Landlord and tenant — Rent review clause — Whether in the events which had happened the landlords were entitled to require a rent review in accordance with provisions in the lease — Method of determining revised rent in the lease incorporated review provisions in a superior lease which had been surrendered — Effect of surrender of superior lease — Tenants argued that this surrender rendered the review provisions in the lease inoperative — Whether a revised rent for the lease could be determined in accordance with certain provisions in the superior lease notwithstanding the facts that no rent was being paid under the latter and no rent review could take place in respect of it — Held that the rent review provisions in the superior lease, which were intended to apply in certain events to the present lease, could be applied despite the surrender of the former — Accordingly the landlords were entitled to require the rent to be reviewed
In this case
the plaintiffs, Lorien Textiles (UK) Ltd, tenants of ground-floor and basement
premises at 65 King’s Road, Chelsea, sought a declaration that their landlords,
SI Pension Trustees Ltd, were not entitled to require a review of rent payable
by the plaintiffs. Particulars of the leases are set out in the judgment.
Gavin Lightman
QC (instructed by S A Bailey & Co) appeared on behalf of the plaintiffs;
David P Friedman (instructed by J E Kennedy & Co) represented the
defendants.
Giving
judgment, Mr JULIAN JEFFS QC said: This case concerns the construction of and
obligations arising under a subunderlease. The relief that is sought is in the
form of ‘A declaration that upon the true construction of the above mentioned
underlease dated November 22 1968 and in the events that have happened the
defendants are not entitled to require a review of the rent payable pursuant to
clause 5 thereof’. For the reasons which will shortly become apparent, I do not
intend to grant that declaration.
A number of
authorities were cited to me. One that helps in this connection is the case of United
Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, a
case in the House of Lords. This case contains some dicta on rent review
clauses, and I shall refer to just one of them in the speech of Lord Simon of
Glaisdale, p946, in which he said:
The operation
of the rent review clauses does not at all change the relationship of the
parties, which remains that of landlord and tenant throughout the currency of
the lease whether or not the machinery of the rent review clauses is operated.
It was envisaged from the outset that the rent would be reviewed during the
currency of the leases: the clauses merely provided machinery for determination
of the new rent, which in more stable conditions might have been stipulated in
advance. Moreover, the clauses went to the very basis of the consideration
moving from the landlords: in a period of inflation the latter would not have
granted leases for such long terms without inclusion of rent review clauses —
and certainly the initial rent would in each case have been much higher without
those clauses. To put it the other way round, the rent review clauses were
integral parts of the consideration moving from the tenants, whereby they
acquired a long term of years at an initial rent lower than it would otherwise
have been.
So it was in
the case which I am now considering. It was clearly envisaged between the
parties that the rent would be reviewed from time to time.
The history of
the matter I can summarise quite briefly by saying that by an underlease dated
November 22 1968 the original lessor, SI Pension Trustees Ltd, granted a lease
to Covenant Guarantors Ltd (the original lessee) with the third party, a
surety, Wingate Investments Ltd. Of like date, there was a subunderlease,
whereby Covenant Guarantors Ltd (the lessor) granted a lease to a company,
which has since not appeared in this matter at all, called I Was Not Lord
Kitchener’s Valet (Wholesale) Ltd (the lessee), there being three sureties.
By these
leases, certain premises in the King’s Road, Chelsea, were let and sublet for a
term under the original subunderlease expiring on March 17 1986, at a rent of
some £5,587 per annum, which was stated to be subject to review in 1974 and
1980. I shall necessarily have to refer to those two dates.
On September
29 1973, Covenant Guarantors surrendered their underlease to the old landlords.
I have not been referred to the terms of the surrender, and so far as I am
aware it is immaterial to the matters which I have to decide. Suffice it to say
at this stage that such a surrender took place.
That surrender
gives rise to certain problems. In 1974 the question arose of the exercise of
the review. For some reasons — which were not gone into in detail in the case
before me — that review never took place, and subsequently, on January 24 1975,
the subunderlease was assigned.
