Landlord and tenant — Rent review clause in underlease of commercial premises — Unusual clause providing for a two-year period during which a notice calling for a rent review could be served by the landlords on the tenants, but with a provision that if the landlords failed to give notice during that 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 two-year period, but did serve a notice under the latter provision — Held, however, that, although no notice was served during the two-year period, a review had taken place as a result of informal discussions ending in agreement between the agents of the parties, who thereby waived the provisions requiring formal notice — Such a review precluded a subsequent review pursuant to the notice under the ‘at any time thereafter’ provision — Judgment given in favour of plaintiff tenants on their main submission; their alternative argument based on estoppel rejected
In this action
the plaintiff company, Esso Petroleum Co Ltd, sought declarations to the effect
that under the terms of an underlease, of which the interest of the underlessor
was now vested in the defendants, Anthony Gibbs Financial Services Ltd, and in
the events which had happened, the defendants were not entitled to claim a
further increase of rent until 1984.
Michael
Essayan QC and K M J Lewison (instructed by Durrant Piesse) appeared on behalf
of the plaintiffs; Derek Wood QC and J C Harper (instructed by Linklaters &
Paines) represented the defendants.
Giving
judgment, JUDGE MERVYN DAVIES QC said: This action concerns a rent review
clause in an underlease dated January 29 1976. At all material times the
plaintiff company, ‘Esso’, has been the tenant of the underlease and the
defendant company, ‘Gibbs’, has been the landlord.
On October 9
1979, Gibbs gave Esso notice, under the rent review clause in the underlease,
as a first step towards seeking an increase in rent. Gibbs say that the notice
is a valid notice; Esso say it is not. In consequence Esso, on January 11 1980,
issued a writ claiming declarations to the effect that no increase in rent is
permissible until 1984. Esso’s claims are founded not only on their construction
of the provisions of the underlease but also upon allegations that Gibbs are
estopped from seeking any rent review until 1984.
I proceed to
set out the facts. One starts with an underlease dated May 11 1973 between
Capital & Counties Property Co Ltd (landlord) of the first part, Anthony
Gibbs (Personal Financial Planning) Ltd (tenant) of the second part, and
Anthony Gibbs & Son Ltd (surety) of the third part. During the hearing it
was convenient to refer to this underlease as the ‘headlease’, and I so refer
to it now. The headlease demises parts of the basement, ground, first, second,
third, fourth, fifth and sixth floors of the building, comprising 7-10 Hanover
Square and 17-19 Princes Street, W1. The parts in question are shown red on a
plan annexed to the underlease. Such parts comprise — for present purposes, as
I understand — the second, third and fourth floors of 7-10 Hanover Square. The
term of the headlease is 25 years, from September 29 1972, so the term will run
out on September 29 1997. The rent was £193,750, payable quarterly. There is
also an annual service charge. Clause 3 of the headlease is a rent review
clause. It provides that on July 6 1978, 1984, 1988 and 1992, the rent ‘shall
be reviewed’, and that from and after each review rent shall be such sum as
shall be agreed to be the fair rack rental market value for a term equivalent
to the then unexpired residue of the term, without taking account of any
goodwill of the tenant’s business or of certain tenant’s improvements. If the
landlord and the tenant do not agree on a new rent ‘by the relevant date of
review, then and in any such case, the question shall, as soon as practicable,
be referred by either party’ to an agreed nominee or to an expert nominated by
the president of the Royal Institution of Chartered Surveyors.
Legal &
General Assurance Society Ltd replaced Capital & Counties Property Co Ltd
as the landlords of the headlease. As I understand, the tenant under the
headlease intended an office user of the demised premises, either by itself or
by one of its associated companies. Any such user was brief because in January
1976 there were executed two underleases comprising the whole of the premises
demised by the headlease. By an underlease dated January 14 1976, made between
Anthony Gibbs (Personal Financial Planning) Ltd of the one part — that is
‘Gibbs PFP’ — and Philips Electronic and Associated Industries Ltd — ‘Philips’
of the other part — Gibbs PFP demised to Philips what was, in effect, the
second floor of the building comprised in the headlease — that is of 7-10
Hanover Square — for a term beginning on May 1 1975 and ending on September 27
1997. Thus Philips were to hold for the rest of the term of the headlease less
two days. The rent was £77,500 and, as well, a service charge was payable.
