Landlord and tenant — Rent review clause in lease — Construction — Whether time of the essence for a particular provision despite a general statement to the contrary — The lease in question was a long lease at a rent of £2,700 per annum plus any additions under review clause — Reviews at seventh year and subsequently at five-year intervals — In the schedule to the lease various time-limits were laid down for particular steps but para 13 provided that ‘as respects the periods of time referred to in this schedule time shall not be deemed to be of the essence of the contract’ — However, para 14 provided that if for any reason no review took place in respect of any relevant period or a review was not completed within 12 months of the commencement of any relevant period, then the rent for that period would be increased by 25% of the rent currently payable — In fact a review was not completed within 12 months of the commencement of the first review period — The tenants submitted that para 14 applied, that time was of the essence in relation to that para, and that the rent was due to be increased by 25% only, ie from £2,700 to £3,375 per annum (in contrast with a rent of probably over £20,000 if the review provisions in the schedule had taken effect) — The landlords argued that, although para 13 preceded para 14 in the schedule, it was not intended to apply only to time-limits in the earlier provisions; if it had been so intended it would have been easy to say so, but the plain words used clearly applied to the whole schedule — This construction had been adopted by Mr Edward Nugee QC, sitting as a deputy judge of the Chancery Division, and was accepted by the Court of Appeal on appeal by the tenants — The court rejected the tenants’ argument that para 14 should be given its literal effect on the ground that its object was to give certainty and finality and to protect a tenant from inordinate delay in pursuing a rent review, perhaps resulting in a large amount of back-dated rent — It was pointed out that the tenants could have made time of the essence by serving the appropriate notice — The case of Lewis v Barnett, cited on behalf of the tenants, was distinguishable — Held that on the wording of the schedule, and in the light of the general presumption in United Scientific Holdings v Burnley Borough Council, time was not of the essence for the purpose of para 14 — Hence the landlords were still entitled to have the rent determined by an independent surveyor in accordance with the provisions in the schedule to the lease — Appeal dismissed
The following
cases are referred to in this report.
Forbes v Git [1922] 1 AC 256
Lewis v Barnett (1981) 264 EG 1079
Smith’s
(Henry) Charity Trustees v AWADA Trading &
Promotion Services Ltd (1983) 47 P&CR 607; [1984] EGD 103; 269 EG 729,
CA
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; (1977) 243 EG 43 & 127, HL
This was an
appeal by the tenants, Panavia Air Cargo Ltd, from a decision of Mr Edward
Nugee QC, sitting as a deputy Chancery judge, in favour of the construction put
forward by the landlords, Southend-on-Sea Borough Council, of certain rent
review provisions in the lease of some 2 3/4 acres of land at Southend
Municipal Airport. The judgment of Mr Nugee was reported at [1988] 01 EG 60.*
*Editor’s
note: See also p 111 ante.
Jonathan Gaunt
(instructed by Cameron Markby) appeared on behalf of the appellants; David
Neuberger QC (instructed by Rowe & Maw) represented the respondents.
Giving the
first judgment at the invitation of the Master of the Rolls, TAYLOR LJ said:
This is a tenant’s appeal from a decision dated July 30 1987 of Mr Edward Nugee
QC sitting as a deputy judge in the Chancery Division. The problem before him
and before this court is the construction of a lease containing apparently
contradictory clauses as to rent review. The lease was granted by the defendant
council to the plaintiff company, Panavia Air Cargo Ltd, formerly British Air
Ferries Ltd. It was dated October 11 1978 and comprised about 2 3/4 acres of
land at Southend Municipal Airport together with ancillary buildings. The terms
of the lease, so far as are relevant, were as follows. By clause 1 the council
demised the property to the company:
TO HOLD the
same unto the Company from the First day of January [1978] to the thirteenth
day of February [2035] YIELDING AND PAYING therefore during the said term for
the period First day of January [1978] to the thirteenth day of February [1985]
the annual rent of two thousand seven hundred pounds plus any additional rent
payable under the provisions for review contained in the Schedule hereto
without any deduction whatsoever by equal quarterly payments in arrear to be
made on the usual quarter days.
