Landlord and tenant — Rent review clause in lease of commercial premises — Problems caused by curiously drafted clause — Appeal from decision of Peter Gibson J — Rent review clause expressly specified earliest date for setting rent review machinery in motion, but did not specify latest date for doing so — Lessors’ ‘trigger’ notice had to be served not earlier than December 25 1976, but was not in fact served until March 19 1980 — First rent review period, following two periods of fixed rents, commenced on December 25 1977 and was due to expire on December 24 1982 — Lessees challenged effectiveness of lessors’ notice, contending that under review clause it should have been served not later than the expiry of the 12 months’ period immediately preceding the rent review period, ie not later than December 24 1977 — Lessors sought declarations that they were entitled, in pursuance of their notice served on March 19 1980, to call for a rent review with effect from December 25 1977; that they were entitled to apply under the lease for an independent surveyor to determine the revised rent; and that such rent should be determined by rental values current at the date of determination — Declarations to this effect had been granted by Peter Gibson J — Court of Appeal divided — Lawton LJ in minority would have allowed appeal, holding that the trigger notice should have been served before December 25 1977 — Majority (Oliver and Slade LJJ) agreed in dismissing appeal but differed in their reasons — Oliver LJ agreed with Gibson J that the lease did not oblige the lessors to serve the notice earlier than they did — Slade LJ held that the review clause properly construed required the notice to be served before December 25 1977 but that time in this case was not of the essence — Submissions by lessees based on common law election, on estoppel, or delay and alleged abandonment by lessors of their right to seek a rent review rejected — Appeal accordingly dismissed — Leave to appeal to House of Lords refused, despite considerable differences in judicial approach in the judgments
This was an
appeal from the decision of Peter Gibson J, reported at (1982) 262 EG 143,
[1982] 1 EGLR 117, granting the plaintiff lessors, London & Manchester
Assurance Co Ltd, certain declarations which they had sought by originating
summons in respect of the rent review clause in a 21-year lease of ground-floor
shops and basements at 54 and 56 Oxford Street and 57 and 58 Rathbone Place, London
W1. The defendant lessees were the outfitters, G A Dunn & Co. The defendant
lessees appealed.
Derek Wood QC
and George Arthur Ward (instructed by Wright, Johnson & Cheales) appeared
on behalf of the appellants; K Lewison (instructed by Wilde Sapte) represented
the respondents.
Giving
judgment in favour of allowing the appeal, LAWTON LJ said: This appeal is
concerned with the rent review clauses in a lease granted on February 4 1971 by
the plaintiffs’ predecessors in title to the defendants of four ground-floor
shops in Oxford Street, London. It is from a judgment of Peter Gibson J given
on November 6 1981 whereby he made three declarations, the overall effect of
which was that the plaintiffs were entitled to call for a review of the rent
payable under the lease and to take the steps specified therein for the
appointment of an independent surveyor to determine the amount of the reviewed
rent. The defendants have appealed on the ground, broadly stated, that there is
nothing for such a surveyor to decide because, on the true construction of the
lease and by reason of what the plaintiffs have done, the rent of the demised
premises for the five years beginning December 25 1977 is £18,000 per annum and
no more.
By the lease
the defendants were to hold the premises from December 25 1970 for a term of 21
years paying rent as follows:
(a) For the first 4 years of the said term the
yearly rent of £13,100.
(b) For the next 3 years of the said term the
yearly rent of £14,600.
(c) During the next 5 years of the term
commencing on December 25 1977 (hereinafter called ‘the first review period’)
the rent payable by the Lessee shall be whichever shall be the higher of
£18,000 per annum and the open market value of the demised premises for the
review period.
(d) During the next 5 years of the term and
during the last 4 years of the term (hereinafter respectively known as ‘the
second review period’ and ‘the third review period’) the rent payable by the
Lessee shall be whichever shall be the higher of the reviewed rent in the 12th
and 17th year of the said term and the open market value of the demised
premises for the second review period and the third review period respectively.
Such reviewed
rents to be determined in accordance with the provisions in that behalf
contained in clause 5 hereof and secondly a sum equal to 10% of the cost
incurred by the Lessor in insuring the building of which the demised premises
form part against loss or damage by fire and such other risks as the Lessor
shall from time to time in its absolute discretion determine. Such respective
yearly rents to be payable by equal quarterly payments in advance on the four
usual quarter days in every year during the said term without any deduction
whatsoever . . .
The relevant
parts of clause 5(1) provided as follows:
The
expression the open market rental value as aforesaid means a sum in relation to
the review period or second review period or third review period as the case
may be determined in manner hereinafter provided as being at the time of such
determination the annual rental value of the demised premises in the open
market on a lease for a term of years certain equivalent to the number of years
then unexpired of the term granted by this Lease with vacant possession at the
commencement of such term but open the supposition (if not a fact) that the
Lessee has complied with the obligations as to repair and decoration herein
imposed on the Lessee such lease being on the same terms and conditions other
than as to the amount of rent and the length of the term as are herein
contained . . .
Subclauses (2)
and (3) of clause 5 were in these terms:
(2) The said open market rental value shall be
determined as follows: (a) It shall be such sum as shall be specified in a
notice in writing by the Lessor to the Lessee at any time not earlier than
twelve months prior to the expiration of the period of seven years in the case
of the first review period immediately preceding the first review period or not
earlier than twelve months prior to the expiration of the periods of 5 years in
the case of the second review period and the third review period as the case
may be or (b) As shall within three months after such notice be agreed between
the parties in writing in substitution for the said sum or (c) It shall be
determined at the election of the Lessee by counternotice in writing to the
Lessor not later than three months after the Lessor’s said notice (time to be
of the essence hereof) by an independent surveyor appointed for that purpose by
the parties jointly in writing or upon their failure to agree upon such
appointment within one month after the date of the said counternotice then by
an independent surveyor appointed for that
Chartered Surveyors and every such determination shall be made in accordance
(so far as not inconsistent herewith) with the provisions of the Arbitration
Act 1950 or any statutory modification or re-enactment thereof for the time
being in force and shall be subject to the further provisions of the next
succeeding subclause hereof.
(3) In the event of the determination by such
independent surveyor not having been made and communicated to both parties
hereto prior to the commencement of the first review period or the second
review period or the third review period as the case may be for any reason
whatever then in respect of the period of time (hereinafter called ‘the said
interval’) beginning with the said commencement and ending on the quarter day
immediately following the date on which such determination shall have been made
and communicated as aforesaid the rent payable hereunder shall continue to be
paid at the rate payable immediately prior thereto. Provided that at the
expiration of the said interval there shall be due as additional rent payable
by the Lessee to the Lessor on demand a sum of money equal to the amount
whereby the first reviewed rent or the second reviewed rent or the third
reviewed rent respectively shall exceed the rent payable immediately prior
thereto but duly apportioned in respect of the said interval.
Both before
Peter Gibson J and in this court the defendants, by Mr Wood, submitted that on
the true construction of the lease the plaintiffs had to serve a rent review
notice under clause 5(2)(a) before December 25 1977, that being the end of a
period of seven years immediately preceding the first review date, and that as
they had not done so they could not serve such a notice after December 25 1977
as they had done, time being of the essence of the lease. Between December 25
1977 and March 19 1980 the plaintiffs, by their agents, sent the defendants
nine printed rent demand notes, each endorsed as follows: ‘We beg to remind you
that rent and charges in accordance with the above details become due on the
date shown. Your prompt remittance, payable to Onyx Property Managements Ltd,
would be appreciated’. The amount of rent demanded was £4,500 which was the
appropriate quarterly payment for a rent of £18,000 per annum. The defendants
paid the amounts demanded. By letter dated March 19 1980 the plaintiffs’ agent
purported to give a notice asking for a rent review pursuant to clause 5(2)(a)
of the lease. By letter dated June 6 1980 the defendants’ solicitor challenged
the validity of that notice.
