Underlease — License — Open market rent — Whether arbitrator should disregard the effect upon rent of building works carried out pursuant to licence — High Court holding that such works should not be disregarded
On October 31 1981 an underlease was made of premises at 190/196 Piccadilly and 36/40 Jermyn Street, London SW1. A review date under the lease arose on September 29 1991. A reviewed “open market rent” fell to be fixed for the ensuing five years. Para 1.2 of the third schedule defined “open market rent” and provided that in fixing the open market rent there should be disregarded: “1.2.3–any effect of any improvement made by the tenant for the time being after the date hereof otherwise than in pursuance of an obligation to the landlord; and 1.2.4 — the obligation to carry out the works detailed in the licence between the applicant landlord, the respondent tenant and the surety”. The reference to a licence was to a licence bearing the same date as the lease.
Certain works were permitted by the licence which were of a substantial character and involved effecting improvements. Clause 3(e) of the licence provided that those works should not be disregarded in any review of rent payable from time to time under the lease. A question arose whether in setting the revised rent an arbitrator should disregard the effect upon rent of building works carried out pursuant to the licence and specified in the first schedule thereto. It was common ground that the lease and the licence had to construed together.
Held The arbitrator should not disregard the effect of the building works.
1. Para 1.2.3 of the third schedule to the lease showed plainly that there was to be no disregard of improvements made in pursuance of an obligation to the landlord.
2. Para 1.2.4 was there to make plain beyond doubt that on a rent review the arbitrator was not to regard the tenant as under an obligation to carry out the first schedule works; that being an obvious provision, the works having already been carried out at the date of the review, it would be wholly unrealistic to have regard to the original obligation imposed on the original tenant.
3. Finally there was clause 3(e) of the licence which made it plain that the works were not to be disregarded on any review.
Martin Hutchings (instructed by Norton Rose) appeared for the landlord; Gregory Hill (instructed by Piper Smith & Basham) appeared for the tenant.
