Landlord and tenant — Construction of rent review clause in lease — Lease also contained an option for tenants to determine the term — Time admittedly of the essence in relation to the option to determine — Whether time also of the essence in relation to the rent review clause — Submission by tenants that the two clauses were interrelated, so that the prima-facie rule in United Scientific Holdings Ltd v Burnley Borough Council was displaced — Rent review clause in present case contained no provision for a landlord’s ‘trigger notice’, but made the first procedural step an agreement between the parties at least six months before the appropriate review date — Tenants argued that this implied an attempt to agree, which implied a notice by the landlords, with the further implication that the landlords’ notice should be given a reasonable time before a period of six months preceding the review date, which would enable the tenants to consider whether to exercise the break option — Held, distinguishing such cases as Al Saloom v Shirley James Travel Service Ltd, that there was nothing in the wording of the lease to justify the court in arriving at such implications — Hence time was not of the essence and provisions in the lease enabling a valuer to be appointed by the president of the RICS had come into operation
This was an
originating summons by which Edwin Woodhouse Trustee Co Ltd, landlords of the
subject premises, the fifth floor of 112 Jermyn Street, London SW1, sought a
declaration in their
premises. The tenants, defendants to the summons, were The Sheffield Brick Co
plc.
C P F Rimer
(instructed by Hepworth & Chadwick, of Leeds) appeared on behalf of the
plaintiffs; Dirik G A Jackson (instructed by Norton, Rose, Botterell &
Roche) represented the defendants.
Giving
judgment, FINLAY J said: The landlords of the property, the fifth floor of 112
Jermyn Street, London SW1, seek a declaration that, upon the true construction
of a rent review provision in the lease under which the defendant company holds
those premises, the rent falls to be reviewed in the events which have
happened.
The lease is
dated December 16 1968. By that lease the plaintiff company granted to the
original lessees a lease of the fifth floor of the premises of 112 Jermyn
Street for a term of 21 years from December 25 1968 ‘paying therefore during
the said term the yearly rent specified in the first schedule to the lease’.
The first schedule is in these terms:
The rents
reserved by and payable under this lease are and shall be as follows . . . :
(1) during the first seven years of the said term
(hereinafter called ‘the first period’) a yearly rent of ONE THOUSAND SIX
HUNDRED POUNDS . . .
(2) during the next seven years of the said term
(hereinafter called ‘the second period’) a yearly rent amounting or equal to
the greater of the
two
undermentioned rents or amounts namely:
(i) the yearly rent payable hereunder during the
first period.
(ii) the yearly value (agreed or determined as
hereinafter provided) of the demised premises at the appropriate relative date
and
(3) during the remainder of the said term
(hereinafter called ‘the third period’) a yearly rent amounting or equal to the
greater of the two undermentioned rents or amounts namely:
(i) the yearly rent payable hereunder during the
second period
(ii) the yearly value (agreed or determined as
hereinafter provided) of the demised premises at the appropriate relative date
PROVIDED and
it is agreed that in this Schedule the expression ‘the appropriate relative
date’ means in relation to the second period the first day of that period and
in relation to the third period means the first day of that period and the
expression ‘the yearly value’ means such sum or amount as the parties shall
agree as being or (failing agreement at least six months next before the
appropriate relative date) as a Valuer appointed by the parties or (failing
appointment at least two months next before the appropriate relative date)
nominated at the request of either party (a) by the President for the time
being of the Royal Institution of Chartered Surveyors or (if he shall refuse or
for ten days fail so to nominate or if there shall be no such President (b) by the
President for the time being of the Chartered Auctioneers and Estate Agents’
Institute shall determine as being the yearly rental value of the demised
premises if and assuming that the same were being let in the open market with
vacant possession by a willing lessor for a term equal in length to the
unexpired period of the said term at the appropriate relative date and
commencing on that date — so far as applicable and with any necessary
variations thereof — upon the terms of this lease other than the terms as to
the rent payable during the period for which the rent is being agreed or
determined . . . —
then further
provisions follow as to the mode of valuation and to the duties of the valuer
or arbitrator.