In addition to
his submission about the proper construction of the lease Mr Wood relied upon
what had happened after December 25 1977 as the basis for three further
submissions. First, that the plaintiffs had elected to accept £18,000 per annum
as the rent for the first review period; secondly, by making demands for rent
at the rate and in the form which they did they had represented that they were
willing to accept a yearly rent of £18,000 and should be estopped from seeking
to establish an open market rental value; and thirdly, that they had acted
unreasonably and to the prejudice of the defendants in seeking to be paid rent
at an open market value after a delay of two and a quarter years; alternatively
after such a period this court should adjudge that they had abandoned such
rights, if any, as they had to be paid at a higher rate than £18,000 per annum.
Mr Lewison, on
behalf of the plaintiffs, submitted that Mr Wood’s construction of the lease
was wrong and that on its true construction the plaintiffs were entitled to
serve a notice requiring the rent to be reviewed at any time before the end of
the first review period and that this being so no issues arose about election,
estoppel or delay. Anyway there had been no election or representation
amounting to an estoppel and no proven prejudice arising from a late service of
the rent review notice.
Peter Gibson J
in a long and careful judgment, in which a number of authorities were cited,
found against the defendants on all the issues raised in Mr Wood’s submissions.
In my opinion, the decision in this appeal turns upon the construction of the
lease and the only case of any relevance is United Scientific Holdings Ltd v
Burnley Borough Council [1978] AC 904. What that case, and another case
heard with it, decided is stated clearly in the following passage from the
speech of Lord Diplock at p 930 G:
So upon the
question of principle which these two appeals were brought to settle, I would
hold that in the absence of any contra-indications in the express words of the
lease or in the interrelation of the rent review clause itself and other
clauses or in the surrounding circumstances the presumption is that the
timetable 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.
That principle
has to be applied to the lease in this case.
The
circumstances in which this lease was executed are, in my judgment, of
importance. The premises were to be occupied by the defendants, who are a
well-known firm of outfitters having many branches. The letting was for the
purposes of retail trade. The lessors would have expected the defendants to
carry on their trade at these premises in a businesslike way. This would have
entailed forward financial planning and an important element in such planning
was likely to be the amount of rent they would have to pay during the term of
the lease. The grant was made in 1971. At that time inflation had begun but it
was expected to be at a rate which could be guarded against at least in part by
investment: see Taylor v O’Connor [1971] AC 115 per Lord Pearson
at pp 142 H-143 A. The rent for the first four years of the term was to be
£13,100 and £14,600 for the next three years. The lessors were seemingly
prepared to commit themselves for fixing the rent for seven years ahead despite
inflation but after that they were not. They envisaged that the rental value of
the premises at the end of seven years would be at least £18,000 per annum but
it might be more. Subclause (c) of the reddendum must have been intended to
provide for rising rental values for the next five years. The new rent, which
was payable quarterly in advance, was to be paid during that period. In
my judgment this connotes an expectation that the new rent would be determined
before the beginning of the first review period. This would make good business
sense. But as the new rent, if there were no agreement, had to be determined by
an independent surveyor, provision had to be made for the payment of rent
during any period after the end of the first seven years and before the new
rent was determined. Without such a provision no rent at all would have been
payable. Mr Wood submitted that clause 5(3) was intended to cover this
situation. If it was the intention of the parties that the lessors should start
the rent review procedure before the end of the first seven years clause 5(3)
makes good business and legal sense because at the beginning of the rent review
period the lessees would go on paying rent at the yearly rate of £14,600 until
such time as the new rent, being greater than £18,000 per annum, was
determined, when they would have to make a back payment of the difference
between the new rent and what they had been paying. Mr Lewison pointed out,
however, that this construction depended upon the words ‘prior thereto’ just
before the beginning of the proviso referring back to the words ‘beginning with
the said commencement’. His submission was that they related to the quarter day
immediately following the date upon which the determination was made. As a rent
of at least £18,000 had to be paid from the beginning of the first review
period, clause 5(3) when so construed would require the lessees to pay the
difference between the new rent, if it were greater than £18,000, and that
yearly sum. I do not accept Mr Lewison’s construction of clause 5(3) and prefer
Mr Wood’s.
There still
remains, however, the question whether the words used by the parties reflected
what now seems to be the business sense of the lease and even if they did
whether this court should infer from the interrelation of the reddendum and
clause 5 that time was of the essence of the timetable of the rent review
procedure. I have reminded myself that the presumption is against time being of
the essence. Save in one respect, namely, time for the service by the lessees
of a counternotice, there are no express words requiring strict compliance with
the time-table. Mr Lewison argued that the absence of any stipulation about
strict time-keeping tends to support his submission that time was not of the
essence of the lessors’ obligation in respect of the rent review procedure. I
do not attach much importance to this point. Once the lessors had set the rent
review procedure in motion, it was necessary to have a provision that the
lessees could not keep it in perpetual motion.
The heart of
this problem lies in the proper construction of the words ‘at any time’ in
clause 5(2)(a). There is no punctuation in this clause. Had there been, there
would have been less difficulty in construing it. Mr Lewison submitted that the
clause should be read as if there were a caesura after ‘time’ and again after
‘immediately preceding the first review period’. Mr Wood argued for the words
‘not earlier than twelve months’ to be read as if they were in parentheses. In
my judgment this subclause imposes upon the lessors a duty to serve any rent
review notice before the end of the first seven years because the increased
rent was to be paid during the first review period. The lessors could
not expect to be paid during this period any more than the minimum yearly rent
of £18,000 if they had taken no steps before the end of the first seven years
to get a higher rent. Further, the new rent, if it was to be determined on the
open market
determined . . . as being at the time of such determination the annual rental
value of the demised premises in the open market on a lease for a term of years
certain equivalent to the number of years then unexpired of the term granted. .
. .’ If the lessors could serve a rent
review notice at any time before the end of the first review period, as they submitted
they could, then an odd result would follow in a period of inflation. The
longer the lessors delayed setting the rent review procedure in motion the
higher the rent was likely to be for the whole of the rent review period. As I
have already commented, the parties to this lease must have contemplated that
it would run during a period of inflation. This result cannot have been what
the parties intended. The tiny advantages which the lessees would get from the
provision that the new rent was to be calculated with reference to the number
of years unexpired at the time of the determination and from the absence of any
obligation to pay interest on the back payment would not, in my judgment, have
been regarded by the lessees when negotiating the lease as a compensatory
factor for the lessors not telling them before the end of the first seven years
that they were going to ask for a rent greater than £18,000 per annum. Still
less would the parties to a lease of shop premises in Oxford Street have
contemplated that if the lessors had not made up their minds to ask for a rent
greater than £18,000 per annum after the end of the first seven years the
lessees could prompt them into making a decision by serving a notice calling
upon them to do so within such a time as to make time of the essence. I attach the
greatest importance to the fact that this lease, which was far from clear in
parts as to its meaning, was of premises to be used for retail trade and was
granted at a time when businessmen were beginning to do what they could to
protect themselves from the effects of inflation. It seems to me that
provisions in it which are difficult to construe should be given a meaning
which makes business sense. This I have tried to do. They must, in my judgment,
have intended that the rent review procedure should be set in motion before the
end of the first seven years and that, in the absence of agreement, the new
rent would be determined either before the rent review period started or soon
after under the provision of clause 5(3). It follows that it was the lessors’
duty to keep strictly to the rent review timetable.
