Landlord and tenant – Rent review clause – Determination of rent – Original tenant assigning lease to first defendant – Whether claimant landlord properly requiring surety on assignment – Whether lease providing for aggregate of rents payable under two lettings – Whether parties bound by determination of independent expert – Preliminary issues determined
The claimant demised business premises to BG for a term of 16 years. BG subsequently assigned the remaining term of the lease to the first defendant. The lease contained a rent review clause under which the rent reserved under the lease was to be reviewed every four years. Upon review, the rent would be the higher of the passing rent and the “open market yearly rent” as at the relevant review date.
The review was referred for determination by the second defendant, acting as an independent expert. In advance of the determination, it became apparent that the claimant and the first defendant disagreed about the interpretation of provisions in the lease and, consequently, a number of preliminary issues were raised.
The questions for the court were whether: (i) on an application for a licence to assign the lease, the landlord could insist upon the provision of a surety on assignment, even if it was unreasonable to do so; (ii) on the true construction of the lease, the “open market yearly rent” should be determined on the basis of a single letting or, if it produced a higher figure, on the basis of two lettings, one of the ground floor and one of the basement, the “open market yearly rent” being the aggregate of the rents payable under those two lettings; and (iii) the landlord and the first defendant were bound by the determination of the second defendant in whole or in part.
Held: The preliminary issues were determined.
(1) The clause in the lease entitling the landlord to require a surety on assignment had to be read as part of the lease as a whole. In that context, the clause was not intended to set out a condition that the landlord could impose for the giving of consent to an assignment or to set out a circumstance in which a refusal of consent was deemed reasonable. The clause was aimed at an earlier stage than the giving of consent. It laid down the conditions to be fulfilled before the tenant could apply for consent.
Section 19(1A) of the Landlord and Tenant Act 1927, which imposed conditions regulating the landlord’s consent, had come into force after the lease had been made. Since the lease had to be interpreted as at the date of its creation, statutory provisions coming into force after that date had no bearing upon its proper interpretation: Re Smith’s Lease [1951] 1 All ER 346, Adler v Upper Grosvenor Street Investment Ltd [1957] 1 WLR 227, Creer v P&O Lines of Australia Pty (1971) 125 CLR 84, Bocardo SA v S&M Hotels Ltd [1979] 2 EGLR 48; (1979) 252 EG 59, Allied Dunbar Assurance plc v Homebase Ltd [2002] EWCA Civ 666; [2002] 2 EGLR 23; [2002] 27 EG 144, and Crestfort Ltdv Tesco Stores Ltd [2005] EWHC 805 (Ch); [2005] 3 EGLR 25; [2005] 37 EG 148 considered.
(2) The natural interpretation of the rent review clause in the context of the lease as a whole, and of the uncontroversial fact that the demised premises were always capable of being let as two separate units, was that “the open market yearly rent” was to be determined on the basis of two lettings if that produced a higher figure. When interpreting a rent review clause in a commercial lease, the intention of the parties was to be ascertained by reference to the natural meaning of the words used and, if that meaning was clear and unambiguous, effect should be given to them since that was what the parties were taken to have agreed by their contract. In the present case, there were no ambiguities that compelled the court to resort to other rules of construction and there was no need to rely upon concepts such as “the presumption of reality”, even though there was a single letting of the ground and basement floors: Cooperative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97; [1995] 01 EG 111 considered.
(3) The rent review clause did not confer upon the second defendant exclusive power to interpret the lease. He was to have regard to closely defined contractual criteria in determining “the open market yearly rent”. Therefore, the claimant and the first defendant would not be bound by the decision of the second defendant if it were established that he had taken an erroneous view of provisions in the lease that was germane to his ultimate determination: National Grid Co plc v M25 Group Ltd [1999] 1 EGLR 65 applied.
Stephen Jourdan (instructed by Fladgate Fielder) appeared for the claimant; John Male QC (instructed by Denton Wilde Sapte) appeared for the first defendant; Greville Healey (instructed by George Anthony Andrews) appeared for the second defendant at judgment.
Eileen O’Grady, barrister
