Rent review clause posing reviewed rent and rent currently payable as alternatives without further qualification – Decline in rent levels generally – Landlord contending for upwards-only review – Whether parties intended to insert “whichever the higher”
The defendant tenant held premises in East London under a 25-year lease commencing March 25 1992, which provided for the rent to be reviewed on the fifth anniversary of the lease and thereafter every four years. By clause 6.2 there was payable, during each successive review period, a rent equal to “the rent previously payable hereunder or such rent as provided in clauses [6.3-6.6] of this clause” (expert determination of a market rent in default of agreement). By cause 6.7, where the reviewed rent was agreed or determined after the relevant review date, the tenant, being obliged until then to pay at the rate applicable before the review date, became liable to pay “by way of additional rent a sum equal to the difference (if any) between the reviewed rent and the rent actually paid for the period commencing on the relevant Review Date”.
Following the decline in rental values generally over the first five years of the lease the parties fell into dispute over whether the review machinery should operate on an upwards-only basis. The landlord took out a construction summons, contending that clause 6.2 should be read as if the words “whichever the higher” had been inserted. The tenant argued that since either party could initiate the rent review it was the right of the initiating party to choose between the two alternatives contained in clause 6.2.
Held Judgment was given for the landlord.
1. The landlord was not seeking the remedy of rectification as such, but was rather inviting the court to allow rectification by construction, which was permissible where: (a) it was clear that a mistake had been made; and (b) a reader with sufficient experience of the sort of document in issue would inevitably say to himself, “of course X is a mistake for Y”: see East v Pantiles (Plant Hire ) Ltd [1982] 2 EGLR 111, per Brightman LJ, at p112B. The insertion into clause 6.2 of the words “whichever the higher” fell within that principle because the clause was unworkable without some machinery for deciding which of the two alternatives should apply. Clause 6.7 gave further weight to the landlord’s submission as it made no provision for a refund to the tenant in the event of a determination at a level lower than the rent payable immediately before determination.
2. Since the interpretation of rent review provisions depended precisely on the words before the court, the tenant could not rely on any general presumption in favour of the market rent: see Standard Lifev Unipath [1997] 38 EG 152.
Jonathan Small (instructed by Avery Midgen & Co) appeared for the plaintiff; Prashant Popat (instructed by Devonshires) appeared for the defendant.