Having regard
to the opinion I have expressed about the construction of the rent review
clauses of this lease, it is unnecessary for me to make any findings about the
alternative way in which Mr Wood put his case. Counsel on both sides invited us
to give a ruling on the issue of delay raised by the lessees, notwithstanding
any decision we made on the construction of the lease. I would prefer to leave
an analysis of the relevant legal principles applicable to delay in setting
rent review procedure in operation to an occasion when the case before the
court calls for the decision on such a problem. I do not think this one does
for the reasons I have given and for the further reason that on the evidence in
this case I do not consider that the defendants have proved that they have
suffered any prejudice. I would allow the appeal.
Giving
judgment in favour of dismissing the appeal, OLIVER LJ said: The first question
that calls for decision — and it is one that is fundamental to both lines of
argument advanced by the appellants — is whether, on its true construction,
clause 5(2)(a) of the lease has the effect of fixing a time-limit within which
the machinery for ascertaining the open market rent applicable to a review
period must be operated. If it does not, then any argument that time is of the
essence must fail in limine. Equally, if, on their true construction,
the combined effect of the reddendum and clause 5 is that a notice initiating
the review procedure may, as a matter of contract, be given at any time during
the relevant review period, there does not appear to me, as there did not
appear to the learned judge, to be any scope for an argument based upon
election, estoppel or delay.
Now, on its
face, clause 5(2)(a) appears to provide that the notice may be given by the
landlord at any time so long as it is not earlier than 12 months before the
expiration of the first seven years of the term or before the expiration of the
second or third review periods, and Mr Lewison contends that the only
limitation on the words ‘at any time’ is that which arises by necessary
implication from the provisions of the reddendum that the rent for the second
and third review periods shall be whichever is the higher of the reviewed rent
in the 12th and 17th years of the term and the open market rent for the
relevant review period. Since this postulates a reviewed rent in the 12th and
17th years it necessarily follows that it must have been fixed prior to the end
of the 11th or 16th year as the case may be, but subject to this the words ‘at
any time’ mean, he suggests, exactly what they say.
The
alternative suggested reading, grasped by Mr Wood with perhaps rather more
enthusiasm than confidence, is to treat the words ‘not earlier than twelve
months’ as forming, by themselves and without any addition, an adjectival
expression qualifying the word ‘time’. This adjectival function would, it is
argued, be more clearly expressed if the words were either enclosed in
parentheses with the addition of the word ‘being’ or if they were transposed to
a position immediately following the words ‘first review period’ and preceded
by the word ‘but’. The sense of the clause on this footing is thus either ‘It
shall be such a sum as shall be specified in a notice in writing . . . at any
time (not being earlier than twelve months) prior to the expiration of the
period of seven years . . .’ etc or ‘It shall be such a sum as shall’ etc ‘. .
. in a notice in writing . . . at any time prior to the expiration of the
period of seven years in the case of the first review period but not earlier
than 12 months immediately preceding the first review period’.
On either
footing, the clause thus read fixes the expiration of the period of seven years
as the latest date at which a notice can be given and opens the door to a
consideration of whether there are indications in the lease that time is of the
essence as regards the closing date.
Now I would be
the first to acknowledge that so to read the clause makes very much better
commercial sense than the construction urged by Mr Lewison and accepted by the
learned judge. The reddendum, it is argued, contemplates a single rent for the
whole of each review period as does clause 5(1) when it uses the words ‘a sum
in relation to the review period’, and there is an obvious advantage to the
tenant in knowing what he is going to have to pay for the review period before
it starts, particularly when, as here, the rent is payable in advance. Even
read in the way contended for by Mr Wood, however, the clause does not
necessarily produce this result, because, since the rent is payable in advance
and the tenant has three months in which to agree the proposed rent or serve a
counternotice, that period, even on this construction, might expire after the
first quarter day upon which the new rent is expressed to become payable so
that the tenant will not know when he makes his first payment what the rent for
the period is going to be. But there are other cogent arguments which render
such a construction more sensible. To begin with, it is not in dispute that the
open market rent to be determined is to be determined ‘at the time of such
determination’. As the learned judge mentioned in his judgment, this produces
most curious results if ‘at any time’ means literally ‘at any time whether
before or after the beginning of the review period’, for it involves the
consequence that the rent for the review period, if it is fixed (as on this
construction it may be) towards the end of the period, will be retrospective
and may bear no relation to what would have been the appropriate market rent at
the opening of the period. Thus, if, for instance, there is a steep rise in
commercial rents between year one and year four of the first review period, the
tenant may find himself bound to pay retrospectively for the whole period a
rent much in excess of that which could have actually been commanded in the
market in the period for which it is payable. Thus good sense would indicate
that, for the tenant’s protection, the review should take place at or before
the inception of the period to which the reviewed rent is to relate.
Secondly, it
is not easy to find a sensible application for clause 5(3) unless the
contemplation was that the rent review machinery would have been put into
operation at the date when the period opened. This clause provides that if the
independent surveyor referred to in clause 5(2) has not communicated his
determination before the commencement of the review period then in respect of
the period ‘beginning with the said commencement and ending on the quarter day
immediately following the date on which such determination shall have been made
and communicated as aforesaid the rent payable hereunder shall continue to be
paid at the rate payable immediately prior thereto’. Mr Lewison seeks to relate
the words ‘immediately prior thereto’ to ‘the quarter day immediately following
. . .’ and so on, but to ascertain the rent, which ‘continues to be payable’ at
the beginning of the period by reference to the rent payable immediately before
the end of the period during which it continues, involves an entirely unnatural
and illogical construction of the clause and I have no doubt at all that
‘immediately prior thereto’ refers back to the commencement of the period. If
that is right, the consequence necessarily follows that,
is the rent of £14,600 which was payable up to the end of the seventh year of
the term. So, it is argued, one gets the extraordinary result, if this
machinery is invoked after the expiration of the seventh year, that whereas the
rent, on the landlord’s construction, is payable at the rate of £18,000 up to
the time when the determination machinery is operated, it ceases then to be so
and drops back to £14,600 as from the commencement of the period, so that the
tenant becomes entitled to a rebate. That consequence is underlined and
emphasised by the construction placed by the learned judge on this clause — a
construction which accorded with that placed upon a similar clause by Fox J (as
he then was) in Weller v Akehurst [1981] 3 All ER 411* namely,
that it operates only if the lessee elects to have the rent determined by an
independent surveyor under clause 5(2)(c). If, however, the closing date for
the invocation of the clause is the expiration of the period of seven years, no
such peculiar consequence ensues and the clause operates in a perfectly
sensible way. The original rent of £14,600 simply continues to be paid until the
new rent is finally determined.
*Editor’s
note: reported also at (1981) 257 EG 1259, [1981] 1 EGLR 105.
The difficulty
about this, however, is that even on the construction of the clause which would
fix the commencement of the review period as the closing date for the
landlord’s notice, the same consequence may ensue, because, if the learned
judge’s view about the event which brings clause 5(3) into operation is
correct, as in my judgment it is, it is not the landlord’s notice which causes
clause 5(3) to operate but the tenant’s election; and the tenant’s election
will not necessarily take place, even on this footing, until after the rent of
£18,000 reserved by the reddendum has become payable. Mr Wood seeks to escape
from this by the submission that no rent is payable because, once the machinery
is invoked by the lessor’s notice, there is no certain rent recoverable; but
for my part I find this unconvincing and it does not accord with the view of Lord
Diplock in the United Scientific case at p 935 E.