Clause 6 of the underlease is a rent review clause. It is in many respects the
same as the rent review clause in the underlease I am about to mention.
It is common
ground that by May 1978 the defendant Gibbs company was in the place of Gibbs
PFP as the landlord of the underlease and that the plaintiff Esso was the
tenant in place of Philips. I was not referred to the documents effecting these
changes of ownership.
By an
underlease dated January 29 1976 and made between Gibbs PFP of the one part, and
the defendant Esso company of the other part, Gibbs PFP demised to Esso what
was, in effect, the third and fourth floors of 7-10 Hanover Square for a term
from March 25 1975 until July 6 1988. So the term was for about 12
years, and, therefore, less than the term of the (first) underlease dated
January 14 1976. The rent was £197,225, with a service charge. This rent for
the third and fourth floors was a little out of line with the rent for the
second floor already mentioned. There were, I was told, good reasons for that,
but I do not see that they bear on the issues before me.
This second
underlease contains a rent review clause, which I must set out in full. The
rent review clause is part of clause 5 in the underlease. Clause 5 begins with
the words ‘PROVIDED ALWAYS and IT IS HEREBY AGREED and DECLARED that:’ There follow nine subclauses not concerned
with rent review and then there is subclause (x) in these terms:
(x) (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:
‘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;
‘the
commercial yearly rent’ means the best yearly rent at which the demised
premises assuming the due performance and observance of the covenants on the
part of the Tenant and conditions contained in these presents might be expected
to be let at the review date by a willing Landlord in the open market with vacant
possession and without premium or any other consideration than that evidenced
by execution of a lease thereof to a willing Tenant for a term equal to the
residue then unexpired of the term hereby granted by a lease in the same terms
in all other respects as these presents there being disregarded:
(i) any effect on rent of the fact that the Tenant
or any other person may have been in occupation of the demised premises; and
(ii) any goodwill attached to the demised premises
by reason of the user of the demised premises by the Tenant or any other person
or the purposes for which the demised premises may have been used;
(iii) any effect on rent of any improvement carried
out by the Tenant otherwise than in pursuance of an obligation under this
Underlease.
(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;
(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;
(g) Should any such review at any time be
restrained or restricted by any Act of Parliament instrument regulation order
or public or local policy then upon the same being raised, relaxed or modified
and on every such occasion the Landlord shall be at liberty to call for an
intermediate review in manner hereinbefore provided mutatis mutandis by not
less than three months’ notice in writing to the Tenant for which purpose the
date of service of such notice shall constitute the commencement of the review
period and the date of expiration thereof shall constitute the review date
provided however that the principal rent shall not be reviewed more than twice
during the term hereby created.
The words I
have underlined in 5 (x) (a) do not appear in the underlease, but counsel
before me agreed that the words underlined ought to be inserted into subclause
(a).
By mid-1978,
so I was told, the defendant Gibbs company had replaced Gibbs PFP as the
landlord of this second underlease. Accordingly, the position in 1978, for
practical purposes, was:
(1) Legal & General were the head landlords
of the second, third and fourth floors of 7-10 Hanover Square; the tenants were
the defendant Gibbs company.
(2) There was an underlease of the second floor;
Gibbs were the landlords and Esso were the tenants.
(3) There was an underlease of the third and
fourth floors; Gibbs were the landlords and Esso were the tenants.
