Landlord and tenant — Rent review clause in underlease of commercial premises — Dispute as to application of unusual review clause providing for a two-year rent-review period during which a notice calling for a review could be served by the landlords on the tenants, but with a provision that if the landlords failed to give notice during the review period they had the right ‘at any time thereafter’ to review the rent on serving a month’s notice — Landlords failed to serve a notice during the review period but subsequently served a notice under the latter provision — Court of Appeal differ from trial judge in interpretation of events — Although the landlords did not serve a notice during the review period, the surveyors for both parties reached agreement during that period that no increase of rent should be made in respect of the underlease in question, since the market rent was less than the passing rent — In the judge’s view a rent review had taken place as a result of the surveyors’ discussions and agreement, the provision as to formal notice having been waived — Such a review precluded the subsequent notice under the ‘at any time thereafter’ provision from taking effect — Held, allowing
This was an
appeal from a decision of Judge Mervyn Davies (as he then was) sitting as a
judge of the Chancery Division (he is now Mervyn Davies J, a judge of the
division). In his decision, reported at (1982) 262 EG 661, [1982] 1 EGLR 124,
he granted a declaration in favour of the plaintiff tenants, Esso Petroleum Co
Ltd, against the defendant landlords, Anthony Gibbs Financial Services Ltd. He
decided that under the terms of an underlease, and in the events which had
happened, the defendants were not entitled to claim an increase of rent under a
rent review clause until 1984. The landlords appealed.
Derek Wood QC
and J C Harper (instructed by Linklaters & Paines) appeared on behalf of
the appellants; Michael Essayan QC and K M J Lewison (instructed by Durrant
Piesse) represented the respondents.
Giving the
first judgment at the invitation of Lawton LJ, OLIVER LJ said: This is an
appeal from a judgment of His Honour Judge Mervyn Davies (as he then was)
sitting as a judge of the Chancery Division on July 28 1981. By his order the
learned judge declared that a rent review notice given on October 9 1979 by the
defendant landlords to the plaintiff tenants was invalid and of no effect.
The
defendants, the appellants in this court, are the lessees of 7 Hanover Square,
London W1, holding under an underlease from the Legal & General Assurance
Society Ltd dated May 11 1973. The terms of the lease to the defendants’
landlords do not matter for present purposes and the underlease under which the
defendants hold, which is for a term of 25 years from September 29 1972, is
conveniently referred to as ‘the head lease’. Up to July 6 1978 the rent
payable under the head lease was a sum of £193,750 per annum but the head lease
contains an upwards-only review clause under which the rent falls to be
reviewed automatically on July 6 1978, July 6 1984, July 6 1988 and July 6
1992, from each of which dates there falls to be paid such additional rent as
is equal to the amount by which the fair rack rental market rent for the
premises at the review date (ascertained in accordance with the provisions of
the head lease) exceeds the rent payable immediately prior to the review date.
The plaintiffs
are and were at the material time the lessees of the second, third and fourth
floors of the premises comprised in the head lease. So far as the second floor
is concerned, they are the assignees of the original lessee, Philips Electronic
& Associated Industries Ltd, who held under an underlease granted to them
by the defendants on January 14 1976 for a term commencing on May 1 1975 and
ending on September 27 1997. Up to July 6 1978 the rent payable under this
underlease was £77,500 but, as might be expected, this document too contains an
upward-only rent review clause under which the rent falls to be increased on
the same dates as the rent review dates prescribed in the head lease. The
critical difference between these provisions and those contained in the head
lease is that in the underlease the rent reviews are not automatic but require
to be triggered by a notice given by the landlords. It is unnecessary to refer
in detail to the provisions of this document, since the rent review clause is
in exactly the same terms as the rent review clause which is contained in the
underlease of the third and fourth floors of the premises with which this
appeal is concerned, save only that, by reason of the length of the term of the
latter document, the clause operates here only on the first two of the stated
review dates.