There was an
assignment by the original lessee in 1978, and a further assignment on
September 9 1982, whereby the premises became vested in the defendants. It will
be observed that the first rental period expired in 1975 and the second came to
an end at midnight on December 24 1982.
There was also
provision made in clause 5 of the lease that —
If the Tenant
shall be desirous of determining this Lease at the end of the seventh or
fourteenth year of the term hereby granted and of such his desire shall give to
the Landlords not less than six months notice in writing and shall pay all rent
and perform and observe all the covenants and conditions herein before
contained and on its part to be performed and observed up to such determination
then and in such case immediately after the expiration of the said period of
seven or fourteen years as the case may be this Lease shall cease and be void
but without prejudice to any claim by the Landlords against the Tenant in
respect of any antecedent breach of any covenant or condition herein contained
. . . .
It will be
observed that a notice determining the lease at the end of the 14th year of the
term consequently required to be served by not later than June 24 1982.
The then
tenant did not break the lease at the end of the seventh year, nor was any
notice given by the present defendants, or their predecessors, prior to June 24
1982.
By a letter
dated September 27 1982 the plaintiff landlords by their agents gave notice to
the defendants that it was the plaintiffs’ intention to review the rent payable
under the lease at December 25 1982, that date being the first day of the third
period within the meaning of the third schedule.
The defendants
contended that that notification was inoperative on the ground that time was of
the essence in relation to the rent review provision in the sense that notice
had to be given by the landlord of its desire to operate the rent review
provisions at least six months next before the appropriate relative date, that
is, before December 25 1982, and, the notice of September 27 falling within the
six months next before the relative date, the notice was of no effect.
It is common
ground that the provision as to conferring upon the tenant the option or right
to determine the lease at the end of the seventh or 14th year is a provision in
relation to which time is of the essence and the argument on behalf of the
tenant, putting it briefly, is that there is an interrelation between that
break provision and the rent review provisions, such as to give rise to the
implication that time is of the essence also in relation to the rent review
provisions. And it is said that, looking at the provisions in the first
schedule, the implication of those provisions, particularly by reason of the
provision that, failing agreement between the parties at least six months next
before the appropriate relative date, the yearly value is to be determined by a
valuer, is that the parties are required to attempt to reach agreement and
manifestly must do so at least six months before the appropriate date, that is,
before December 25 1982.
The principles
to be applied in construing rent review provisions such as those found in the
lease in question were exhaustively dealt with by the House of Lords in United
Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, and
the basic principle there established is that there is a presumption that
strict adherence to the timetable specified in the rent review clause is not of
the essence of the contract. That basic principle, of course, is subject to the
possibility that the wording of the clause in question may indicate that that
presumption is inapplicable. I refer to only a few brief passages in the
speeches in United Scientific Holdings Ltd and first to what is said by
Lord Diplock at p 930, where he said:
So upon the
question of principle which these two appeals were brought to settle, I would
hold that in the absence of any contra-indications in the express words of the
lease or in the interrelation of the rent review clause itself and other
clauses or in the surrounding circumstances the presumption is that the
time-table specified in a rent review clause for completion of the various
steps for determining the rent payable in respect of the period following the
review date is not of the essence of the contract.
At p 962 Lord
Fraser said:
For these
reasons I am of the opinion that the equitable rule against treating time as of
the essence of a contract is applicable to rent review clauses unless there is
some special reason for excluding its application to a particular clause. The
rule would of course be excluded if the review clause expressly stated that
time was to be of the essence. It would also be excluded if the context clearly
indicated that that was the intention of the parties — as for instance where
the tenant had a right to break the lease by notice given by a specified date
which was later than the last date for serving the landlord’s trigger notice.