The next date
that came up was the review date of June 24 1980.
I think that I
should, before going into the details of this matter and the law that is to be
applied, refer to the leases for their terms and effect. The underlease
contains a considerable number of clauses, of which I think only two are
material to the matters that I have to decide. The first of these is clause 5.
By subclause (1):
The Lessor
may give notice in writing to the Lessee in accordance with the provisions of
this clause requiring the annual rent of £5,087 10s 0d. (or such increased rent
as results from the application of this Clause) to be reviewed. Such notice may
be given at any time not more than twelve nor less than six months before all
or any of the following dates
which are the
two dates that I have already mentioned, each of the dates being called the
‘Material Date’
but not at
any other time and from and after the giving of any such notice the following
provisions of this Clause shall take effect for the purpose of reviewing the
rent reserved by this Lease (or such increased rent as aforesaid) in accordance
with such notice. If the Lessor and the Lessee shall reach agreement as to the
amount of the revised rent as from any Material Date such agreement shall be
set out in writing and a memorandum thereof endorsed on this Lease and on the
Counterpart thereof and respectively executed by the Lessor and the Lessee.
By subclause
(2):
If such
agreement is not reached within eight weeks of the service of any such notice
the Lessor may within a further period of four weeks make written application
to the President for the time being of the Royal Institution of Chartered
Surveyors to appoint a valuer to certify in writing (as an expert and not as an
arbitrator) what sum in his opinion represents the full yearly market rent of
the demised premises on the basis hereinafter mentioned and the Lessor and the
Lessee respectively will if required furnish such valuer with all such
facilities for inspection and with all such other information and facilities as
the valuer may reasonably require.
Subclause (3)
refers to particulars of the full yearly market rent for the purpose of the
clause. Subclause (4) refers to the certificate of the valuer. Subclause (5)
reads as follows:
If the full
yearly market rent as so certified shall be greater than the yearly rent
payable at the date of the Lessor’s notice given under subclause (a) of this
Clause (hereinafter called ‘the Existing Rent’) then as and from the relevant
Material Date the Existing Rent shall be increased by a sum equivalent to
nine-tenths of the difference between the Existing Rent and the full yearly
market rent as certified and this Lease shall have effect as if such increased
rent was substituted for the Existing Rent but if the full yearly market rent
as certified shall be less than the Existing Rent then the Existing Rent shall
remain unchanged.
I now go to
the subunderlease, and I refer to corresponding clauses therein. By clause 5:
The Lessor
may give notice in writing to the Lessee in accordance with the provisions of
this clause requiring the annual rent of Five Thousand Five Hundred and Eighty
Seven Pounds Ten Shillings (£5,587 10s 0d) (or such increased rent as results
from the application of this Clause) to be reviewed. Such notice may be given
at any time not more than twelve nor less than six months before all or any of
the following dates
which are
there set out, and they are the Material Dates
but not at
any other time and from and after the giving of any such notice the following
provisions of this Clause shall take effect for the purpose of
aforesaid (in accordance with such notice). If the Lessor and the Lessee shall
reach agreement as to the amount of the revised rent as from any Material Date
such agreement shall be set out in writing and a memorandum thereof endorsed on
this Sub-Underlease and on the Counterpart thereof and respectively executed by
the Lessor and the Lessee
and now I come
to some words which I shall have to return to presently. The subclause goes on:
if such
agreement is not reached within eight weeks of the service of any such notice
then the yearly rent as and over the relative Material Date shall be yearly
rent as shall be fixed in accordance with the covenant and conditions contained
in a Superior Lease
the date of
which is not put in
made between
SIPT on the one part and the Lessor of the other part plus Ten per cent (10%)
thereof
and then there
is a proviso, which again may be of some importance
PROVIDED THAT
the Lessor shall not agree the yearly rental pursuant to the provisions on that
behalf of the said Superior Lease without the prior written approval of the
Lessee
and then it
reads
in the
absence of which the Lessor shall procure the question to be referred to an
independent Surveyor pursuant to the said provisions such Surveyor to be
appointed if the Lessee so requires by the President for the time being of the
Royal Institution of Chartered Surveyors.