It will be
appreciated that July 6 1978 was a ‘review date’ for the headlease rent and as
well for the rent payable under the underleases. But in the case of the
underleases it was open to the landlord to serve a review notice not only 12
months before July 6 1978 but also 12 months after that date. (See in the case
of the underlease dated January 29 1976 clause 5 (x) (a) read with the
definition of ‘the review period’.) The
increase in the headlease rent was agreed following a notice dated February 16
1978 served by Legal & General on the defendants and said to be served
pursuant to clause 3 of the headlease, followed by conversations between
representatives for Legal & General and Mr David Rose, a chartered surveyor
and a senior partner in the firm of John D Wood, acting for the defendant
company. In a letter dated August 8 1978 Legal & General confirmed a new
rent of £290,000. This sum appears to have been orally agreed on July 26 1978
during a telephone conversation with Mr Rose and the surveyor acting for Legal
& General.
As well as
negotiating with Legal & General Mr Rose was also negotiating with Esso
respecting the rents of the underleases. Initially Mr Rose was in contact with
Mr D G Dawson, a chartered surveyor who works for Esso. They came to no
agreement and Mr D J W Larkin, a chartered surveyor of the firm of Jones Lang
Wootton, on July 25 1978 took over negotiations on Esso’s behalf. So Mr Rose
and Mr Larkin had under consideration the rents of the underleases, but such
consideration was not pursuant to any notice served by Gibbs pursuant to 5
(x)(a) of the underlease dated
of the other underlease. No such notices had been served. Mr Rose realised that
Gibbs had at least until July 6 1979 in which to serve such notices. Mr Larkin
was very quickly off the mark. He and Mr Rose spoke on the telephone on July 25
or 26 1978. The surveyors agreed together a new rent for the second floor, that
is the premises of the underlease dated January 14 1976 in the sum of £110,000
a year. They were also in agreement in respect of the third and fourth floors
comprised in the underlease, dated January 29 1976. Their view was that no
increase in rent was appropriate in that the rent currently payable, £197,225,
was in excess of the current market rent. Mr Rose reported to Gibbs as follows
in a letter dated July 26 1978:
Further to my
letter of yesterday’s date, Jones, Lang, Wootton have spoken with Esso and
confirmed the review rent of £110,000 per annum, subject to contract and
without prejudice.
The
solicitors acting for Esso are Durrant Piesse (Michael Scott). Formal notice
should now be served on Esso in accordance with the provisions in the
underlease, dated January 14 1976 between yourselves and Philips. Perhaps this
could be done by your solicitors to Esso’s solicitors. You will see that the
present rent reserved in this underlease is £77,500 a year.
In respect of
the third and fourth floors, this is covered by an underlease dated January 29
1976 between yourselves and Esso at a reserved market rent of £197,225. This
rent is in excess of today’s market rent and therefore in excess of the sum
agreed to be paid to Legal & General at the review date. I assume there is
no point therefore in serving formal notice on Esso in respect of these two
floors.
On the same
day, Mr Rose wrote to Mr Larkin:
Subject to
lease and without prejudice I confirm that on behalf of our respective clients,
we have agreed a review rent of £110,000 a year 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 . . .
Mr Larkin
reported to Mr Dawson of Esso as follows on July 28 1978:
Further to my
letter of July 25 I had discussions with Mr D M Rose of John D Wood acting for
your landlords at the above.
I confirm our
telephone conversation in that Mr Rose and I have agreed subject to lease and
approval of your company and without prejudice, that the revised rent for the
second floor and car parking accommodation etc will be £110,000 per annum
exclusive with effect from July 6 1978.
Based on a
floor area of about 8,000 sq ft and 32 car parking spaces, this equates to
approximately £11.50 per sq ft on the office accommodation, £500 per space for
the car parking and about £3 per sq ft for the storage accommodation in the
basement. You will appreciate that the short time we have been involved in
these negotiations has precluded us from carrying out our normal investigations
to check and agree the floor areas and indeed confirm the number of car parking
spaces, but I understand that you have satisfied yourself on these aspects.
On the same
day Mr Larkin wrote to Mr Rose:
Thank you for
your letter of July 26 confirming our recent telephone conversations. You will
appreciate the figure we have agreed is subject to our client’s approval, as
well as being subject to lease and being without prejudice and I am, therefore,
seeking the appropriate instructions from our clients.
As appears
above, Mr Larkin in his letter made no reference to any agreement respecting
the underlease dated January 29 1976 or as to the third and fourth floors.
