Lease of office premises — Construction of rent review provisions — Arbitration — High Court determining questions in favour of landlord — Court of Appeal taking simpler view of provisions and allowing tenant’s appeal
Premises known as 33 Wigmore Street, London W1, were demised by the landlord to rent for a term of 25 years from August 8 1986 at an initial yearly rent of £2,003,880. The lease provided for five-yearly rent review. Clause 6 of the lease set out six assumptions to be made in calculating the revised rent. Clause 6(b)(i) was the first assumption, that the demised premises were fit for immediate occupation and use and in a state of good repair and condition and that all fitting out and other tenant’s works required by a willing tenant had already been completed. There were then set out five matters of which no account was to be taken. Clause 6(b)(ii) provided that no account should be taken of any increase in rental value of the demised premises attributable to the existence at the relevant date of review of any improvements to the demised premises or any part of them carried out (with consent where required) otherwise than in pursuance of an obligation to the landlord or to his predecessors in title by the tenant.
The parties could not agree the rack-rent for the first review. An application was made to the High Court under section 2(1) of the Arbitration Act 1979 for the determination of questions of law arising from the rent review provisions. It was common ground that the terms of the lease required the arbitrator, in making his valuation, to determine what fitting out and other tenant’s works would have been required by the hypothetical willing tenant. The essential dispute between the parties was whether it was to be assumed that those works, once identified, had been carried out at the cost of the hypothetical willing tenant or whether no assumption ought to be made as to how that cost had been borne.
The judge declared that the landlord was entitled to the increase (if any) in the value attributable to the hypothetical fitting-out works and that the increase was not diminished if those works were found by the arbitrator to be the same as the actual fitting-out works carried out by the tenant. The tenant appealed.
Held The appeal was allowed.
1. The assumption required by clause 6(b)(i) was two fold. First, the demised premises were fit for immediate occupation and use and in a good state of repair and condition. Second, all fitting out and other tenant’s works required by the willing tenant had already been completed.
2. Next, the arbitrator was required to determine the best open market rent at which “the demised premises” might, if available with vacant possession, reasonably be expected to be let, but on the six assumptions and with the five disregards. Except so far as was required by those assumptions and disregards, the valuer had to look at the demised premises, ie the premises in the state that they were at the date of review.
3. On the simple view of clause 6(b)(1) which the court favoured, the arbitrator was not required to enter upon any determination as to what fitting out and other tenant’s works the hypothetical willing tenant would have required.
Kim Lewison QC (instructed by Linklaters & Paines) appeared for the tenant; Michael Barnes QC (instructed by Titmuss Sainer & Webb) appeared for the landlord.