It is quite
clear that there may be some difficulty in the provisos to both leases and the
application thereof, but that in itself has nothing to do with the surrender
and is not a matter that I need deal with specifically today.
I should go on
to refer to clause 6(2):
That during
such period (if any) of the term as the rent reserved by the Superior Lease
(hereinafter called ‘the Superior rent’) or a proportion of the Superior rent
shall be suspended in accordance with the provisions in that behalf contained
in the Superior Lease by reason of the demised premises or any part thereof
having been rendered unfit for occupation and use by fire the rent hereby
reserved shall during such period as aforesaid be reduced in manner following
that is to say: (i) by the amount of the Superior rent in the event of the
total suspension of the Superior rent or (ii) by the amount of the actual
reduction in the Superior rent in the event of the suspension of a
proportionate part of the Superior rent.
That refers
specifically to the superior rent and its suspension. When I come on to the
submissions of Mr Lightman, it will be seen that, if he is right with regard to
his submissions on the rent review clause, it must necessarily follow from that
that the protection in the event of fire given by clause 6(2) goes out of the
window.
Now it is not,
in my judgment, open to any third party to act in such a way as to derogate
from the rights arising to the lessee under this particular lease, and that in
itself makes me suspicious of the, submissions of Mr Lightman. But in the end I
think it all turns on the wording of clause 5, to which I have already briefly
referred.
As I
understood Mr Lightman’s submissions, they were two in number on this
particular point. The first raised the question whether the rent under the
subunderlease is to be reviewed by reference to the formula in the head lease
or by reference to the reviewed rent under the superior lease. What I
understood him to say is that the rent is to be fixed according to what is
actually determined under the superior lease plus ten per cent.
His second
submission is that, if he were right and the rent is fixed by reference to the
actual review, since it is conceded that there cannot be such a review now, can
the court substitute some other method of fixing a review rent?
With that, I
must turn to the actual words of clause 5, which I have already read out but I
must emphasise in part. The words I had in mind were these: ‘if such agreement
is not reached within eight weeks of the service of any such notice then the
yearly rent as and over the relative Material Date shall be yearly rent as
shall be fixed in accordance with the covenant and conditions contained in a
Superior Lease dated’ etc. As I understood the submission of Mr Lightman, he
would have that refer to the actual rent, and, if that is not right, then the
words ‘yearly rent as . . . shall be’ are redundant. Those words, in his
submission, relate to a specific rent, not merely to a method of ascertaining
the rent. That, however, is not the way in which I read those words. They
appear to me to be perfectly clear: ‘if such agreement is not reached within
eight weeks of the service of any such notice then the yearly rent as and over the
relative Material Date shall be yearly rent as shall be fixed’ — and here I
emphasise the following words — ‘in accordance with the covenant and conditions
contained in a Superior Lease’. So those words determine the method of the
fixing of the rent and do not refer to a specific rent as fixed and paid by
that method. For if they were to be so limited a more appropriate method of
expression would be ‘rent as shall be fixed and paid in accordance with the
covenant and conditions contained’. There is no suggestion in terms that the
rent should be one which should be paid. I accept entirely that on the
surrender of the former lease the interests in the land merged and no further
rent was payable. However, as a document containing the terms that it sets forth
with some particularity and clarity, it did not at that stage cease itself to
exist; it was still available for reference; it could still be acted on; and,
in my opinion, it should be acted on, and, accordingly a rent review should now
be proceeded with in terms which appear on the face of the documents to be
adequately clear.