At highest
level, therefore, it seems to me that it can be said only that the construction
for which the defendants now contend is one which produces a more sensible
commercial result and is less likely to lead to anomaly than the construction
applied by the learned judge. The latter construction is, in my judgment, that
which accords with the natural and ordinary meaning of the words used — a view
in which I am fortified by the reflection that, until the hearing before us, no
alternative construction appears to have suggested itself to the parties or to
their solicitors or to the learned judge or to any of the experienced counsel
engaged in the case. The question therefore seems to me to be whether the considerations
to which I have referred — that is to say, the impact of clauses 5(2) and 5(3)
— are so strong that they compel the adoption of a strained and unnatural
construction of what the parties have said. In my judgment, the construction
sought is an unnatural one. The words appear to me to be quite clear and
unambiguous as they stand and I adopt the words of Sir George Jessel in Lowther
v Bentinck (1874) LR 19 Eq 166 at p 169, when he said: ‘Now in
construing instruments I have always followed the rule laid down by the House
of Lords in Gray v Pearson, which is to construe the instrument
according to its literal import unless there is something in the subject or
context which shews that that cannot be the meaning of the words’. The first of
the alternative readings which have been suggested and which does least
violence to the word order involves supplying some parentheses and the word
‘being’ and it suffers from this further difficulty that the words ‘or not
earlier than 12 months’ used in relation to the second and third review periods
become both superfluous and ungrammatical unless one reads in after the word
‘or’ a repetition of the words ‘at any time’ and again encloses the words ‘not
earlier than 12 months’ in parentheses.
There are even
greater difficulties, in my judgment, in adopting the second alternative, which
involves not only a transposition of the words ‘not earlier than 12 months’ in
both cases where they occur but also the addition at the end of the clause of
some such words as ‘immediately preceding the second and third review periods
respectively’. Anxious as I am to adopt a view of this document which makes
sound commercial sense, I do not feel able to depart from what seems to me to
be the clear meaning of the words. That that clear meaning produces, as a
result of the way in which clause 5 is framed, some not very sensible
commercial results does not, in my judgment, produce an ambiguity or justify
doing violence to the language which the parties, in what was clearly a
carefully worded document negotiated at arm’s length, have chosen to use.
For my part,
therefore, I feel unable to rewrite the clause in the way suggested and I agree
with the learned judge and with the way in which the case was argued below on
behalf of the appellants that if such a rewriting is to take place it can only
be by implying an unwritten term into the clause. For the reason which the
learned judge gave, that is not, in my judgment, permissible and, accordingly,
the appellants’ case for arguing that time is of the essence fails to surmount
the first hurdle.
If that is
right, then, for the reasons which have been given by the learned judge, the
appellants’ arguments based on election or on promissory or proprietary
estoppel must fail. The only possible runner could be delay by the respondents
in exercising their rights. Whether prejudice to the tenant is an essential
feature of delay as a bar to the exercise of contractual rights is a question
upon which the various statements of principle in the authorities are not
unanimous, but in the instance case such prejudice is an inevitable consequence
of the provision that the rent for the whole period is to be determined at the
date of the determination. But delay can, as I see it, be relevant only where
there can be deduced from the contract some obligation to act earlier. Where
the contract itself, on its true construction, envisages that the landlord may
exercise his right at any time, early or late in the period, he cannot be said
to be guilty of unreasonable delay if he simply does what the contract entitles
him to do.
For these
reasons, I would uphold the decision of the learned judge and dismiss the
appeal.
Agreeing that
the appeal should be dismissed, SLADE LJ said: The facts of this case have been
set out in the judgment of Lawton LJ. On the basis of those facts, three
principal issues in my opinion arise: (1) Did clause 5(2)(a) of the lease, on
its true construction, specify a latest date by which a notice thereunder had
to be served in relation to the first review period? (2) If the answer to question (1) is ‘yes’,
was time of the essence in relation to such time-limit? (3) If the answer to one or both of the
preceding questions is ‘no’, are the plaintiffs now precluded from relying on
the notice served by them on the defendants on March 19 1980 (as the defendants
have submitted) either (a) by the doctrine of common law election or (b) by
promissory estoppel or (c) by estoppel in pais or (d) by unreasonable delay?
The first
issue
In argument
before Peter Gibson J it appears to have been accepted by counsel on both sides
that the wording of clause 5(2)(a) of the lease contains no express statement
of the latest date by which a notice has to be served. The relevant phrase is
‘at any time not earlier than 12 months prior to the expiration of the period
of seven years in the case of the first review period immediately preceding the
first review period. . . .’ Before the
learned judge it seems to have been assumed that, on a bare reading of the
wording, the last 29 of these words had to be read as one composite, adjectival
phrase qualifying the first three of them and that the phrases ‘at any time’
and ‘prior to the expiration of the period of seven years’ could not possibly
be read together. The submission made before him on behalf of the defendants as
to the point of construction, and dealt with in his judgment, was that a term
should be implied in clause 5(2)(a), to the effect that any notice under
that subclause should be given not later than the expiry of the 12 months
immediately preceding the rent review period. Peter Gibson J rejected that
argument. He accepted that it would be entirely fair and reasonable for the
parties to the lease to have agreed that the lessor’s notice should be served
by the start of the relevant review period. But, as he pointed out, it is not
permissible for the court to imply a term merely because it is fair and
reasonable, necessity being the appropriate test. The test is thus a difficult
one to satisfy.
There is,
however, another way of reading the relevant words of clause 5(2)(a) of the
lease, which does not appear to have been ventilated before Peter Gibson J in
argument. This is to read the phrase ‘not earlier than 12 months’ as a separate
adjectival phrase qualifying the phrase ‘at any time’. Thus, in my opinion, the
relevant words are, as a matter of language (without the need to supply any
words by implication), capable of meaning either (1) at any time whatsoever in
the future, provided only that such time is not earlier than 12 months before
the expiration of the designated period
expiration of that period.
This lease,
like many other legal documents, contains no commas, but, with all deference to
the contrary view held by Oliver LJ, I can see no sufficient reason why the
phrase ‘not earlier than 12 months’ cannot as a matter of language be read as
if it had been introduced and immediately followed by commas. On this footing, the
relevant words would specify both an earliest date and a latest date for
service of a lessor’s notice.
Mr Lewison on
behalf of the plaintiffs pointed out that the second limb of clause 5(2)(a),
which begins with the words ‘or not earlier than 12 months . . .’, and deals
with the second and third review periods, is not prefaced by the words ‘at any
time’. Thus, he submitted, the phrase ‘at any time’, which introduces the first
limb of clause 5(2)(a), must be treated as also governing the whole of the second
limb, dealing with the second and third review periods. This, he contended,
made it grammatically impermissible to treat the phrase ‘not earlier than 12
months’, appearing in the first limb, as a separate adjectival parenthesis
qualifying the phrase ‘at any time’.
