Landlord and tenant — Rent review clause in lease — Landlords’ notice requiring rent review to take place sent to tenants 18 months later than date prescribed by clause — Whether strict adherence to the timetable should be regarded as of the essence of the contract — United Scientific Holdings Ltd v Burnley Borough Council discussed and decision in Amherst v James Walker, Goldsmith & Silversmith Ltd applied — Time not of the essence — Contrary submissions based on hardship to tenants and alleged unreasonable delay rejected — Landlords in present case had, despite tenants’ assertion that the ‘trigger’ notice was invalid, proceeded to invoke an arbitration clause in lease and to appoint an arbitrator, who made an award determining a rent for the second 7-years’ term under the lease — It was conceded on behalf of the tenants that, if the notice was found to be valid, the rent for the second 7-years’ term had been properly determined — Held that the rent had been properly determined in the sum fixed by the arbitrator
The plaintiffs
in this action were the landlords, H West & Son Ltd. The tenants, Michael
Brech, Florence Brech and Edward Brech, were the defendants. The action
concerned the interpretation and application of a rent review clause in a lease
of a warehouse and land at East Street, Prittlewell, Southend-on-Sea, for a
term of 21 years from February 17 1971.
M Nield
(instructed by A G Freeman & Son, of Southend) appeared on behalf of the
plaintiffs; A Nicholson (instructed by FT Fisher & Lang, of Southend)
represented the defendants.
Giving
judgment, CANTLEY J said: Under a lease dated February 17 1971 the defendants
are tenants of the plaintiffs of land and buildings in Southend-on-Sea for a
term of 21 years from February 17 1971. Clause 1 of the lease given to the
defendants provides for a rent of £3,000 per annum during the first seven years
of the term and ‘for the remainder of the said term the yearly rent calculated
in accordance with the provisions of clause 8 hereof.’ Looked at strictly there is no clause 8 in
this document, but it is quite obvious that by clause 8 in clause 1 is meant
the clause which appears as clause 3(8) in the counterpart. What has happened
has been a typist’s or copying muddle in the preparation of the lease and
counterpart resulting in a sort of cocktail of a document which happily is
adequate for the purpose of deciding the rights and liabilities of the parties
in this action.
What I will
call ‘clause 8’ provides as follows:
If the
lessors shall not more than twelve months nor less than six months before the
expiration of the seventh or fourteenth year of the said term give notice to
the lessees requiring the rent to be revised then as and from the expiration of
the said seventh or the fourteenth year the said yearly rent shall either be
the rent hereinbefore reserved or such rent at which the demised premises might
reasonably be expected to be let in the open market by a willing landlord by a
lease for a term equal to the residue of the term then unexpired with vacant
possession without a premium and disregarding, if applicable, those matters set
out in section 34 of the Landlord and Tenant Act 1954 and subject to the
provisions of this lease whichever shall be the greater rent. And if the
parties shall fail to agree such rent within three months after the service of
such notice by the lessors on the lessees as aforesaid the amount of rent
payable shall be referred to arbitration in accordance with the provisions for
arbitration hereinafter contained. Provided that until such new rent shall have
been determined the rent reserved in the period of seven years immediately
before expired shall continue to be payable and any difference between that and
the said new rent during such period as this proviso operates shall be added to
and be payable with the next instalment of rent due after the new rent has been
determined.
The provision
for arbitration referred to in that clause is contained in what I will call
clause 13 although, owing to the muddle which I have referred to already, it appears
as a subclause of clause 3. It reads as follows:
Any dispute
or difference arising between the lessors and the lessees for the settlement of
which provision is hereinbefore made for arbitration shall be referred to the
decision of a sole arbitrator or in default of agreement to two arbitrators,
one to be appointed by each party subject to and in accordance with the
Arbitration Act 1950 or any statutory modification or reenactment thereof for
the time being in force.
