Landlord and tenant–Reddendum in lease for 21-year term provides for a rent of £250 per year during the first seven years of the term and during the remainder of the term ‘such rent as may be agreed between the parties hereto’–Whether latter provision one to which the court can give effect or whether void for uncertainty–In fact in this case a rent of £250 had continued to be paid and accepted after the expiry of the first seven years–Authorities reviewed by judge–If it had not been for the rent stated for the first seven years the agreement would have been void for uncertainty and the lease void for a failure of consideration–The fixing of a rent for the first seven years enabled an implication to be made in the event of disagreement–Implication not that of a reasonable or market rent or no rent at all, but of the original rent of £250 per year–Declaration accordingly
This was an
originating summons for the construction of the provision as to payment of rent
in a lease dated September 12 1962 of garage premises at the back of the High
Street at Great Missenden, Buckinghamshire, the lease being now vested in the
defendants, Leonard Charles Victor King and John Bleby, the trustees of the
will of Sidney Thomas Brazil, deceased. The reversion had vested in the
plaintiff, Denise Nesta King.
L J Libbert
(instructed by Stanleys & Simpson, North, agents for Howard, Killin &
Bruce, of Great Yarmouth) appeared on behalf of the plaintiff; Paul de la
Piquerie (instructed by Rubinstein Callingham) represented the defendants.
Giving
judgment, NOURSE J said: In this case a reddendum in a lease, having fixed a
rent for the first seven years of a 21-year term, prescribes for the remainder
‘such rent as may be agreed between the parties hereto.’ Is that a provision to which the court can
give effect or is it an agreement to agree on terms which are not themselves
agreed and therefore void for uncertainty?
The lease, which was made on September 12 1962, is of a garage and
premises at the back of the High Street, Great Missenden, Bucks. The lease is
now vested in the defendants and the reversion in the plaintiff.
The habendum
and reddendum in clause 1 of the lease are in the following terms:
To HOLD unto
the Tenant from the 29th September 1962 for the term of twenty one years
determinable as hereinafter mentioned YIELDING AND PAYING therefor the
following rents that is to say during the first seven years of the said term
the yearly rent of £250 and during the remainder of the said term such rent as
may be agreed between the parties hereto.
Clause 4(b)
gives the tenant a power to determine the lease at the end of the seventh or
fourteenth years. Its other provisions are in conventional form and do not
require mention. At all times both before and after 1969 a yearly rent of £250
has been paid by the tenant and accepted by the landlord.
The first task
of the court in a case of this kind is to construe the words themselves. In
most cases any shortcomings of accidence and syntax can be cured, any
deficiencies in expression restored and any surplusage wasted, all by the rules
of construction. But sometimes, construction done, there is a gap which cannot
be filled by any fair reading of the words themselves. In such a case the court
has to decide whether further words ought to be implied in order to effect what
must have been the intention behind the express words. In the interpretation of
wills, settlements and other unilateral documents the processes of construction
and implication are often merged. Questions of implication pure and simple most
frequently arise in cases of consensual documents, of which commercial
contracts and leases are two examples.
All this is a
familiar stuff, but it needs to be cut out again to suit the present case in
which it is clear that, construction done, there is a gap. There is no
provision for fixing the rent after the first seven years in case the parties
should not agree.
It is settled
law that an agreement to agree on terms which are not themselves agreed is void
for uncertainty. The classical authority for that proposition in this century
is the judgment of Parker J in Von Hatzfeldt-Wildenburg v Alexander
[1912] 1 Ch 284 at p 289, as explained by Sargant LJ in Chillingworth v Esche
[1924] 1 Ch 97 at p 113, that explanation being approved by Lord Buckmaster in May
& Butcher Ltd v The King [1934] 2 KB 17 (note) at p 20. If
therefore you find an agreement to sell or let at a price or rent to be agreed,
that agreement is unenforceable unless you can imply a provision fixing the
price or rent in default of agreement.
