Rent review clause–Construction–Notice requiring review given by landlords in time, but notice requiring arbitration on failure to agree on revised rent not served by landlords in time–Whether time was ‘of the essence’ for the arbitration notice–Clause provided for ‘notice in writing given to the tenant within three months thereafter but not otherwise’–Held that ‘and not otherwise’ applied to both manner and time of service–Intention that time should be of the essence for the arbitration notice–United Scientific Holdings Ltd v Burnley Borough Council considered–Landlords’ action for declaration fails
This was an
originating summons by lessors, Drebbond Ltd, plaintiffs, to which Horsham
District Council, lessees, were defendants, for a declaration in regard to the
construction of rent review provisions in a lease for 21 years from November 1
1968 of 1 and 1a East Street, Horsham.
J L Knox
(instructed by Bunker & Co, of Hove, Sussex) appeared on behalf of the
plaintiffs; R C Pryor (instructed by M J Baty, Solicitor, Horsham District
Council) represented the defendant council.
Giving
judgment, MEGARRY V-C said: This case largely turns on the meaning and effect
of the words ‘but not otherwise’ in a rent revision clause in a lease. At a
particular stage in the procedure laid down for rent revision, the clause
enables the landlord to require arbitration ‘by notice in writing given to the
tenant within three months thereafter but not otherwise. . . .’ Do the last three words apply only to the
manner in which the landlord can require arbitration (namely, ‘by notice in
writing given to the tenant’), or do they also apply to the time within which
the notice is to be given (‘within three months thereafter’) and thereby make
time of the essence of the contract, so that a notice served after the end of
the three months is ineffective? The
background to the case is, of course, the recent decision of the House of Lords
in United Scientific Holdings Ltd v Burnley Borough Council
[1977] 2 WLR 806, in which it was held (I put it shortly) that in the
time-table of a rent review clause in a lease time was presumed not to be of
the essence in the absence of contra-indications in the language of the lease,
in the inter-relation of the rent review clauses with other clauses in the
lease, or in the surrounding circumstances. At p 822, Lord Diplock expressed
the hope that the decision would reduce the number of cases in which it was
necessary to resort to the courts to ascertain whether the landlord’s delay had
deprived him of the right to have the rent reviewed under particular rent
review clauses; but this is the second such case to come before me this week,
so the hope may still be hope deferred.
The lease was
granted on November 11 1968 for a term of 21 years from November 1 1968. The
rent was a peppercorn until January 1 1969, and thereafter £1,200 a year for
the rest of the first seven years of the term: the £1,200 was called ‘The
initial rent.’ The lessors were the
immediate predecessors in title of the plaintiff company now before me, and the
lessees were the defendant council. The assignment of the reversion occurred
while the machinery of rent revision was in operation, but nothing turns on
that. I shall refer to the plaintiff company and their predecessors in title
alike as ‘the landlord,’ and the defendant council as ‘the tenant.’ Mr Knox appeared for the landlord and Mr
Pryor for the tenant.
After the
first seven years, the rent during the remaining years of the term was to be
‘the initial rent or such increased rent as may be payable in accordance with
the provisions of clause 2 hereof’; and rent was to be paid on the usual
quarter days. That brings me to clause 2. This begins as follows.
2. The
initial rent payable by the tenant on the grant of this lease shall be reviewed
in manner following namely:
(a) The landlord shall be entitled by notice in
writing given to the tenant within the last six months before the expiration of
the seventh and fourteenth year respectively of the term hereby granted to call
for a review of the yearly rent payable under this lease and if upon any such
review it shall be found that the commercial yearly rent (as hereinafter
defined) of the demised premises at the end of such seventh or fourteenth year
as the case may be is greater than the initial rent then as from the end of
such year as the case may be or as from the quarter day next following the
giving of such notice whichever shall be the later the initial rent shall be
increased to the commercial yearly rent provided that in no circumstances shall
the rent payable hereunder following any such review be less than the rent
payable by the tenant at the date of the landlord’s notice calling for review.
Clause 2(b)
then defines the ‘commercial yearly rent’ in terms on which nothing turns, and
I need not discuss: broadly it is the open market rent for a 21-years’ term on
the existing terms and conditions.