The rent
review provisions are contained in the schedule. It is necessary to set out
some of the paragraphs and to summarise others.
Para 1:
During the
seventh, twelfth, seventeenth, twenty-second, twenty-seventh, thirty-second,
thirty-seventh, forty-second, forty-seventh and fifty-second years of the said
term for each successive five-year period of the said term and during the
fifty-second year of the said term for the remaining period of the said term
(each of such periods being hereinafter referred to as a ‘relevant period’) the
Council and the Company shall agree or failing agreement shall determine by
arbitration the sum total of the then current rack rent ([as defined] . . .)
and one-quarter of the sum total so ascertained or Two thousand Seven hundred
Pounds (whichever is the greater) shall be the rate of rent reserved by this
Lease in respect of the then next succeeding relevant period.
Para 3:
If such
agreement has not been made six months before the commencement of the relevant
period the Council may require an independent surveyor . . . to be appointed to
determine the new rent. The Surveyor may be nominated by agreement between the
Council and the Company or appointed by the President for the time being of the
Royal Institution of Chartered Surveyors on the application of the Council.
Para 5:
Notice in
writing of his appointment by the said President shall be given by the Surveyor
to the Council and the Company inviting each to submit within a specified
period (which shall not exceed four weeks) a valuation accompanied if desired
by a statement of reasons.
Para 7:
The Surveyor
shall give notice in writing of his decision to the Landlord and the tenant
within two months of his appointment or within such extended period as the
Council may agree.
Para 8:
If the
Surveyor comes to the conclusion that the current market value of the demised
premises is less than the rent operative for the period preceding the relevant
period (hereinafter called the current rent) the new rent shall nevertheless be
the same as the current rent and the decision of the Surveyor shall so state.
Para 9:
If the
Surveyor shall fail to determine the new rent and give notice thereof within
the time and in the manner hereinbefore provided or if he shall relinquish his
appointment or die or if it shall become apparent that for any reason he will
be unable to complete his duties hereunder the Council may apply to the said President
for a substitute to be appointed in his place which procedure may be repeated
as many times as necessary.
Para 11 deals
with the date of commencement of the new rent and with payment retrospectively
from the date of review. There then follow paras 13 and 14, which are the two
paragraphs at the heart of this case. Para 13 reads:
As respects
the periods of time referred to in this Schedule time shall not be deemed to be
of the essence of the contract.
Para 14:
If for any
reason whatsoever no review of rent takes place in respect of any relevant
period or a review is not completed within 12 months of the commencement of any
relevant period then the rent payable during the relevant period under the
provisions of this lease shall be increased by 25% of the rent then currently
payable.
The short
point in the case is whether time is of the essence as to the 12-month period
in para 14, despite the language of para 13.
I take the
facts of the case from the judgment of the learned deputy judge, where they are
succinctly stated. The seventh year of the term was the calendar year 1984. On
September 13 1984 the council’s borough valuer and surveyor wrote to the
company pointing out that the first rent review under the lease was to operate
from January 1 1985 and asking whether the company would be appointing a
professional adviser to agree terms on its behalf. A rather desultory
correspondence followed.
On January 17
1986 the borough valuer and surveyor wrote to the company surveyor saying that,
as the rental review was now considerably overdue, if the negotiations did not
progress in the very near future, he would have to report accordingly to the
council with a view to the appointment of an independent valuer in accordance
with the schedule.
On February 17
1986 the company surveyors wrote back saying that under clause 14 of the
schedule there was to be an automatic 25% increase in the rent if inter alia
a review had not been completed within 12 months of the commencement date.
Since that was the situation, they therefore asked the council to confirm that
the rent payable from the review date was to be increased to £3,375 per annum,
a 25% increase on the initial rent of £2,700.
The council
rejected that suggestion and thereafter applied to the president of the Royal Institution
of Chartered Surveyors for the appointment of a surveyor, but he declined to
appoint one in view of the dispute between the parties. (There was a subsidiary
dispute as to whether the rent review date in 1985 was January 1 or February
13. The learned deputy judge held that it was January 1 and there is now no
dispute about that.)