Notice in
strict conformity with clause 8 should have been given by October 17 1977 for
the purpose of increasing the rent for the ensuing seven years. Unfortunately
the landlords overlooked the arrival of the relevant date. According to their
letter of March 2 1979, this was owing to their having lodged the counterpart
lease with their bankers and not having looked at it until the time fixed had
passed. However, by that letter of March 2 1979 notice in accordance otherwise
with clause 8 was given to the tenants. That notice, however, was 18 months
later than the date prescribed as the last date by clause 8. Feeling that some
explanation additional to the lodgment of the relevant document with their
banker was due to the tenant the landlords obligingly included in their notice
of March 2 1979 a reference to the decision in the House of Lords in Cheapside
Land Development Co v Messel’s Service Co [1978] AC 904. There
appears then to have been some negotiation between valuers appointed by each
party, but those negotiations led to no agreement, and on July 10 1979 the
defendants’ solicitors replied to the plaintiffs’ solicitors as follows:
We have
advised our clients, notwithstanding the two recent House of Lords decisions,
that your clients are not now entitled to set in motion the machinery for
calculation and determination of a new rent. We consider that there has been
unreasonable delay on the part of your clients sufficient enough to preclude
the review claim which has not been made according to the provisions of the
lease.
The plaintiffs
proceeded to invoke the arbitration clause. No sole arbitrator having been
agreed, they appointed their arbitrator. They followed the procedure prescribed
by the Arbitration Act 1950 for cases where one of the parties to an
arbitration agreement refused to co-operate. The situation has been that the
defendants have stood upon their assertion that the notice which was a
condition precedent to the right of the plaintiffs to have a new rent assessed
was an invalid notice. The arbitrator made an award which determined the yearly
rent for the second seven years of the term at the sum of £7,250 per annum. It
is now conceded that if the plaintiffs’ notice of March 2 1979 was a valid
notice the rent for the second seven years has been validly determined. The
entire issue before me has been as to the validity of that notice.
Mr Nicholson
on behalf of the defendants has submitted that strict adherence to the
specified timetable in clause 8 is of the essence of the contract, and as that
timetable was not strictly adhered to the notice is invalid. He concedes that
there is a presumption since the case of United Scientific Holdings Ltd
v Burnley Borough Council and Cheapside Land Development Co Ltd v
Messel’s Service Co, to which I have already referred, that strict
adherence to a timetable specified in a review clause of this nature is not of
the essence of the contract. But he submits that for various reasons this
particular review clause on its proper construction is of the essence of the
contract. First of all he relies upon its wording. As was recognised by their
Lordships in the case to which I have just referred, reference to the context
and wording of the lease as a whole may clearly show that in any review clause
the timetable is of the essence of the contract. Such a construction will
naturally follow where the landlord’s right to call for a review of rent can be
linked with a corresponding right in the tenant to terminate the tenancy before
the rent is raised. Similarly, of course, if a review clause does in terms specify
that the timetable is of the essence of the contract full effect must be given
to that agreement of the parties. Mr Nicholson says that although neither of
those two features appears in this contract, none the less on the wording of
clause 8 there is an imperative duty imposed upon the landlord to give notice
within the specified period if he wishes to rely upon the right of review.
I have
considered what Mr Nicholson has said, but in the end it seems to me that on
this point the review clause in question does not materially differ from other
review clauses which were considered by the House of Lords in the case of United
Scientific Holdings Ltd v Burnley Borough Council and held to be
clauses where time was not of the essence of the contract. Mr Nicholson also
relies in support of his submission on the fact that the sole initiative in
reviewing the rent is given to the landlord and to the landlord only. This is a
point which was argued before the House of Lords in the case to which I keep
making reference. And in the view of Lord Diplock, Lord Simon and Lord Fraser
this feature made no difference and the presumption in the absence of other
circumstances will still be that time is not of the essence. It is true that on
this point, which only arose under the terms of the lease in the case of Cheapside
Land Development Co v Messel’s Service Co, Lord Dilhorne took a view
contrary to that of the noble Lords to whom I have already referred. Mr
Nicholson therefore says that the observations of Lords Diplock, Simon and
Fraser are obiter, and in applying what he presumed to call my better judgment
I should take a view different from theirs. If it were necessary I would
respectfully and without hesitation say that I am persuaded by the reasoning of
Lords Diplock, Simon and Fraser and agree with their reasoning and their
conclusion. But it is not necessary for me to deal with the point in that way,
because their dicta have been cited and followed and applied by the Court of
Appeal in the case of Amherst v James Walker, Goldsmith &
Silversmith Ltd (1980) 254 EG 123, [1980] 1 EGLR 86. That decision at least
is binding upon me even if contrary to the fact I did not agree with it.