The tenant’s notice to terminate the contract would be one where the time limit
was mandatory, and the necessary implication is that the time limit for giving
the landlords notice of review must also be mandatory. An example of such
interlocked provisions is to be found in C Richards & Son Ltd v Karenita
Ltd (1971) 221 EG 25 where the decision that time was of the essence of the
landlord’s notice could be supported on this ground, although not, as I think,
on the ground on which it was actually rested. The case of Samuel Properties
(Developments) Ltd v Hayek [1972] 1 WLR 1296 is not in this class
because, although there was a tenant’s break clause, the time allowed to the
tenant for giving notice was automatically extended until one month after the
notification of the reviewed rent to the lessee.
A case where
the presumption was held to be rebutted was Al Saloom v Shirley James
Travel Service Ltd (1981) 42 P & CR 181.* In that case there was a clause which
provided that the lessee should have the right to give not less than six
months’ notice in writing prior to the expiration of the third year of the term
to determine the lease and a further provision (after the provisions as to the
effect of such a notice) that, subject to the lessee’s right of determination,
the
nor less than six months’ notice in writing prior to the expiration of the said
third year of the term, to review the yearly rent for the time being payable
hereunder; with provision following as to the effect of that notice. Waller LJ
said, at p 185:
As I have
already said, both provisions about break and rent review in this case were in
the same clause and closely allied to each other. The words ‘not less than six
months’ notice in writing prior to the expiration of the said third year of the
term’ were used for both break and rent review. Whether the word
‘interrelated’, ‘correlated’ or ‘associated’ is used, the implication of the
use of the same phrase in the same clause is overwhelming. The phrase must mean
the same in each case, either that in both time was of the essence, or in
neither. In my view the phrase could not change its meaning in the course of 10
lines unless there were some qualifying phrases to make such a change clear. I
have no doubt that in both cases here time was of the essence; I agree with the
judge and I would dismiss this appeal.
*Editor’s
note: also reported at (1981) 259 EG 420, [1981] 2 EGLR 96.
Oliver LJ and
Fox LJ agreed with that conclusion.
In Legal
& General Assurance (Pension) Management Ltd v Cheshire County
Council (1982) 265 EG 781, [1983] 1 EGLR 121 Whitford J followed that
decision in the case before him and found himself unable to distinguish the
provisions in the lease which he had to consider from those in clause 5 of the
lease in Al Saloom v Shirley James Travel Service Ltd.
There are two
cases upon which reliance was placed, to which I must refer, namely, Re
Essoldo (Bingo) Ltd’s Underlease, Essoldo Ltd v Elcresta Ltd (1971)
23 P & CR 1. There, there was a provision that the rent should be a fixed
sum during the first three years of the term, and during the remainder of the
term whichever shall be the greater of the following alternative rents, namely
the amount payable during the first three years (£6,000)
or a yearly
rent of such amount as the respective surveyors of the landlord and the tenant
shall before the last quarter day of the third year of the . . . term agree
upon in writing as being the then current market rental value for the letting of
the demised premises as a whole with vacant possession for a term of four years
commencing on the aforementioned quarter day upon the terms of this
under-lease,
with
provision, in default of such agreement, for determination of the rent by a
surveyor to be nominated by the president of the Royal Institution of Chartered
Surveyors. The three years expired on August 24 1969. The last quarter day was
June 24, but neither party took any steps towards determination of the second
alternative until July 9 and at that point the landlord claimed to have the
rent determined in accordance with the second alternative, that is, by a
surveyor appointed by the Royal Institution of Chartered Surveyors. The
tenants’ contention was that, if no attempt was made at the proper time to
reach agreement, then the provisions in default of agreement did not come into
operation but only came into operation if an attempt had been made and failed.
The Vice-Chancellor, Sir John Pennycuick, said at p 4:
I think it is
clear that the contention raised on behalf of the tenant was not well founded.
The provision for determination by a surveyor appointed by the president of the
institution is simply expressed to operate in default of agreement between the
parties’ surveyors before the specified date, and I do not see any reason to
qualify the plain meaning of those words.
Mr Balcombe,
for the tenant, conceded that this construction involves writing in after the
words ‘in default of said agreement as aforesaid’ the words ‘after an attempt
has been made to make it’. I do not see any justification for writing in these
or comparable words.
