Landlord and tenant — Rent review provisions — Construction — Arbitration — Landlords’ appeal from arbitrator’s award — Arbitration Act 1979 — Interpretation of alienation clause in underleases — Terms of hypothetical lease
underleases in question in this case related to separate parts of the same
building — The rent review clause provided for the determination of the
reviewed rent in terms of the open market rental on various assumptions, one of
which was that the hypothetical lease should be on the same terms and
conditions as the existing underlease — The present dispute was concerned with
one of these terms, namely the alienation clause — This was a somewhat unusual
clause which gave the tenant, the Secretary of State for the Environment, an
unqualified right to assign or underlet to ‘another government department or
agency’ together with a strictly qualified right to assign or underlet the
whole of the demised premises to someone else, a third party — The crucial
question was whether the qualified right to assign or underlet to a third party
was personal to the Secretary of State or whether it could be passed on with
the assignment or underlease to the new tenant or subtenant — The arbitrator
had decided it was personal to the Secretary of State, with the result that it
depressed the market rate by 5.5% compared with what it would otherwise have
been — The landlords appealed from the arbitrator’s decision in accordance with
the Arbitration Act 1979
right to assign mentioned above was subject to the following restrictions: (1)
it must be of the whole of the demised premises, (2) it must provide for a
direct covenant by the assignee or undertenant with the landlords which
amounted to an absolute prohibition of further alienation, and (3) it was
subject to the written consent of the landlords, not to be unreasonably
withheld — The judge pointed out that there was nothing in the direct covenant
required which qualified the absolute prohibition against alienation — The landlords’
contention necessitated the implication of some qualifying words
concluded that the overall intention of the draftsman was sufficiently clear —
It was, as the arbitrator had found, to allow one transaction, whether
assignment or underlease, by which a new occupational tenant could be
introduced, but to prohibit any further transaction — Accordingly, the appeal
was dismissed
No cases are
referred to in this report.
This was an
appeal by Fiveways Properties Ltd, underlessors of separate parts of a building
at Fiveways, Birmingham, from the decision of an arbitrator on a rent review in
regard to the construction of the alienation clauses in two underleases granted
to the Secretary of State for the Environment, the respondent to the appeal.
David Neuberger
QC (instructed by Beachcroft Stanleys) appeared on behalf of the appellants;
Paul Morgan (instructed by the Treasury Solicitor) represented the respondent.
Giving
judgment, HOFFMANN J said: This appeal from a determination of an
arbitrator under a rent review raises a short question on the construction of
the alienation clause in two underleases. The leases were of separate parts of
a building at Fiveways, Birmingham, and were granted on February 15 1985 to the
Secretary of State for the Environment for a term of 25 years on June 24 1983.
There was a provision for a review of the rent on various dates, of which the
relevant date for the purposes of this appeal was June 24 1988.
The rent
review clause contained the usual provision for the fixing of the new rent in
accordance with the market value of the premises on the open market and at the
rent review date upon various assumptions. The relevant one for this purpose
was that the hypothetical lease should be on the same terms and conditions as
the existing underlease. One of those terms was the alienation clause over
which this dispute has arisen. It is clause 33 and it undoubtedly gives the
Secretary of State an unqualified right to assign or underlet to what is called
‘another government department or agency’, and a highly qualified right to
assign or underlet the whole of the demised premises to someone else, a third
party. The question is whether that qualified right to assign or underlet to a
third party is personal to the Secretary of State or whether it can be passed
on with the assignment or underlease to the new tenant or subtenant. The
arbitrator has decided that if it is personal to the Secretary of State the
effect is to depress the market rate by 5.5% from what it would otherwise have
been. I must therefore examine the language of the clause. It starts with the
provision giving the unqualified right to assign or underlet to another
government department or agency. There is then a prohibition upon assigning or
underletting or parting with or sharing the possession or occupation of the
demised premises or any part thereof. That is followed by a proviso which
confers the qualified right to assign or underlet. The qualifications are:
first, that the assignment or underletting must be of the whole of the demised
premises; second, that it is to be subject to provisions in para (b) of the
clause (to which I shall return); third, that it is to be subject to the
written consent of the landlords, not to be unreasonably withheld.
