Rent review — Hypothetical lease — Extent of property to be demised — Effect of obligation to contribute towards development — Assessment of rent
The plaintiff landlord owns the reversion to a 150-year lease of the Royal Garden Hotel in Kensington, London; the defendant is the tenant. The lease was granted in 1955. Part of the north-east corner of the hotel was built on land not owned by the plaintiff, and the plaintiff was at a later date granted a 31-year lease of this area. The plaintiff sought determinations of several questions arising in connection with the meaning and effect of the rent review provisions in the lease. By clause 3 of the lease the basic rent for the term was the aggregate of certain sums including 10% of the development costs (less contributions by the tenant to those costs). By clause 4(2) of the lease the basic rent is to be adjusted at review by reference to the “rack rent value”; this is to represent the best rent for the demised premises in the open market let as a whole unfurnished and with vacant possession and, after making an allowance for a contribution paid by the tenant towards the original development of the site, for a term equal to the residue of the lease unexpired at the review subject to the covenants and conditions similar to those in the lease.
An area of land on the north-east was not part of the demise, but the hotel was partly built on this. The first question was directed to the correct assumptions in relation to this land and the hypothetical lease. The other questions concerned the contribution made by the tenant towards the development on the site.
Held 1. It must be assumed that the yearly rack rent is to be determined upon the footing that the hypothetical tenant will acquire a lease of the whole of the hotel, including the north-east corner. Had the position been otherwise, the hypothetical tenant could not be assumed to have any prospects of relying on the rule in Wheeldon v Burrows (1879) 12 ChD 31 or on section 62 of the Law of Property Act 1925 in obtaining rights over the north-east corner in relation to the hypothetical letting.
2. By clause 3(ii) of the lease, the basic rent for the term of the lease included 10% of the total costs of development less contributions made by the tenant towards the costs of development of the site. There had to be deducted from the best rent an allowance in respect of any contribution made by the tenant pursuant to clause 3(ii) of the lease in arriving at the “yearly rack rent value” at the rent review.
Kim Lewison (instructed by Osborne Clarke) appeared for the plaintiff; and Martin Mann QC and Michael King (instructed by Richards Butler) appeared for the defendant.