However, in his report, within the Esso Group, Mr Dawson, in a letter dated
August 8 1978 wrote as follows:
Further to my
letter of June 22 Jones, Lang, Wootton have now carried out negotiations on our
behalf with the agents to the landlords and have recommended the following:
That the rent
of the second floor and the basement be agreed in the sum of £110,000 per annum
with effect from the date of the rent review of July 6 1978. This is based on a
figure of approximately £11.50 per sq ft on the office accommodation, £500 per
space for the car parking and about £3 per sq ft for the storage accommodation
in the basement. This is an increase from the present level of £77,500 per
annum.
That the rent
of the third and fourth floors remains at the existing level of £197,225 per
annum, as the current rental value is below the existing rental value, and the
rent review provisions in the lease are upward only.
No further
steps were then taken respecting the underlease dated January 29 1976, but the
matter of the increased rent payable under the underlease dated January 14 1976
of the second floor was finalised by a memorandum on the underlease. No
difficulty has ensued respecting the underlease dated January 14 1976.
Difficulties arise in respect of the underlease dated January 29 1976 of the
third and fourth floors.
Following
these discussions in July 1978 about the rents of the second, third and fourth
floors, there were in the following November other discussions. These other
discussions arose when Mr Rose, on November 3 1978, wrote to Mr Larkin
informing him that Gibbs were considering selling their interest under the
headlease and enquiring whether Esso were interested in stepping into Gibbs’
shoes. It is said by Esso that at this time Gibbs represented to Esso that the
rent under the underlease dated January 29 1976 must remain unchanged until
1984 and that Gibbs are now estopped from saying otherwise. I shall set out the
situation concerning this alleged estoppel more fully later. I mention the
matter at this stage for the sake of setting out the material events in the
order of time.
Esso did not
acquire the Gibbs interest. In 1979 Esso decided to sell the underleases and
they entered into negotiations with Trust House Forte. Messrs Paisner, the
solicitors for Trust House Forte, asked some awkward questions. On August 20
1979 their letter to Durrant Piesse, the solicitors for Esso, included the
following:
(a) It would appear that the rent under the
lease of the third and fourth floors has not been reviewed. Is there any
evidence as to whether the landlord has deliberately waived an increase or
whether it has merely overlooked it?
(b) Has any notice been given under clause
5(x)(f) or is the vendor aware of any intention by the landlord to serve such
notice?
At that time
it was too late for Gibbs to serve any notice under 5 (x) (a), but the
possibility of a notice under 5 (x) (f) was brought plainly into the light. In
the event, Gibbs did serve a 5 (x) (f) notice. It is the notice dated October 9
1979 I have already mentioned. It is in these terms:
On behalf of
our clients, Anthony Gibbs Financial Services Ltd, your landlord under the
above underlease, we hereby give you notice pursuant to clause 5 (x) (f) of the
above underlease of our client’s intention to review the yearly rent payable
under the above underlease and that from and after November 16 1979 the yearly
rent payable shall be increased to an amount which will represent the
commercial yearly rent of the demised premises at November 16 1979. Our clients
or their agents will be in touch with you shortly to discuss the matter and we
hope that agreement can be reached.
The ‘above
underlease’ there mentioned is the underlease dated January 29 1976. The
underlease in question has in fact been assigned to Trust House Forte, but on
terms which did not give rise to any need to join Trust House Forte in this
action.
I now turn to
the pleadings. It is convenient first to mention the Gibbs counterclaim. It is
for a declaration that Gibbs have validly exercised their power to compel a
review of the rent reserved by the underlease dated January 29 1976 in
accordance with 5 (x) (f) and that the rent payable from November 16 1979, the
date mentioned in the notice set out above, is the commercial yearly rent of
the third and fourth floors at November 16 1979, agreed or determined in
accordance with clause 5 (x).