As regards the
third and fourth floors the plaintiffs are original lessees from the
defendants, the underlease in this case being dated January 29 1976 and being
for a term from March 25 1975 until July 6 1988. The rent originally reserved was
£197,225 and it is convenient to mention here that that is equivalent to a sum
between £12.30 and £12.60 per sq ft.
The only
provisions of the underlease which are material for present purposes are those
in clause 5(x) which are in the following terms:
(a) The Landlord shall by notice in writing given
to the Tenant at any time during the review period (as hereinafter defined)
have the right to call for a review of the yearly rent payable to the Landlord
in respect of the demised premises and if upon review it shall be found that
the commercial yearly rent (as hereinafter defined) of the demised premises at
the review date (as hereinafter defined) shall be greater in amount than the
principal rent hereinbefore reserved and for the time being payable then as
from the review date in question the amount of the principal rent payable to
the Landlord in respect of the demised premises shall be increased in manner
following and thenceforth the said rent shall be paid by the Tenant at such
increased rate to the Landlord;
(b) For the purpose of this subclause the
following expressions bear the meanings assigned to them as follows:¾ ‘the review period’ means in the first instance the period
commencing Twelve months immediately preceding July 6 1978 and Twelve months
ending immediately following July 6 1978 and in the second instance the period
commencing Twelve months immediately preceding July 6 1984 and Twelve months
immediately following July 6 1984; ‘the review date’ means in the first
instance July 6 1978 and in the second instance July 6 1984.
There follows
a definition of ‘the commercial yearly rent’ which I need not read. It suffices
to say that it broadly equivalates to the open market rent on certain
assumptions, but it is important to note that it is the open market rent at the
review date and is to be ascertained by reference to the portion of the term of
the underlease then unexpired. I can continue with subclauses (c), (d) and (e)
which are as follows:
(c) With effect from the review date the amount
of the principal rent payable under this Underlease shall be increased to the
amount of the commercial yearly rent PROVIDED ALWAYS and IT IS HEREBY AGREED
that the yearly rent payable hereunder from and after the review date during
the residue of the term hereby granted shall at no time be less in amount than
the yearly rent for the time being subject to review;
(d) Such review as aforesaid shall first be made
by the Landlord and the Tenant or their respective Surveyors in collaboration
but if no agreement as to the amount of the increase (if any) to be made in the
said yearly rent shall have been reached between the parties within two months
after the date of the Landlord’s notice calling for such review the question
whether there shall be an increase in the said yearly rent and if so what will
be the amount of the increased yearly rent shall be referred at the request of
either party to the decision of a sole arbitrator who shall be appointed (in
default of agreement between the parties) on the request of the Landlord by the
President for the time being of the Royal Institution of Chartered Surveyors
and the costs of the reference to him shall be in the award of such arbitrator
and who shall proceed in accordance with the Arbitration Act 1950 or any
statutory modification or re-enactment thereof for the time being in force;
(e) Should the amount of the increase (if any) to
be made in the said yearly rent not be agreed or decided before the review date
in question the Tenant shall pending such agreement or decision continue to pay
rent at the rate for the time being applicable and subject to review and on
such agreement or decision being reached or made any necessary adjustment shall
forthwith be made retrospectively in favour of the Landlord from such review
date and the difference between the amount of rent actually received and the
amount so due to the Landlord in respect of the period down to the date of
payment of such difference to the Landlord shall be paid by the Tenant to the
Landlord on the due date for payment of rent next following the demand made.
