Landlord and tenant–Rent review clause in lease of premises in Jermyn Street occupied by tenants for business of dealing in old master paintings and sculptures–Estoppel by conduct–Notice given out of time by landlords to operate rent review clause–Notice treated as invalid before House of Lords decision in United Scientific Holdings Ltd v Burnley Borough Council–After that decision, and more than five years after service of out-of-time notice, landlords claimed that notice was valid and effective–Unrevised rent had been accepted during that period and no indication given that landlords would assert right to review based on old notice–Detriment suffered by tenants–Principles of ‘estoppel in pais’ or by conduct explained (although referred to by the judge as ‘promissory estoppel’)–Held that on the facts the landlords were estopped by their conduct from claiming increased rent for the period from the first review date referred to in their out-of-time notice until the date when they reasserted their rights
In these
proceedings the plaintiffs, James & Jacobs, estate agents, of Jermyn
Street, London, SW1, claimed by originating summons that they were entitled to
increased rent from the defendants, Heim Gallery (London) Ltd, tenants of
ground-floor premises at 59 Jermyn Street, by virtue of a rent review clause in
an underlease of the premises. The underlease was for a term of 18 years from
June 9 1965 and provided for rent reviews at the end of the seventh and fourteenth
years subject to the conditions therein mentioned.
P Batterbury
(instructed by Thomas Eggar & Son, of Chichester) appeared on behalf of the
plaintiffs; G Lightwan (instructed by Oppenheimer, Nathan & Vandyk)
represented the defendants.
Giving
judgment, JUDGE THOMAS said: By an underlease dated October 28 1965 Crittall
Holdings Ltd demised to the defendant, Heim Gallery (London) Ltd, the ground
floor of 59 Jermyn Street, St James’s, for the term of 18 years from June 9
1965, at the yearly rent of £5,500, subject to increase at the end of the
seventh and fourteenth years as therein provided. The plaintiffs, Mr James and
Mr Jacobs, are now, and at all material times have been, the lessors under the
underlease as successors in title to Crittall Holdings Ltd. The plaintiffs
carry on in partnership the business of auctioneers, estate agents, surveyors
and valuers. The defendant company runs an art gallery at 59 Jermyn Street.
Clause 5 of
the underlease contains the following provisions:
(a) That if at the expiration of the first seven
and fourteen years of the said term, namely on the 24th day of June One
thousand nine hundred and seventy-two and the 24th day of June One thousand
nine hundred and seventy-nine the lessors shall desire to increase the rent hereby
reserved on the ground that such rent is less than the open market rental value
of the premises, the lessors shall at any time being not less than six months
before such expiration give to the lessee notice in writing to that effect and
shall in such notice state the lessors’ assessment of the open market rental
value.
(b) Unless the lessee shall within 30 days of the
service of such notice give a counter-notice in writing to the lessors
objecting to the amount of the lessors’ assessment of the open market rental
value, then the rent payable hereunder shall be increased to the amount of the
lessors’ assessment.
(c) In case the lessee should object to the
lessors’ assessment of the open market rental value, the parties shall
forthwith endeavour to agree the calculation thereof between themselves and,
failing agreement thereon, the amount shall be determined by an independent
surveyor to be appointed in the event of the parties failing to agree upon one
by the President of the Royal Institution of Chartered Surveyors.
On June 5 1972
Mr James wrote a letter to Mr Pommian, a director of the defendant company, in
the following terms:
Dear Mr
Pommian,
Ground
Floor, 59 Jermyn Street, SW 1 I confirm that your
rent review operates from June 24th this year and I gather from your office
that you are away until July 1st and will deal with this matter. I have
recently carried out an inspection of your premises, and your ground floor, in
my opinion, has a current rental value of £17,000 per annum exclusive. Perhaps
you can contact me on your return from your holiday so that we can finalise the
matter.
As the law
then stood or was then understood, the letter was a bad notice under clause
5(a) because it was out of time. Mr James candidly admitted in evidence that he
knew his notice was out of time when he served it, but he hoped that that would
be overlooked.