Having stated
those three conditions the draftsman then turns his attention to the contents
of any underlease which might be granted pursuant to this provision. He
provides that such underlease must contain a complete prohibition against any
further underletting, parting with or sharing the possession or occupation of
the premises so underlet or any part thereof. Then follows, after certain other
provisions which are not material, para (b) which contains the
is also not material, but subpara (ii) is critical for this case. It says:
Every
Assignment or Underlease or Tenancy Agreement shall contain a covenant by the
Assignee, Underlessee or Undertenant, as the case may be, directly with the
Landlord to observe and perform the covenants and conditions herein contained
including a covenant not further to assign, underlet, part with or share the
possession of the Demised Premises or any part thereof and in the case of an
Assignment to pay the rent hereby reserved;
The assignee’s
or undertenant’s direct covenant of the landlord must therefore include what on
the face of it is an absolute prohibition against assignment, underletting and
parting with or sharing possession.
Pausing at
that point, the language of the covenant would so far appear to support the
tenant’s construction. There is nothing in the required direct covenant which,
in favour of the assignee or undertenant, qualifies the absolute prohibition
against underletting or assignment. If the landlord is right, those words have
to be read in by implying that such assignment or underletting should not take
place except in accordance with the other provisions of clause 33.
Counsel have
analysed the language of the clause and have pointed out a number of infelicities
in the drafting and minor anomalies which would arise if the construction of
either party were to be adopted. For example, the direct covenant of the
landlord is to observe and perform the covenants and conditions in the lease
including the covenant against assignment or underletting and, in the case of
an assignment, a covenant to pay the rent. What is the force of the word
‘including’? It can be used either for
emphasis to make it clear that a certain covenant among those previously
generically described must be included or it can be used to extend the previous
generic description and bring in a covenant which would not otherwise fall
within it. The existing lease did not contain an absolute prohibition against
assignment or underletting in the terms set out in this clause and that
suggests that ‘include’ was intended to extend the meaning. On the other hand,
it did include a covenant to pay the rent, and that points in the opposite
direction. Again, what is the force of the word ‘further’ — ‘not further to
assign, underlet’? Its natural meaning
is ‘once again’, but in the case of an undertenant it is difficult to see how
an assignment by him could be described as a further assignment. There has not
yet been any assignment.
Again, there
are difficulties about producing a precise match between the provisions which
are to be inserted into the underlease and the direct covenant with the
landlord. The provision in the underlease is undoubtedly an absolute covenant,
a complete prohibition is the language which the draftsman has chosen. On the
other hand, it does not prevent the underlessee, as against his own landlord,
from assigning unless that is to be comprised in the prohibition against
parting with possession. The direct covenant, however, does prohibit assigning
in so many words.
All these
points seem to me to show that the covenant was somewhat inexpertly drafted,
but, taking, as one must, the unit of meaning in ordinary English as the
sentence rather than the word, it seems to me that the draftsman’s overall
intention is clear enough. He wanted to do what the arbitrator has found,
namely, to allow one transaction, whether it be assignment or underlease, by
which a new occupational tenant could be introduced, but to prohibit any
further such transaction. Whether he has fully achieved that intention is not
for me to say and the language which I have used is not on some future occasion
to be substituted for the actual language of the covenant, but for the purposes
of the rent review I think that it is a sufficiently accurate rendering of the
covenant’s effect and the one which the arbitrator has applied.
For those
reasons the appeal, in my judgment, must be dismissed.
The appeal
was dismissed with costs. Leave to appeal and certificate under section 1(7)(b)
of the Arbitration Act 1979 refused.
