Landlord and tenant — Rent review clause in lease — Whether letter from tenants in response to landlords’ trigger notice was a valid counternotice — Whether counternotice must be ‘clear’ as to tenants’ intention or whether it must be ‘unequivocal’ — In the present case, where the stipulations as to time were stated to be of the essence of the contract, the landlords served a trigger notice within the time allowed specifying an open market rental figure from the review date of £23,000 per annum — Tenants, also within the time allowed, replied by their agent, in a letter headed ‘In the matter of rent review as at July 1 1985’, that ‘I am instructed by the tenants to give you hereby formal notice that the open market rental is £12,000 per annum and call on you under the terms of the above lease to agree this. Please confirm that this is accepted as due notice’ — The Vice-Chancellor adopted the test applied by the Court of Appeal in Amalgamated Estates Ltd v Joystretch Manufacturing Ltd that the counternotice should give a ‘clear indication’ to the landlord rather than the apparently more stringent test accepted in Edlingham Ltd v MFI Furniture Centres Ltd and Sheridan v Blanecourt Investments Ltd that it should be ‘unequivocal’ — It was established by such cases as Bellinger v South London Stationers Ltd and Oldschool v Johns that a mere expression of disagreement with the rent proposed by the landlord was not sufficient — If the test required the notice to be ‘unequivocal’ it could have been argued that it failed the test, because the draftsman might have been under the impression that he had to give formal notice of disagreement — However, applying the ‘clear indication’ test, there were several points in favour of the validity of the letter as a counternotice, eg the heading, the description as a ‘formal’ and as a ‘due’ notice and the fact that the only provision for a formal notice in the context was a counternotice — Held, taking these and other indications into account, that the letter was a valid counternotice by the tenants within the meaning of the rent review clause, so that the rental value would be determined, in accordance with the lease, by an independent surveyor
By this
originating summons the plaintiffs, Jacqueline Flavia Nunes and Michael
Christopher Kinkead Allen, sought declarations in regard to the application, in
the events which had happened, of provisions in a rent review clause of a lease
of premises at 19 Pembridge Villas, London W11. The plaintiffs were the
landlords and the defendants, Davies Laing & Dick Ltd, were the tenants.
P W Birts
(instructed by Penningtons) appeared on behalf of the plaintiffs; Leolin Price
QC and Miss Sian Thomas (instructed by Gouldens) represented the defendants.
Giving
judgment, SIR NICOLAS BROWNE-WILKINSON V-C said: This is yet another case
raising the question whether or not, under a rent review clause, a tenant has
duly exercised his right to have the rent determined by an independent
surveyor.
The facts are
very simple. Under a lease dated July 16 1973 the landlords demised the
premises 19 Pembridge Villas, London W11, for a term of 18 years from July 1
1973. The rent reserved was for the first six years, £6,000, for the next six
years either £6,000 or the open market rental as defined in the lease at the
review date which was also defined, whichever was the higher, and for the
remaining six years either the yearly rental reserved as at the first review
date or the open market rental value at the second review date, whichever was
the higher. The first review date was July 1 1979 and the rent as at that date
was agreed at £10,000. The second review date was July 1 1985.
Clause 2
contains the provisions which define the open market rental value and the
review date, but this case turns on proviso (iii) to clause 2 which regulates
the determination of what is the open market rental value. It reads as follows:
The open
market rental value shall be determined in manner following that is to say it
shall be such annual sum as shall be
(a) specified in a notice in writing served on
the Lessee at the demised premises at any time before the beginning of a clear
period of two quarters of a year . . . immediately preceding the review date;
or
(b) agreed between the parties before the
expiration of three months immediately after the service of such notice; or
(c) determined at the election of the Lessee (to
be made by counternotice in writing served by the Lessee on the Lessors not
later than the expiration of the said period of three months) by an independent
Surveyor . . .
The lease
expressly provided that the stipulations as to time in proviso (iii) were to be
of the essence of the contract.
The solicitors
for the landlords by a letter dated November 29 1984 headed up ‘In the matter
of the lease’ gave the trigger notice under para (a) in these terms:
On behalf of
the present Lessors we hereby give you notice, pursuant to Clause 2 of the
Lease that the market rent from the review date (that is to say the expiration
of the twelfth year of the term) shall be the annual sum of £23,000.