Mr Pommian
replied to Mr James by a letter dated June 19 1972. He said:
Dear Mr
James,
Ground
Floor, 59 Jermyn Street SW1 Returning from my
holiday, I found today your letter of the 5th June with the suggestion that our
rent should be increased up to the frightening sum of £17,000 per annum which
would be a severe blow to our business. It seems to me, however, that there is
a misunderstanding somewhere as, according to the terms of our lease, the next
deadline for a rent review is the 24th December 1978.
The next
letter was dated June 27 1972 and was from the solicitors then acting for the
plaintiffs to the defendant company.
It reads:
We act for
Messrs James and Jacobs who have passed to us your letter to them of the 19th
instant. We cannot understand your comment that your rent is not due for
revision until the 24th December 1978. It is due for revision now and we must
ask you to be so good as to let us hear from you either agreeing the rent put
forward by our clients or with a suggestion as to what you consider the present
day market rental should be.
The defendant
company’s solicitors replied to that on July 3 1972. The reply reads:
We act for
the tenant company in connection with the above-mentioned matter–
the heading
referred to the lease–
and have
recently had sent to us by our clients your letter to them of the 27th ultimo.
Our client’s comment is quite a simple one, that a rental revision cannot now
be made until any time not being less than six months before the 9th June 1979.
May we please refer you to clause 5(a) of the original underlease of the 28th
October 1965 made between the parties which provides that the landlord shall at
any time being not less than six months before the 9th June 1972 give notice
stating the lessors’ assessment of the open market rental value. This the
lessors failed to do and therefore are not in a position to revise the rent
until the date referred to above.
There was no
further correspondence between the parties for over five years, that is until
October 31 1977 when the plaintiffs’ present solicitors wrote to the defendant
company’s solicitors. I shall come back to that presently. In the meantime, the
plaintiffs served regular quarterly rent demands on the defendant company; the
rent demanded was £1,375, that is one-quarter of the original rent of £5,500
reserved by the underlease. The rent was paid in accordance with the demand.
The first of these demands, which was dated September 21 1972, was marked
‘without prejudice,’ perhaps in the hope that there would be a change in the
law helpful to the plaintiffs. That label, however, was dropped, and no demand
subsequent to the first was so marked.
Then, some
time in the late autumn of 1972 there was a chance meeting between Mr James and
Mr Pommian at 59 Jermyn Street. There was brief conversation against the
background of Mr James’ failure to give the notice dated June 5 1972 in time.
Mr James said something like, ‘One can’t always win,’ or that he treated
winning and losing in the same way. This led Mr Pommian to believe, as it would
have led anyone to believe, that the matter of rent review was closed.
The next thing
that happened gave rise to these proceedings. In March 1977 the House of Lords
decided the United Scientific Holdings and Cheapside Land Development
cases. They decided that time was not of the essence in rent review clauses.
The two cases are now reported in [1978] AC 904. In the light of the decisions,
the defendant company now concedes that the notice dated June 5 1972 was not
bad by reason of the fact that it was given out of time. Some time in early
October 1977 Mr James read a report, either in The Times or in Estates
Gazette, which referred to the House of Lords decisions. This led him to
consult his present solicitors who, in the letter dated October 31 1977 which I
have already mentioned, wrote to the defendant company’s solicitors and
reasserted the plaintiffs’ claim to an increased rent under the 1972 review
provisions contained in the underlease. I should perhaps add in passing that
the 1979 review provision has been operated and an increased rent under those
provisions has been agreed and is now being paid.