That was the
Gibbs’ attitude when Esso issued their writ on January 11 1980. I need not
mention the statement of claims, save to say that it enabled Mr Essayan, for
Esso, to make the following four submissions:
(1) On the true construction of clause 5 (x) of
the underlease dated January 29 1976 and in the events which have happened
there was an effective review of the rent of the third and fourth floors, for
the purposes of clause 5 (x) in July 1978; that review precludes Gibbs from
seeking to review the rent again before July 6 1984.
(2) If there was no such effective review in July
1978, this was because the defendants deliberately abstained from carrying out
such review, and the defendants could not thereafter avail themselves of 5 (x)
(f) which only applies when the landlord has by inadvertence failed to give
notice under 5 (x) (a).
(3) In any event Gibbs are estopped from seeking
an increase in rent before July 6 1984, by reason of their having made a
representation to Esso that the rent could not be increased before that date.
The representation was said to be a representation of fact as regards a private
right between Esso and Gibbs.
(4) If wrong on (1) to (3) above, so that Gibbs
was entitled to serve a 5 (x) (f) notice, then the relevant date for the fixing
of rent is July 6 1978, and not November 16 1979, such rent to be payable from
November 16 1979.
I take the
first submission. Clause 5 (x) is a rent review clause. It is not nowadays to
be construed in the strict fashion that prevailed before the case of United
Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904. It
is to be construed evenhandedly as being an integral part of a bargain made
between landlord and tenant at a time of rising rents with the tenant conceding
a review clause as the price of obtaining assured possession for a period of
years. A reading of clause 5 (x) as a whole brings out the following points.
Gibbs has the
right to call for a rent review in 1978 and 1984. The right is exercised by
notice given in writing (see 5 (x) (a)). It is envisaged that the notice is
followed by a ‘review’ (see 5 (x) (d)). This review may involve an arbitration.
The review leads to a finding (see 5 (x) (a)) where there are the words, ‘If
upon review it shall be found . . . .’
The notice in question may be given in respect of a 1978 review, at any
time during the period July 6 1977 to July 6 1979.
Going on to 5
(x) (f), that provides that if the landlord fails to give notice during that
two-year period the landlord has at any time thereafter the right to review the
rent. Gibbs gave no notice pursuant to 5 (x) (a) during the two-year period.
But they did give, pursuant to 5 (x) (f), the notice dated October 9 1979 that
is now challenged. So, on the words of the clause alone, the validity of the
notice seems sound enough.
But Mr.
Essayan has drawn attention to the events of July 1978 and the accord then
reached between the parties by their duly authorised agents, that is Mr Rose
and Mr Larkin. Counsel for Gibbs accepted:
(1) That Mr Rose and Mr Larkin were, in 1978,
appointed to negotiate the rents for all the 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. In these circumstances, that there was a review of the rent payable
under the first underlease dated January 14 1976 of the second floor is beyond
question. The market rent of the second floor was agreed at £110,000, a sum in
excess of the passing rent. So the solicitors acting for Gibbs, on August 11
1978, wrote to Esso’s solicitors as follows:
We have been
instructed by our clients to serve on your clients a notice in accordance with
the provisions of the said underlease, that is the underlease dated January 14,
calling for a review of the yearly rent payable to the landlord in respect of
the premises demised by the said underlease in the sum of £110,000. [Then a
little later on], 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.
This letter
resulted in a memorandum of increased rent being endorsed, as I have said
already, on the underlease dated January 14 1976. But since Mr Rose and Mr
Larkin agreed that no increase was appropriate in respect of the third and
fourth floors it is not surprising that no steps were taken to record by
endorsement on the underlease dated January 29 1976 information to the effect
that the rent had been reviewed in 1978, and that it had then been found that
no increase in rent was appropriate.
Mr Essayan
contended that just as there had been a 1978 review, within 5 (x) (a), as
respects the second floor, so there had been a 1978 review as respects the
third and fourth floors, so that 5 (x) (f) had not been usable on October 9
1979. Mr Wood, for Gibbs, contended that there had been no review as respects
the third and fourth floors. There had been, he said, informal discussions
only, resulting in an agreement between the parties that no increase was then
appropriate. In those circumstances, the landlord was entitled to reserve his
rights under 5 (x) (a) until July 6 1979 and thereafter to make use of 5(x)(f).