A case where
such an implication was made is Foley v Classique Coaches Ltd
[1934] 2 KB 1. In that case a vendor and purchaser of land further agreed that
the vendor should sell to the purchasing company all the petrol it required for
the running of its business on the land ‘at a price to be agreed by the parties
in writing and from time to time.’ The
agreement contained a provision for the submission to arbitration of any
dispute or difference arising ‘on the subject-matter or construction’ of the
agreement. It was held that a term ought to be implied to the effect that the
petrol should be supplied at a reasonable price and, in default of agreement,
that the price should be determined by arbitration. The decision was greatly
assisted by the particular wording of the arbitration clause, but I am inclined
to think that the Court of Appeal, and also Lord Hewart CJ in the court below,
would still have distinguished May & Butcher Ltd v The King
(supra) and made the implication without that clause. I say this mainly
because two members of the Court of Appeal (Scrutton and Maugham LJJ) relied on
the tied house cases, such as Catt v Tourle (1869) 4 Ch App 654
and Courage & Co v Carpenter [1910] 1 Ch 262, which do not
depend on whether there is a provision for arbitration or not. The effect of
those cases is that there will be implied in a conveyance or lease of a tied
house a term that the beer which the publican is required to purchase from the
brewer will be of a reasonable quality and sold at a reasonable price; although
it must be said that in none of them was that implication made in the face of
an express provision that the beer should be sold at a price to be agreed.
Nevertheless I
will assume it to be the law that where there is an agreement between the
parties to a conveyance or lease of land for sale of beer, petrol or suchlike
on an exclusive basis at a price to be agreed and no more it will readily be
implied that in default of agreement the price should be a reasonable one,
which will if necessary be fixed by the court. In my judgment such an
implication would wholly accord with the principles which the court has always
applied to commercial contracts of this nature. Those principles have recently
been restated by the House of Lords in Liverpool City Council v Irwin
[1977] AC 239, from which I take the rule to be that a term will be implied
only if it is necessary to give business efficacy to the agreement; a standard
which is met if both parties, being reasonable men, would have unhesitatingly
agreed to its inclusion. In my judgment that standard is prima facic met
in the beer and petrol cases, because it can only be assumed that reasonable
commercial men would unhesitatingly agree that the commodity should be sold at
the reasonable price from time to time. In that kind of long-term, exclusive
relationship the parties cannot be taken to be in business to make an agreement
on any other basis.
There are also
other cases where the court will strive to imply the standard of reasonableness
in default of agreement between the parties. One example is F & G Sykes
(Wessex) Ltd v Fine Fare Ltd [1967] 1 Lloyd’s Rep 53, where there
was an agreement (after an initial period in respect of which there could be no
uncertainty) for the purchase of such a number of broiler fowls as might be agreed
between the parties; there was an arbitration clause, again in wide terms, and
the agreement had been partially executed. The Court of Appeal held that there
was an implied term that the number should be a reasonable one to be
determined, in default of agreement, by arbitration. I myself recently
considered another possibility in Walters v Roberts (June 11
1980) where on a construction of an agreement for the sale of land which I did
not accept, completion would have taken place on a date to be agreed between
the parties. Although it was unnecessary for me to express a concluded view on
the question, my strong inclination was to think that in such a case a term
would be implied to the effect that in default of agreement completion should
take place within a reasonable time. That did not seem to me to be a very big
step to take in the light of the invariable implication to the same effect in a
case where the agreement is altogether silent on the point.
But when you
come to an agreement to sell or let property at a price or rent to be agreed,
it seems to me that entirely different considerations apply. In that kind of
case the parties can still be taken to be reasonable commercial men and yet to
be capable of asking or paying either more or less than what is reasonable. For
example, a landlord may be prepared for good commercial reasons to let his
property to a chosen tenant for less than a reasonable rent or a purchaser for
the like reasons to purchase for a sum in excess of a reasonable price, and so
on. In that kind of case it cannot be assumed that reasonable commercial men
would unhesitatingly agree that the price or rent should be a reasonable one,
because either, if asked, might say, ‘Oh no. I would be prepared to agree that
it should be something other than reasonable.’
In these circumstances, consistently with established principles, I do
not see how the standard of reasonableness, or indeed of anything else, can be
implied in an agreement to sell or let property at a price or rent to be
agreed. I do not regard the objection as legalistic, but as founded in
commonsense. It is purely and simply that the court cannot be certain that the
standard of reasonableness is that which both parties would have intended to
apply in the event of a disagreement.
The
impossibility of making the necessary implication in a case of this kind was
recognised by Burgess V-C in King’s Motors (Oxford) Ltd v Lax
[1970] 1 WLR 426 where it was held that an option to renew a lease at such a
rental as might be agreed upon between the parties was void for uncertainty. Of
all the judges I have known I cannot think of one whose robust spirit would
have more protested at that result. In my judgment that decision was entirely
correct; and to have held otherwise would have been, so far as I know, to go
further than any other court had previously gone. The correctness of the
decision has, I think, been subsequently accepted by Brightman J in Smith
v Morgan [1971] 1 WLR 803 at p 808, and more clearly by Megarry J in Brown
v Gould [1972] Ch 53 at p 58. In each of those cases the court was able,
in different circumstances, to save an option to renew and an option to
purchase respectively.