In Wrenbridge
Ltd v Harries (Southern Properties) Ltd (1981) 260 EG 1195, [1981] 2
EGLR 5, Lloyd J followed the Essoldo decision and held that the question
before him was determined by the decision of the Vice-Chancellor in that case.
He said at p 1196:
. . . it seems
to me that if there is some step which is to be taken in the course of
operating a rent review clause and if the parties wish to make the taking of
that step a condition precedent, then they must do so in clear terms, or by
necessary implication. Here, in my judgment, the words are not sufficiently
clear to require the parties to attempt to reach agreement on either of the two
preliminary matters as a condition precedent to their right to go for the
appointment of an arbitrator under the third limb of the clause.
As to the
second of the two grounds of distinction, it is difficult to know what the
draftsman of this clause had in mind by making time of the essence.
(that was time
of the essence in relation to the two earliest modes of determination provided
for by a rent review provision which provided for a third mode of determination
if the first two failed)
The
time-limit in this clause is quite unlike the time-limit considered by the
House of Lords in the case of United Scientific Holdings Ltd v Burnley
Borough Council . . . . The time-limit is a time for completing
negotiations between the parties. That leaves open the question when
negotiations were to be commenced. In order to answer that question it would be
necessary to imply some term into the clause such as, for instance, that the
negotiations were to be commenced a reasonable time before the date in
question.
Mr Jackson,
who appears for the tenant (defendant), submitted, in the first place, that the
lease had to be construed as a whole and that all the words in it should be
given some meaning, if possible. His submission was that the rent review
provision had to be read in the whole context of the lease and, in particular,
in the context of the break provision. It will be observed that, unlike the Al
Saloom v Shirley James Travel Service Ltd case, where a break clause
and rent review provisions were in the same clause of the lease, here the break
clause falls in the body of the lease itself in clause 5 and the rent review
provisions are separately set out in the first schedule to the lease. I do not
think that that itself would be a point of great significance, but it does
imply that the kind of consideration which appealed to the Court of Appeal in Al
Saloom of continuity in the same clause does not have the consequential
results which the Court of Appeal found in that case. Mr Jackson’s submission,
as I understand it, amounted to this: that although here there was no express
provision requiring the landlord to serve what is called ‘a trigger notice’ (ie
a notice indicating its desire to operate the rent review provisions), the
proviso in the first schedule dealing with the mechanics of the rent review
impliedly imposed an obligation on the landlord to give such a notice.
Certainly it appears to be manifest that, unless one party or the other takes
some step by way of notice, or something of the kind, the rent review
provisions will not operate at all, so that there is an implication in the
first schedule that, unless some kind of step by way of notice, or the like, is
taken, the provisions will not come into effect.
It is then
said that, there being an implication that the landlord has to give the notice,
the relation between the break clause in clause 5 and the provisions of the
first schedule are such that the implication is that the notice by the landlord
has to be given ‘at least six months next before the appropriate relative date’
which is the corresponding date for giving notice as that provided for in
clause 5.
In the first
place, Mr Jackson appeared to be submitting that the correlation between this
six-month period before the end of the second and beginning of the third period
implied that, if time was of the essence in relation to the one (ie the break
notice) it should be of the essence in relation to the other. That appears to
turn upon the argument that the landlord should inform the tenant, if he wishes
to operate the rent review provisions, so that the tenant may have the time to
consider whether or not he wishes to exercise his option to determine the
lease. But that argument, in turn, really depends upon a further implication
that the landlord’s notice should be given not merely at least six months next
before the appropriate relative date, because if it were merely given at that
time there would be no time for the tenant to discover what the new rent was
going to be and he would have no time in which to determine whether to exercise
his option. Mr Jackson then fell back on the suggestion that the implication
was that the landlord had to give notice a reasonable time in advance of the
date ‘the six months next before the appropriate relative date’ by which the
parties had to reach agreement if the subsequent mechanics of determination by
a valuer were not to be brought into effect.