Skilfully
though it was presented, I do not think that there is any substance in this
point. If any sense is to be made of clause 5(2)(a) as a whole, an expanded
meaning has on any footing to be given to the second limb, which reads ‘or not
earlier than 12 months prior to the expiration of the periods of five years in
the case of the second review period and the third review period as the case
may be’. This second limb manifestly represents a form of abbreviation adopted
by the draftsman in an attempt to avoid cumbersome repetition. On any footing
the words have to be expanded in the course of construction. First, ‘the
periods of five years’ there referred to are not explicitly defined; it is
clear that the words ‘immediately preceding the first review period’ have, with
appropriate amendments, to be read into the second limb of the subclause with
reference to the second review period and the third review period respectively.
Secondly, it is clear that the word ‘or’ has to be read into the second limb of
the subclause, so that it introduces the reference to the third review period.
In my opinion, the draftsman was clearly treating the words ‘at any time’ as
being similarly read into the second limb of the subclause in relation to the
second and third review periods, but similarly qualified in each case.
The subclause
is not very well drafted and a process of minute grammatical analysis does not
greatly advance the argument either way. The crucial words of the opening limb,
as I have said, are in my opinion open to two possible interpretations. They
are ambiguous and one has to look to the context to decide which of them is
correct.
This lease was
one of commercial premises. Its provisions relating to the payment of rent
contained in the reddendum in clause 1 have already been set out in the
judgment of Lawton LJ. These rents were payable by quarterly payments in
advance on the four usual quarter days. Under clause 2(1) the lessee covenanted
to pay such rents ‘on the days and in manner aforesaid’. Clause 3(4), which I
think should have been numbered clause 4, gave the lessor a right of re-entry
‘if the rents hereinbefore reserved or any part thereof shall at any time be in
arrear and unpaid for 14 days after the same shall become due (whether legally
demanded or not). . . .’ The reddendum
in clause 1 provided that the reviewed rents were to be ‘determined in
accordance with the provisions in that behalf contained in clause 5 hereof’.
Clause 5(2) contained a number of provisions which will be referred to later in
this judgment and were designed to ensure that the rent review machinery,
having once been set in motion, should operate with due expedition.
Against this
background, without prejudice to the question whether time is of the essence
for the purpose of the service of a lessor’s notice under clause 5(2)(a), the
alternative construction of that subclause which in its context is more likely
to represent the intention of the parties to the lease is that which treats it
as designating a latest date (namely, the expiration of the previous
rent-paying period) as well as an earliest date (12 months before such
expiration) for the service of the notice. I think it inherently unlikely that
the parties would have intended expressly to provide that the lessor should
have an open-ended right ‘at any time’ after the stated date to serve a notice
setting the rent review process in operation.
Mr Lewison
conceded or contended that the lessor would lose the right to serve a notice in
respect of one review period as soon as the earliest date for service of a
notice in respect of the next review period had arrived. While I appreciate the
wisdom of this concession as a matter of advocacy, I do not see how it can be
derived from the wording of clause 5(2)(a), if that wording bears the
construction which the plaintiffs place upon it. On such construction, I find
it very difficult to place any limit on the apparently open-ended phrase ‘at
any time’ by a process of implication, save perhaps by limiting it to the
duration of the lease. The difficulties of attributing to the parties an
intention to contract in the terms for which the plaintiffs contend are to my
mind really insurmountable. For these reasons, I conclude that clause 5(2)(a)
on its true construction does specify a latest date by which a notice
thereunder has to be served in relation to the first review period, such date
being the expiration of the period of seven years therein referred to (December
24 1977).
The second
issue
The conclusion
just stated, if correct, of course puts a rather different complexion on the
case from that which it bore as presented to Peter Gibson J. He naturally dealt
with the case throughout on the footing on which it was presented to him,
namely, that the lease specified no latest date for service of the relevant
notice. On the footing which I think is the correct one, the lease specified a
latest date; and the plaintiffs in serving their notice on March 19 1980 were
nearly 2 1/4 years late. Nevertheless this is far from the end of the matter.
In United
Scientific Holdings Ltd v Burnley Borough Council and Cheapside
Land Development Co Ltd v Messels Service Co [1978] AC 904 (which
together I will call ‘the United Scientific case’) the House of Lords
laid down clear rules to guide the courts in determining whether a failure to
keep strictly to the timetable laid down in a rent review clause will deprive a
landlord of his right to have his rent reviewed during the relevant review
period. Lord Diplock stated the principle thus (at p 930 G):
I would hold
that in the absence of any contra-indications in the express words of the lease
or in the interrelation of the rent review clause itself and other clauses or
in the surrounding circumstances the presumption is that the timetable
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.
In the present
instance, therefore, the question is whether there are sufficient contra-indications
of this nature to rebut the presumption that time is not of the essence of the
contract in relation to the service of a lessor’s notice under clause 5(2)(a)
of the lease. For this purpose, I think it necessary to analyse the nature of
the machinery for rent review embodied in clause 5(2)(a) of the lease. The
timetable envisaged by that subclause may be summarised as follows:
(1) In respect of any of the three review
periods, the rent review process is to be initiated by a notice in writing served
by the lessor, proposing a rent for the relevant period.
(2) If, during the three months following such
notice, a rent is agreed between the parties in writing, in substitution for
the sum proposed in the lessor’s notice, that agreed sum will be the rent
payable in respect of the whole of the reviewed period.
(3) If at the expiration of that three-month
period no such substituted rent has been agreed between the parties, and the
lessee has not served on the lessor a counternotice requiring the rent to be
determined by an independent surveyor, then the rent proposed in the lessor’s
original notice will stand as the rent payable in respect of the whole of the
reviewed period. This must be the effect of clause 5(2)(c) and, in particular,
the words ‘time to be of the essence hereof’.
(4) If, during that three-month period, the
lessee has served on the lessor a counternotice of the nature just mentioned,
the parties then have one month within which to attempt to agree on the
appointment of an independent surveyor. If during that one-month period they
have failed to agree upon such appointment, then either party has the right to
apply to the president of the Royal Institution of Chartered Surveyors to make
the appointment so that determination may finally proceed.
The timetable
envisaged by clause 5(2) thus clearly contemplates that, in respect of any rent
review period, the process of determining the open market value will have been
completed within three months following the service of the lessor’s ‘trigger’
notice under clause 5(2)(a), unless the lessee has served a counternotice
requiring the rent to be determined by an independent surveyor. In that
contingency, a further delay of some weeks may elapse before the surveyor has
made his determination and communicated it to both parties; but even then the
delay is not likely to be a long one.
The care with
which the parties to the lease stipulated for a strict timetable, once the rent
review machinery had been set in motion, arguably affords some indication that
they would have likewise contemplated that the lessor should adhere to the
timetable which, at least on my construction, the lease specified in respect of
the service of his initiating notice. There are some further possible pointers
in the same direction. The form of the rent review clause was, at least in my
experience, unusual in one respect. It has, I think, been common ground
throughout the argument in both courts that, in view of the wording of clause
5(1), there is no question of the surveyor, if and when appointed, being
required to make an ex post facto determination of the rent as at the
commencement of the relevant review period. He is required to determine it in
accordance with the clause 5(1) formula, but otherwise in the light of
market conditions prevailing when he makes his determination. In this
important respect, the form of the particular rent review clause is
distinguishable from the superficially similar clause under consideration in Accuba
Ltd v Allied Shoe Repairs Ltd [1975] 1 WLR 1559, where it appears to
have been common ground that an ex post facto determination of the rent
as at the commencement of the review period would be required: see at p 1564
D-E per Goff J. This is a significant factor in the present case, because it
means that any delay in the determination of the rent is likely to be
prejudicial to the lessee, because of the customary continuing rise of market
rents caused by inflation. Furthermore, the effect of the proviso to clause
5(3) will be to render the increased rent when demanded payable retrospectively
to the commencement of the review period. This is not, therefore, a case where
delay is likely to provide any compensating economic advantage to the tenant
such as was referred to by Lord Diplock in the United Scientific case at
p 935 F. Prima facie the longer the lessor delays the greater may be the
prejudice to the lessee, though I will have some further observations to make
in this context.
