Commercial lease — Hotel premises — “Disregard” clause of tenant’s improvements in rent review provisions — Licenses by landlords for improvements to hotel — whether words of licence applying covenants of lease to premises in altered state making disregard clause inapplicable — First instance decision in favour of tenant — Landlords’ appeal dismissed
The plaintiff was the tenant of Cadogan Hotel, Sloane Street, London SW1, under a lease dated January 30 1979 for a term of 60 years from December 25 1978. The initial rent was subject to five-yearly reviews. Under clause X of the lease, the tenant was not to alter the demised premises except with the written consent of the landlords, such consent not to be unreasonably withheld. The rent review provision contained a proviso D of which subclause (c) required that any alteration or improvements to the premises made by the lessee (otherwise by obligation to carry out such work) “at the sole expense of the lessee carried out with consent” fell to be disregarded in assessing the market rent.
The first of seven licences for the carrying out of improvements was granted on May 18 1979. All the licences were in the same terms, of which clause (g) stated that “when the said works and alterations have been completed all the … covenants … in the lease (including the power of re-entry …) shall be applicable … to the premises … in their then altered state in the same manner and as fully and extensively as if the … premises in their then altered state had originally been comprised in the lease”.
At first instance the landlords’ submission was not accepted that the effect of clause (g) of the licences was to require the rent review clause to be operated as if the alterations had been effected at the outset of the term and therefore fell outside the disregard provision: see [1993] 2 EGLR 151. The landlords appealed.
Held The appeal was dismissed.
1. Such a disregard clause for alterations made by the lessee at the lessee’s sole expense was a very common provision. It was considered not fair or reasonable that if the lessee carried out improvements at his own expense — which would enure to the benefit of the landlords — that the lessee should be required to pay additional rent attributable to those improvements.
2. The clause in the licence which was crucial to the appeal was clause (g). That clause extended the power of re-entry, as well as other covenants of the lease, to premises in their altered state so as to make terms of the lease applicable notwithstanding the alterations and improvements.
3. The lease was a commercial document, which had to be approached as between the parties dealing with each other on a commercial basis.
4. There might be occasions where the lease provided that the normal disregard of alterations and improvements would not apply. However, that would have to have been agreed between the parties as part of the terms of lease in clear terms. It could not be read into the agreement in the instant case in so oblique a manner via the licences granted by the landlords to the tenant to carry out the improvements. If the condition of granting consent was that the tenant should have the rent reviewed by reference to his own improvements, the language used was not nearly clear enough to read their agreement in that way.
David Neuberger QC and Erica Foggin (instructed by Stone Porter) appeared for the appellant landlords; Hazel Williamson QC and John Male (instructed by Travers Smith Braithwaite) appeared for the tenant.
