Landlord and tenant–Questions of construction on a rent review clause in an underlease of premises comprising a shop on the ground floor, a showroom on the first floor and residential flats on the four upper floors–Rent review clause gave landlord a right to call for a review at intervals–The rent to be agreed or in default of agreement to be determined by a chartered surveyor nominated by the president of the RICS as that at which the premises might reasonably be expected to be let in the open market, there being ignored inter alia ‘any statutory restrictions on the amount of rentals’–The chartered surveyor was to act ‘as an expert and not as an arbitrator’–Held that no assumptions were to be made as to any of the flats being let or not let on regulated tenancies; that the surveyor was required to ignore all statutory restrictions both on the amount of any rent payable by a subtenant to the tenant and on that payable by the tenant to the landlord; and that the process to be undertaken by the nominated surveyor under the clause was one of valuation, not arbitration
This was an
originating summons taken out by the plaintiffs, Langham House Developments
Ltd, seeking declarations as to the construction of an underlease of premises
at 5, 6 and 7 Dover Street, Westminster. The underlease was vested in Brompton
Securities Ltd, the first defendants. The second defendant was Campbell Ian
Palmer, who was a guarantor of the rent payable. The relevant clause in the
underlease and the relief sought in the summons are set out in the
Vice-Chancellor’s judgment.
J A Dyson
(instructed by Bower, Cotton & Bower) appeared on behalf of the plaintiffs;
R J Ellis (instructed by Cowan, Lipson & Rumney) represented the
defendants.
Giving
judgment, SIR ROBERT MEGARRY V-C said: this originating summons raises
questions on a rent review clause in an underlease. The underlease was granted
on November 22 1977 by the plaintiff company, which I shall call ‘the
landlord,’ to the defendant company, which I shall call ‘the tenant,’ with the
second defendant as a guarantor of the rent. The premises consist of 5, 6 and 7
Dover Street, Westminster, and they comprise a shop on the ground floor, a
showroom on the first floor, and residential flats on the four upper floors.
The dispute arises primarily in relation to the flats. The underlease is for 42
years from June 24 1973, and after a short initial period at a lower rent, the
rent from March 1 1974 is £47,500 a year, with an insurance rent in addition.
There is a tenant’s covenant in clause 2(16) to use the upper floors as
high-class residential flats, each to be occupied by one family or household
only, and another covenant, in clause 2(18), which prevents the underletting of
any part of the premises save for the underletting of the entirety of each flat
at a full rack rent without taking any fine or premium. Clause 2(20)(a)
requires the tenant, on being notified thereof, to give the landlord
particulars of the registration under the Rent Act 1968 or any amendment or
re-enactment thereof of any rent for any part of the premises.
With that, I
can come to the clause at the centre of the dispute, clause 4(6)(a). This reads
as follows:
The said
yearly rent of £47,500 has been agreed between the parties hereto as a fair
yearly rent of the demised premises at the date hereof but the landlord shall
have the right not more than 12 nor less than three months prior to the 25th
day of December in the years 1978, 1983 and 1988 and in every third year
thereafter by giving to the tenant notice in writing of such desire to call for
a review of the said yearly rent to take effect from 25th day of December
specified in such notice if the landlord considers that the fair yearly rental
value of the demised
rent payable from the end of the year of the said term to which it applied
shall be such sum as shall within the period of one month from the service of
the said notice be agreed between the landlord and the tenant or in default of
such agreement shall be determined by a chartered surveyor nominated by the
President for the time being of the Royal Institution of Chartered Surveyors to
be that at which having regard to the terms of this underlease (other than the
amount of rent currently payable) the demised premises might reasonably be
expected to be let in the open market by a willing lessor to a willing lessee
there being ignored the matters set out in the Landlord and Tenant Act 1954
section 34(1) (as amended by the Law of Property Act 1969) and any statutory
restrictions on the amounts of rentals.
It is common
ground that the requisite notice was given for December 25 1978 and that the
clause has therefore been brought into operation.
The relief
sought by the originating summons is as follows:
A declaration
that upon the true construction of the said underlease and in the events that
have happened for the purpose of determining the rent on a review pursuant to
clause 4(6)(a) of the underlease:
(1) it should not be assumed that any part of the
demised premises is, will or may be sublet on a regulated tenancy within the
meaning of section 18(1) of the Rent Act 1977; and
(2) if it should be assumed that any part of the
demised premises is, will or may be sublet on a regulated tenancy, there should
be ignored the fact that the rent recoverable under such regulated tenancy is,
will or may be registered.
(3) That in determining such rent the chartered
surveyor nominated by the President for the time being of the Royal Institution
of Chartered Surveyors pursuant to the terms of the said clause 4(6)(a) is
acting as an expert and not as an arbitrator.
The first two
questions turn on the last eight words of clause 4(6)(a), and I shall deal with
them together before turning to the third question.
