Commercial premises — Underlease — Construction — Premises configured to be suitable in part for telephone exchange — “Gearing formula” for determining review — Notional letting — Whether apt to include gearing formula — Landlord contending parties not intending to import formula — Whether result would be self-cancelling — Judgment for tenant
The dispute concerned offices at Brindley House, 101 Newhall Street, Birmingham. The premises demised were described: first, as the ground-15th floor to the front of the premises, which was office accommodation; and second, ground-10th floor to the rear of the building and intended to accommodate a telephone exchange. The underlease was for a term of 99 years (less three days) made between the plaintiff and the Post Office (the present defendant tenants being successors in title) in June 1979. The initial principal rent was for £152,835.40 with 10-yearly rent reviews. Clause 3 (ii) of the underlease provided: “if on any rent review date, the rent per square foot of open floor space obtainable for office accommodation in Birmingham comparable with the office accommodation … by the first demised premises in the open market as between a willing landlord and a willing tenant shall be found to exceed … 100p per square foot of open floor space … or the highest rent per square foot … for such comparable office accommodation … there shall be substituted for the principal rent … an increased principal rent of an amount which bears the same proportion of £152,835.40p as the rent per square foot obtainable for comparable accommodation … bears to … 100p.”
An affidavit for the landlord described the gearing factor as being calculated by ascertaining the amount of increase at the date of review in the rental level of office accommodation in Birmingham, which would be comparable to the front section of the building from a fixed base figure applicable at the commencement of the underlease. The clause also provided that the “landlord and tenant undertook the respective obligations which they have undertaken in this underlease”. There were certain disregards which are not material to the dispute. The landlord contended, inter alia, that the parties could not have intended the gearing provision itself to be imported into the notional letting of comparable accommodation because if it did so and affected the value of that comparable, the whole object of the exercise would be defeated. Thus, it was implicit that the assessment of the open market rent was to be done on the basis of terms which did not include the formula itself: see Guys’n Dolls Ltd v Sade Bros Catering Ltd [1984] 1 EGLR 103; Prudential Assurance Co Ltd v 99 Bishopsgate Ltd [1992] 1 EGLR 119; and Buffalo Enterprises Inc v Golden Wonder Ltd [1991] 1 EGLR 141.
Held Judgment for the tenant.
1. The words “provided that the landlord and tenant undertook their respective obligations which they have undertaken in this underlease” were clearly words of inclusion rather than exclusion.
2. The critical question was whether it was so clear that the parties intended to exclude the gearing formula in the application of the rent review provision to the notional lease that the court should do it for them.
3. However, the court would be rewriting the parties’ agreement rather than interpreting it if it indulged in such a process.
4. While there was an element of illogicality in importing the initial principal rent which covered both office and back premises in the mathematical formula, there was nothing like the self-cancelling absurdity described as “Alice-in-Wonderland” reasoning in the Guys’n Dolls case.
Christopher Pymont (instructed by the solicitor to Norwich Union legal services) appeared for the landlord; Kim Lewison QC (instructed by Ashurst Morris Crisp) appeared for the tenant.