In the Accuba
case it was held that time was not of the essence in regard to the service
of the lessor’s notice. That decision was approved by the House of Lords in the
United Scientific case: see [1978] AC at p 936 E per Lord Diplock, at p
940 D per Viscount Dilhorne and at p 947 A per Lord Simon of Glaisdale.
However, despite the superficial similarity between the rent review clauses in
the Accuba case and the present instance, I think that a close
examination of the two clauses reveals a number of material differences, of
which I have already referred to one. I do not regard the approval by the House
of Lords of the Accuba decision as by itself compelling a decision in
favour of the plaintiffs on the facts of the present case.
In view of all
the matters already referred to, I have found myself strongly attracted to the
view that time is of the essence for the relevant purpose in the present case.
But in the end I think this conclusion would be incorrect, for reasons which
can be quite shortly stated.
To reach it
would involve saying that the lessor would be wholly excluded from invoking the
rent review machinery in respect of a particular review period even if it was
only a day late in the service of its notice. In my opinion, however, there are
at least three points which militate against such a draconian construction: First,
unlike many other rent review clauses, the rent review provisions in the
present case are not drafted in such a form as to suggest that the lessor is to
have the right, exercisable or not at his own choice, to demand a rent review.
The wording of the reddendum in clause 1 appears to assume that in respect of
any review period the rent review procedure provided by clause 5 will, in
any event, have been gone through. It refers to the reviewed rents in
mandatory language. They are ‘to be determined in accordance with the
provisions in that behalf contained in clause 5 hereof’. And indeed, according
to the strict wording of clause 1(d), the provisions for the ascertainment of
the rent payable during the second review period and the third review period
will, on the face of them, be unworkable unless there has been ‘a reviewed
rent’ governing the immediately preceding review period.
Secondly, the
fact that the lease expressly provided that time was to be of the essence in
respect of a lessee’s counternotice under clause 5(2)(c) but did not similarly
expressly provide that time was to be of the essence in respect of a lessor’s
notice under clause 5(2)(a), gives a quite powerful indication that time was
not regarded as being of the essence for the latter purpose.
Thirdly, if
for the reasons already stated delay in the setting in motion of the rent
review machinery is likely to be prejudicial to the lessee, it can be said that
the remedy lies in its own hands. As soon as a rent review period had arrived
without the lessor having served the appropriate ‘trigger’ notice, it would, I
think, be open to the lessee to give the lessor a notice specifying a period
within which he required the lessor to serve a lessor’s notice if he intended
the ‘open market value’ to be determined and payable, instead of the rent of
£18,000 for the first review period or the immediately preceding rent for the
second and third review periods, as the case might be: see and compare United
Scientific case at pp 933F-934 per Lord Diplock and at p 946E per Lord
Simon. The period so specified, provided that it was reasonable, would then
become of the essence of the contract and the lessee would have the means of
finally ascertaining what rent he had to pay for the relevant review period.
The decision in
the United Scientific case, I think, shows that, save in a case where a
rent review clause is associated with a break clause, which gives the tenant
the right to the surrender of the term on any rent review day by giving prior
notice (see at p 936F), the court should be slow to construe all or any part of
the timetable specified in a rent review clause as being of the essence of the
contract. On balance, I do not think that the contra-indications in the present
lease are sufficient to displace the presumption that time is not of the
essence for the purpose of the lessor’s notice under clause 5(2)(a) and I would
so hold.
The third
issue
Before
considering whether the plaintiffs have, in one way or another, now precluded
themselves from demanding a rent review in respect of the first review period,
I think it necessary to take stock of the position of the parties as at the
start of the first review period, in the light of the conclusions which I have
reached as to the construction of the lease. On the basis of those conclusions,
their position as at December 25 1977 was this. The latest date specified by
the lease for the service of the lessor’s notice under clause 5(2)(a) in
respect of the first review period had passed. But time was not of the essence
for the purpose of that notice. So the defendants should have appreciated that
unless and until the plaintiffs gave a clear indication to the contrary they
were still retaining the right to serve a lessor’s notice, initiating the rent
review process for that period, at some later date. In fact what happened was
that, on or about December 25 1977, the plaintiffs’ agents served on the
defendants a notice demanding rent in advance for the ensuing quarter, at the
yearly rate of £18,000, and served on them eight similar notices in respect of
eight more quarters before they finally served the notice of March 19 1980,
requiring the rent payable in respect of the premises to be reviewed and
stating that in their opinion the open market rental value of the premises was,
at the date of the notice, £140,000 per annum.
As Mr Wood
pointed out, the service of the first of these demands clearly indicated that
the plaintiffs or their agents had looked at and were conscious of the
provisions of clause 1(c) of the lease, since rent for the period of three
years immediately preceding the first rent review period had been payable at
the lower rate of £14,600 per annum. On the other hand, it was equally obvious
that the first of these demands was not intended to constitute a lessor’s
notice of the nature referred to in clause 5(2)(a) of the lease. What then was
the proper inference to be drawn from the service of these demands?
The answer to
this question must considerably depend on the answer to another question.
Assuming, as I have concluded, that time is not of the essence for the purpose
of the service of the lessor’s notice under clause 5(2)(a) of the lease, what
were the obligations imposed by the lease on the defendants in regard to the
payment of rent during the interim period between the beginning of the first
review period and the setting in motion by the lessor of the rent review
machinery? There are, I think, three
possible answers to this question, namely, that the lease on its true
construction either (1) provided for the payment of rent at the rate of £18,000
per annum during this interim period (see clause 1(c)) or (2) provided for the
payment of rent at the rate of £14,600 per annum during this period (see clause
5(3)) or (3) made no provision at all for the payment of rent during this
period.
Mr Lewison on
behalf of the plaintiffs argued in favour of the first of these constructions.
Mr Wood on behalf of the defendants argued in favour of the second. On the
assumption that the court rejected his
lessor’s notice, he submitted in effect that, as soon as the first review
period arrived, the plaintiff landlords had a choice. One course open to them
was to reserve the right to initiate a rent review in respect of that period,
in which case, as he contended, they would have been entitled to receive
interim rent at the rate of £14,600 per annum under clause 5(3) of the lease.
The other possible course was finally to give up their right to initiate a rent
review in respect of that period in which case (and only in which case, as he
contended) they would have been entitled to receive rent at the rate of £18,000
per annum under clause 1(c) of the lease. In Mr Wood’s submission, the
plaintiffs, by demanding rent in December 1977 and succeeding quarters at an
annual rate of £18,000, had unequivocally demonstrated their decision to take
the second of these two courses and had thereby induced the defendants to pay
rent at that annual rate, which was a larger amount than the defendants would
have been bound to pay if the plaintiffs had still been reserving to themselves
the right to invoke the rent review procedure in respect of the first review
period.
I hope that
this summary adequately represents the substance, though not the form, of Mr
Wood’s submissions in this context, which led on to the further submissions
that the plaintiffs, by serving the nine demands for quarters’ rent at a rate
of £18,000 per annum, had precluded themselves, either by the doctrine of
common law election or by estoppel, from demanding rent at a higher rate in
respect of the first review period.
