Construction of a rent review clause — Whether time of the essence for an arbitrator’s determination of rent — Parties failed to agree rent — Application for declarations by tenant dismissed
tenant holds the term of a lease dated December 15 1975 of premises at 27
Watling Street, Canterbury, Kent — The defendants are the owners of the
reversion to the term — The lease made provision for an upward-only rent review
to the current market rental value in respect of what was described as the
fourth rent period commencing June 25 1990 — The current market rental value
was to be the amount agreed between the landlords and the tenant six months
prior to the commencement of the fourth rent period ‘or in the absence of
agreement (time to be of the essence of this provision) as shall be determined
by an Arbitrator’ — The lease further provided that the arbitrator was to make
his determination by a date three months prior to the commencement of the
second rent period or the third rent period (as the case may be) — The tenant
sought a declaration that the landlords had failed to comply with the time
schedule for the rent review and, in applying for the appointment of an
arbitrator on June 29 1990, had no authority to make that application
review clause to the arbitrator was to make his determination by a date three
months prior to the commencement of the second rent period or the third rent
period, but there was no similar direction in relation to the fourth rent
period — The decision of Walton J in C Bradley & Sons Ltd v Telefusion
Ltd distinguished — Even if the arbitration provision had included a
reference to the fourth period, it was more likely that the words ‘time to be
of the essence’ relate back to the provision for agreeing a rent six months
prior to the rent review period and do not relate forward to the time-limit in
which the arbitrator has to make his award
The following
cases are referred to in this report.
Bradley
(C) & Sons Ltd v Telefusion Ltd (1981)
259 EG 337, [1981] 2 EGLR 94
Phipps-Faire
Ltd v Malbern Construction Ltd [1987] 1 EGLR
129; (1987) 282 EG 460
Power
Securities (Manchester) Ltd v Prudential
Assurance Co Ltd [1987] 1 EGLR 121; (1986) 281 EG 1327
United
Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33
P&CR 220; [1977] EGD 195; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
Wickman
Machine Tool Sales Ltd v L Schuler (AG)
[1974] AC 235; [1973] 2 WLR 683; [1973] 2 All ER 39; [1973] 2 Lloyd’s Rep 53,
HL
The plaintiff,
Kings (Estate Agents) Ltd, is the tenant under a lease dated December 15 1975
of premises at 27 Watling Street, Canterbury, Kent, and sought declarations as
to the true construction of that lease against the defendant landlords,
Christopher Austen Anderson and Michael John Austen Anderson.
Peter Kirby
(instructed by Farmar & Shirreff, of Sevenoaks) appeared for the plaintiff;
Andrew Goodman (instructed by Colin Hayward & Co, of Ashford) represented
the defendants.
Giving
judgment, MERVYN DAVIES J said: This case concerns the construction of a
rent review clause in a lease dated December 15 1975 of premises at 27 Watling
Street, Canterbury. There is an originating summons dated October 26 1990. The
plaintiff tenant is Kings (Estate Agents) Ltd. The defendant landlords are
Christopher Austen Anderson and Michael John Austen Anderson. The plaintiff
seeks two declarations:
1. A
declaration that on the true construction of the lease the defendants are not
entitled to have the rent reviewed for the period from the 25th June, 1990 and
during the residue of the term, having failed to comply with the strict time
schedule for such a rent review to come into operation as set out in Clause
1(4) of the lease and
2. A
declaration that in the events which have happened the defendants had no
authority under the lease to apply to the President of the Royal Institution of
Chartered Surveyors to appoint an Arbitrator to determine the current market
rental value of the premises.
The parties to
this action are not the original parties to the lease but it is not necessary
to set out any devolution of title. It is common ground that the plaintiff is
now the tenant and the defendants are now the landlords. By the lease the
premises 27 Watling Street were demised to the tenant for 20 years from June 25
1975. The rent payable is expressed in these words:
YIELDING AND
PAYING: therefor unto the Landlord by equal quarterly payments in advance on
the usual Quarter Days in every year the first of such payments to be made on
the signing hereof
(i) Until the Twenty Fifth day of June One
thousand Nine hundred and Eighty the yearly rent of One thousand Three hundred
pounds (hereinafter called ‘the initial rent’)
(ii) From the said Twenty Fifth day of June One
thousand Nine hundred and Eighty Five (hereinafter called ‘the second rent
period’) the yearly rent (hereinafter called ‘the second rent’) of One thousand
Six hundred pounds or such amount (whichever be the greater) ascertained as
hereinafter provided as representing the current market rental value of the
demised premises for the second rent period.