The landlord, he said, had a choice. I am satisfied that Mr Essayan is right in
his contention. The Rose/Larkin discussions of July 1978 about the third and
fourth floors resulted in their agreeing a nil increase. That means they
reviewed the rent. There was a review within the ordinary meaning of that word.
There having
been a review, I examine the whole wording of 5 (x) to see whether in
consequence of the review, Gibbs were precluded thereby from serving a 5 (x)
(f) notice. It was argued that since the review was unaccompanied by a 5 (x)
(a) notice, or any other formality referable to 5 (x), the landlord was able,
after July 6 1979, to give a 5 (x) (f) notice. I do not accept that argument.
It would mean that the landlord would get a 1978 review and then another review
in 1979. 5 (x) (f) contemplates a review being carried out pursuant thereto
only if a review period passes without there having been a review pursuant to 5
(x) (a). Here there was a review pursuant to 5 (x) (a). Clause 5 (x) (f) is a
fall-back provision that cannot be operated if a review has already been
conducted in respect of the preceding review period. It may be said that on the
strict reading of 5 (x) (f) Gibbs were entitled to serve a 5 (x) (f) notice.
The relevant words in (f) are:
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 notice.
It is true
that Gibbs failed to give notice within the review period. But the correspondence
and conversations between the parties’ representatives up to and after July 26
1978 show that Gibbs failed to give notice under 5 (x) (a) because the
circumstances in which Mr Rose, for Gibbs, conducted his discussions, first
with Mr Dawson and then with Mr Larkin, made entirely unnecessary the serving
of any formal 5 (x) (a) notice. I am 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. See in this connection Mr Rose’s letter dated July 26 1978, where he ‘assumes
there is no point therefore in serving formal notice on Esso in respect of
these two floors’.
In short, in
conducting their review of the rent of the third and fourth floors, the parties
implicitly waived the provisions respecting notice that was intended to
initiate the review. Accordingly, I accept Mr Essayan’s first submission, that
is, that there was a rent review in July 1978 and that such review precludes
Gibbs from seeking a review pursuant to their notice dated October 9 1979. That
means that the plaintiffs succeed in the action.
However, it is
right that I should deal with Mr Essayan’s other submissions. I have set out
the second submission above. The essential element in this submission was that
5 (x) (f) is available to a landlord only if the landlord has by inadvertence
failed to give a 5 (x) (a) notice. So, (f) ought to be read as if it opened
with the words, ‘Notwithstanding subclause (a) of this clause if the landlord
inadvertently fails to give notice.’
Reading 5 (x) (f) in the context of 5 (x) as a whole I am unable to
regard the word ‘inadvertently’ as being implicitly included in (f) in the way
I have quoted. Let us suppose a situation in 1978 in which Mr Rose, without
communicating with any Esso representative at all, comes to the conclusion that
the passing rent exceeds the market rent. Let us suppose that Mr Rose then
considers the whole of 5 (x). He reports to Gibbs and says there is no point in
giving a 5(x)(a) notice because the rent review clause is upwards only; that it
would be better to await a rise in rent, so that a rent review notice be
deferred because a 5 (x) (a) notice is possible up to July 6 and a 5 (x) (f)
notice is possible thereafter. Assuming further (1) that Esso are then told
that no 5 (x) (a) notice will be given for the time being, and (2) that in
October 1979 a 5 (x) (f) notice is given. In these circumstances the landlord
would have failed to give notice within the
cannot see why a 5 (x) (f) notice given in those circumstances should not be
good. Consequently, as I have said, I am unable to read (f) as applying only to
an inadvertent failure.
It will be
convenient next to deal with the fourth submission. This involves a pure point
of construction. Mr Essayan drew attention to the fact that the phrase,
‘commercial yearly rent’ used in 5 (x) (f) is a phrase defined in 5 (x) (b).
