Rent review clause–Provision requiring statement of suggested new rent in landlord’s notice held of the essence
This was a
claim by the Dean and Chapter of the Cathedral Church of the Holy Trinity in
Chichester, as trustees of the Custos and Poor of the Hospital of the Blessed
Mary, a charity commonly called St Mary’s Hospital, against Lennards Ltd, of
Staple Hill, Bristol, a subsidiary of Great Universal Stores, for a declaration
that a notice given by the plaintiffs to the defendants in accordance with the
terms of a rent review clause in a lease of shop premises at the junction of
East Street and North Street, Chichester, was not invalidated by the omission
therefrom of any suggested figure as the new rent payable in respect of the
property.
W Blum (instructed
by Thomas Eggar & Sons) appeared for the plaintiffs, and J Harper
(instructed by Paisner & Co) represented the defendants.
Giving
judgment, GRAHAM J said: This is another case relating to a rent review clause.
Similar cases recently reported have all been mainly concerned with the
question whether the times specified for giving a notice of intended increase
and for operating the machinery for ascertaining the amount of such increase
are of the essence of the contract. The present case is concerned not with time
but with the form and substance of the notice itself. In particular it is
concerned with the question whether in the circumstances a requirement in the
terms of clause 4 (1) of the lease that such notice should state ‘the suggested
new rent to be reserved’ calls for the amount of such rent to be specified and
is of the essence of the contract or not.
The lease in
question is dated October 12 1965 and is between the landlords, the Custos and
Poor of the Hospital of the Blessed Mary, a charity (commonly called St Mary’s
Hospital) in Chichester and the Dean and Chapter of the Cathedral Church of the
Holy Trinity in Chichester, who are the trustees of the charity of the one
part, and Lennards Ltd, which is a subsidiary of Great Universal Stores Ltd, of
the other part. The lease relates to what was at that date a newly-built corner
shop at the junction of East Street and North Street in Chichester. The term
granted was for 21 years at a rent of £1,500 per annum and a down-payment of a
premium of £1,200. Clause 2 (viii) contains a covenant not to assign without
previous written consent, such consent not unreasonably to be withheld, and
clause 2 (x) contains a covenant not to carry on any business at the premises
other than that of retailers and repairers of footwear and similar goods
without the consent of the landlords, but again such consent is not to be
unreasonably withheld. Clause 4 contains the review provisions and reads as
follows:
4. Provided
always and it is hereby agreed as follows: (i) That after expiration of the
14th 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 demised (regard being given to the provisions of
section 34 of the Landlord and Tenant Act 1954) upon either party giving to the
other at least three months’ written notice expiring at the end of the 14th
year of the said term stating the suggested new rent to be reserved and in
default of agreement between the landlords and the tenant the amount of the
said new rent shall be such an amount as shall be fixed by a single arbitrator
to be appointed by the parties should they agree upon one and otherwise by the
President for the time being of the Royal Institution of Chartered Surveyors
under the provisions of the Arbitration Act 1950 or any statutory enactment for
the time being in force in substitution of the same.
Now the deadline
before which the notice in question had to be given was September 25 1975 and
it was in fact sent by recorded post in a letted dated September 17 1975 from
the clerk to the trustees of St Mary’s Hospital to Mr Burmester, a director of
Lennards Ltd. That letter is exhibit CLH 2 to the affidavit of Mr Hodgett sworn
on March 16 1976 and reads as follows:
September 17
1975
Ref: 12/SMHE
Dear Mr
Burmester,
St Mary’s
Hospital Estates
1 East
Street and 88 North Street
Chichester
I see from
the lease of the above premises that the rent is due to be reviewed after the
expiration of the 14th year of the term created on December 25 1961. The lease
provides that notice of review must be given three months prior to the
expiration of the 14th year and for arbitration if a new rent cannot be agreed.
I shall be
grateful if you will accept this letter as formal notice of the landlord’s
desire to review the rent and confirm to me that it is so accepted in
accordance with the terms of the lease.
I intend to
instruct Messrs Wyatt & Son, of East Street, Chichester, as valuers in this
matter and anticipate that they would like facilities to inspect the premises
at some time convenient to you. I shall be grateful, therefore, if you would
let me know that you would have no objection to Messrs Wyatt & Son
contacting you to this end, and also if you would be kind enough to let me know
what firm of valuers you intend to instruct to act on your behalf, in the hope
that the respective valuers can agree a figure for the new rent.
Yours
faithfully,
Clerk to the
Trustees of St Mary’s Hospital
Reading clause
4 (i) it will be seen that it is an expressed requirement that the notice
should state the suggested new rent to be reserved, and that the letter in
question does not in fact suggest any particular figure for the new rent but
states that the lease provides for arbitration if a new rent cannot be agreed
and that the landlords’ valuers will be Messrs Wyatt & Son of Chichester
and that they would like for the purposes of their valuation to inspect the
premises at a convenient time. The question I have to decide is whether that is
a good notice. If it is, then the matter must proceed to arbitration if not
agreed, but if it is not, then the
£1,500 for the next seven years. This is not therefore a ‘gap’ case, in the
sense in which that term has been used in some of these cases, in that no rent
will be payable if a new rent is not fixed. On the other hand, if market rents
continue at their present values, the tenants will, over the period of the
coming seven years, as I am told, pay something of the order of £50,000 in
total (equivalent to a discounted figure of some £35,000) less than the true
market value at present rates. If the notice therefore is bad, there will be
considerable financial hardship to the plaintiff charity. The defendant company
on the other hand is responsible to its shareholders and naturally does not
intend to pay a rent many times the present rent unless legally bound to do so.