(iii) From the said Twenty Fifth day of June One
thousand Nine hundred and Eighty Five and until the Twenty Fifth day of June
One thousand Nine hundred and Ninety (hereinafter called ‘the third rent
period’) the yearly rent (hereinafter called ‘the third rent’) of the same
amount as the second rent or such amount (whichever be the greater) as shall be
ascertained as hereinafter provided as representing the current market value of
the demised premises for the third rent period.
(iv) From the said Twenty Fifth day of June One
thousand Nine hundred and Ninety and during the residue of the said term
(hereinafter called ‘the fourth rent period’) the yearly rent of the same
amount as the third rent or such amount (whichever be the greater) as shall be
ascertained as hereinafter provided as representing the current market rental
value of the demised premises for the fourth rent period.
The
expression ‘the current market rental value’ as hereinbefore used shall mean
such amount as shall be agreed between the Landlord and the Tenant by a date
not later than six months prior to the commencement of the second rent period,
the third rent period or the fourth rent period (as the case may be) as
representing the current market rental value at such date of the demised
premises or in the absence of agreement (time to be of the essence of this
provision) as shall be determined by an Arbitrator as sole arbitrator acting
under the provisions of the Arbitration Act 1950 or any statutory modification
or re-enactment thereof for the time being in force to be nominated by the
President for the time being of the Royal Institution of Chartered Surveyors on
the application of the Landlord and so that in case of any arbitration the
current market rental value as at such date at which the same is required to be
ascertained shall be of such amount as shall in the opinion of the Arbitrator
represent the rent at which the demised premises might reasonably be expected
to be let for a term equivalent to the then unexpired residue of the term
hereby granted as between a willing landlord and willing tenant with vacant
possession and taking no account of any goodwill attributable to the demised
premises by reason of any business carried on there by the Tenant or of any
improvements made to the premises by the Tenant otherwise than pursuant to any
obligation of the Tenant hereunder and in all other respects on the terms and
conditions of this Lease and in the case of any arbitration the Arbitrator
shall make his determination by a date three months prior to the commencement
of the second rent period or the third rent period (as the case may be) and all
fees costs and expenses payable in respect of such arbitration shall be borne
by the parties hereto in equal shares.
A reading of
the above shows that if a new rent was to run from June 25 1990 it was supposed
that such a new rent could be agreed between the parties by a date ‘not later
than six months prior to the commencement of . . . the fourth rent period’, ie
December 25 1989. In the absence of agreement there is to be arbitration. There
was no agreement prior to December 25 1989. In a letter dated March 12 1990 the
landlords’ agent proposed a rent of £19,500. That was not acceptable and so on
June 29 1990 the agent informed the tenant that he had written to the Royal
Institution of Chartered Surveyors requesting the appointment of an arbitrator,
adding:
. . .
although I hope that we may be able to reach agreement before the appointment
is made.
The plaintiff
was not content with that course. The plaintiff took the view that any new rent
should have been agreed by December 25 1989 and, since it was not so agreed, it
was then (in June 1990) too late to go to arbitration because, time being
expressly of the essence of the review provision, any arbitration decision ought
to have been made by March 25 1990.
For general
guidance I was referred to several authorities and in particular to the words
of Lord Diplock in United Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904* at p 930G. He says:
. . . I would
hold that in the absence of any contra-indications in the express words of the
lease or interrelation of the rent review clause itself and other clauses or in
the surrounding circumstances the presumption is that the time table specified
in a rent review clause for completion of the various steps for determining the
rent payable in respect of the period following the review date is not of the
essence of the contract.
*Editor’s
note: Also reported at (1977) 243 EG 43, [1977] 2 EGLR 61.
See also Phipps-Faire
Ltd v Malbern Construction Ltd [1987] 1 EGLR 129 at p 131F and Power
Securities (Manchester) Ltd v Prudential Assurance Co Ltd [1987] 1
EGLR 121 at pp 122L to 123J.
Thus, as I
understand, while there is a general presumption that time is not of the
essence when operating a rent-fixing procedure, the presumption yields to
compelling contra-indications. Here there is an express and compelling
contra-indication because the material clause includes the words ‘. . . (time
to be of the essence of this provision)’. But then the question arises whether,
on the true construction of the clause, that phrase (a) relates back to the
provision about agreeing ‘by a date not later than six months prior . . .’ that
is, the agreeing provision, or (b) relates forward to the provision whereby the
arbitration is to be concluded ‘by a date three months prior to the
commencement of . . .’ and that is the arbitration provision, or (c) relates to
both the agreeing provision and the arbitration provision.