So far, so
good. This is a simple and effective review clause giving the landlord an
option to call for review within a year either side of the review date and with
a provision for arbitration in default of agreement within two months of notice
given. But the clause does not end there, for there is a very important
additional subclause and it is this that has given rise to the present
proceedings, although it is common ground that, at the time when the question
of a rent review for the year 1978 arose, everybody had overlooked its
existence. It is in these terms:
(f) Notwithstanding subclause (a) of this Clause
if the Landlord fails to give notice calling for a review of the yearly rent
payable hereunder during the review period the Landlord shall at any time
thereafter have the right to review the said rent upon giving to the Tenant not
less than one month’s notice in writing of its intention so to do and if the
Landlord shall give to the Tenant a notice as aforesaid then from and after the
date therein specified (which shall be a date not earlier than one month from
the date of service of the said notice) the yearly rent then payable shall be
increased to an amount which shall represent the commercial yearly rent of the
demised premises at the date specified in the said notice and the amount
thereof shall be agreed between the Landlord and the Tenant or determined in
accordance with the provisions of subclause (d) of this Clause;
These, then,
are the relevant provisions of the plaintiffs’ underlease. The circumstances in
which there arose the dispute which led to these proceedings were these:
The defendants
were undoubtedly aware in 1978 that the rent payable under the head lease was
automatically subject to review on July 6, but in fact on February 16 1977
Legal & General served on them a formal notice of their intention to
review. That was referred by the defendants to their agents Messrs John D Wood,
where the matter was dealt with by one of the partners, Mr David Rose. He at
once realised that his clients, as intermediate landlords, were in a difficult
negotiating position. They had their rights of review against their own tenants
under the underlease but unless they could synchronise their negotiations with
the Legal & General with their negotiations with the underlessees there was
always the risk that they might find themselves paying a higher rent under the
head lease than the rent which they were receiving under the underleases. The
market was rising and that risk was therefore materially increased if they gave
notices of review under the underleases, since the time-table laid down in the
underleases, which was not reflected in the head lease, might put them in a
position of being forced to agree new rents with the underlessees while their
negotiations with the head lessors were still incomplete. Mr Rose, therefore,
very sensibly set about persuading the underlessees to embark upon discussions
for arriving at an appropriate commercial rent for the premises in advance of
the machinery laid down in clause 5(x) in the hope of achieving a profit rental
for his clients by persuading the Legal & General to agree either a lesser
floor area or a lower rental per sq ft (or even both) for the purposes of the
head lease than the floor area or the rental agreed for the purposes of the
underlease. To this end he opened discussions with Mr Turner of the Legal &
General on the one hand and with Mr Dawson of the plaintiffs’ property department
on the other. It seems that up to June 1978 Mr Rose was working on the basis
that the market rent for the premises was somewhere between £12 and £13 per sq
ft, but it is clear that up to the middle of June, although he was in touch
with Mr Dawson, discussions were entirely informal and he was not in a position
to enter into any effective negotiations. On June 22 1978 Mr Dawson wrote to
the plaintiffs’ secretary, Mr Mackintosh, that although he had not yet received
any formal proposal from the landlords’ agents ‘they have informed us that they
are in discussion with the Superior Landlords on the question of the review,
and will be making a formal proposal to us shortly’. That position remained
substantially unaltered up to July 11 by which time the Legal & General had
put forward a proposal for £14 per sq ft and Mr Rose had countered by
suggesting that that was far too high and that the matter might have to be
resolved by reference to an independent expert. That was reported to Mr Dawson
by Mr Rose, who suggested that the plaintiffs might like to consider sharing
with the defendants the cost of reference to an expert, with Mr Rose’s firm
acting, in effect, both for plaintiffs and defendants. That did not in fact
commend itself to the plaintiffs, who were proposing to assign the premises in
any event and who were hoping to persuade Jones Lang Wootton, the agents whom
they intended to instruct on the assignment, to act for them also in any rent
negotiations without any additional fee. Mr Rose, by this time, had formed the
view that the appropriate rent for the building which was likely to be
acceptable to Legal & General was in the bracket of £11 to £11.50 per sq ft
and on July 11 1978 he wrote to the defendants pointing out that it might be
necessary to have the rent payable under the head lease settled by an expert
‘because Gibbs could not agree to a rent and then serve notice on Esso who in
turn might appoint an expert who awarded a higher rent than the Legal &
General/Gibbs expert’. So up to this time the defendants were still
deliberately refraining from operating the rent review machinery of the
underleases until they had clarified what was going to be the new rent payable
under the head lease. By July 18 Mr Rose had come to think that he could
persuade Legal & General to agree to a rent which, on his calculation of
the floor area, amounted to £11.50 per sq ft and it is clear, both from his
evidence and from the correspondence, that he was hopeful of being able to
persuade the plaintiffs also that that was the market rent for the building.
