Lease — Rent review clause — Landlords claiming sole right to initiate rent review — Refusal to exercise right preventing possible decrease in rent — Whether either landlord or tenant capable of implementing rent review — Claim dismissed
The claimant and the defendants were respectively the tenant and the landlords of commercial premises that had been demised to the claimant’s predecessor by a lease dated March 1953. The lease was granted for a term of 30 years from June 1952, at a fixed rent of £1,500 pa, payable quarterly in arrears.
In 1972, the defendants permitted the then tenant to reconstruct and modernise the premises at its own expense, subject to a variation of the lease. The tenant was granted a new lease for an extended term expiring in March 2033, in consideration of an annual rent that continued to be payable quarterly in arrears up to and including June 1982, but thereafter becoming payable quarterly in advance.
Until June 1982, the annual rent was the aggregate of £1,500 plus one of two alternative sums, depending upon whether the modernisation had been carried out. For as long as the works were unfinished, the additional sum was £3,500. Upon completion, however, the tenant also became liable to pay, for the period remaining until June 1982, a sum equal to one-half of the balance remaining after deducting an amalgam of the open market rack-rental value of the premises in a non-modernised state as at December 1972, plus an annual interest charge and a sinking fund charge from the open market rack-rental value of the premises in a modernised state on completion of the works, to be no later than June 1982.
From June 1982, the annual rent was subject to seven-year reviews. The review procedure had been operated only twice since it came into effect. On the last occasion, in June 1989, the rent had been increased to £375,000 pa. Since then, the defendants had chosen not to initiate any further reviews. The claimant wanted a further rent review, since there was evidence that it might lead to a reduction in the annual rent. However, the defendants argued that the right to review the yearly rent was exercisable by the landlords alone, and that they might therefore maintain the passing rent by declining to initiate a review. The claimant contended that this would run counter to the purpose of a rent review clause, allowing the landlords to convert an open rent review clause to an upwards-only rent review. It argued that the right to review had been intended to be mutual. Thus, the correct approach would be to treat the review mechanism as being available to both parties.
Held: The claim was dismissed.
There was no presumption that a rent review clause (even one incorporating an open review) ought to be exercisable by both parties. It would depend upon the form of review that the parties had chosen to incorporate. This could vary from a right to review that was exercisable by the landlord alone to a mandatory review on each of the review dates. There was no presumption either way: Basingstoke and Deane Borough Council v The Host Group Ltd [1987] 2 EGLR 147, Addin v Secretary of State for the Environment [1997] 1 EGLR 99 and Royal Bank of Scotland v Jennings [1997] 1 EGLR 101 considered.
When, as in this case, the lease provided in clear terms that the right to review the rent was exercisable only by the landlord, the absence of an upwards-only review formula was not sufficient to require or permit the court to construe the clause as requiring either a mandatory review or one that was exercisable by both landlord and tenant.
The opening words of the rent review clause had a plain and obvious meaning to which effect must be given. The lease clearly gave the landlord the exclusive right to operate the rent review provisions, and the defendants were entitled to take advantage of that.
Timothy Fancourt QC (instructed by Ashurst) appeared for the claimant; Nicholas Dowding QC, Nicholas Taggart and Charlotte Woodhead (instructed by Slaughter & May) appeared for the defendants.
Eileen O’Grady, barrister