Returning to
the lease in the present case, I am therefore of the opinion that if the
reddendum had merely provided for payment of such rent as might be agreed
between the parties that agreement would have been void for uncertainty; and
the lease, too, would have been void for a total or substantial failure of
consideration. It is highly unlikely that a reddendum would ever take that
form, but the hypothesis is necessary as a starting-point. The question then is
does the fixing of a rent for the first seven years enable an implication to be
made as to the rent which will be payable thereafter in the event of a
disagreement between the parties? In my
judgment it does. I have already given my reasons for rejecting the standard of
reasonableness in the simple case of an immediate rent; and those reasons must,
if anything, apply a fortiori where the rent is not to be agreed until
some years later. Two other possibilities were suggested: first, no rent at all
and, secondly, the original yearly rent of £250. The question must be viewed as
at the date of the lease and without any assumption that the parties thought that
the further rent would necessarily be more than the original. That assumption
is easy to make in times of inflation, but there is no warrant for it within
the terms of the lease. At that date the parties agreed £250 per annum for the
first seven years and contemplated an agreed, but unspecified, figure
thereafter. It is inconceivable that they thought the figure would be nil. On
the other hand, there is nothing which shows they thought it would necessarily
be different from the original. I mention that because it is obvious that you
cannot imply a term which is inconsistent with the express words. Then I ask
myself, what could be more natural than that the parties, if asked, would
unhesitatingly have said that if they were unwilling or unable to agree a figure
in 1969 they should stand by that which they had been willing and able to agree
in 1962? I can see no real answer to
that suggestion and, like Scrutton LJ in Foley v Classique Coaches
Ltd (supra), I cannot disregard the fact that that is the view of the
matter upon which the parties appear to have been acting for over 10 years
past. In my view there must be implied in the reddendum a term that in default
of agreement the rent payable during the remainder of the term is to be the
original yearly rent of £250.
I was referred
to two other cases, in each of which there was a reddendum in terms not
dissimilar from that in the present case. The first was Beer v Bowden
(1975) 237 EG 41, [1976] 1 EGLR 83, where after an initial fixed rent the
reddendum provided for payment of ‘such rent as shall thereupon be agreed
between the landlords and tenant but no account shall be taken of any
improvements carried out by the tenant in computing the amount of increase if
any and in any case not less than the yearly rental payable hereunder. . .
.’ The landlords argued for a proper and
reasonable rent in default of agreement and the tenant for the continuance of
the original rent. Foster J rejected both arguments, the latter on the ground
that on the construction of that lease the parties clearly contemplated a rent
which would be different from the original. That is sufficient to distinguish
that case from the present and I need say no more about it. Then Mr Barkworth,
who was in court during the argument, was able to provide counsel and myself
with a transcript of the judgment of Mr Michael Wheeler QC, sitting as a deputy
high court judge of
(Lingerie) Ltd (June 6 1979) [since reported at (1980) 39 P&CR 517]. In
that case the reddendum, having fixed the rent for the first five years of a
14-year term, proceeded as follows: ‘for the next period of five years of the
said term and the final period of four years of the said term such rents as
shall have been agreed between the lessor and the lessee. . . .’ In a very careful judgment the learned judge
reviewed many of the authorities to which I have referred and concluded that a
term ought to be implied to the effect that in default of agreement the rents
were to be the reasonable or market rents at the material times. It does not
seem to me to be possible to distinguish that case from the present. However,
while I have every sympathy for the learned judge’s manifest desire to achieve
that result if it were possible for him to do so, I must, for the reasons which
I have already given, respectfully dissent from his conclusion. I should add
that the tenant did in that case argue for the continuance of the original rent
in default of agreement, but the judgment did not deal, and no doubt on the
view the learned judge took it did not need to deal, with that argument on its
merits.
In my judgment
the lease dated September 12 1962 ought to be construed and operate as if in
the reddendum in clause 1 thereof there had been inserted between the words
‘between the parties hereto’ and the words ‘by equal quarterly payments’ the
words ‘and in default of such agreement the said yearly rent of Two hundred and
fifty pounds’ and I shall so declare.
The plaintiff
was ordered to pay the defendants’ costs.
