Rent review — Rent to be reviewed upwards or downwards — Landlord failing to implement review and seek appointment of third party valuer — Whether court entitled to review rent on tenants’ application
By two leases
the applicant tenants held 20-year terms of premises from June 24 1978 subject
to provisions for rent review either upwards or downwards. The lease provided
that the rent at review was to be agreed by the parties and in default by a
surveyor to be agreed by them and in further default by a surveyor appointed by
the president of the Royal Institution of Chartered Surveyors at the request of
the landlord. The tenants contended that the landlord was not entitled to
frustrate the effect of a possible downwards revision of the rent by the device
of declining either to agree or apply for the appointment of a surveyor.
Relying on Sudbrook Trading Estate Ltd v Eggleton [1983] 1 EGLR
47; (1982) 265 EG 215, the tenant sought an order that there be an inquiry as
to the yearly rent payable.
construction of the rent review provisions of the leases. By the rent review
provisions the parties had agreed that if the rent had not been ascertained at
all at review the rent payable under the last rent review period should
continue to be payable. Accordingly, there was no need to imply an obligation,
as in the Sudbrook Trading case, that the landlord was under a duty to
seek the appointment of a surveyor, because there was a rent provided for if
the landlord elected not to seek such an appointment.
The following
case is referred to in this report.
Sudbrook
Trading Estate Ltd v Eggleton [1983] 1 AC
444; [1982] 3 WLR 315; [1982] 3 All ER 1; (1982) 44 P&CR 153; [1982] EGD
392; [1983] 1 EGLR 47; 265 EG 215, HL
This was an
application by the plaintiffs, Harben Style Ltd, for a declaration and an
inquiry as to the proper rent payable under two leases held from the defendant
landlord, Rhodes Trust.
Kim Lewison QC
(instructed by Graham Harvey & Co) appeared for the plaintiff tenants; Paul
Morgan QC (instructed by Clifford Chance) represented the defendant landlord.
Giving
judgment, Judge Rich said:
The tenants in these two matters seek declarations and orders as to the effect
of rent review clauses in two separate leases, but where the rent review
clauses are in, for relevant purpose, identical terms. It is therefore
permissible for me to make reference to only one of the two leases and to take,
as counsel for the two tenants has done, the lease of 146 and 146A Queensway,
which was granted by the defendant — Rhodes House Trust — to three named
tenants on March 9 1979; the present application is made by its successor in
title.
The grant of
that lease was for a term of 20 years, from June 24 1978 and it provided in its
reddendum for rents as follows:
(1) During
the first five years of the term the yearly rent of £10,000.
In the case of
the other lease which was granted to Thomas Cook Group Ltd — again by the same
defendant, Rhodes Trust — that rent for the first five years was, I believe,
£10,250 and I shall make no further reference to such monetary distinction.
The second
rent reserved was:
During each
review period of the term such yearly rent as shall be ascertained in respect
of the same review period in accordance with the provisions of the Schedule
hereto.
There is, I
think, nothing else in the reddendum to which I need refer. It is the
meaning and effect of that schedule which gives rise to the issues which I have
to decide.
The schedule
begins with some definitions including, first, the definition of the review
period as meaning, ‘any of the successive periods of five years from the end of
the fifth year of the term’ and, accordingly, it is in respect of the last
review period — from June 24 1993 — that the present issues have arisen.
The schedule
goes on to define ‘market rent’ and it is that definition which is crucial. I
should therefore read the definition more or less in its entirety:
Market rent
for a review period means such yearly rent as may be agreed in writing between
the landlord and the tenants to be the market rent for the same review period
or in default of such agreement as aforesaid before the review date relative to
the same review period as may be determined to be the market rent as aforesaid
by a surveyor appointed by the landlord and the tenants or in default of such
appointment as aforesaid by the President for the time being of the Royal
Institute of Chartered Surveyors at the request in writing of the landlord, provided
always (a) that the market rent for the review period when determined by a
surveyor appointed as aforesaid shall on no account be less than £10,000 per
annum; (b) that the market rent for the review period when determined by a
surveyor appointed as aforesaid
— Reading to
the words —
in the open
market …
It then goes
on to set out the assumptions upon which such determination is to be made.
After setting out those more or less common form assumptions the definition of
‘market rent’ continues or, alternatively, there is a new provision begun by
the phraseology:
It is hereby
declared and agreed as follows
(1) In the
event that the yearly rent hereinbefore reserved and payable in respect of the
review period is not ascertained at all or is not ascertained until after the
beginning of the same review period the tenants shall during the same review
period or as the case may be until the said yearly rent is ascertained pay rent
at the rate of the rent payable hereunder for the year immediately preceding the
beginning of the same review period and on the first quarter-day after the said
yearly rent shall have been ascertained shall pay the excess if any of the
aggregate amount of rent which would have been payable hereunder from the
beginning of the said review period until the said quarter-day if the said
yearly rent had
— which I
insert for ‘has’ which was written —
been
ascertained before the beginning of the said review period over and above the
aggregate amount of rent actually paid by the tenants from the beginning of the
said review period until the said quarter-day.