There is then
clause 2(c), on which the dispute centres. It is not subdivided in any way, and
of course I shall construe it in its existing form: but for ease of reference I
have inserted numerals and letters to indicate its various parts, and I shall
read it in this form.
(c) (1) Such
revision as aforesaid shall in the first instance be made by the landlord and
the tenant or their respective surveyors in collaboration (2) but if no
agreement as to the adjustment (if any) to be made in the yearly rent shall
have been reached between the parties hereto or their surveyors within three
months after the date of the landlord’s notice calling for such revision (3)
the question (a) as to the commercial yearly rent of the demised premises at
the appropriate date and (b) as to whether there shall be any adjustment in the
yearly rent payable and (c) if so what the
require by notice in writing given to the tenant within three months thereafter
but not otherwise (5) be referred to the decision of a sole arbitrator to be
appointed in default of agreement between the parties by the president for the
time being of the Royal Institution of Chartered Surveyors in accordance with
the Arbitration Act 1950 or any enactment for the time being amending
re-enacting or replacing the same.
It is
convenient to refer to the notice which clause 2(a) authorises the landlord to
give as the ‘trigger notice,’ and the further notice which clause 2(c) (4)
authorises him to give as the ‘arbitration notice.’ What has happened here is that the landlord
gave the trigger notice in time but failed to give any arbitration notice
within the time stated. The last six months before the expiration of the
seventh year of the term was the period from May 1 to October 31 1975; and when
the landlord gave a trigger notice on May 5 1975, that plainly complied with
clause 2(a). Once that notice had been given, the timetable laid down by clause
2(c) began to operate. There were negotiations between the respective surveyors
to the parties, but no agreement was ever reached as to the adjustment to be
made in the yearly rental. Under clause 2(c) (2), as no such agreement had been
reached within three months of the date of the landlord’s trigger notice (that
is, within three months of May 5 1975), on August 5 1975 the question of the
rent and any adjustment was, under clause 2(c) (3), to be referred to
arbitration under clause 2(c) (5), if the landlord gave the tenant an
arbitration notice under clause 2(c) (4). Such a notice was, on the wording of
the subclause, to be given ‘within three months thereafter’; and that must be
within three months after August 5 1975, that is, by November 5 1975. That date
came and went without the landlord giving the tenant any arbitration notice,
and on December 22 the tenant wrote to the landlord asserting that the landlord
had by then lost the right to a rent review. After taking advice the landlord
wrote a letter on November 19 1976 which appears to be capable of constituting
an arbitration notice; but that, of course, was over a year after the date
required for such a notice by clause 2(c) (4). The proceedings before me are by
way of an originating summons taken out by the landlord, seeking a declaration
that the landlord is entitled to require that the revision of the rent should
be referred to a sole arbitrator in accordance with clause 2 of the lease.
The starting
point is the approach laid down in the United Scientific case. Mr Pryor
accepted, as he was obliged to do, that under rent review clauses time was
presumed not to be of the essence, and that it was for him to establish that in
this case there was enough to rebut the presumption. In the forefront of the
contention of each side was, of course, the language of clause 2(c) (4) of the
lease. The question of the rent is to be referred to arbitration ‘if the
landlord shall so require by notice in writing given to the tenant within three
months thereafter but not otherwise.’ Mr
Knox understandably resorted to the dictionary. ‘Otherwise,’ he said, referred
to manner or way or respects, and not to time. The phrase ‘and not otherwise’ related
solely to the landlord making his requirement by a particular method, namely,
by a notice in writing given to the tenant: the landlord must do it thus, and
in no other way. The phrase had no reference to the words ‘within three months
thereafter,’ for they laid down a period of time rather than a manner of doing
something. Mr Knox accepted that if these had been the only words governed by
‘and not otherwise,’ that phrase was wide enough in its meaning to be able to
operate on them. But whereas here the phrase was preceded by words both of
manner and of time, it applied only to the words of manner and not to the words
of time.
For Mr Pryor,
this approach was a selective disregard of the nearest antecedent. The phrase
‘but not otherwise’ immediately followed the words ‘within three months
thereafter’: why should it leap over those words and attach itself only to the
preceding words? In any case, the phrase
came at the end of a compound expression, beginning with the word ‘if,’ and it
was wide enough in its meaning to govern the whole of the compound phrase. The
one way in which the landlord could obtain an arbitration was by making a
requirement which in all respects (including time) satisfied clause 2(c)(4); he
could not do it ‘otherwise’ or ‘differently.’
