Landlord and tenant — Rent review — Whether time of the essence for service of trigger notice
dated May 15 1969 Baldock Urban District Council demised premises to the
defendants for a term of 99 years from April 1 1969 at an initial yearly rent
of £2,800 — The plaintiffs, North Hertfordshire District Council, are the
successors in title to the urban district council — By clause 1 of the lease
the rent may be reviewed with effect from the first day of the 21st, 42nd, 63rd
and 84th years of the term, it being a condition precedent to any such
variation of the rent that the landlords or the tenants shall serve 12 months’
written notice on the other party of their intention to vary the rent — The
first revision date under the clause was April 1 1989 — In the event, the
plaintiffs served three notices to vary the rent, all of them after April 1
1989, namely on April 24 1990, October 10 1990 and February 19 1991 — The
plaintiffs relied, in submissions, on the notice of February 19 1991 — The
defendant lessees contended that time was of the essence of the provisions
requiring service of the notice to vary the rent so that any notice served
after April 1 1988 would be ineffective to trigger a review of the rent
trigger notice — There were insufficient contra-indications in the express
words of the lease to rebut the presumption that time was not of the essence of
the provisions of this notice to vary the rent — The expression ‘condition
precedent’ could not be said to be interchangeable with words expressly saying
that time was to be of the essence of the provisions for service of notice by a
certain date — Whatever may have been the meaning ascribed to the words ‘it
shall be a condition precedent . . . that’ by a 19th-century draftsman, as
considered in London Guarantie Co v Fearnley, the words cannot be
given a meaning equivalent to ‘time shall be of the essence’ in a lease drafted
in 1969 — The service of notice is a trigger for the institution of a process
of rent revision which can occur at any time both before and after the date
from which the rent is to be reviewed — In the present case both lessors and
lessees have the right under the provisions of the lease to serve a notice
initiating a review of rent and accordingly it could not be said that it was
extremely onerous and unfair to the tenant if a review be delayed
The following
cases are referred to in this report.
Henry
Smith’s Charity Trustees v AWADA Trading &
Promotion Services Ltd (1983) 47 P&CR 607; [1984] EGD 103; 269 EG 729,
[1984] 1 EGLR 116, CA
London
Guarantie Co v Fearnley (1879) 5 App Cas 911
United
Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33
P&CR 220; [1977] EGD 195; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
This was an
application by the plaintiffs, North Hertfordshire District Council, by an
originating summons seeking declarations as to the validity of notices served
to initiate the rent review provisions in a lease dated May 15 1969, the term
of which was held by the defendants, Hitchin Industrial Estate Ltd.
Mark Lowe
(instructed by the solicitor to North Hertfordshire District Council) appeared
for the plaintiffs; Kim Lewison QC (instructed by Jaques & Lewis)
represented the defendants.
Giving
judgment, Mr EVANS-LOMBE QC said: This case concerns the proper
construction of rent review provisions contained in a lease dated May 15 1969
and made between Baldock Urban District Council and Hitchin Industrial Estate
Ltd. North Hertfordshire District Council, the plaintiffs in originating
summons 1991 No 2982, to whom I will refer as ‘the lessors’, are the successors
in title of Baldock Urban District Council. I will refer to Hitchin Industrial
Estate Ltd as ‘the lessees’.
By the lease
the lessors let certain defined land for a term of 99 years from April 1 1969
at a rent of £2,800 pa.
By the proviso
to clause 1 of the lease it was provided that:
(a) The rent firstly hereinbefore reserved may be
varied with effect from the first day of the 21st, 42nd, 63rd and 84th years of
the term hereinbefore granted to such rent being no less than the said rent
firstly hereinbefore reserved but subject as hereinafter mentioned as may be
agreed in writing between the Council and the Tenants or in default of
agreement determined by a single arbitrator appointed on the application of the
Council or the Tenants by the President for the time being of the Institution
of Chartered Surveyors.
Subclause (b)
prescribed the criteria governing any revision of rent.
Subclause (c)
provided:
(c) It shall be a condition precedent to any such
variation of rent as aforesaid that the Council or the Tenants shall be served
twelve months’ written notice on the Tenants or the Council as the case may
require of their intention to vary the rent as hereinbefore provided and the
parties shall be deemed to be in default of agreement if a rent shall not have
been agreed in writing within four calendar months after the date of service of
such notice.