The response
to that letter came from agents instructed by the tenants, Scott Enterprise. In
a letter dated December 6 1984 and headed up ‘In the matter of the lease’ and
also ‘In the matter of Rent Review as at July 1 1985’ they wrote as follows:
Dear Sirs, I
am instructed by the tenants to give you hereby formal notice that the open
market rental is £12,000 per annum and call on you under the terms of the above
Lease to agree this. Please confirm that this is accepted as due notice. Faithfully,
J S M Scott
who was the
principal of the agents.
The only
response to that was a letter from the landlords’ agents dated December 18 1984
acknowledging receipt of the letter of December 6:
in which you
state that the open market rental value amounts to £12,000 per annum.
Regrettably we cannot recommend our clients to accept this rental and look
forward to discussing this matter further with you in due course.
It will be
noted that that letter does not give the confirmation asked for in the letter
of December 6, namely that there was due notice. Nothing further happened. No
further notice was given by the tenants.
The short
question raised by the originating summons is whether the letter of December 6
1984 from the tenants’ agents constitutes a valid counternotice for the
purposes of para (c) of proviso (iii) of clause 2 of the lease. If it does, the
rent for the final six years of the term will be such rent as is determined by
an independent surveyor. If it is not a valid counternotice, the rent will be
the £23,000 per annum specified in the landlords’ trigger notice.
The same
question has arisen on rent review clauses in identical or very similar terms
in no less than five reported cases to which I have been referred. It appears
that the clause is based on a precedent in the Encyclopaedia of Forms and
Precedents, 4th ed. In a number of those decided cases the question for
decision has been characterised as a question of construction of the letter
from the tenants which is alleged to be an election under para (c); but, as the
argument in this case proceeded, it emerged that there are in reality two
questions:
(a) what in law is required
to constitute a valid election under para (c)?
(b) does the letter of
December 6 1984 satisfy those requirements?
I will in due
course consider those separate points in turn but, before doing so, I should
explain why, in my judgment, those are the two relevant questions. In an
ordinary case of construction the court is bound either to give the document
under construction some meaning or to hold that it is void for uncertainty,
against which the court always leans. Often, the true construction of a
document in court is a marginal decision which the court reaches with some
doubt. In other types of case — for example, notices to quit, and, in the
employment field, notices of dismissal — the law requires not simply that a
document on its true construction has a particular meaning but that the
document should clearly have that meaning so as to bring home to the mind of
the recipient of the notice what is intended by it. So, in cases of the kind
before me, the first question is whether the law does require of a notice under
para (c) not merely that on its true construction it communicates an intention
to have the rent fixed by an independent surveyor but that it should satisfy
some higher standard such as that it should be clear or unequivocal.
(1) What are the legal requirements of a valid
notice under para (c)?
In the
reported cases this question has not been addressed separately. It has been
treated as rolled up in the question of the construction of the alleged
counternotice. But, in my judgment, the authorities do disclose that the law
requires the alleged counternotice to have a certain degree of clarity in its phraseology.
It is not merely a question of the judge construing the document; the question
is whether the document brings home to the mind of the ordinary landlord the
fact that the tenant is exercising his rights under para (c).
But the
authorities disclose two possible tests. The first is that the alleged
counternotice must constitute ‘a clear indication’ to the landlord as to the
tenant’s intention, or must make it ‘clear to the landlord that he proposes to
go to arbitration’ (see per Lawton LJ and Templeman LJ in Amalgamated
Estates Ltd v Joystretch Manufacturing Ltd (1980) 257 Estates
Gazette 489). However, in two later cases the test has been expressed to be
that the letter alleged to constitute the counternotice must be ‘unequivocal’
(see per McNeill J in Edlingham Ltd v MFI Furniture Centres Ltd
(1981) 259 Estates Gazette 421 and per Nicholls J in Sheridan v Blanecourt
Investments Ltd (1984) 270 Estates Gazette 1290). It may be that in those
two cases the learned judges were not meaning to apply any more stringent test
than that of clarity laid down by the Court of Appeal in the Amalgamated
Estates case.
This case
discloses that there may be a difference between what is clear and what is
unequivocal. If the expression ‘unequivocal’ means ‘incapable of bearing any
other meaning’ then the way is open for arguments based on remote possibilities
of construction, however unlikely they may be, in construing the counternotice.
