Landlord and tenant — Rent review clause in lease of warehouse — Validity of landlords’ trigger notice — Construction of words in lease — Review clause in lease for a term of 15 years provided that after an initial seven-year period at a stated rent the remainder of the term should be divided into two periods of five and three years respectively — The first review period commenced on March 25 1987 and was due to expire on March 24 1992 — The material part of the clause provided that the open market rental value was to be such sum as should be specified in a notice in writing by the lessor ‘served at least six months before the expiration of the period in question’ — The question was what was ‘the period in question’? The remainder of the lease after March 25 1987
held that, unless he was compelled to read ‘expiration’ as ‘commencement’ in
the material phrase quoted above, the ‘period in question’ must mean the review
period which expired on March 24 1992; hence the landlords’ notice was served
in time — It was true that the construction adopted meant that the rent could
be reviewed retrospectively at a time when virtually the whole of the rent
review period would have expired, and, in the case of the second review period,
after the lease itself might have expired — However, neither these possible
consequences nor anything else in the lease justified the ‘heroic’ alternative
of reading ‘expiration’ as ‘commence- ment’ — Plaintiff tenants’ summons
accordingly discussed
No cases are
referred to in this report.
This was an
originating summons taken out by the plaintiff tenants, Maraday Ltd, to
determine the validity of a notice served by the defendant landlords, Sturt
Properties Ltd, activating a rent review clause in the lease of warehouse
premises in Islington held by the tenants.
Guy
Fetherstonhaugh (instructed by Gerald A Waller & Co) appeared on behalf of
the plaintiffs; Wayne Clark (instructed by Goodman Derrick & Co)
represented the defendants.
Giving
judgment, HOFFMANN J said: This is an action to determine the validity of a
notice activating a rent review clause in a lease of warehouse premises in
Islington. The lease is dated March 26 1982 and it is for a term of 15 years
from March 25 1980 at a peppercorn rent until three months after the date of
the lease, and then at a rent of £5,000 a year (which is defined as the ‘first
reserved rent’) until March 25 1987. Then by clause 1(c) the rent for the
remaining eight years of the term, divided into two periods of, respectively,
five years and three years (defined as the ‘review periods’), is to be:
such rent as
shall be agreed in writing between the Lessor and the Lessees or assessed by an
independent surveyor to be an open market rental of the demised premises at the
beginning of each such period, in accordance with the provisions of Clause 3
hereto (hereinafter when specifically referred to called ‘the reviewed rent’).
The material
parts of clause 3 read as follows:
The reviewed
rent (payable by the Lessees during the review periods as hereinbefore
provided) shall be determined in manner following that is to say it shall be
whichever shall be the higher of the first reserved rent and the open market
rental value of the demised premises for the review period PROVIDED that and it
is hereby agreed as follows: . . .
I need not
read subpara (1). Subpara (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 Lessees served at least 6 months
before the expiration of the period in question 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
Lessees by counternotice in writing to the Lessor not later than three months
after the Lessor’s said notice by an independent surveyor . . .
And then:
(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 review period 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 be continued to be
paid at the rate of the first reserved rent PROVIDED that at the expiration of
the said interval there shall be due as additional rent payable by the Lessees
to the Lessor on demand a sum of money equal to the amount whereby the reviewed
rent shall exceed the first reserved rent but duly apportioned in respect of
the said interval.
The first
review period (as defined in the lease) commenced on March 25 1987 and will
expire on March 24 1992. On January 26 1987 the landlord’s agents gave the
tenant formal notice that it proposed to exercise the right to review the rent
and that, in its opinion, the open market rental value of the premises was
£11,000.
The tenant’s
solicitors replied on April 7 saying that the notice was invalid because it was
served too late.
The short
question is the meaning of the words: ‘at least 6 months before the expiration
of the period in question‘ in clause 3(2)(a). What is the period in
question? Clause 1(c) divides the
residue of the lease (after March 25 1987) into a period of five years and a
remaining period of three years and defines them as ‘the review periods’. The
rent in each such period is ‘to be an open market rental . . . at the beginning
of each such period’.
Then clause 3
sets out the machinery for determining the reviewed rent (payable by the
lessees) ‘during the review periods as hereinbefore provided’, and it says: ‘it
. . . shall be the higher of the first reserved rent and the open market rental
value . . . for the review period’.
The lease does
not once use the term ‘period’ with reference to the time after the expiry of
the rent-free period and before the commencement of the first rent review
period. Nor can that period be said to be in any way ‘in question’ when there
is a rent review. It is a period as to which there is no question whatever. In
my judgment, the words ‘period in question’ mean the rent review period under
consideration, which expires in March 1992. Unless, therefore, I am to read the
word ‘expiration’ to mean ‘commencement’, it must follow that the landlord’s
notice was served in time.
There is
nothing in the rest of the lease which compels me to resort to such a heroic
method of construction. It is true that a literal reading means that the rent
can be reviewed retrospectively at a time when virtually the whole of the rent
review period would have expired, and possibly (if there is a delay in the
determination by the surveyor) after the period has expired; and in the case of
the second rent review period after the lease itself may have expired. Clause
3(3) deals with retrospective review by providing machinery for cases in which
‘for any reason whatever’ the surveyor’s determination has not been
communicated to the parties before the commencement of the review period. There
is no limit on the period which such machinery can cover, and the words ‘for
any reason whatever’ are wide enough to cover a case in which the reason is
that the landlord did not serve a notice until after the rent review period had
commenced.
It is true
that those provisions do not cover the case in which, after the commencement of
the review period, the parties agree a new rent or the tenant allows the rent
nominated by the landlord to stand. But in both of those cases the
determination is being made with the tenant’s consent and it would be open to
him to negotiate whatever terms of retrospectivity the parties could agree.
So reading
clause 3(2)(a) in the context of the rest of the lease, I do not find that the
natural meanings of the words ‘period in question’ and the word ‘expiration’
produce such an absurdity that I would be compelled to give those words a
meaning which they cannot ordinarily bear.
The landlord
says that even if clause 3(2)(a) is construed to mean that notice must be given
at least six months before the commencement of the review period, the
presumption that time is not of the essence of that stipulation has not been
rebutted. In my judgment, however, that question does not arise and I have
heard no argument about it. I mention it only to keep the point open in case
the case goes further. Even if time were of the essence, the notice was (in my
judgment) in time and the summons is, therefore, dismissed.
The landlord
was awarded costs.