That
declaration and agreement then continues by making provision in its second
clause for the recording of the rent which is arrived at; in the third clause
for the qualifications of the surveyor who is to determine the rent; fourth,
for his fees; and, fifth, for the circumstance of there being no president of
the Royal Institution of Chartered Surveyors or his being unable or unwilling
to make the appointment, in which case the landlord becomes entitled to
designate some other body, if all else fails, to make the appropriate
appointment. The sixth clause makes provision if the surveyor, having been
appointed, fails to determine the market rent; in that case it is provided that
the landlord or the tenants may apply to the original appointer to appoint a
substitute.
The tenants
contend that the effect of the clause, which I have largely read and otherwise
summarised, is to provide for a review of the rent for each review period
either upwards or downwards. They contend, further, that the landlord is not
entitled to frustrate that effect of a possible downward revision of the rent
by the device of declining either to agree or apply for the appointment of a
valuer.
As to the
first proposition there is no dispute: it is accepted, indeed, that in the
terms of the originating summons it is right that on a true construction of the
lease the yearly rent payable during any review period may be greater or less
than that which was payable during the period of the term immediately preceding
that review period subject only to the minimum provision arrived at by the
proviso (a), to which I have made reference, of its on no account being
determined at a sum less than £10,000 in the case of the lease which I have
been reading from or £10,250 in the case of the Thomas Cook lease.
The issue,
however, is whether the tenants are entitled — the landlord having failed to
apply to the president of the Royal Institution of Chartered Surveyors for the
appointment of a valuer — instead to apply to the court for an order that there
be an inquiry as to the yearly rent payable under the terms of the lease in
respect of the review period; that is, in effect, to apply for the court to
determine a market rent.
Such an
inquiry was ordered in the case of Sudbrook Trading Estate Ltd v Eggleton
[1983] 1 AC 444*, where the House of Lords allowed an appeal against the
decision of the Court of Appeal, where that court had said that the particular
clause which fell for construction in that case amounted to an incomplete
agreement and could not, therefore, be specifically enforced by the procedure
of appointing a valuer in circumstances where a party, reluctant to comply with
a notice exercising an option which had been served upon him, refused to
appoint a valuer.
*Editor’s
note: Also reported at [1983] 1 EGLR 47.
The particular
clause which fell for consideration, in so far as it is material parts are
concerned, reads (at 474G) as follows:
it is hereby
agreed and declared …
9. That if
the lessees shall desire to purchase the reversion in fee simple in the
premises hereby demised … give to the lessor notice in writing to that effect
the lessees shall be the purchasers of such reversion as from the date of such
notice at such price not being less than £12,000 as may be agreed upon by two
valuers one to be nominated by the lessor and the other by the lessees or in
default of such agreement by an umpire appointed by the said valuers …
As I have
said, what happened was that the lessors refused to nominate a valuer and,
accordingly, the price could not be agreed between the persons referred to in
that clause, one of whom did not exist.
Lord Diplock
said in that case that the Court of Appeal had proceeded upon a fallacy, the
nature of which can be understood by the first remark which I shall cite from
his lordship’s speech at p478B:
What
Templeman LJ refers to in his summary of the effect of the authorities as the
one central proposition from which the three principles that he states all
stem, viz until the price has been fixed by the method provided for in
the contract ‘there is no complete agreement to enforce’, involved a
fundamental fallacy. A contract is complete as a contract as soon as the
parties have reached agreement as to what each of its essential terms is or can
with certainty be ascertained: … True it is that the agreement for the sale of
land remains executory until transfer of title to the land and payment of the
purchase price; but if this is the sense in which the agreement is said not to
be complete it is only executory contracts that do require enforcement by the
courts; and such enforcement may either take the form of requiring a party to
perform his primary obligation to the other party under it (specific
performance) or, if he has failed to perform a primary obligation, of requiring
him to perform the secondary obligation, that arises only upon such failure, to
pay monetary compensation (damages) to the other party for the resulting loss
that he has sustained.
Thus Lord
Diplock’s analysis led him to the conclusion that there was an obligation upon
the lessor in that case to appoint a valuer in order that the primary
obligation to complete the purchase could be performed. It was in respect of
that second or secondary obligation that the order for enforcement was made by
the House of Lords.