In any event, unless there is some reason for equity to intervene, the matter
must be decided, in my judgment, on the basis of the legal position without
prejudice to any hardship or benefits which may be caused to either party by
the decision.
The arguments,
which cannot be much elaborated, are in essence as follows. Mr Blum, for the
plaintiff charity, contended that the rights to review here are mutual and not
unilateral and that the same considerations should be applied to this notice as
are applied to notices to quit (see Woodfall’s Law of Landlord and Tenant
27th ed vol 1 at pp 944-5), namely that the notice must be clear and certain
but need not normally be in any particular form. Here it is said the lessees
were by the letter of September 17 left in no doubt that the landlords intended
to ask for a revision. The correct principle in rent review cases dealing with
questions of time is, as Roskill LJ recently reaffirmed in United Scientific
Holdings Ltd v Burnley Borough Council [1976] 2 WLR 686 at 699G, as
follows:
The right
question to ask in each case is: upon the true construction of the particular
clause, did the parties intend that the particular stipulations as to time must
be strictly adhered to or not; or if, as happens in so many cases, the parties
have not expressly dealt with this question, must there be imputed to the
parties an intention that the particular stipulations as to time must be
strictly adhered to or not? It is, I
think, impossible to state a rule which will prescribe that every such clause
must be interpreted so as to produce the same result in every case, however
desirable that might ideally be, in order to avoid a multiplicity of disputes.
But so to hold would be to defy the principle that every document must be
properly construed according to its own terms and not according to the terms of
some other document. Questions of construction of rent revision clauses are not
resolved by asking, ‘Is this case like that case?’ They are to be resolved by asking the
question I have just stated and answering it by the application to the
particular clause of the proper principles of construction.
The argument
proceeds that the requirement of ‘stating the suggested new rent to be
reserved’ is on all fours with a requirement as to time and should be treated
in the same way. Here the intention of the parties was that a notice making
clear the landlord’s intention to ask for a rent review should be given, and
the letter of September 17 1975 satisfies that intention. Mr Blum also somewhat
mildly urged that the actual phrase ‘stating the suggested new rent to be
reserved’ could, without violence to the language, be read as meaning ‘how the
new rent is to be ascertained.’ In this
connection there is, as I suggested, a slight contrast between the phrase
‘stating the suggested new rent’ and the words ‘the amount of such new rent’ in
the following passage in the clause. He did not, however, press this argument,
and in my view there is nothing in it. I shall not therefore refer to it
further.
The argument
of Mr Harper for the defendant company is short and straightforward. He accepts
the proposition that it is the intention of the parties which must govern the
matter; but, he says, that intention as a matter of construction must be
derived from and determined by the words in the clause which the parties have
themselves chosen to use to express that intention. That intention from the
wording of the clause is that a suggested figure for the new rent proposed by
the landlord should be stated in his notice. There are, he said, good reasons
for this requirement, in that an increase specifically stated in figures
enables the lessee in the short space of time prior to the expiry of the first
period to see what his maximum liability for the future will be and enables him
either to decide to accept such increase or, if so advised, to take immediate
action to try to find a likely assignee. Although it was argued that any figure
in the landlord’s notice, whether or not the result of deliberation and/or
valuation, would satisfy the notice, nevertheless it must be assumed that any
figure put in by the landlord would be so put in in good faith, and the tenant
could act upon it accordingly. Mr Harper also argued that as a matter of construction
the words should be taken against rather than for the landlord, who, he assumed
here, had in the normal way put the lease forward and chosen the actual words
of the clause in the first instance.
For my part I
consider that here as a matter of construction the parties have, by the words
used in clause 4 (i), made it of the essence of the contract that the notice
should specify a figure for the proposed new rent. That, it seems to me, was
their intention and there were good reasons for it. It would have been
perfectly simple for the parties to have chosen general words for the notice,
not requiring the amount to be specified, if such had been the intention. For
example, the clause might have read ‘notice shall be given that the landlords
intend to ask for an increase in rent, the amount thereof to be agreed or
determined by arbitration in default of such agreement.’ As it is, they are bound by the words they
have used. Though no doubt equity will in a proper case interfere where an
action is sought to be brought at law on inequitable grounds or where an
inequitable defence is sought to be put up, that does not mean that equity will
rewrite a contract where it appears that the contract which the parties have
entered into is clear on its face, although in the circumstances which have
occurred it may work hardship on one of the parties. Equity acts on the
conscience and there is nothing unconscionable in a party insisting on the
strict terms of his contract where those terms are clear and where on their construction
the proper view is that they were regarded by both parties as of the essence of
such contract.
The parties
here by the words thay have used have defined some of the essential conditions
and time-limits of the notice in question. They have defined the time-limit
within which the notice must be given, the date when it must expire, that its
form must be in writing and that one of the items it must contain is the amount
of suggested new rent. There is here no question of any ‘unavoidable accident,’
‘fraud,’ ‘surprise, or ignorance not wilful’ (see the quotations from authority
by Russell LJ in Samuel Properties Ltd v Hayek [1972] 1 WLR 1296
at 1303). There is no other possible reason, such as waiver or equitable
estoppel dealt with by Lord Cairns LC in Hughes v Metropolitan
Railway Co [1877] 2 App Cas 439 and developed in later cases such as W J
Alan & Co Ltd v El Nasr Export & Import Co [1972] 2 QB 189,
for giving equity ground to relieve against the consequence of mistake or
inadvertence on the part of the plaintiffs. I cannot in the circumstances here
see any reason for preventing the terms of the contract taking effect as, in my
judgment, the parties intended that they should. I am unable therefore to make
the declaration for which the plaintiffs ask.