For good measure, Mr Pryor pointed to one of the illustrations of
‘otherwise’ given in the Shorter Oxford English Dictionary on which Mr
Knox relied. This was ‘I went at once; otherwise I should have missed him,’ and
this, said Mr Pryor, displayed ‘otherwise’ as doing duty in relation to time.
Mr Pryor
further contended that if the phrase ‘but not otherwise’ governed only manner
and not time it had little or no practical effect. If the landlord made a
requirement of arbitration orally or by some document not given to the tenant,
he could, if the three months’ time limit did not apply, cure his default as
soon as it came to his notice by giving the tenant a suitable piece of paper.
Why insert the emphatic ‘but not otherwise’ merely for this purpose? On the other hand, if those words of emphasis
applied to the time limit as well, then there was some point in including them;
and their purpose must be to make time of the essence.
Mr Knox
emphasised that once the trigger notice had been given in due time, both
landlord and tenant knew that the rent revision machinery would operate so
that, if the commercial yearly rent exceeded the initial rent, there would in
due course be an increase in the rent. Even if it took a long time to settle
the new rent, clause 2(a) made it run from the end of the seventh year or the
quarter day next after the giving of the trigger notice, whichever was the
later. There was therefore no need for the arbitration notice to be subject to
a strict time limit.
Certain other
points were discussed, but in the end they did not seem to me to have any great
cogency. I think that I have to decide the case mainly on the basis of the
arguments that I have indicated above. So far as grammar and the use of the
English language is concerned, I prefer Mr Pryor’s approach. The phrase ‘but
not otherwise’ seems to me to have the broad sense of excluding all that is not
comprehended in what lies between the word ‘if’ and the phrase ‘but not
otherwise,’ whether it relates to manner or to time. I think that Mr Knox
ascribes to the phrase too delicate and selective an import in picking on
manner and rejecting time.
There also
seems to be considerable force in Mr Pryor’s contention that the phrase, with
its inherent emphasis, has little significant function if Mr Knox is right. If
it does make time of the essence for the arbitration notice (as I think it
does), a sensible scheme emerges from clause 2(c). Once the landlord has given
his trigger notice, clause 2(c) (2) allows three months for negotiation. Once
that three months has run, the landlord can serve an arbitration notice. He may
do it at once or he may leave the negotiations to continue. Much may depend on
what the landlord thinks his prospects are from what has emerged from the
negotiations. But if he is going to refer matters to arbitration, he must do so
within the next three months. The time limit may well concentrate the minds and
efforts of the parties and their valuers so as to avoid the expense and
expenditure of time that an arbitration entails. Remove the time limit, and
leisurely negotiations may well become more leisurely still, and the tenant may
have the prospect of an arbitration being required left hanging over his head
indefinitely. I do not for a moment say that without the time limit the clause
is unworkable: but I do say that I can see why the parties might wish to impose
time limits that mean what they say, and so I can see why the words ‘but not
otherwise’ should be inserted in order to produce that result.
I should add a
word on the meaning and effect of the
the time limit. Mr Knox said that the ‘time to be of the essence’ was well
known to solicitors, and that, of course, is so. Doubtless it is in the same
select gallery as ‘subject to contract,’ ‘without prejudice’ and many other
phrases sanctified by long usage in the law. If the intention was to make time
of the essence, said Mr Knox, it would have been easy enough to say so; but
that was not done, and the phrase in fact used did not suffice. No authority, I
may say, has been put before me on expressions which do suffice to make time of
the essence. However, I do not think that the fame of the expression ‘time to
be of the essence’ means that nothing else will do, and I did not understand Mr
Knox to contend for so far-reaching a proposition. As far as the express
wording of the document is concerned, all that seems to me to be needed is some
expression which shows that the time limit is to mean what it says, and is to
be obligatory and not merely indicative. The phrase ‘and not otherwise’ seems
to me to do just that. If it does not, then it is difficult to see what it does
do; and it is plainly an insertion into the normal flow of the sentence, made
for emphasis, and not a phrase which has just slipped in, as it were.
In the result,
the landlord’s claim fails, and I dismiss the claim for the declaration sought
by the originating summons.
The claim was
dismissed with costs.