A Election and
Estoppel
As Mr Wood
accepted, both his submissions based on election and those based on estoppel
rest entirely on the premise that the plaintiffs had no right to receive rent
at a rate of £18,000 per annum, so long as they wished to reserve the right to
invoke the rent review provisions in respect of the first review period. The
correctness or otherwise of this premise depends on the construction of clauses
5(3) and 1(c) of the lease.
Mr Wood
submitted in effect that the provisions for the payment of an interim rent,
embodied in clause 5(3) of the lease, are on their true construction capable of
operating even at a time when the lessor has not yet served the necessary
notice setting the rent review process in operation. I do not think that this
construction of clause 5(3) is the correct one.
Clause 5(3) is
prefaced by the words ‘In the event of the determination by such independent
surveyor not having been made and communicated to both parties hereto prior to
the commencement of the first review period. . . .’ The period during which the interim rent is
to be payable under the subclause, beginning with the commencement of the review
period, is expressed to end ‘on the quarter day immediately following the date
on which such determination shall have been made’. The whole of the subclause
thus presupposes that a situation has been reached in which a determination by
a surveyor is bound to be made in due course. In these circumstances, I agree
with the learned judge that clause 5(3) is not apt to apply at a time when the
rent review procedures have not been initiated at all, or when they have been
initiated but have not yet reached the stage of the lessee’s election to have a
determination by an independent surveyor. In my opinion, he was right in
concluding (see p 14 C of the transcript of his judgment)* that clause 5(3) can
apply only when the lessee has, pursuant to clause 5(2)(c), elected for the
determination by an independent surveyor, but the surveyor has not yet made his
determination and the review period has commenced.
*Editor’s
note: see (1982) 262 EG 143 at p 145., [1982] 1 EGLR 117
It follows,
therefore, in my opinion, that until the defendants served their counternotice
of June 6 1980, clause 5(3) had no operative effect at all. What then were the
defendants’ obligations in regard to the payment of rent during the interim
period between the commencement of the first review period and June 6
1980? Disregarding any legal
consequences that may have flowed from the plaintiffs’ demands for rent at a
rate of £18,000 per annum, Mr Wood, as I understood his argument, submitted
that, if clause 5(3) had no operative effect during this interim period, the
defendants were under no obligation to pay any interim rent at all. This, as I
understand it, was an alternative basis upon which he submitted that these
demands for rent by the plaintiffs constituted a final abrogation of their
rights to seek a rent review for the first review period, because they were
inconsistent with the reservation of any such rights.
Mr Lewison met
this argument by submitting that clause 1(c) imposed an obligation on the
defendants to pay rent at the rate of £18,000 per annum during this interim
period, until clause 5(3) began to operate. Mr Wood’s answer to this submission
was that, as a matter of principle, rent does not fall to be payable until it
is certain and ascertained. He accepted that a lease may provide for the
payment of a fixed sum on account of rent or a guaranteed minimum rent, and
that in that event the fixed sum or guaranteed minimum can be sued or
distrained for even before the final aggregate amount has been ascertained:
compare Walsh v Lonsdale (1882) 21 Ch D 9 and the United
Scientific case at p 935 E-F per Lord Diplock. He pointed out that clause
5(3) of the lease in the present case did provide for the payment of a fixed
sum on account in the contingency to which it applied. He submitted, however,
that clause 1(c) itself could not properly be construed as obliging the lessee
to pay anything at all until the open market value of the demised premises for
the first review period had been determined or the lessor had finally abrogated
his right to seek a rent review for the first review period (in which case rent
at the rate of £18,000 per annum would of course be payable).
I confess that
I do not find this point easy. While I have been driven to the conclusion that
time is not to be regarded as being of the essence for the purpose of a
lessor’s notice under clause 5(2)(a), I strongly suspect that the draftsman did
not direct his mind to the situation that might arise if a rent review period arrived
but the lessor had not yet set in motion the rent review machinery or indicated
whether he intended to do so. Nevertheless, I think that clause 1(c) is capable
of being read as imposing on the lessee an obligation to pay a guaranteed
minimum rent of £18,000 per annum and this, in my opinion, is how it should be
read, since the alternative construction of the subclause, suggested on behalf
of the defendants, would leave an obvious lacuna in the lease. The construction
which I thus place on clauses 1(c) and 5(3) of the lease is substantially the
same as that placed on them by Peter Gibson J. At pp 14F-15D of the transcript
of his judgment he referred to certain incidental difficulties which he
recognised as being attendant on his construction of clause 5(3). The same
difficulties, I think, attend his and my construction of clause 1(c). I do not
think it necessary to refer further to them, beyond saying that I agree with
him that they are not sufficient to outweigh the other considerations pointing
towards the construction which he favoured.
It follows
that the plaintiffs, in serving the successive rent demands at a rate of
£18,000 per annum from December 1977, were doing no more than they were, in my
opinion, entitled to do under the lease, in the circumstances then
appertaining. It cannot be said that these demands either were necessarily
inconsistent with the reservation by the plaintiffs of the right to serve a
‘trigger’ notice in respect of the first review period or implied any clear
representation that they did not intend to do so. The defendants’ submissions
based on election and estoppel accordingly must, in my opinion, fail, since the
premise on which they are founded is incorrect.
B Delay
It remains to
consider whether, even so, the plaintiffs are precluded from relying on the
rent review provisions in respect of the first review period, by reason of
delay in serving their ‘trigger’ notice. On the construction which the learned
judge placed upon clause 5(2)(a) of the lease, namely, that there was no
time-limit specified for the service of the notice, he found no difficulty in
concluding that it was not meaningful to describe the interval of time between
the start of the review period and the service of the notice as a ‘delay’,
still less that it should be categorised as unreasonable. However, on the
construction which I have placed upon clause 5(2)(a), a clear delay of some 2
1/4 years did occur between the date thereby designated for the service of the
lessor’s notice and the actual service of it.
Though some
decisions given before that in the United Scientific case (for example,
the Accuba case) contained observations as to the effect of delay in the
service of a landlord’s ‘trigger’ notice, I do not, with all respect to the
judges who made them, think they are now
had previously been the commonly held view as to the legal effect of timetables
designated by rent review clauses.
In argument in
the present case, counsel have been able to refer the court to very few, more
recent, authorities giving guidance on this question. In the United
Scientific case itself Lord Salmon accepted, [1978] AC at p 956, that ‘if
the lessors had been guilty of unreasonable delay which had caused prejudice or
hardship to the lessees’, they would have forfeited their rights under the rent
review clause. But I think that none of the rest of their Lordships in that
case said anything directly relating to this particular point. In James v
Heim Gallery (London) Ltd (1981) 41 P&CR 269* Buckley LJ (at p 278)
left open the question whether a party who unreasonably delays in asserting his
right under a rent review clause can be held to have abandoned that right so as
to be debarred from asserting it. In Telegraph Properties (Securities) Ltd v
Courtaulds Ltd (1981) 257 EG 1153, [1981] 1 EGLR 104, where a landlord
had delayed for more than six years before invoking a rent review clause,
Foster J, without making any statement of principle, held (at p 1154) that ‘the
plaintiff has been guilty of such delay as to make it unreasonable for it to
call on the defendant for a rent review and to do so would be of necessity
unfair for the defendant’. Finally, in Amherst v James Walker
(Goldsmith & Silversmith) Ltd (1982) 262 EG 442, Mr John Mowbray QC,
after a careful review of the authorities, held in effect that in a case where
time is not of the essence (a) a landlord’s delay can disentitle him to serve a
‘trigger’ notice, if it is not only unreasonable but so long and inexplicable
as to amount to sufficient evidence that he has abandoned his right to a
review; (b) subject to point (a), even unreasonable delay by the landlord does
not invalidate the notice, unless the delay has prejudiced the tenant or caused
him hardship.
