Sale of freehold subject to lease reserving reviewable rent – Vendor contracting for addition to price in event of increase on first review – Vendor entitled to call for independent determination if review not “finalised” – Lessee purchasing freehold within months of sale – Whether vendor’s rights extinguished
In 1987 a substantial commercial property on Castle Boulevard, Nottingham belonged to Bendigo Properties Ltd (Bendigo), who planned to sell the freehold to the defendant subject to and with the benefit of a 20-year lease, which Bendigo intended to grant to Bass Leisure Activities Ltd (Bass). By an agreement for sale dated September 18 1987, to which a draft of the intended lease was attached, the defendant agreed to pay an initial price of £4,150,000 plus an additional amount to be calculated according to clause 13 of the agreement. Under the terms of the draft lease, which was expressed to commence on March 25 1988, the rent payable by Bass was subject to five-yeary upwards-only rent reviews, the first to take effect from March 25 1993. Clause 13 of the agreement contained a formula designed to give to the seller just over one-half of the rent increase, if any, which would become payable to the lessor over the five years following the first rent review. The clause went on to provide that “in the event that a review . . . shall not be finalised in accordance with [the review provisions] within 6 months of the fifth anniversary of the term . . . otherwise than because such review shall not be permitted by legislation” the seller would be entitled to serve a notice calling for an independent determination of what the reviewed rent would have been “had such a review been finalised”.
The lease to Bass was executed on June 7 1988, and the freehold was conveyed to the defendant on June 10 1988. However, on September 29 1988 the defendant sold the freehold to Bass, thus extinguishing the lease and with it the possibility of any review of the rent. In January 1993 Bendigo went into receivership. In August 1993 the receiver wrote to the defendants with a view to appointing a valuer for the purpose of clause 13 of the agreement, but the defendants’ solicitors replied that their client’s liability had ceased to exist. The plaintiff, an assignee of the receiver, took out a construction summons in order to determine whether the defendants were correct in contending that nothing had occurred to give rise to the right claimed by the plaintiff because a review which had not been, or could not be, commenced was incapable of being “finalised” within the meaning of clause 13.
Held Judgment was given for the plaintiff.
Against the factual background of the agreement, in particular the manifest intention of the defendants to purchase solely for purpose of investment, the construction urged by the defendants was far too narrow and wholly unrealistic. The only exclusion specified by the clause was prohibition by legislation. It was not for the court to find an ambiguity where none would be found by the ordinary businessman: see Melanesian Mission Trust Board v Australian Mutual Provident Society [1997] 41 EG 153, per Lord Hope, at p154 and Investors Compensation Scheme Ltd v West Bromwich Building Society [1988] 1 All ER 98, per Lord Hoffmann, at p114. In the context of the agreement before the court the word “finalised” was capable of applying to something which had not started and something which could not start at all.
Peter Arden (instructed by Eversheds, of Nottingham) appeared for the plaintiff; John Male (instructed by Nabarro Nathanson) appeared for the defendants.