estates [1995] 1 EGLR 117, first, because the licence did not contain a deeming provision like the one considered above; second, because the alterations covenant in that case was in qualified form, thus disabling the landlord from clausing the licence with unreasonable conditions, a consideration which did not apply to the absolute covenant given by the present defendant.
Guy Fetherstonehaugh (instructed by Memery Crystal) appeared for the plaintiff; Stephen Beresford (instructed by Straw & Pearce, of Loughborough) appeared for the defendant.