Accordingly,
any revision was to be an upwards-only revision to be initiated by a notice
capable of being served by either the lessor or the lessee. The first revision
date under subclause (a) was April 1 1989.
In the event
the lessors served three notices to vary the rent, all of them after April 1
1989, namely dated April 24 1990, October 10 1990 and February 19 1991. The
lessors did not contend that the notice of October 10 1990 could be effective.
In argument before me counsel for the lessors also effectively abandoned the
notice of April 24 1990 and concentrated on the notice of February 19 1991. The
effective part of that notice reads as follows:
Without
prejudice to the Council’s contention that the letter of 24th April 1990 was a
good and valid notice of the Council’s intention to increase the rent under the
Lease pursuant to clause 1(c) thereof, I hereby give notice that it is the
Council’s intention to vary the rent in accordance with the provisions of
clause 1 of the Lease with effect from 1st April 1989. The new rent, as may be
agreed or determined in accordance with the Lease, will be payable as from the
first quarter day after the expiry of twelve months from the date of service on
you of this notice, together with such unpaid back rent as may be payable for
the period 1st April 1989 to such quarter day.
The only
substantial issue in the case is whether, on a true construction of the proviso
to clause 1 of the lease, time is of the essence of the provisions requiring
service of a notice to vary the rent so that any notice served after April 1
1988 would be ineffective to trigger a review of rent. It would follow that if
the answer to that question is in the affirmative the lessors must wait for any
rent review until the 42nd anniversary of the term, namely the year 2010.
In his speech
in United Scientific Holdings Ltd v Burnley Borough Council
[1978] AC 904* at p 930E, Lord Diplock said:
My Lords, I
see no relevant difference between the obligation undertaken by a tenant under
a rent review clause in a lease and any other obligation in a synallagmatic contract
that is expressed to arise upon the occurrence of a described event, where a
postponement of that event beyond the time stipulated in the contract is not so
prolonged as to deprive the obligor of substantially the whole benefit that it
was intended he should obtain by accepting the obligation.
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
time-table 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.
*Editor’s
note: Also reported at (1977) 243 EG 43, [1977] 2 EGLR 61.
The effect of
the decision of the House of Lords in United Scientific Holdings Ltd is
conveniently summarised in the judgment of Slade LJ in Henry Smith’s Charity
Trustees v AWADA Trading & Promotion Services Ltd (1983) 47
P&CR 607+ at p 619 as follows:
(1) Where a rent review clause confers on a
landlord or tenant a right for his benefit or protection, as part of the
procedure for ascertaining the new rent, and that right is expressed to be
exercisable within a specified time, there is a rebuttable presumption of
construction that time is not intended to be of the essence in relation to any
exercise of that right.
(2) In a case where the presumption applies, the
other party concerned may, if he wishes to bring matters to a head after the
stipulated time for the exercise of the right has expired, give to the owner of
the right a notice specifying a period within which he requires the right to be
exercised, if at all; the period thus specified will if it is reasonable then
become of the essence of the contract: . . .
(3) The presumption is rebuttable by sufficient
‘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’: . . .
(4) Though the best way of rebutting the
presumption is to state expressly that stipulations as to the time by which
steps provided for by the rent review clause are to be taken is to be treated
as being of the essence . . . this is not the only way. Any form of expression
which clearly evinces the concept of finality attached to the end of a period
or periods prescribed will suffice to rebut the presumption. The parties are
quite free to contract on the basis that time is to be of the essence if they
so wish.
† Editor,s
note: Also reported at (1983) 269 EG 729, [1984] 1 EGLR 116.
The important
words in the proviso to clause 1 are those at subclause (c), namely:
It shall be a
condition precedent to any such variation of rent as aforesaid that the Council
or the Tenants shall be served with twelve months’ written notice . . .
‘Such
variation of rent’ refers back to subclause (a) and the words:
The rent
firstly hereinbefore reserved may be varied with effect from the first day
[etc] . . .