There appears
to be a fatal difficulty both in the submission that the landlord’s notice has
to be given at least six months next before the appropriate relative date and
the alternative implication relied upon that it must be given a reasonable time
before that date. The difficulty in relation to the suggestion that it should
be given at least six months next before the appropriate relative date is that
that means, and I find on the construction of the lease it has the result, that
the landlord’s notice, which he is impliedly obliged to give, would have to be
given by or on June 25 1982, that being the date by or on which agreement
between the parties has to be reached if the subsequent mechanics do not come
into operation. But the break clause in clause 5 would have to be given before
midnight on June 24 1982, a day before. This arises because, whereas the break
clause has to be given at a date determined in relation to the end of the 14th
year of the term, the rent review agreement provision is linked not to the end
of the 14th year but to the day of commencement of the 15th year of the term,
so that necessarily there is a difference of one day between the clause 5 date
and the date designated in the proviso to
between the two dates, much of the force in the submission that there is an
interrelation is taken away.
The
alternative suggestion that there is an implication that the landlord should
give notice of his intention to operate the rent review provision a reasonable
time before the date which falls at least six months next before the
appropriate relative date gives rise to at least two further difficulties. One
is that the introduction of the concept of a reasonable time before (what I
call for convenience) the six-month date means that there is no longer
correlation between the rent review notice and the break clause notice. On the
other hand it could be said that the implication that the landlord must give
notice a reasonable time before introduces the possibility that the tenant will
then have a reasonable time to consider whether or not, in the circumstances
that the landlord wishes to operate the rent review provisions, he ought, or
ought not, to exercise the break clause option.
But the second
difficulty appears to be this. If the implication of the proviso is that the
landlord has to give some notification a reasonable time before the six-month
date, then all the force of the suggestion that break clause and rent review
clause should either both, or neither, make time of the essence disappears
because the concept that time should be of the essence in relation to a
provision, whether express or implied, that imposes an obligation to do
something a reasonable time before the happening of some event appears to me to
be one of insuperable difficulty. If time is to be of the essence, then the
date as to which time is of the essence must, it appears to me, be a date which
is either specified or able to be spelled out by a process of necessary
implication.
In the end it
appears to me that the insuperable difficulty which the tenant faces is that
there is nothing in the proviso to the first schedule which does, with any kind
of certainty, indicate what the landlord has to do, or when he has to do it.
The fact that there are alternative suggestions that he has to give a notice at
least six months next before the appropriate relative date, or alternatively a
reasonable time before it, indicates the lack of precision in the implication
that the tenant has to rely upon. It would have to be implied, first that there
is to be an attempt by the parties to reach agreement, and that that in turn
implies a necessity that the landlord should give a notice, and in turn that
that implies a need to give a notice in time to permit the conducting of the
attempt.
These pointers
of implication are all, it appears to me, of far too indefinite a character.
There are no clear terms which indicate that the landlord is under a duty to
serve anything in the nature of a trigger notice nor, in my judgment, is it
possible to find within the four corners of the lease, reading it as a whole,
anything which, by necessary implication, imposes on the landlord any such
duty.
The result in
my judgment is that there is nothing here which militates against the
application of the presumption referred to by Lord Diplock in the paragraph
from his speech which I have already read. Accordingly, time is not of the
essence in relation to any implied obligation upon the landlord to serve a
notice to bring into operation the rent review provisions of the first schedule
and accordingly the notice given on September 27 1982 was, in my judgment,
effective to bring those provisions into operation. The date at least six
months before the appropriate relative date having by then passed, the
provisions as to the appointment of a valuer by the president for the time
being of the Royal Institution of Chartered Surveyors, and, failing that being
done in due time, by the president for the time being of the Chartered
Auctioneers’ and Estate Agents’ Institute, therefore come into operation. It
is, of course, at any time open to the tenant and the landlord to reach
agreement as to what the revised rent should be.
Declarations
were made as sought by the plaintiffs and the defendants were ordered to pay
the costs of the summons.