On March 4
1987 the originating summons was issued. The company sought a declaration that
the rent payable to the council for the relevant period beginning in 1985, which
was January 1 1985, is, in the events which have happened, to be assessed in
accordance with para 14 of the schedule. The declaration sought would have
required a holding that para 13 of the schedule does not apply in this context
and therefore that the time-limits provided in para 14 should be strictly
enforced.
The council
argued, first, that para 14 was purely an interim provision which did not
deprive them of their right to review the rent. The learned deputy judge
rejected this argument and there is no cross-notice challenging that finding.
Second, the council argued that para 13 was clear in its terms and is expressed
to apply to the periods of time referred to in the schedule without exception.
Therefore the council can still have a rent review despite the expiry of 12
months referred to in para 14.
The company’s
prime argument was that, if para 14 did not mean what it said, it had no
sensible function. The reply to that was that, although by reason of para 13
time was not of the essence under para 14, the company could make it so by
serving a notice. Therefore, although the company argue that they could have
served such a notice anyway, para 14 did have a function, namely, to provide a
trigger date following which a tenant’s notice by the company could nominate a
reasonable time and make it of the essence. If even after that the council
failed to have the rent reviewed, then para 14 would be effective to give them
an automatic 25% rent increase.
The learned
deputy judge found in the council’s favour on these arguments. He started by
considering the broad principles applicable to rent review provisions, as
stated in two leading cases. The first was United Scientific Holdings Ltd
v Burnley Borough Council [1978] AC 904. At p 930 Lord Diplock said:
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
timetable 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.
In The
Trustees of Henry Smith’s Charity v AWADA Trading & Promotion
Services Ltd (1983) 47 P&CR 607, Griffiths LJ (as he then was) said at
p 616:
When they
enter into a lease such as this the expectation of both the landlords and
tenants is that a fair market rent will be paid throughout the lease and unless
driven to do so by the wording of the lease I am loth to construe the machinery
provided for arriving at a fair market rent as forcing either the tenant to pay
an exorbitantly high rent or the landlord to receive a ridiculously low rent,
neither of which bears any relation to the fair market rent because one or
other of them was one day late in observing the timetable set out in the rent
review provisions of the lease.
There was
evidence in the present case that a review such as was contemplated by the
schedule would have resulted in a rent of over £20,000, which, as the learned
deputy judge remarked, may well have made the £3,350, if para 14 is applied,
seem a ridiculously low rent.
Focusing on
the two vital paragraphs in the case, the learned deputy judge concluded that
para 13 governed the whole schedule, including para 14. He relied on the
wording of para 13 itself and on the principles stated by Lord Diplock. He
accepted the council’s argument that the company could serve notice so as to
make time of the essence. Accordingly, his order declared inter alia
that the defendant council is entitled to have the rent payable from January 1
1985 determined by an independent surveyor nominated by agreement or appointed
by the president of the Royal Institution of Chartered Surveyors pursuant to
paras 1 to 10 of the schedule. He also declared that it was open to the company
to make time of the essence for the purposes of para 14 by serving notice.
Before this
court Mr Gaunt in his able argument for the company submits that para 14 should
be given its literal effect and its time-limit should not be relaxed by
applying para 13. Its object was, he says, to give certainty and finality. It
was to protect the company from the possibility that the council might delay
for years, then pursue a rent review, and require the company to pay a large
amount of back-dated rent. This could happen, he says, because all the
initiatives under the review procedure are with the council, which can
therefore speed or delay a rent review at will. Therefore, Mr Gaunt argued that
para 13 should be read as applying only to the time provisions in the
paragraphs which precede it. Para 14 should be read as if it were a qualification
or exception to the generality of para 13. As authority for reading the two
paragraphs in that way he cited the case of Forbes v Git [1922] 1
AC 256. There a contract provided that, in consideration of 3,000 Canadian
dollars payable by three instalments, the appellant agreed to furnish materials
and perform certain services. A later clause, however, provided for the payment
to the appellant of the value of the materials and the labour done at 12 1/2%
over cost ‘whether that value exceeded or was less than $3,000’. The court held
that the later clause prevailed, since the first clause did not necessarily
mean the contract price was to be $3,000.