It was
submitted on behalf of the lessee that there were here ‘sufficient
contra-indications in the express words of the lease’ to rebut the presumption
that time was not of the essence of the provisions for the service of notice to
vary the rent. That contention was based on the use of the words ‘condition
precedent’ in subclause (c). It was in effect contended that the use of the
words ‘It shall be a condition precedent . . . that’ were, as a matter of
drafting, interchangeable with words expressly saying that time was to be of
the essence of the provisions for service of notice by a certain date. My
attention was drawn to two passages in the speech of Lord Diplock in the United
Scientific case at pp 925F and 927C where his lordship was dealing with the
early history of provisions making time of the essence of contracts. At p 925F
Lord Diplock says:
The first
thing to be observed about each of these subsections is that they are concerned
with matters in which before the unifying Act came into force there had been a
variance between the ways in which they were dealt with in courts of law and
courts of equity respectively. Outside the field of mortgages and contracts for
the sale of land, there were other kinds of contracts in which by 1875 some
stipulation as to time were not treated in courts of law as being ‘conditions
precedent’ which was then the common lawyer’s way of saying that the particular
stipulation as to time was not of the essence of the contract.
I emphasise the
word ‘then’ in this passage.
My attention
was also drawn to the case in the Privy Council of London Guarantie Co v
Fearnley (1879) 5 App Cas 911 and the speech of Lord Watson at p 918,
where he says:
It cannot,
with any propriety, be said that the stipulation in question goes to the root
of the contract between these parties. Nevertheless, it may be a condition
precedent, provided it appears that the parties intended it should have that
effect.
I cannot
accept this submission. Whatever may have been the meaning ascribed to the
words ‘it shall be a condition precedent that’, by a 19th-century draftsman, I
do not think that those words can be given a meaning equivalent to ‘time shall
be of the essence’ in a lease drafted in 1969. I do not think that the passages
in the speech of Lord Diplock in the United Scientific case, in
particular the passage I have cited, can be taken to establish that such would
be the meaning of those words today.
Even if I am
wrong in this conclusion and those words do make time of the essence of the
provisions for the service of notice, it does not seem to me that on a construction
of the proviso to clause 1 the result is that for which the lessees contend. By
subclause (c) service of notice is to be ‘a condition precedent to any such
variation of rent’. As I have said, ‘such variation’ refers back to the words
in subclause (a): ‘The rent firstly hereinbefore reserved may be varied with
effect from the first day . . .’. Accordingly, the service of notice is a
condition precedent to a variation of rent with effect from April 1 1989, but
of which the time for the process resulting in such variation is not
prescribed. It follows, in my judgment, that the service of notice is a trigger
for the institution of a process of rent revision which can occur at any time
both before and after the date from which the rent is to be reviewed. Such a
review can take place only after a notice served 12 months in advance.
The tenant is entitled to continue to pay the existing rent for the period of
12 months and until the new rent is determined, although he may subsequently be
required to pay the difference between that and the new rent backdated to the
review date.
It was urged
upon me that this conclusion resulted in a review of rent from April 1 1989
being capable of being instituted at any time during the currency of the lease
and accordingly the notice to review the rent from that date could effectively
be served in the 99th year of the term. This, it was urged, would be extremely
onerous and unfair to the tenant.
The answer to
this contention is contained in the speech of Lord Diplock in the United
Scientific case at p 931G, where he says:
The Court of
Appeal took the view that it was a detriment to the tenant not to know what his
new rent was going to be in advance of the date when it started to accrue, as
he might not be able to afford the additional rent and might feel compelled to
assign the residue of the term to someone else. For my part, I find this
unrealistic, if only because under this particular clause the tenant can
initiate the review procedure himself and unless there is some unforeseen delay
on the part of the arbitrator, has it in his power to ensure that the new rent
is determined before the stipulated date. Apart from this, delay in the
determination of the new rent until after the first rent day following the
stipulated date works to the economic benefit of the tenant since until the
higher rent has been determined he has the use of the money representing the
difference between the former rent and the new rent which he would otherwise
have been compelled to pay.
As I have
pointed out, in the present case both lessors and lessees have the right under
the provisions of the proviso to clause 1 to serve a notice initiating a review
of rent. There are no provisions in the lease requiring the tenants to pay
interest on arrears of rent and, in particular, upon arrears of rent which
become due only as a result of late service of a notice to vary served by the
lessors.
For these
reasons, in my judgment the lessors’ action succeeds.
I will make
the declaration sought in para 1 to the relief set out in the lessors’
originating summons. I will also make the declaration set out in para 2 of that
summons excluding the words ‘the 24th April 1990 or alternatively’ and the
words ‘1st May 1991 alternatively’ and altering the date April 1 1990 to April
1 1989. I will also make the declaration in para 3 of the summons but omitting
the words in brackets ‘alternatively 1st May 1991’ and an order in the terms of
para 4.
Declaration
accordingly.