That definition ties the rent to the review date, which, for the purposes of a
1978 review, is July 6 1978. So, it is argued, the phrase ‘at the date
specified in the said notice’ ought to be moved from its place in (f). It ought
to be inserted after the word ‘increased’. Mr Wood accepted that the definition
of the phrase ‘commercial yearly rent’ gave rise to difficulty, but his remedy
for the difficulty was to say that the strict meaning of ‘commercial yearly
rent’ was obviously used inaptly in (f) and that the phrase must plainly be
construed as the commercial yearly rent as at the date of the (f) notice and
not as at the review date. I content myself by saying that I prefer Mr Wood’s
construction. Accordingly, I reject Mr Essayan’s fourth submission.
I now turn to
the third submission on the topic of estoppel. No promissory estoppel was
relied on. There was said to be an estoppel in pais. I was referred to part of
the judgment of Dixon J in Grundt v Great Boulder Property Gold Mines
Ltd (1937) 59 CLR 641, as set out on pp 110 and 111 Spencer Bower on
Estoppel by Representation (3rd ed). The estoppel is pleaded in paragraphs
7 and 8 of the statement of claim. The allegation is that on or about November
3 1978 Mr Rose, on behalf of Gibbs, offered to Esso an assignment of the Gibbs
reversion expectant on the Esso underlease of the third and fourth floors; and
it is said that when the offer was made Gibbs represented to Esso that the
underlease rent was not capable of being increased with effect from any date
earlier than July 6 1984. Then it is said — paragraph 8 — that Esso acted in
reliance upon the representation and acted to its detriment so that had it
accepted the offer the underlease would have merged in the headlease with the
effect that Esso would thereafter have held on the terms of the headlease, the
headlease containing no provision for any rent increase before July 1984. So,
it is said, Gibbs are estopped from contending that the underlease rent was
capable of increase before July 6 1984.
On November 3
1978, Mr Rose wrote to Mr Larkin asking if Esso would be interested in
acquiring the Gibbs reversion on the Esso underleases. If Esso did so they
would, of course, become the direct tenants of Legal & General. On November
6 1978 Mr Rose followed up this letter with a second letter. In this he said he
had made ‘a few notes which might be helpful to you and your clients in
considering our suggestion.’ On the same
day Mr Rose sent another copy of the notes to Mr Dawson, who, as I have said,
is a chartered surveyor employed by Esso. The notes consist of some very bare
details of the headlease and the two underleases. As to the third and fourth
floors the notes say: ‘Anthony Gibbs to Esso. The third and fourth
floors approximately 16,000 sq ft. Lease expires 6-7-88. Rent £197,225. Rent
review July 6 1984.’ So, it is said,
Gibbs represented to Esso that the rent of the relevant underlease was not
capable of being increased until 1984, and detriment ensued as already
mentioned.
I now mention
it was common ground that in November 1978, both sides — that is Esso and Gibbs
— genuinely supposed that the underlease rent would not be reviewed until 1984.
This belief stemmed either from the fact that the underlease was not read with
such care as to appreciate the importance of (f) or from the fact that all
parties supposed — as I have held — that a rent review had taken place in July
1978. However, there was this common belief. Mr Essayan said that the fact that
there was this common belief did not mean that Esso could not raise any
estoppel. In that, no doubt, he is right. See Amalgamated Investment &
Property Co Ltd v Texas Commerce International Bank Ltd [1981] 2 WLR
554, where Robert Goff J said at p 571 C that:
There may be
cases where a representee has proceeded initially on the basis of a belief
derived from some other source independent of the representor, but his belief
has subsequently been confirmed by the encouragement or representation of the
representor.
See also Taylor
Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1981] 2 WLR 576
at p 596 F. But it is necessary to have regard to some other considerations that
Robert Goff J had in mind. The words I have quoted are part of the following
extract from his judgment:
First, the
case advanced before me by the bank is not one of simple acquiescence by the
plaintiffs in the mistaken belief of the bank; it is founded upon active
encouragement by the plaintiffs or representations by the plaintiffs —
encouragement and representations which I have already found were in fact given
and made by the plaintiffs to the bank. Now, in my judgment, where an estoppel
is alleged to be founded on encouragement or representation, it can only be
unconscionable for the encourager or representor to enforce his strict legal
rights if the other party’s conduct has been influenced by the encouragement or
representation.