*Editor’s
note: also reported at (1981) 256 EG 819, [1980] 2 EGLR 119.
In the absence
of binding authority compelling a different conclusion, I am satisfied that
delay on its own, even if unreasonable, will not in general disentitle a
landlord from invoking a rent review clause in a case where time has not been
made of the essence of the contract. There is, I think, no general principle of
the law of contract that mere delay in the enforcement of a contractual
right, or in the performance of a contractual duty, by one party to a contract
(‘A’) will entitle the other party (‘B’) to regard himself as discharged from
the obligation to recognise such right or from the contract as a whole (as the
case may be). If in such circumstances has been guilty of unreasonable delay,
then, ordinarily, the prudent and proper course for B to adopt, if he wishes to
bring matters to a head, will be to serve a notice on A fixing a reasonable
period within which A must exercise his right (if at all) or must perform his
part of the contract (as the case may be). In some circumstances, of course,
the delay on the part of A may be so gross and inexplicable as to make it so
clear that he does not intend to exercise his right or to perform his part of
the contract that any such notice is unnecessary. But, ordinarily, it will be
necessary for B to serve a notice on A or at least to have some communication
with him before he can properly and safely regard himself as being absolved.
Subject to the
position that may arise where the tenant can demonstrate that the landlord’s
delay in serving a ‘trigger’ notice has caused him prejudice or hardship, I can
see no reason why similar principles should not apply in relation to a rent review
clause where the original lease has not made time of the essence for the
relevant purpose. Subject as aforesaid, therefore, I would for my own part be
prepared to hold that in such a case mere delay, even of unreasonable length,
in serving his ‘trigger’ notice will not disentitle a landlord from relying on
a rent review clause unless the delay is so long and inexplicable as to amount
to sufficient evidence that he has abandoned his right to a review.
However, some
of the decisions to which I have referred, or dicta in those decisions, suggest
that, even in the absence of evidence of final abandonment by the landlord of
the relevant right and of any communication by the tenant with the landlord
designed to clarify the situation, a landlord may forfeit the right if his
unreasonable delay has caused prejudice or hardship to the tenant: see the United
Scientific case at p 956 per Lord Salmon; the Telegraph Properties case;
and the Amherst case. I am bound to say that, with the greatest respect
to all those concerned, I find rather more difficulty in accepting this
suggestion.
In some cases
the delay of a landlord in applying for a rent review might entitle the tenant
to rely on the doctrine of equitable estoppel, if the delay had been coupled
with an express or implicit representation by the landlord that he did not
intend to invoke his rights and the tenant had relied on this representation to
his detriment. In the absence of such representation, however, it is not
entirely clear to me what principle of law or equity would debar the landlord
from still relying on the contractual right conferred on him by the lease.
Nevertheless,
for the purpose of this judgment, I am content to assume in favour of the
defendants, without deciding, that the plaintiffs could have lost their rights
to enforce the rent review provisions in regard to the first review period if
the defendants had proved to the reasonable satisfaction of the court that the
delay had both been unreasonable and had caused them prejudice or hardship.
What then is
the evidence on this point? The
plaintiffs’ application to the court was supported by one brief affidavit sworn
by Mr S J T Turnbull, the chairman of the company which acts as managing agent
to the plaintiffs. This affidavit set out very briefly the circumstances in
which the relief was sought by the summons. It exhibited the lease and the
relevant correspondence. It was answered by an equally brief affidavit sworn by
Mr L E Fretten, the manager of the estate department of the defendants. In the
course of this affidavit, he asserted that the plaintiffs had, since December
25 1977, demanded and received from the defendants rent at the rate of £18,000
per annum and were therefore estopped from seeking to demand rent at the
alternative rate. He submitted as follows, in para 7 of this affidavit:
If on the
true construction of the lease the plaintiff’s contention is correct that the
notice is a valid notice and can be given outside the said twelve month period
the defendant company is advised that it must be given within a reasonable time
of the expiration of the said twelve month period. The giving of the notice in
March 1980 is not notice within a reasonable period.
These two
affidavits, as I understand the position, were the only affidavits before the
court and there was no cross-examination on them. The affidavit of Mr Fretten
explicitly referred to no prejudice or hardship whatsoever alleged to have been
suffered by the defendants as a result of the plaintiffs’ allegedly
unreasonable delay in serving their notice.
In the absence
of specific evidence of prejudice or hardship, I think that there is only one
point of any substance that can be invoked by the defendants in this context.
The determination by the surveyor, if and when it now takes place, will assess
the reviewed rent by reference to values appertaining at the time of the
determination: see clause 5(1) of the lease. As invited by the defendants’
counsel, I think it right that the court should take judicial notice of the
fact that, due to the impact of inflation, rents of commercial premises in
London rose between December 1977 and the spring of 1980. There is, however, no
evidence at all as to the extent of this rise or as to the specific effect it
will have on the amount of the reviewed rent ultimately payable by the
defendants. As Mr Lewison pointed out, there are other respects in which delay
would appear to produce at least some compensating benefits for the defendants.
First, the determination when made will, under clause 5(1), fall to be made by
reference to the annual value in the open market of a hypothetical lease for a
term equivalent to the number of years unexpired, of the actual term granted by
the lease of 1971, at the time of the determination. Fewer years will
now remain unexpired than remained unexpired in 1977. Secondly, even on the
assumption that the determination produces a figure substantially higher than
£18,000 per annum which will be payable retrospectively to the start of the
first review period, the resulting sum will be payable in inflated currency,
and without interest, by the defendants, who will have had the benefit of the
money during the intervening period. In the circumstances and in the absence of
any clear evidence to support the inference, I do not think that it would be
right for the court to infer that the defendants will on balance have suffered
any substantial financial loss or other hardship by the delay. This is not, in
my opinion, a case where res ipsa loquitur.
Similar
comments as to the dearth of evidence apply in relation to the defendants’
submissions based on alleged abandonment by the plaintiffs of their right to
seek a rent review for the first review period. There is no firm evidence
whatever that the defendants believed that the plaintiffs had abandoned this
right. True it is that the correspondence exhibited to Mr Turnbull’s affidavit
contained a letter dated March 25 1980, written by the defendants to the
plaintiffs, which appeared to show that the defendants thought that the
plaintiffs had chosen to abandon their right to seek a rent review when they
demanded rent at the rate of £18,000 per annum. But Mr Fretten did not depose
to any such belief on behalf of the defendants in his affidavit, so that no
opportunity was given to the plaintiffs either to test the assertion of such
belief by cross-examination or to adduce evidence to rebut it. In the absence
of any further evidence as to the dealings between the parties, beyond those
referred to in this judgment and that of Lawton LJ, I feel wholly unable to
conclude that the lessor’s delay (though admittedly unexplained) is so long and
inexplicable as to indicate that the plaintiffs had abandoned the relevant
right. Once again, in my opinion, this is not a case where res ipsa loquitur.
Accordingly, I
think that the third principal issue in this case must be decided in favour of
the plaintiffs by a negative answer.
Conclusion
For all these
reasons, I think that Peter Gibson J was right to grant the declarations sought
by the originating summons. I would dismiss this appeal.
The appeal
was dismissed with costs. Leave to appeal to the House of Lords was refused.