In my
judgment, the test is that applied by the Court of Appeal in the Amalgamated
Estates case, namely that the counternotice should be in terms which are
sufficiently clear to bring home to the ordinary landlord that the tenant is
purporting to exercise his right under para (c), and that is the test which I
propose to apply.
(2) Does the letter of December 6 1984 constitute
a valid counterclaim?
It is clearly
established that a letter which merely disagrees with the rent proposed by the
landlord, with or without a request for additional information as to the basis
on which it has been fixed, does not constitute a valid counternotice (see Bellinger
v South London Stationers Ltd (1979) 252 Estates Gazette 699, Oldschool
v Johns (1980) 256 Estates Gazette 381 and the Court of Appeal decision
in Amalgamated Estates). Such a letter is equally consistent with a mere
attempt to agree the new rent operating the provisions of para (b).
In the present
case the letter of December 6 1984 goes much further than that. It was a letter
written in response to the landlords’ trigger notice, which expressly referred
to clause 2 of the lease. The letter of December 6 is itself headed up ‘In the
matter of the Rent Review’. Most importantly, to my mind, the letter is
described in itself as being a ‘formal’ notice and asks for confirmation that
it is ‘due’ notice. That is to say, the letter on its face is a document which
purports to be a notice which is formally required by and is due under some
legal requirement. Now, proviso (iii) envisages only two notices: the
landlords’ trigger notice under para (a) and the tenants’ counternotice under
para (c).
In my
judgment, it must have been clear to anyone receiving the letter of December 6
that the tenants’ agent was giving a formal notice and, knowing the terms of
the lease, must have known that the only provision for a formal notice under
proviso (iii) was a counternotice under para (c). Mr Birts, in his very able
argument, while accepting the force of this point, relied on the fact that,
although the tenants’
the letter gives notice is that the tenant alleges the proper rent is £12,000
per annum, ie it does not in terms exercise any right of election to go to the
independent surveyor. Therefore, says Mr Birts, this is not notice of any election
under para (c) but merely notice of a disagreement as to what the rent should
be — which, on the authorities, is insufficient to constitute a valid notice.
He relies on the decision in the Edlingham case, where the letter under
consideration as being a counternotice describes itself as being a
counternotice, and yet the judge held that it was not sufficient to constitute
a valid counternotice within para (c).
There is much
force in those submissions, but they do not persuade me. As Mr Price for the
tenants pointed out, the period for negotiation under para (b) and the period
for a valid counternotice under para (c) is the same period of three months.
Under the machinery of the clause, negotiations and notice to go to arbitration
may well coincide. Therefore, a reference in any letter to a disagreement as to
price is in no way inconsistent with an intention on the part of a tenant to go
to arbitration.
Moreover, the
background of the case is that, if there is no agreement as to the rental, in
default of election to go to the independent surveyor, the landlords’ rent of
£23,000 per annum will be the rental. The letter of December 6 is formal notice
that the tenants do not accept the rental of £23,000. In my judgment, in the
surrounding circumstances, a letter giving formal notice of disagreement which
is said to be due notice clearly brings home to the landlord that the tenant is
not accepting the landlord’s figure and is giving the only notice which proviso
(iii) envisages, namely a counternotice under para (c).
In the Edlingham
case the learned judge does not explain what force he gave to the words
‘counternotice’ in the letter there under consideration; there may well have
been special features in that case which forced him to a contrary conclusion.
If not, I must respectfully decline to follow that decision, which may have
been influenced by his formulation of the test as a requirement that the letter
should be unequivocal. It is certainly arguable in the present case that the
letter of December 6 is, in one sense, equivocal. There is a theoretical
possibility that the draftsman was under the misapprehension that he had to
give formal notice of disagreement. Therefore, if the test was that the notice
must be unequivocal, it could be said that the letter of December 6 was not a
good notice. But, in my judgment, that is not the test. Any ordinary landlord
receiving the letter of December 6 would know that he was in receipt of formal
notice under proviso (iii) and that the only provision for such notice in the event
of disagreement with the rent was a notice under para (c).
For those
reasons I hold that the letter of December 6 was a valid counternotice under
para (c).
Declaration
was made accordingly. Plaintiffs were ordered to pay defendants’ costs.