This, as he explained to Legal & General, would be satisfactory from his
clients’ point of view because it would enable them to increase the rent of the
second floor (which was then about £9 per sq ft) and achieve a profit from the
third and fourth floors, where the rent was already above £11.50 per sq. ft.
On July 24 Mr
Dawson instructed Mr D J W Larkin of Jones Lang Wootton to act for the
plaintiffs with regard to the proposed assignment and also to advise in
relation to the rent review. At this time Mr Rose had put forward an overall
rent of £290,000 to Legal & General (which, allowing for car parking
spaces, amounted to a little over £11.50 per sq ft for office space on Legal
& General’s estimate of floor area) and there seemed a good prospect that
that would be accepted. He had also spoken to Mr Larkin on the telephone and
discussed with him a figure of £11 per sq ft for the second floor, a figure
which he hoped to improve on. On July 25 he reported this to his clients in a letter
in which he said: ‘Assuming none of the parties change their minds on what they
say they are prepared to do, then all that will be necessary is, as between
Legal & General and yourselves, a simple endorsement on the existing lease
and similarly, between yourselves and Esso, an endorsement on the second-floor
lease which incorporates the basement. The third- and fourth-floor situation
remains unchanged.’ Thereafter he had a
conversation with Mr Larkin telling him that Legal & General would be
delighted to accept a rent of £12 per sq ft and as a result of that
conversation Mr Larkin suggested a rent of £11.50 plus £500 per car space,
making an overall rent for the second floor of £110,000. Mr Larkin’s note of
that conversation sets out these figures and continues: ‘Rose called back —
acceptable to L & G. Third & Fourth. Esso currently paying
£197,225 = £12.30 approx. therefore no rise in rent reserved’.
On the
following day Mr Rose wrote to him a letter, headed ‘7 Hanover Square, W1’ in
the first paragraph of which he said:
Subject to
lease and without prejudice I confirm that on behalf of our respective clients
we have agreed a review rent of £110,000 per annum, in accordance with the
provisions of the underlease, dated January 14, 1976, between Gibbs and Philips,
of which your clients took an assignment during the past year.
At the same
time he advised his clients that they should serve the plaintiffs with formal
notice for review in accordance with the terms of the underlease. In the same
letter he drew attention to the profit position of the third and fourth floors
in relation to the reviewed rent agreed with Legal & General and added: ‘I
assume there is no point therefore in serving formal notice on Esso in respect
of these two floors’.
Mr Larkin
likewise reported to Mr Dawson, confirming an agreement for a revised rent for
the second floor ‘subject to lease and approval of your company and without
prejudice’. At the same time he wrote to Mr Rose:
7 Hanover
Square, W1. Second Floor and Basement. Thank you for your letter of July 26
confirming our recent telephone conversations. You will appreciate that the
figure we have agreed is subject to our clients’ approval as well as being
subject to lease and being without prejudice and I am therefore seeking the appropriate
instructions from our clients.
Before those
instructions were received, on August 11 1978 Linklaters & Paines wrote on
behalf of the defendants to the plaintiffs’ solicitors a letter giving formal
notice for a review of the rent payable in respect of the second floor to a
figure of £110,000 and concluding:
In fact, we
understand that the reviewed rent at £110,000 has already been agreed between
our respective Clients, subject to Contract. We therefore enclose a draft Rent
Review Memorandum in duplicate for your approval, and look forward to hearing
from you as soon as possible.
That formal
memorandum was in fact signed on behalf of the plaintiffs and the defendants on
October 4.
There the
matter rested for the moment and might well have continued to do so had not the
plaintiffs proceeded with their proposal to dispose of the premises.