Lord Fraser of
Tullybelton put the matter somewhat differently and, as I think, somewhat more
helpfully to the case which has been advanced on behalf of the tenants before
me; certainly in his reply it is upon the speech of Lord Fraser of Tullybelton
that Mr Kim Lewison QC has primarily relied. That speech was expressly approved
by all the other three members of the House of Lords, including Lord Diplock,
who formed the majority in the decision in this case.
Lord Fraser of
Tullybelton said at p484B:
In the
present case the machinery provided for in the clause has broken down because
the respondents have declined to appoint their valuer. In that sense the
breakdown has been caused by their fault, in failing to implement an implied
obligation to co-operate in making the machinery work.
— I
interpolate, that that is the basis upon which Lord Diplock had proceeded in
his speech. Lord Fraser of Tullybelton continued —
The case
might be distinguishable in that respect from cases where the breakdown has
occurred for some cause outside the control of either party, such as the death
of an umpire, or his failure to complete the valuation by a stipulated date.
But I do not rely on any such distinction. I prefer to rest my decision on the
general principle that, where the machinery is not essential, if it breaks down
for any reason the court will substitute its own machinery.
The
distinction which Lord Fraser of Tullybelton makes there between machinery
which is essential and machinery which is inessential is — and I fear that I
identify it somewhat inadequately — a distinction between whether the mode of
ascertaining the price is an essential term of the contract or whether it is
merely subsidiary. It is not suggested in the case which I have to decide that
the mode of determination of the market rent is essential in any sense to take
the case out of the principle to which Lord Fraser of Tullybelton referred and
laid down.
It is however,
in my judgment, essential to the operation of that principle that there should
indeed be an agreement for either a sale at a price or in the present case for
the letting at a rent which is to be determined by a particular method which
has broken down whether by reason of the breach of obligation of one party or
for other reasons. If the agreement which the parties had made was for payment
of a market rent to be ascertained by a surveyor, and no rent had been
ascertained by reason of the non-appointment of the surveyor, then the general
principle to which Lord Fraser of Tullybelton refers would apply. In my
judgment, that is not what has been provided by the lease which I have to
consider and for that reason the principle does not apply.
I come to that
conclusion by analysis of what has actually been agreed between the parties in
this particular lease. The reddendum, as I have pointed out, provides that
during each
review period of the term …
— Reading to
the words —
… such yearly
rent as shall be ascertained
— and I
interpolate that the word ‘ascertained’ is one upon which Mr Lewison has placed
considerable reliance; I now continue reading from the clause —
in respect of
the same review period
— I
interpolate that that is a phrase which appears to me to be of considerable
significance in this particular lease —
in accordance
with the provisions of the schedule hereto
to which,
accordingly, I now return.
The
declaration and agreement which I have already recited provides (omitting what
to my mind are immaterial parts) that:
In the event
that the yearly rent hereinbefore reserved and payable in respect of a review
period is not ascertained at all … the tenants shall during the same review
period … pay rent at the rate of the rent payable hereunder for the year
immediately preceding the beginning of the same review period
That is a
provision as to the rent for the same review period as would be the then
current review period ascertained by reference to the rent which had been
payable immediately preceding the beginning of that same review period. That
appears to me, returning to the reddendum, to be a rent in respect of
the same review period in accordance with the provisions of the schedule
hereto.
The issue that
may be joined is whether or not it can be said, in the words of the reddendum,
to have been ascertained when it is a rent which becomes payable under the
declaration and agreement only because, in the words of that declaration and
agreement the yearly rent in respect of a review period ‘is not ascertained at
all’.
In my
judgment, to say that that rent which is determined in accordance with that
agreement is not the rent which is payable under the reddendum because
it arises only because of a failure to ascertain by any of the routes
identified for its determination would make a nonsense of the declaration and
agreement and cannot possibly be said to be its effect. The words ‘not
ascertained at all’ in the declaration and agreement must be a reference back
to the three methods of determination set out at the beginning of the
definition of market rent, which is that it ‘may be agreed’ — that is an option
— or it is to be such as ‘may be determined’ an alternative, but not
necessarily exhaustive of other options, and then the determination may be
‘either by a surveyor appointed by the two parties jointly or in default
appointed at the request in writing of the landlord’. If none of those things
happen then the event dealt with in the declaration that the yearly rent is not
ascertained at all arises, but it is none the less the case that the rent which
is agreed to be paid in accordance with that declaration and agreement in the
schedule is a rent as shall be ascertained in respect of the same review period
in accordance with the provisions of the schedule. The word ‘ascertained’ in
the reddendum cannot be construed to mean only such rents as are
determined in accordance with the other terms than the agreement which is
provided in the part of the schedule which I have been seeking to explain.