Mr Nicholson
also relies in construction of the review clause upon what he submits is the hardship
which would fall upon the tenant if it were not strictly applied. Drawing on no
doubt informed imagination he gave various illustrations of hardship which
might fall upon a tenant if such a clause as this were not strictly applied.
All his illustrations have occurred to some of the Law Lords in the case in
[1978] AC 904, and it is sufficient for me to say that I agree with what Lord
Diplock said about those suggested hardships. Prominent among the suggested
calamities was the fact that a tenant whose dilatory landlord was able to
enforce a large increase of rent after a lapse of time might be faced with a
large sum of money which he might find it difficult to produce. It has already
been pointed out by better men than I am that this hardship does not necessarily
follow at all. In a lease such as this there is no question of there being a
break clause and the tenant is obliged to remain the tenant unless he assigns
the tenancy for the whole of the term provided. If he wishes to know what he
may have to pay by way of increased rent at or after the first seven years, he
can easily find out accurately enough by asking one of the many experienced
valuers who are available for the purpose. If he is impatient to have the rent
assessed, he has, as was pointed out by the House of Lords, the right after a
reasonable time has expired to make time of the essence in this connection by
requiring the landlord to serve his notice within a reasonable time thereafter.
If he does not take that step the disadvantage is suffered primarily by the
landlord who is not obtaining the rent to which he would otherwise be entitled,
and the advantage is to the tenant who does not have to pay the increased rent
in the meantime and can have the interest on his money. Of course there may be
cases where a tenant could not afford the new rent and has no money on which he
can enjoy interest. But happily I do know in this case that in July 1979 these
tenants were able, if the landlord was willing to receive it, to find £60,000
for the freehold. I do not consider that there is in this case any feature of
hardship which distinguishes it from the various circumstances visualised by
their Lordships when they were considering the cases in the United
Scientific Holdings case and the Cheapside Land Development Co Ltd’s
case.
In my view
time was not of the essence in the contract in relation to clause 8.
Mr Nicholson
has an alternative submission. He says if, as I have held, time was not of the
essence of the contract in invoking clause 8, a landlord who wishes to invoke
it should do so within a reasonable time and this landlord did not do it within
a reasonable time. He had 18 months’ delay, which is an unreasonable time. It
certainly is quite a long time, although it should be judged not by itself but
in relation to the period of seven years which is under review.
I am not
satisfied that unreasonable delay of itself precludes a landlord from relying
on a review clause. It is otherwise if such delay causes prejudice or hardship
to the tenant, or if such delay is so inordinate as to lead reasonably to the
inference that the right to review has been abandoned or that there is tacit
agreement not to enforce it. So far as prejudice or hardship upon the tenant is
concerned, it is sufficient to say that in this case none is alleged and none
at all has been proved. There is therefore no question of my finding that by
reason of this delay the landlord is estopped from enforcing the right to
review which he would otherwise have had. I do not consider on the facts of
this case that the delay was so extensive as reasonably to lead to an inference
either that the right had been abandoned or that the parties had agreed not to
apply it. Finally, judging the period of 18 months in relation to the period of
seven years, I am not satisfied that it was so unreasonable as to preclude the
landlord from relying upon the review clause if, contrary to my view,
unreasonable delay of itself could so preclude him. In the case of Accuba
Ltd v Allied Shoe Repairs Ltd [1975] 1 WLR 1559 there was a delay of
18 months and Goff J (as he then was) while describing it as a borderline case
came to the conclusion that it was not too late. I have come to a similar
conclusion.
For these
reasons I find that the rent has been validly reviewed and determined at the
rate of £7,250 per annum.
Following
discussion the plaintiffs were awarded costs of the action and 12 per cent
interest to run from the date of issue of the writ.