The letter of
October 31 1977 read as follows:
On the 5th
June 1972, our clients gave notice that they required the rent to be reviewed
from the 24th June 1972 and stating the rent required. We are instructed that
your clients contested the notice stating it was bad, having been given out of
time and not in accordance with the provisions of clause 5(a) of the lease. We
have advised our clients that the letter of the 5th June 1972 was a good notice
and was sufficient to operate the rent review even though it was not given six
months before the expiration of the seventh year of the term. We appreciate
that the law was uncertain on the question of whether the time stipulated in
the lease relating to rent reviews was of the essence until the House of Lords
decisions given in April this year in the two cases, namely United
Scientific Holdings Limited v Burnley Borough Council and Cheapside
Land Development Company Ltd v Messels Service Co [1977] 2 WLR 806.
The Judgments in these cases make it quite clear that time stipulations in
leases, unless they state to the contrary, are not of the essence of the
contract. In the circumstances, therefore, we must ask whether it is your
clients’ intention to continue to dispute the notice given by your letter in
June 1972 and refuse to pay the rent of £17,000 stated therein. If the notice
is in dispute, we have advised our clients that they should make an immediate
application to the court.
The next
material letter was written by the defendant company’s solicitors to the
plaintiffs’ solicitors on December 22 1977. It reads:
Further to
our letter of the 5th instant–
a letter which
I have not read–
our clients
now have taken advice and we have received their instructions which are that,
in view of the fact that after your clients’ claim to revise the rent was
refuted by them and ourselves, and of the fact that all supplemental demands
for rent were received and paid on the basis that it was accepted that the rent
review could not then take place–
presumably
‘supplemental’ should read ‘subsequent’–
our clients
proceeded on the basis that no claim to revise the rent would be made by your
clients. A sudden change now to require a rent review would, in our clients’
view, be an injustice. In particular there would be an injustice in any claim
up to the date of your letter to us of the 31st October 1977. However, on the
basis that any claim of a rent review in respect of rent to the 31st October
1977 is waived or conceded not to be payable, our clients are prepared to pay a
revised rental from the 31st October 1977. The question, of course, arises as
to what is the revised rent, your original letter suggesting that it should be
£17,000 per annum. If it should be held or agreed that the revised rent should
be payable in respect of any period, please accept this letter as a
counter-notice within clause 5(b) of the lease of the 28th October 1965 made
between the parties objecting to your clients’ assessment of the open market
rental value. We shall be glad to hear from you.
The offer
contained in that letter was rejected and these proceedings were commenced by
originating summons dated March 2 1978.
The plaintiffs
say that they are entitled to an increased rent for the period of seven years
from June 24 1972. The defendant company says that the plaintiffs are estopped.
A promissory estoppel has been raised against them.
I now turn to
relate some further facts. Mr Pommian swore an affidavit in these proceedings
on June 14 1978 in which he said:
On receipt of
the plaintiffs’ letter dated the 5th June 1972, the defendants consulted their
solicitors, Herbert Oppenheimer, Nathan and Vandyke and, on their advice, a
letter by way of reply dated the 3rd July was written denying the plaintiffs’
entitlement to review.
This was the
defendants’ honest and bona fide belief at the time, and this belief was
confirmed by the fact that the plaintiffs apparently accepted that this was
correct. For no reply or challenge was thereafter made to this letter, and the
plaintiffs took no steps to operate the review and demanded and accepted the payment
of the existing unreviewed rent until their letter dated the 31st October 1977.
The demand for the September quarter 1972 was headed ‘without prejudice,’ but
thereafter all demands and receipts were without qualification. No indication
was given that the matter of the review was otherwise than finally and
irrevocably settled.
The
defendants carry on the business of dealers in old master paintings and
sculptures. The business has been relatively small and, whilst it has been
sufficient to pay a rent of £5,500 per annum, it has never been sufficient to
pay a reviewed rent considerably larger, let alone the landlord’s proposed rent
of £17,000 per annum, an assessment to which the defendants have in any event
always objected.
In the belief
induced and confirmed as above that there was no right to review, and that this
view had been confirmed and was accepted by the plaintiffs, the defendants
continued to carry on business at the demised premises, conducted their
affairs, distributed profits, prepared their accounts, paid tax and generally
acted upon the basis that no rent in excess of £5,500 could, or would, be
claimed in respect of the period until the 24th June 1979.