Accordingly,
in my judgment, there can be no reason to imply an obligation in the way in
which one was implied or said to arise in the Sudbrook Trading case,
that the landlord should be under a duty to seek the appointment of a valuer;
certainly there is no express obligation that he should do so. There is a rent
provided for if he elects not to do so, and that is, in my judgment, the
distinction between this and the Sudbrook Trading case.
It is, of
course, right that if a valuer were appointed — either by agreement between the
parties or by the president of the Royal
he is satisfied that the rent on the assumptions which he is required to make,
would, for the relevant review period, be less than for the preceding review
period, he is under an obligation so to determine, subject only to the
limitation in the first proviso — ‘(a) that the market rent for the review
period when determined … shall on no account be less than £10,000’ (or £10,250
in the second lease case).
If rent is so
determined and determined only after the beginning of the review period the
declaration and agreement provides — as I have already read — for rent at the
old rate to continue to be paid until the moment of review or, indeed, the
first quarter-day thereafter. It goes on to provide:
and on the
first quarter-day after the said yearly rent shall have been ascertained [the
tenants] shall pay the excess if any of the aggregate amount of the rent which
has already been paid as compared with what should have been paid.
That is an
express provision for making up the rent to the review amount; there is no
provision in such circumstances, as one find in some leases, for, for example,
interest upon such notional underpayment, nor could any be implied. Nor is
there any provision — in case there is no excess of the ascertained rent as
compared with that which has been paid, but rather that which has been paid
exceeds that which would have been determined — for any repayment by the
landlord. A declaration was sought in respect of such possible excess payment
by the tenants, but I am not asked to determine whether the clause should be
taken as implying such obligation in the circumstances of the view that I have
taken as to the effect of the main clause. Nevertheless, I think it right to
say that I doubt whether there could be implied an obligation to pay back any
excess, having regard to the express words that have been used which go to deal
only with the alternative circumstance. That absence of provision must, in my
judgment, at least cast some further doubt on any possible implied obligation
of the landlord to embark upon a review which he has decided is likely to be
unfavourable to him. It raises a number of problems; for example, if there were
such an implied obligation, when is it to be enforced? If the obligation was
postponed so that the determination was made only after the lapse of the
five-year period then, unless there is to be implied a term to make repayment,
the determination would have no effect upon the rent which was actually paid
and payable. It is no doubt for that reason that the tenants ask the court not
to order that the landlord should apply to the president of the RICS to appoint
a valuer, but rather that it should itself carry out its inquiry as to the
value, on the grounds that — as they put it — ‘The machinery has broken down’.
In my judgment, the machinery has not broken down, it has simply and
deliberately not been invoked by the landlord because he does not want to
invoke it. The lease provides for rent in such circumstances, in the sense
which I have sought to identify, and the effect of the landlord’s decision not
to invoke the machinery is to make operative the alternative provision for rent
which is declared and agreed expressly by reference to the event of the rent
not being ascertained at all in accordance with the clause which I have read.
Now, I accept
that this construction of the lease means that from the tenants’ point of view
while having the benefit of an upwards and downwards review subject to a floor
as to the initial rent, none the less they do not have the means of ensuring
that a review actually takes place in the circumstances in which it might
result in a benefit to the tenants. That has been described by Mr Lewison for
the tenants as meaning that the lease was a trap for the tenants. I am not sure
that such language assists in construction of the clause, although I accept
that if there were ambiguity I would be attracted by an argument which enabled
me to construe the clause as giving the tenant a means of enforcing a downward
review. But the tenants agreed in this case on what the rent should be, if it
was not ascertained at all, that it should be dependent upon the request of the
landlord as to whether it should be ascertained in the sense which is used in
that particular clause. They agreed that it should be at the request of the
landlord in a context where other matters were to be at the request either of
the landlord or the tenants. There is, in my judgment, no room for ambiguity,
no room to look at whether the document constituted a trap and no room for
constituting the clause contra proferentum.
I have had
drawn to my attention another clause of the lease and I accept that it was
right to search through it to see where there was any other clause that might
throw light upon those which I have been seeking to construe, because any
clause within the lease must be construed in the context of the whole: that
clause was the alienation clause which imposes upon the tenant an obligation to
seek from any under-tenant or assignee not less than the full market rent. I am
afraid I found no assistance from that clause in construing the clause which I
have construed in the sense in which I have and which leads me therefore to
refuse the relief that is sought in paragraph three of the summons, although I
would, without objection, make the declaration sought in paragraph one and
would on the basis of the joint request of the parties make no declaration on
the second paragraph.
Applications
dismissed.