In C
Bradley & Sons Ltd v Telefusion Ltd (1981) 259 EG 337, [1981] 2
EGLR 94 Walton J had to construe a clause which, apart from some
me. There the learned judge rejected — see p 338 — a submission that the
time-essence words related to both the agreeing provision and the arbitration
provision, ie he rejected (c) above. Before me counsel did not contend for (c).
In these circumstances I am left with (a) and (b).
Walton J took
the view that the time-essence words related to (b), ie to the arbitration
provision. He said at p 339:
The clause is
in two parts. There is first what may be called the ‘agreement’ part and then
there is the ‘arbitration’ part, and those are separated by the word ‘or’ — ‘or
in the absence of agreement (time to be of the essence of this provision)’. It
seems to me that the more natural way of reading ‘time to be of the essence of
this provision’ is that it is applying to what is to come, not what has gone
previously. When one adds to the fact that if it did apply to what had gone
previously, it would, in my view, be virtually making an absolute nonsense of
the provisions. It seems to me beyond all cavil that that is really the way in which
this clause ought to be read.
So in that
case the landlord was unable to achieve a rent review as being out of time.
However, the same result does not emerge in the present case even if one adopts
the construction of Walton J. This is because of the surprising wording at the
end of the arbitration provision. One sees the words ‘. . . the arbitrator
shall make his determination by a date three months prior to the commencement
of the second rent period or the third rent period (as the case may be)’. One notes
that there is no mention of the fourth rent period. So, time being of the
essence according to the construction of Walton J (and disregarding, on this
matter of construction, any relevant provision of the Arbitration Acts
1950-1979) the arbitrator would have to give his decision on rent for the
second period by March 25 1980 and for the third period by March 25 1985. But
looking again at the words just quoted there is not laid on the arbitrator any
time period for the making of his determination of the fourth rent by a date
three months prior to the commencement of the fourth rent period, ie March 25
1990. Thus it seems to me that even if time was intended to be of the essence
of the arbitration provision it was intended to be of the essence only as respects
the arbitrator’s determinations for the second and third rent periods. It
follows that a determination of rent for the fourth period did not have to be
made by March 25 1990 or at all. The position appears to me to be that with the
passing of December 25 1989, with the parties not having agreed the fourth
period rent, the landlord was entitled, at any rate within a reasonable time,
after December 25 1989, to apply for the appointment of an arbitrator. The
application referred to in the letter dated June 29 1990 was made within a
reasonable time. The arbitrator appointed pursuant to that application is, for
the reasons I have given, able to make his determination after March 25 1990.
One may of
course speculate to the effect that the omission of a reference to the fourth
period at the end of the arbitration provision has arisen by mistake. But I do
not think that there is here any more than a possibility of a mistake. I cannot
say that there was probably a mistake in omitting a reference to the fourth period.
I have in mind the words of Lord Simon of Glaisdale in Wickman Machine Tool
Sales Ltd v Schuler (AG) [1974] AC 235 at p 263:
There is one
general principle of law which is relevant to both questions. This has been
frequently stated, but it is most pungently expressed in Norton on Deeds
(1906), p 43, though it applies to all written instruments:
‘. . . the
question to be answered always is ‘What is the meaning of what the parties have
said?’ not ‘What did the parties mean to say?’ . . . it being a presumption
juries et de jure . . . that the parties intended to say that which they have
said’.
It is, of
course, always open to a party to claim rectification of an instrument which
has failed to express the common intention of the parties; but, so long as the
instrument remains unrectified, the rule of construction is as stated by Norton.
It is, indeed, the only workable rule.
It follows
that the plaintiff is not entitled to the declaration sought.
Had the
arbitration provision included at its end a reference to the fourth period I
would have been obliged to decide whether the time-essence words related to (a)
the agreeing provision or (b), as Walton J decided, the arbitration provision.
I have great difficulty in agreeing with Walton J. It seems to me that the
words ‘time to be of the essence . . .’ relate back to the word ‘agreement’ and
have the force of indicating that if an agreement is not reached by the
relevant date then there is to be no more time allowed so that the landlord can
then apply for arbitration. The fact that the parties are still thereafter able
to agree does not seem to me to vitiate that construction. So the declarations
are not made.