Prospective purchasers were found in August 1979 and in the course of inquiries
leading up to contract their solicitors required to be satisfied that, there
having been no notice of any review of the rent in respect of the third and
fourth floors, there was no possibility of notice to review the rent being
given under clause 5(x)(f). Assurance on the point was sought from the
defendants and it having been brought to their attention they served a notice
on the plaintiffs on October 9 1979 pursuant to clause 5(x)(f) of the
underlease requiring a review of the rent of the third and fourth floors. On
January 11 1980 the plaintiffs commenced proceedings against the defendants
claiming, inter alia, a declaration that the defendants were not
entitled to require any increased rent for the property prior to July 6 1984
and a declaration that the notice was void and of no effect. Predictably that
was met by a counterclaim by the defendants that the power to compel a review
had been validly exercised. The plaintiffs’ case, both before the learned judge
and before the court, has been that although it is accepted that the
precondition to the operation of clause 5(x)(f) has been literally satisfied,
in that no notice calling for a review of the rent of the third and fourth
floors had been given during the review period, yet the sense of the clause as
a whole is to preclude a further review until the next review period if a
review has actually taken place in relation to the previous review period. A
‘review’ merely means that the rent has been examined to see whether it
corresponds with
market rent for the building at July 6 1976 was £11.50 (a figure subsequently
accepted by both sides in relation to the second floor), the rent for the third
and fourth floors had been reviewed, the absence of any notice being accounted
for by the fact that it would have been an entirely academic exercise. This was
the contention which the learned judge accepted. The discussions between Mr
Rose and Mr Larkin, he held, resulted in their agreeing a nil increase for the
third and fourth floors and that meant that they had reviewed the rent. The
learned judge expressed himself as satisfied ‘that the parties proceeded with
their review of the rent of the third and fourth floors on the basis that they
had clause 5(x) in mind and on the basis that: (1) prior to their agreeing on a
nil increase, no notice was necessary, notwithstanding the opening words of
5(x)(a), and (2) that no notice was necessary after so agreeing’. ‘In short’,
he said, ‘in conducting their review of the rent of the third and fourth
floors, the parties implicitly waived the provision respecting notices that was
intended to initiate the review.’
Accordingly,
he held that the defendants were precluded from initiating any further review
prior to July 6 1983 and that the notice given under clause 5(x)(f) was invalid
and ineffective. A number of other points were taken by the plaintiffs before
the learned judge but they have not figured in the present appeal, which has
been confined to the one issue of whether the learned judge was right in his
conclusion that the mutual acceptance in July 1978 by the surveyors for the
plaintiffs and the defendants that the market rent for the office space in the
building was less than the rent currently payable for the third and fourth
floors precluded any further operation of the rent review clause until the next
review period. Mr Wood, I think, accepts, at any rate for the purpose of his
principal argument, that if what passed between the two surveyors was intended
by the parties to constitute a review of the rent payable for the third and
fourth floors as envisaged by clause 5(x)(a) and (d), it would not matter from
the point of view of precluding yet a further review under the provisions of
clause 5(x)(f) that the formality of prior written notice had been dispensed
with. He submits, however, that on the facts that simply did not happen. Mr
Essayan, on the other hand, argues that, when the evidence is examined and
particularly in the light of the facts found by the learned judge, it will be
seen that the transaction between the parties bore all the hallmarks of the
machinery envisaged by clause 5(x) save only that there was no formal notice to
initiate the process. The facts upon which the judge relied for his conclusion
were stated to have been conceded by the defendants and that is not, as I understand
it, challenged by Mr Wood save to the extent that there may be ambiguity in the
precise meaning of certain words — and, in particular, the words ‘negotiate’
and ‘agree’ — in the concessions as stated by the learned judge. These were as
follows:
(1) That Mr Rose and Mr Larkin were, in 1978,
appointed to negotiate the rents for all three floors comprised in both the
underleases.
(2) That they agreed that the market rent for
office space (on the second, third and fourth floors of the building) was £11.50
per sq ft overall.
(3) That they agreed that that market rent was
less than the ‘passing rent’ for the third and fourth floors: so the ‘passing’
rent at £197,225 reserved by the underlease dated January 29 1976 was in July
1978 greater than the ‘market’ rent.
(4) They further agreed that there could at that
time be no increase in the rent payable in respect of the third and fourth
floors.