It seems to me
that clause 4(6)(a) does not require any assumptions to be made. Certain
matters must be ignored, but I do not think that assumptions as to any flats
being let or not let on regulated tenancies are to be made. The surveyor is to
take the premises as he finds them. On the evidence, none of the flats has ever
been let on a regulated tenancy, and each of them appears to have been let from
time to time on short lettings which, whether by virtue of the Rent Act 1977
section 9 or otherwise, are not regulated tenancies. Many of the lettings have
been to people with names suggesting the Near East, and for a week or so at a
time. The surveyor should take all this into account, and also the fact that
the tenant may or may not always be able to let the flats in this way. In the
end, the difference between Mr Dyson, for the landlord, and Mr Ellis, for the
tenant, appeared to be not so much a difference on the first two questions in
the originating summons as a difference on the meaning and effect of the last
eight words of clause 4(6)(a).
What Mr Dyson
said was that these words meant what they appeared to say. In determining the
sum under the clause, the surveyor must ignore, inter alia, any
statutory restrictions on the amounts of rentals that can be charged for any of
the flats, whether in respect of regulated tenancies, restricted contracts, or
anything else under the Rent Act 1977 or any other statute. On the other hand,
Mr Ellis said that this was an improbable meaning. Why should a tenant who
might sublet flats at restricted rents agree to pay the landlord rent at a rate
based on ignoring the restrictions on rent that bound him? With that in mind, the last eight words of the
subclause should be read as merely relating to any restrictions on the rent
which the tenant must pay to the landlord, and not as including any rent which
the tenant would receive from the subtenants. Although Mr Ellis did not suggest
that there was at present any statutory restriction on the rent which the
tenant had to pay, there might one day be another ‘rent-freeze,’ perhaps of the
type that there was some six or seven years ago and the eight words would apply
to that. Mr Ellis said on such a construction the eight words would follow on naturally
from the reference to the Landlord and Tenant Act 1954, section 34(1), which
plainly applied as between the landlord and the tenant and related to matters
such as improvements effected by the tenant.
I cannot
accept Mr Ellis’ contentions. The choice of the mode of letting the flats lies
with the tenant, and so far the tenant seems to have been successful in letting
the flats on terms which are not subject to any statutory restrictions on rent.
True, either economic conditions or the law, or both, may change, and make it
more difficult, or, for that matter, easier, for the tenant to continue in this
way. But I can see nothing so improbable in the tenant agreeing to accept the
risk of such changes that one must put a strained meaning on the words of the
subclause and give them a meaning which seems to me to be improbable. Further,
Mr Dyson emphasised that the last word of the subclause was ‘rentals,’ and that
if all that was intended was to require any statutory restrictions on the
amount of the tenant’s rent to be ignored, it was odd that the draftsman used
‘rentals’ instead of ‘rent.’ I agree.
The last eight words would be a remarkable way of conveying to the surveyor
that in relation to statutory restrictions on rent, he must pay due regard to
any that applied to the rent payable by all the subtenants to the tenant and
ignore only those which related to the rent payable by the tenant to the
landlord. I can see nothing to support the view that the words were intended to
have this partial and selective effect. In my judgment, the last eight words of
the subclause require the surveyor to ignore all statutory restrictions,
whatever the statute, on the amount of any rent payable by any subtenant to the
tenant, as well as on the amount of any rent payable by the tenant to the
landlord.
I turn to the
third question in the summons. Is the chartered surveyor nominated by the
president for the time being of the Royal Institution of Chartered Surveyors to
perform his task as an arbitrator or is he to do it as a valuer, without any
process of arbitration? Looking at the
subclause by itself, I can see some force both in Mr Ellis’ answer of
‘arbitrator’ and in Mr Dyson’s answer of ‘valuer.’ But the subclause does not stand by itself.
The clause immediately preceeding it, clause 4(5) runs as follows:
If the
demised premises are damaged or destroyed by any of the insured risks and the
insurance in respect thereof has not been vitiated by any act or omission of
the tenant or of any person claiming title to any part of the demised premises
through it then the rents hereby reserved or a proper proportion thereof
according to the extent of the damage shall abate and in case of difference
touching this proviso the same shall be referred to the award of a single
arbitrator to be appointed by the President for the time being of the Royal
Institution of Chartered Surveyors and in accordance with the provisions of the
Arbitration Act 1950 or any statutory modification thereof for the time being
in force.
When one puts
clause 4(5) and clause 4(6)(a) side by side, the contrast is striking. Clause
4(5) reeks of arbitration. It uses language such as ‘in case of difference,’
‘award,’ ‘single arbitrator’ and ‘Arbitration Act 1950.’ Clause 4(6)(a) uses none of these words:
there is merely a ‘sum’ to be ‘determined’ by a chartered surveyor on the basis
stated. None of Mr Ellis’ ingenuities seem to me to come within striking
distance of prevailing against this clear contrast. The lease was drafted by a
draftsman (with the singular including the plural, and the masculine the
feminine) who knew very well how to make it plain that there was to be an
arbitration: and knowing this, clause 4(6)(a) was drafted in terms which
neither in substance nor in form pointed in any real way to an arbitration
rather than a valuation. I accept, of course, that under clause 4(6)(a) there
might well be a default of agreement that arose from a positive disagreement
rather than a mere failure to make or attempt to make an agreement: but in face
of the contrast, that falls far short of anything that could establish clause
4(6)(a) as containing an arbitration
not arbitration.
The
Vice-Chancellor gave directions as to the form of the declarations and awarded
the costs of the summons to the plaintiffs.
