Lease of premises operated as casino — Construction of rent review clause — Assumption that necessary licenses granted to tenant — Whether actual or hypothetical tenant required to have necessary licenses — High Court holding assumption required that hypothetical tenant taking hypothetical lease at review date to have necessary licenses — Court of Appeal allowing appeal — Assumption required actual tenant to have obtained necessary licenses
This appeal concerned the construction of a rent review clause in the lease of premises operated as a casino and restaurant known as the Walton Club, Bridlesmith Gate, Nottingham. The lease in question was dated December 19 1988. Under it Armgrade Ltd (“the landlord”) granted a lease of the premises to Parkside (“the tenant”) for a term of 25 years from that date at an initial rent of £40,000 pa. The lease was subject to review with effect from December 19 1993 and every five years thereafter. The rent was to be reviewed to the market rent for the premises as at the review date subject to certain assumptions including, “that the necessary licenses have been granted to the tenant” (third schedule, para 3(A)(v)). The expression “the necessary licences” was defined in clause 3(39) as “licenses and certificates … necessary for the use of the [premises] as a casino and licensed restaurant”.
The lease was stated to be between Armgrade and Parkside “hereinafter called the tenant” which expression “shall where the context so admits include the successors in title and permitted assigns of the tenant and in the case of an individual shall include his personal representatives”. A question arose whether the assumption required one to assume that, as at the rent review date, the person who was the actual tenant under the lease at that date had the “necessary licences” (as the tenant contended); or (as the landlord contended) one should assume that the hypothetical tenant taking the hypothetical lease at the review date had the “necessary licenses”. The High Court decided the point in favour of the landlord. The tenant appealed.
Held The appeal was allowed.
1. There was an assumption that the premises were let at the rent review date in the open market with vacant possession to a willing tenant.
2. For the purposes of rent review, it was assumed that the demised premises were vacant and available to be let on a hypothetical lease to the willing tenant. The willing tenant was someone different from the tenant under the lease of December 19 1988.
3. It was clear from the language used in the lease that the draftsman was well aware of the distinction between the tenant under the lease and the willing tenant or the incoming tenant under the new lease.
4. The reality was that the actual tenant under the lease had the benefit of the lease at the rent review date and had the benefit of the necessary licences. However, the rent review clause expressly directed a departure from reality in that one had to assume the premises were vacant and available to be let to an incoming tenant. In relation to the necessary licenses the rent review clause clearly directed that the necessary licenses were granted to the tenant under the lease and did not direct that the necessary licenses were held by the incoming tenant.
Paul Morgan QC and Stephen Jourdan (instructed by Wragge & Co, of Birmingham) appeared for the tenant; Joseph Marper QC (instructed by Evershed Wells & Hind, of Nottingham) appeared for the landlord.