Now it seems
to me that, in considering whether the conclusion that the learned judge drew
from these concessions in fact follows from them, a great deal depends upon the
interpretation that one puts upon them. For instance, it is perfectly true
that, in a most general sense, Mr Rose and Mr Larkin were appointed to
‘negotiate’ the rent of all three floors and that they ‘agreed’ that the market
rent for office space in the building was £11.50 per sq ft, but these
assumptions really beg the question. The critical questions must, as I see it,
be whether the negotiation of rent was a negotiation for the purpose of implementing
the provisions of clause 5(x) and whether the ‘agreement’ at which they arrived
was an agreement for the purposes of the review machinery. Mr Essayan is, of
course, perfectly right in his submission that the machinery set out in clause
5(x) envisages the possibility that the parties or their surveyors or an
arbitrator may reach a conclusion that the commercial rent is equal to or less
than that currently being paid at the review date — see, for instance, the
words in clause 5(x)(a) ‘if upon review it shall be found that the commercial
rent . . . shall be greater . . .’ etc; but what is also envisaged is a
‘finding’ as a result of the machinery provided by the clause. It is also, no
doubt, true that what Mr Dawson and Mr Larkin were discussing with Mr Rose was
the current market rent for the office space in the building as a whole,
because that was what was being discussed by Mr Rose with the Legal &
General and all three of them were concerned to arrive at a result which would
minimise the increased rent payable under the head lease. But it is abundantly
clear that certainly Mr Rose did not regard himself as operating under the
machinery of clause 5(x) although no doubt he envisaged that his clients’
actions under that clause would be dictated by whatever figure he managed to
agree with Mr Larkin as one which he could recommend to his clients for
acceptance. His purpose, he said in his evidence, was to ‘sound out’ the
plaintiffs and he was quite clear that he did not want the underlease machinery
operated until he had got an acceptance in principle at least of the current
market rental level by both Legal & General and the plaintiffs’ surveyors.
For my part,
therefore, I do not find it possible to regard the parties in July 1978 as if
they were mutually agreeing to dispense with formality of a notice under clause
5(x)(a) and to proceed straight to a determination under clause 5(x)(d). One
has only to consider what the position would have been if the surveyors had
not, in fact, concurred in their view of the acceptable market rent. Clearly
there would then have been no room for a submission to arbitration unless and
until the defendants had taken the step of serving notice under clause 5(x)(a).
Similarly, when one comes to the stage of ‘agreement’ between the surveyors, it
becomes, I think, obvious that neither surveyor envisaged himself as operating
under the review machinery of the underlease.
The agreement
was, in fact, hedged about with every safeguard that either of them could think
of to ensure that it did not achieve finality and bind the clients on either
side — and indeed in writing to his clients on July 28 Mr Rose drew attention
to the possibility that either the plaintiffs or the Legal & General might
change their minds. Thus, at the stage when notice was served in respect of the
second floor, all that had happened was that the surveyors, without committing
their clients, had reached a conclusion about what they would respectively
recommend. In fact, their recommendations were subsequently accepted and the
revised rent for the second floor was agreed, but at and after the date when
notice was served it remained open to the defendants, if they wished, to seek a
higher rent than £11.50 per sq ft and to the plaintiffs to seek a lower rent.