I should,
however, refer to the second submission of Mr Lightman, because, had I been in
his favour on the first submission, I can say here and now that I would have
been in his favour on the second. He posed the question of what would happen if
he were right and it was not possible to fix a review rent. The first of his
submissions, as I understood it, was (a) if a contract provides a formula for
determining a price or rent but no machinery for determining the price or rent,
this court will itself determine the price or rent in accordance with the
formula; (b) if the contract provides machinery for determining the rent and
the machinery breaks down or becomes inoperable, the court cannot interfere or
substitute fresh machinery; (c) the position in (b) is a fortiori where
the breakdown in the machinery is due to the conduct of the party seeking to
give effect to the contract or his successors in title.
In my
judgment, all those submissions are perfectly correct, and are supported by
ample authority, including Milnes v Gery (1807) 14 Ves, 400; Morgan
v Milman (1853) 3 De G M & G 24; and Brown v Gould [1972]
Ch 53. Talbot v Talbot [1968] Ch 1 was also cited, but I do not
think it greatly assists.
Mr Friedman
made various submissions, and I hope that he will not regard it as any slight
on the interesting and sometimes ingenious arguments that he advanced before me
if in view of what I have already decided I do not go into his submissions in
very great depth. However, I would mention three. The first is that on the true
construction of clause 5 of the subunderlease, if such a notice is served and
thereafter no rent is agreed, the revised rent is a yearly rent determined on
the basis set out in the superior lease plus ten per cent; that it matters not
that no rent is payable under the superior lease; and that it matters not that
no yearly rent is in fact fixed as between the original parties to the superior
lease. As I have already indicated, I think that that submission is right, on
the clear wording of the lease itself.
A second
submission was that, notwithstanding the determination by surrender of the
estate granted by the superior lease, it was still possible and proper to fix a
yearly rent under it within the meaning of clause 5 of the underlease. With
that submission I also agree.
Thirdly, he
submitted that, if it is not now possible to fix the rent under the superior
lease, this is a case where the court should determine the yearly rent by
applying criteria set out in the superior lease. With that, as I have indicated
already, I would not agree, since if the machinery has indeed broken down
(which, in my judgment, it has not) the court should not substitute a totally
new machinery of the court’s own devising with which the parties to the various
leases have not agreed.
It follows from
what I have already said that I refuse the declarations sought by the
plaintiffs.
I now refer to
the declarations sought by the defendants, which appear in an affidavit of Mr
Joseph Edward Kennedy, which was
a counterclaim, but no point was taken on that by Mr Lightman, and I proceed to
consider it by agreement between the parties. The first declaration sought is a
declaration that upon the true construction of the subunderlease referred to in
the originating summons herein and in the events that have happened the
defendants are entitled to require a review of the rent payable on June 24 1980
pursuant to clause 5 thereon. That is a declaration that I am prepared to
grant.
The second
declaration sought is a declaration that the defendants are entitled to have
the amount of the rent payable from the said date determined by an independent
surveyor appointed pursuant to the defendants’ letter and application dated
April 22 1980 to the Royal Institution of Chartered Surveyors or alternatively
appointed pursuant to the defendants’ letter and application dated August 5
1980 to the Royal Institution of Chartered Surveyors or alternatively that the
defendants are entitled to have the amount of the rent payable from the said
date determined by the court or in such manner as the court may decide is
appropriate.
There are
therefore four possibilities in that declaration, and I decline to grant the
latter two. In my judgment the defendants are not entitled to have the amount
of rent payable from the date determined by the court or in any manner which
the court may decide is appropriate. It must arise under the lease or not at
all.
So that leaves
me two separate applications to the Royal Institution of Chartered Surveyors.
Since these are applications both made to the same institution for the purpose
of a valuer to decide, so far as I understand the position, the same question,
I hardly think it matters which of the applications should succeed, but I
should be happy to hear argument on that.
After hearing
submissions from counsel, the judge decided that the first application to the
RICS, dated April 22 1980, should proceed. The plaintiffs were ordered to pay
the costs of the summons.