Second, it
is, in my judgment, no bar to any conclusion that the other party’s conduct was
so influenced, that his conduct did not derive its origin only from the
encouragement or representation of the first party. There may be cases where
the representee has proceeded initially on the basis of a belief derived from
some other source independent of the representor, but his belief has
subsequently been confirmed by the encouragement or representation of the
representor. In such a case, the question is not whether the representee acted,
or desisted from acting, solely in reliance on the encouragement or
representation of the other party; the question is rather whether his conduct
was so ‘influenced’ by the encouragement or representation (I take the word
‘influenced’ from the judgment of Bowen L J in Edgington Fitzmaurice
(1885) 29 ChD 459, 481) that it would be unconscionable for the representor
thereafter to enforce his strict legal rights. Such a conclusion appears to be
consistent with the decision of Oliver J in Taylor Fashions Ltd v Liverpool
Victoria Trustees Co Ltd; Old & Campbell Ltd v Liverpool
Victoria Friendly Society (Note) [1981] 2 WLR 576. The point can also be
illustrated by a hypothetical example. Let it be supposed that A and B are
neighbours, and that A proposes to build a wall on what is in fact B’s land,
though both parties mistakenly believe it to be A’s. A invites B’s co-operation
in the building of the wall, for example, by providing a means of access over
his land for the purposes of building work or by supporting an application for
planning permission. B co-operates as requested, and the wall is built at A’s
expense. In such circumstances it may well be unconscionable for B thereafter
to assert his strict legal rights.
That shows
that I must consider whether Esso’s conduct in the matter of the offer for sale
of the Gibbs interest was so influenced by the representation of ‘no review
until 1984’ contained in the Rose notes that it would be unconscionable for
Gibbs now to be allowed to operate a 5(x)(f) review. I have considered the
evidence in the case and I cannot find any sufficient suggestion than anyone on
the Esso side was influenced at all by anything contained in those Rose notes.
Thus Mr Dawson said in chief that the information in the notes accorded with
his understanding of the position. In cross-examination he said that when he
was shown the Rose notes they did not tell him anything that ‘he did not
believe to be the case’. There is no question in my mind that Mr Dawson was
wholly uninfluenced by the notes. The same remark may be said of Mr Larkin. The
Rose notes were without any influence in the consideration which Esso gave to
the decision to buy or not to buy. See in this connection the remarks of Oliver
J in Taylor Fashions v Liverpool Victoria Trustees Co Ltd at pp
596 F to 597 D. In chief, Mr Dawson said that if he had known of the
possibility that the rent of the underlease could be increased at the behest of
the landlord before 1984 then there would have been an advantage in purchasing
the Gibbs interest so as to remove that possibility, and in cross-examination
he went so far as to say, as I understand, that had he known of the possibility
I have alluded to it would have been ‘commercially imperative to buy’. But I do
not see that remarks of that kind in any way indicate that the Rose notes
played any part at all in encouraging or confirming the Esso side in its belief
that the rent was unchangeable up to 1984. It may be said that the Rose notes
confirmed the Esso side in its belief. That is not to influence the Esso side,
at least not so to influence the Esso side that in the circumstances of this
case it would, in the words of Robert Goff J ‘be unconscionable for the
representor’ — Gibbs — ‘thereafter to enforce his strict legal rights’.
Another
difficulty for the plaintiff in respect of the estoppel claim lies in the fact
that the detriment alleged in paragraph 8 of the statement of claim has not
been established in evidence with what I regard as sufficient certainty.
Accordingly, if it were
that the rent is capable of increase before July 6 1984. As it is, I declare as
in paragraphs 1 and 2 of the statement of claim. The counterclaim is dismissed.
The judge
granted declarations in favour of the plaintiffs, the effect being that the
defendants were precluded from requiring the plaintiffs or their successors in
title to pay an increased rent before July 6 1984. The defendants’ counterclaim
was dismissed with costs and the defendants were ordered to pay the costs of
the action.