The essential question
is whether, when the two surveyors, in the course of reaching what could, in
the nature of things, be only a preliminary agreement on the level of market
rent for the building as a whole, agreed on what was the obvious factual
corollary of their assessment, namely, that, if their recommendations were
accepted, there would be no increase in the rent currently payable for the
third and fourth floors, that latter agreement constituted a ‘review’ of the
rent as contemplated by the underlease of those floors. On this question, I
find myself unable to reach the same conclusion as the learned judge, and for
my part I accept Mr Wood’s submission that the position can be tested by asking
the question ‘When did the review take place?’, bearing in mind that subclause
(e) clearly envisages that the review is not complete until an agreement has
been reached or a decision by the arbitrator has been made. Clearly at the date
when the notice in respect of the second floor was served, there had been no
final agreement. All that had occurred was an agreement by the surveyors of a
rental level which they would be prepared to recommend to their clients — no
doubt with a fair degree of confidence that their recommendations would be
accepted — and an acceptance of the fact that if their recommendations were
accepted, a notice to review the rents of the third and fourth floors would be
an academic exercise. The learned judge expressed it as an agreement that no
notice was ‘necessary’, but that is an inaccurate use of language. A notice was
necessary if a review was to be carried out under the terms of the underlease
(as was done in the case of the second floor), but having regard to what the
surveyors had agreed between themselves and what they confidently expected
their clients to accept it was inappropriate to serve a rent review notice in
respect of the third and fourth floors, since it would achieve nothing. Clearly
there was not, at that stage, any determination of the matter for the purposes
of clause 5(x) but merely a decision by the defendants, on the strength of Mr
Rose’s assessment of the probabilities, to serve
subsequently a binding agreement which was formalised by the signature of the
memorandum which accompanied the notice. In respect of the third and fourth
floors, however, there was then nothing to agree and no proposal submitted by
the defendants for consideration. It is perfectly true that, in reporting to
the plaintiffs on August 8 1978, Mr Dawson informed them that Mr Larkin had
‘recommended’ ‘that the rent of the third and fourth floors remains at the
existing level of £197,225 per annum, as the current rental value, and the rent
review provisions in the lease are upwards only’. That was, however, no more
than a statement of the consequence of an acceptance that the rental value of
office accommodation in the building at that time was £11.50 per sq ft and
cannot, in any event, be evidence against the defendants with regard to the
intention with which they — or Mr Rose on their behalf — had entered into the
discussions.
Short of some
form of estoppel, therefore — and none has been contended for in this court — I
can for my part see no evidence which could legitimately lead to the conclusion
that the parties were conducting or thought that they were conducting a review
of the rent of the third and fourth floors under the provisions of the
underlease nor in my judgment does such a conclusion follow from the facts as
found by the learned judge. If they were not, then in my judgment it follows
that it remained open to the defendants to call for a review subsequently under
the provisions of clause 5(x)(f), and the fact that, at the time, none of the
persons concerned in the discussions was conscious of the existence of such a
right is immaterial.
I would allow
the appeal.
Agreeing, SIR
DENYS BUCKLEY said: I only wish to add these short observations. It is clear
that the objective of a rent review under the relevant provisions of the
underlease of the third and fourth floors of 7 Hanover Square to which my Lord
has referred is to determine what shall be the amount of the rent to be paid
under the underlease from the relevant review date in respect of the premises
demised by that underlease. If as the result of such a review the commercial
yearly rent as defined in the underlease is found to exceed the yearly rent
which is for the time being under review, that commercial yearly rent becomes
the amount of the rent to be paid as from the relevant review date; if on the
other hand that commercial yearly rent is found not to exceed the yearly rent
under review, the latter rent continues to be the rent payable under the
underlease. The ascertainment of the amount of the commercial yearly rent for
the premises as at the review date is an essential part of the operation;
indeed I think that it is the crucial part.
It is common
ground between the parties that the parties and their respective agents never
found it necessary in the present case to determine or even to discuss what is
the measure of the relevant square footage of the premises comprised in the
third and fourth floors. It necessarily follows, as is again common ground,
that they never evaluated what the commercial yearly rent for the premises as
at July 6 1978 precisely was. Mr Rose and Mr Larkin were content to take for
granted that it would work out at less than the £197,225 which was currently
payable in respect of the third and fourth floors. Upon that footing a review
of the rent payable for the third and fourth floors would have been a barren
exercise. That both Mr Rose and Mr Larkin realised this seems to me to be clear
from their conduct.
In my judgment
no review of the rent payable for the third and fourth floors within the terms
and for the purposes of the underlease was ever embarked upon or, if it was,
was ever concluded.
For these
additional reasons as well as those set out by my Lord I would allow this
appeal.
LAWTON LJ
agreed and had nothing to add.
The appeal
was allowed, the appellants to have the costs of the action and the appeal. The
judge’s order was varied in terms to be agreed by counsel in minutes of the
Court of Appeal’s order.