Matters would
have proceeded quite differently if the plaintiffs had not apparently confirmed
and accepted the defendants’ view or if they had given any indication that they
continued to maintain the existence of any right to a review. First of all, the
defendants would have assigned their lease to a company better able to afford
the rent. During 1973, the defendants received a number of requests for
assignment from interested applicants. Secondly, the defendants would have
taken a lease of alternative good commercial premises in a less expensive area
at a rent they could have afforded.
During 1972
the defendants were frequently circularised with advertising material in
respect of such premises but ignored it for the reason that the demised
premises at the unreviewed rent were suitable. A move out of the West End would
not have substantially affected the defendants’ business. Further, no provision
has been made in the defendants’ accounts for payment of any excess of a
reviewed rent over the existing rent, and the defendants would be severely
embarrassed if required now to make such payments. In the foregoing
circumstances, by reason of the foregoing and the plaintiffs’ conduct as
hereinbefore set forth, the defendant contends the plaintiffs are, or should
be, precluded from now seeking to enforce the rent review clause or,
alternatively, from seeking to recover the reviewed rent in respect of any
period prior to their letter dated the 31st October 1977.
Mr Pommian
also gave evidence from the witness box. He said that during the years 1972 to
1977 the defendant company organised five loan exhibitions. These, he
explained, are exhibitions of art collections from foreign museums. The
collections are exhibited first at the gallery at 59 Jermyn Street and then at
public museums in the United Kingdom and Eire. The exhibitions were, he said,
for the purpose of cultural exchange. They were not commercial ventures. The
1972 exhibition cost the defendant company £3,000 and the one held in 1977 cost
£6,000. He conceded that the publicity attaching to the exhibitions would give
the defendant company a long-term commercial advantage, but said that he would
not have organised five exhibitions if, as he put it, ‘we thought the rent was
under review; we might have held one or two.’
Between 1972
and 1976 the defendant company made charitable donations amounting to £8,800.
Mr Pommian said that donations on such a scale would not have been made if he
had thought there was a liability to pay an increased rent.
In relation to
moving to less expensive premises, Mr Pommian said that, if the rent had
increased to £17,000, the defendant company would certainly have moved. If it
had been increased to £12,500, a move would have been very likely and, if the
increase had been of the order of 50 per cent of £5,500, the defendant company
would probably have stayed. The figure of £12,500 is a reference to a rent now
agreed between the parties as an acceptable rent for the seven-year period
beginning on June 24 1972, and it is proper that I should say that the
plaintiffs’ claim to judgment for an increased rent has been restricted in the
course of the hearing on the basis of that figure, rather than £17,000 per
annum.
As to the
defendant company’s finances, it appears for the accounting years from 1970 to
1976, ending in each case on September 30, that net profits after deduction of
tax fluctuated between a high of £6,600 and a low of £900, with a loss of £316
in 1976. The loss appears to be accounted for by a recession in art dealing in
1975. Since then, the defendant company has prospered, and its financial
position has much improved. Finally, it appears from the accounts for 1977 and
1978 that the defendant company has budgeted for a rent increase and set aside
reserves to meet it. These reserves have been set aside since the plaintiffs
reasserted their claim to an increased rent on October 31 1977.
I have, I
think, sufficiently related the factual history of the case. Now to the
principles governing estoppel. These are best stated, in my judgment, in Spencer
Bower on Estoppel, 3rd ed, at pp 110 and 111, where part of the judgment of
Dixon J (subsequently Chief Justice of Australia) in the Australian case of Grundt
v Great Boulder Proprietary Gold Mines (1937) 59 CLR 675 is quoted. I
adopt the quotation. In Central Newbury Car Auctions Ltd v Unity
Finance Ltd [1957] 1 QB 371, at p 380, Lord Denning MR approved it. It
reads, and I quote from Spencer Bower:
The principle
upon which estoppel in pais is founded is that the law should not permit
an unjust departure by a party from an assumption of fact which he has caused
another party to adopt or accept for the purpose of their legal relations.
