Hypothetical lease — Terms — Whether hypothetical lease contains a rent review — Meaning of words “other than the rent hereby reserved” — Whether gearing formula in hypothetical lease — Declaration in favour of tenant’s construction
By an originating notice of motion under section 2 of the Arbitration Act 1979 the plaintiff landlord sought a declaration as to the construction of the provisions for rent review in a lease dated September 29 1975 of premises at 99 Bishopsgate, London EC2. The lease, for a term of 98 years, provides for 14 successive rent review periods; for the last 12 successive periods of seven years commencing September 29 1982, clause 2(a)(2) of the lease provides that the rent during each such period is to be the greater of the rent during the previous period or “… 50.6 per cent … of the amount of the yearly rental value …”. The yearly rental value is defined as a fair yearly rent for the premises “… having regard to rental values current…for property let without a premium with vacant possession and to the provisions of this Lease (other than the rent hereby reserved) …”.
The landlords contended that the clear effect of the words “other than the rent hereby reserved” is to exclude from the hypothetical lease the reservation of rent and the provisions as to the reservation of rent relating to the rent reserved during the successive rent periods. Alternatively, all the provisions should have full effect in the hypothetical lease, including the provision relating to the 50.6% of the amount of the yearly rental value of the premises. The defendant tenants contended that the effect of the words in issue is to exclude from the hypothetical lease only the quantum of the rent payable. The effect would be to exclude the reference to 50.6% since this was a term as to quantum of rent. Alternatively, the landlords are now estopped per rem judicatam from asserting that the hypothetical lease does not contain a rent review provision by reason of the conduct of the landlord in relation to an earlier arbitration.
Held Declaration was made consistent with the construction contended for by the tenant.
The natural meaning of the words in issue is to exclude from the hypothetical lease the amount of the rent which the tenant actually has to pay under the existing lease; the words clearly do not exclude all the provisions relating to the reservation of rent and the machinery for reviewing the rent from time to time. A construction should be favoured which promotes, rather than frustrates, the overall commercial purpose of the rent review provisions. The reference to the 50.6% should be excluded from the hypothetical lease because it has no more relevance to the valuation exercise than the fixed amount of the rent in pounds: see Guys `n’ Dolls Ltd v Sade Brothers Catering Ltd (1983) 269 EG 129.
Christopher Priday QC and Paul Morgan (instructed by the solicitor to the Prudential Assurance Co Ltd) appeared for the plaintiffs; and Terence Cullen QC and Carolyn Walton (instructed by Stephenson Harwood) appeared for the defendants.