But that case
was totally different from the present, and the context of the two clauses was
totally different from that of the two paragraphs under consideration. In the
cited cases there was no repugnancy between the two clauses. Here, if para 13
applies to para 14 at all, its only effect could be that contended for by the
council, unless words are added.
Mr Gaunt
further relies on Lewis v Barnett (1981) 264 EG 1079. That was
also a landlord and tenant case concerning rent review provisions. The lease
provided in paras 2 and 3 for certain steps to be taken within certain
time-limits. Para 6 provided that, if the parties had not carried out those
steps within the specified periods, the landlord’s notice already given under
those provisions should be void and of no effect. The court held that the
consequence of not complying with the time-limits laid down in paras 2 and 3
was to deprive the landlord of the benefit of the rent review provisions.
The learned
deputy judge distinguished that case from this on the grounds that the
time-limit in para 14 here is not linked with the time-limits in the earlier
paragraphs. Mr Gaunt submits that that is not a valid or relevant distinction.
But, quite simply, in that case there was no express provision that time was
not to be of the essence: here there is. The question has been raised in
argument as to whether, if a similar clause to para 13 had been included in the
lease in the cited case, the outcome would have been the same. Mr Gaunt submits
that it would. Without deciding what is a hypothetical case, I consider that it
may be that the distinction made by the learned deputy judge in the present
case would then have been of relevance, that the provisions of clause 6 in that
lease did relate to provisions as to time in earlier clauses, which is not the
case with para 14 here.
In my view,
the wording of para 13 is crucial. Had it been intended to apply only to the
foregoing or previous provisions of the schedule, that could have been said in
terms. However, the plain words used clearly apply to the whole schedule.
In the United
Scientific Holdings case both Lord Diplock and Lord Salmon in the context
of rent review said that the parties should make it clear as to whether time
was to be of the essence or not. At p 936G Lord Diplock said:
The best way
of eliminating all uncertainty in future rent review clauses is to
state expressly whether or not stipulations as to the time by which any step
provided for by the clause is to be taken shall be treated as being of the
essence.
At p 947E,
Lord Salmon said:
Such clauses
could easily be drafted so that they state expressly whether time is or is not
to be treated as of the essence. So drafted they would present no difficulty.
Unfortunately they rarely are. They should be, for if they were, a great deal
of expensive litigation would be avoided. If, eg, the parties to the present
appeals had expressly stated whether or not they intended the provisos as to
time in the rent revision clauses to be of the essence, there would have been
no litigation between them let alone litigation fought up to your Lordships’
House for the purpose of deciding what the rent revision clauses mean.
Their
lordships’ decision was in January 1977. This lease was made in January 1978.
It contains in para 13 just the sort of indicative clause which their lordships
recommended should be included. In my judgment the wording of that paragraph,
para 13, is decisive of this appeal. I agree with the decision of the learned
judge. I further agree with him that it accords with the justice of the case.
There are provisions in the schedule which might well make the landlord’s right
to review the rent hazardous if the time-scale of para 14 were rigidly applied.
For example, under para 9, should the appointed surveyor for any reason have to
be replaced, perhaps more than once, the time-limits would render the landlord
vulnerable in a situation beyond his control. Moreover, the flexible approach
is more likely to achieve that fair market rent to which Griffiths LJ referred.
I would therefore dismiss this appeal.
PARKER LJ
agreed and did not add anything.
Also agreeing,
LORD DONALDSON OF LYMINGTON MR said: United Scientific Holdings Ltd v Burnley
Borough Council affirms that there is a presumption that parties to rent
review clauses do not intend time to be of the essence. In para 13 of this
lease the parties have expressly declared that it is their intention that time
shall not be of the essence. They have not, as they could have done, made it
clear in clause 13 that that applies only to the preceding clauses.
Accordingly, I entirely agree that time is not of the essence until one of the
parties declares it to be, and accordingly I, too, would dismiss the appeal.
The appeal
was dismissed with costs.