This is, of
course, a very general statement, but it is the basis of the rules governing
estoppel. These rules work out the more precise grounds on which the law holds
a party disentitled to depart from an assumption in the assertion of rights
against another. One condition appears always to be indispensable That other
must have so acted or abstained from acting upon the footing of the state of
affairs assumed that he would suffer a detriment if the opposite party were
afterwards allowed to set up rights against him inconsistent with the
assumption.
In stating
this essential condition particularly where the estoppel flows from
representation, it is often said simply that the party asserting the estoppel
must have been induced to act to his detriment. Although substantially such a
statement is correct and leads to no misunderstanding, it does not bring out
clearly the basal purpose of the doctrine. That purpose is to avoid or prevent
a detriment to the party asserting the estoppel by compelling the opposite
party to adhere to the assumption upon which the former acted or abstained from
acting. This means that real detriment or harm from which the law seeks to give
protection is that which would flow from a change of position if the assumption
were deserted that led to it. So long as the assumption is adhered to, the
party who altered his situation upon the face of it cannot complain. His
complaint is that, when afterwards the other party makes a different state of
affairs the basis of an assertion of right against him, then if it is allowed,
his own original change of position will operate as a detriment. His action or
inaction must be such that, if the assumption upon which he proceeded were shown
to be wrong and an inconsistent state of affairs were accepted as the
foundation of the rights and duties of himself and the opposite party, the
consequence would be to make his original act or failure to act a source of
prejudice.
In my
judgment, and I look at the matter objectively–as I must–all the ingredients
necessary to found a promissory estoppel are present in this case. The
plaintiffs’ representations by words and conduct have caused the defendant
company to assume a state of affairs from which the plaintiffs are disentitled
to depart by reasserting their rights. Detriment or prejudice to the defendant
company is bound to flow from the change of position when the rights are
reasserted. I hold that the plaintiffs are estopped from claiming an increased
rent under the 1972 review for the period from June 24 1972 down to October 31
1977 when the plaintiffs reasserted their rights. Thereafter there is no
representation by the plaintiffs causing the defendant company to act or
abstain from acting upon any assumption.
Accordingly I
hold that the plaintiffs are entitled to recover the rent increase for the
period from October 31 1977 down to the date of the further increase agreed by
the parties under the 1979 review.
Two further
defences were raised by the defendant company, and I must deal with them.
First, it was argued that the notice of June 5 1972 was bad because it did not
set out a genuine assessment of the open market rental value. The figure of
£17,000 was not genuine but was dishonest, says the defendant company. The
figure is calculated by Mr James on the basis of £10 per sq ft for 1,700 sq ft.
What Mr James said in evidence was that he agreed £12,500 to be a fair rent in
1972; £15,000 he said would not have been too high. Rents were rising at the time,
the market was buoyant, and he said that £10 a sq ft was not unreasonable and
he thought he could have got it with vacant possession, albeit not with a
sitting tenant, and he put it forward, he said, as an opening gambit. There was
no other evidence on this point and I am far from satisfied that Mr James’s
assessment should be regarded as not being genuine or being dishonest, and I
reject that argument.
Secondly, it
was argued that in any event the plaintiffs’ rights under the 1972 notice must
in all the circumstances be regarded as having been abandoned altogether. In
support of this, I was referred to Chitty on Contracts, 24th ed, vol 1,
para 1371, and the cases there cited. In my view, what Chitty and those
cases are dealing with is the rescission of a contract by abandonment. In the
present case, we are concerned with a continuing relationship between landlord
and tenant which is different. I reject that argument also.
After some
discussion as to the appropriate order to be made, the judge decided that there
would be judgment for the sum of £3,500 to be paid to the plaintiffs with
interest at 10 per cent for a period of 15 months and that there would be no
order as to costs. On the application of counsel for the defendants leave was
given to appeal against the decision as to costs.
