Construction of rent review clause — Clause provided for rent at a named figure but at the first review date it was to be £7,500 above such sum as should be agreed or determined as representing a fair rack rental market value — There was a similar provision, including the same figure of £7,500, in respect of the second review date — In providing that, subject to certain conditions, the value was to be assessed on the terms of the lease, the usual qualification ‘other than the provisions as to rent’ was not included — Held that in ascertaining the fair rack rental market value at the first review date no regard should be paid to the obligation of the tenant to pay rent at a rate of £7,500 per annum above whatever that figure turned out to be — However, in ascertaining this value at the second review date account must be taken of the fact that the tenant would be subject to a further obligation to pay £7,500 per annum above whatever would at that date be the fair rack rental market value of the premises
This was an
originating summons by which the plaintiffs, Guys ‘N’ Dolls Ltd, sought
declarations for the purpose of determining the true construction of a rent
review clause in a lease of commercial premises. The plaintiffs were the
lessors. The defendants, Sade Brothers Catering Ltd, were the lessees.
Miss S F Finn
(instructed by L M Doffman & Co) appeared on behalf of the plaintiffs; R C
Pryor (instructed by Bennetts) represented the defendants.
Giving
judgment, WALTON J said: This is an originating summons for the determination
of the true construction and effect of a rent review clause. The lease is in
fact an underlease, which goes in very much for scheduled conveyancing and the
result is that one finds the date of the lease and, indeed, the parties in the
first schedule, the date being January 23 1978 and the parties being the
plaintiffs, who were themselves lessees, as lessors, and Sade Brothers Catering
Ltd, the defendants, as tenants.
The rent is
defined in the first schedule as: ‘Firstly the annual exclusive rent of
£24,000, for the first three-and-one-quarter years from June 24 1977 subject to
increase as specified in the fifth schedule hereto’, and then it goes on to
deal with the payments thereof. But it is to be observed, as Mr Pryor for the
defendants has pointed out, that the rent by this definition includes the
increases specified in the fifth schedule.
The fifth
schedule provides as follows:
After
September 28 1980 the yearly rent payable in respect of the demised premises
until September 28 1985 shall be £7,500 above such sum as shall be agreed
between the landlord and the tenant as representing a fair rack market
and there one
has to put in the word ‘rental’, but no question arises on that
value of the
demised premises for a term of years equivalent to the then unexpired residue
of the term hereby granted as between a willing lessor and a willing lessee
with vacant possession and taking no account of any goodwill attributable to
the premises by reason of any trade or business carried on therein by the
tenant and in all other respects on the terms and conditions of this lease and
if the landlord and the tenant shall be unable to agree on the amount of such
rent as aforesaid the same shall be decided by some competent person to be
agreed to by the landlord and the tenant and in the event of failure . . . by a
person
to be appointed
by the usual person, the president for the time being of the Royal Institution
of Chartered Surveyors. Then, his decision is to be binding on both the
landlord and the tenant, but in no event is the rent to be reduced to less than
that payable by the tenant immediately prior thereto.
It is clear, I
think, that the provisions are not in any normal form, because the result for
which Miss Finn for the plaintiffs contends, that in deciding on the rent
payable one simply takes the sum of £7,500 and such sum as is agreed between
the plaintiffs and the defendants, or in default of agreement is decided by
arbitration in accordance with the terms of the lease, as representing a fair
rack rental market value of the demised premises without taking into account
either (1) the obligation of the defendants to pay rent at a rate of £7,500 per
annum above such fair rack rental market value, or (2) the amount of rental
payable under the said lease from and after the said September 28 1985, would
only be produced, in my opinion, if the clause had contained the words which
one commonly finds in such clauses, after the words ‘in all other respects’ —
some such words as ‘other than the provisions as to rent’.
Mr Pryor for
the defendants has argued that on this, the first rent review, because of the
presence of the words ‘in all other respects on the terms and conditions of
this lease’, the way in which the ascertainment of the fair rack rent market
value ought to be approached is by observing that under the terms and
conditions of the lease the tenant has to pay a sum of £7,500 in excess of
whatever is the fair rack rental market value and, therefore, just as if the
lease contained some other clause obliging the tenant to expend the sum of
£7,500 per annum, which would automatically lower what would otherwise be the
market rent by that sum, so similarly the market rent here should be lowered by
the obligation to pay the £7,500, which in practical terms will mean that at
the end of the day the tenant only pays a fair rack rental market value without
the addition of the £7,500.
I think I
would agree strictly with Mr Pryor that that is the result which literally is
achieved by the formula used, ‘in all other respects on the terms and
conditions of the lease’.
However, it
seems to me that the wording is far too strong and that one cannot suppose that
the parties went to all the bother of adding on £7,500 merely in order to have
the £7,500 subtracted as representing an onerous obligation on the tenant
before the ascertainment of the fair rack rental market value, and, therefore,
so far as that point is concerned, I am against Mr Pryor and I think that in
ascertaining that fair rack rental market value no regard must be paid to the
obligation of the defendant to pay rent at a rate of £7,500 per annum above
whatever that figure turns out to be.
However, no
such simple escape route is possible in the case of the second rental review,
which is to take place with effect from September 28 1985, and that again
provides that the yearly rent payable in respect of the demised premises until
September 25 1990 shall be £7,500 above such sum as shall be agreed between the
landlord and the tenant as representing a fair rack rental market value of the
premises, such rental to be calculated on the same basic terms and conditions
as are applicable to the first review.
I see no
method of construction whatsoever which will, as it were, remove that from the
ambit of the arbitrator’s view when he comes to ascertain the fair rack rental
market value of the demised premises. True it is that he can ignore the £7,500
at that point in ascertaining the rent, but he cannot ignore the fact that a
similar exercise will be gone through, or will have to be gone through, in
another five years’ time as to September 28 1985. That is a term or condition
of the lease and, that being so, he must give effect to it, and there is no
prospective way of writing out the £7,500. Of course, how one decides what effect
that has upon the current fair market rental value, beyond saying in general
terms that it has a depreciatory effect, I do not know. But that, of course, is
a matter which somebody nominated by the president of the Royal Institution of
Chartered Surveyors will be admirably in a position to cope with.
Therefore, in
substance, I answer the originating summons by making the first part of the
declaration for which the plaintiffs ask, but, so far as the second part is
concerned, I make the declaration in the exact contrary sense, that is to say,
that while the plaintiffs and the defendants, when trying to agree the matter,
or the arbitrator when deciding it, must ignore the obligation of the
defendants to pay rent at the rate of £7,500 per annum above such fair rack
rental market value now, they must nevertheless take into account the fact that
as from September 28 1985 the defendant will come under a further obligation to
pay £7,500 per annum above whatever will at that date be the fair rack rental
market value of the premises.
No order was
made as to costs.
