Landlord and tenant — Rent review — Whether a letter constituted a valid counternotice to landlord’s trigger notice
By a lease
dated May 21 1982 A C Frost & Co Ltd, a nominee of the plaintiff,
Prudential Property Services Ltd, holds a term from the defendant, Capital Land
Holdings Ltd, of 20 years from May 21 1982, of 117 High Street, Chesham,
Buckingham. Where the landlord desires to implement any of the four-yearly rent
reviews, the lease provides that the landlord serves at least three months
before any rent review date a notice upon the tenant specifying the rent
required. Where the parties fail to agree the rent within a month of the
landlord’s notice, then by para 2(c) of the fourth schedule to the lease, ‘it
shall be determined at the election of the tenant by counter-notice in writing
to the landlord, not later than one month after the landlord’s said notice
(time to be of the essence hereof), by an independent surveyor . . .’.
Following the service of a notice by the defendant on February 14 1990
specifying a rent of £17,500 pa for the review date on May 21 1990, a letter
was sent by the plaintiff and received by the defendant on March 6 1990
acknowledging the defendant’s letter and stating that the plaintiff’s client
was not agreeable to the rent proposal and adding ‘in accordance with clause 2
of the lease please acknowledge this letter on the landlord’s behalf as formal
notice of our disagreement to your rent proposal’. After the expiration of the
one-month time-limit the defendant asserted that the plaintiff had failed to
serve an effective counternotice within the time-limit and the rent for the
four years from May 21 1990 was therefore that specified in the defendant’s
letter of February 14 1990. The plaintiff sought a declaration that the letter
of March 6 1990 was an effective counternotice served within the time-limit.
granted accordingly. It is sufficient that, to be an effective counternotice, a
letter makes clear that the tenant is exercising the relevant election; a
tenant may do that either by indicating that the letter is a counternotice
under the
reference to clause 2 in the letter can have been meant only as para 2 of the
fourth schedule to the lease. The letter must be read in the context not just
of the lease but in the context of the letter to which it is responding. The
letter was in response to the landlord’s trigger notice and referred to para 2
of the fourth schedule, mistakenly described as clause 2 of the lease; that
paragraph makes provision for the service of the counternotice making an
election for the determination of the rent by an independent surveyor.
The following
cases are referred to in this report.
Amalgamated
Estates Ltd v Joystretch Manufacturing Ltd [1981]
EGD 84; (1980) 257 EG 489, [1981] 1 EGLR 96, CA
Barrett
Estate Services Ltd v David Graig (Retail) Ltd [1991]
2 EGLR 123; [1991] 36 EG 155
Bellinger
v South London Stationers (1979) 252 EG 699,
[1979] 2 EGLR 88
Edlingham
Ltd v MFI Furniture Centres Ltd (1981) 259
EG 421, [1981] 2 EGLR 97
Glofield
Properties Ltd v Morley [1988] 1 EGLR 113;
[1988] 02 EG 62
Nunes v Davies Laing & Dick Ltd (1985) 51 P&CR 310; [1986]
1 EGLR 106; 277 EG 416
Oldschool
v Johns (1980) 256 EG 381, [1980] 2 EGLR 113
Sheridan v Blaircourt Investments Ltd [1984] EGD 176; (1984) 270 EG
1290, [1984] 1 EGLR 139
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; 243 EG 43 & 127, HL, [1977] 2 EGLR 61
This was an
application by the plaintiff, Prudential Property Services Ltd, by an
originating summons to have determined the validity of a counternotice served
under the provisions of a lease dated May 21 1982 held by A C Frost & Co
Ltd from the defendant, Capital Land Holdings Ltd.
Jonathan
Steiner (instructed by Masons) appeared for the plaintiff; Jeremy Carey (instructed
by Roman Coleman & Co) represented the defendant.
Giving
judgment, JUDGE COLYER said: I proceed this morning to give judgment in
relation to matter no 1990 P7150, being that originating summons whereby
originally Prudential Property Services Ltd, but now the substituted plaintiff
Woolwich Property Services Ltd, seeks against Capital Land Holdings Ltd the
determination of the court of the question whether a letter dated March 5 1990
sent by Prudential Property Services Ltd, which is described in the originating
summons as being ‘the tenant at that time of a lease dated May 21 1982 — the
benefit of which lease is now assigned to the plaintiff’ — and the originating
summons continues ‘and who is now the tenant of the said lease’, constituted a
valid counternotice pursuant to clause 2 of the fourth schedule of the same
lease, of premises known as 117 High Street, Chesham, Buckinghamshire. The
originating summons was issued as long ago as July 20 1990; it was followed
five days later by a second originating summons, which I shall deal with after
I have concluded this matter, whereunder the tenant seeks an extension of time
for service of such counternotice pursuant to section 27 of the Arbitration Act
1950. I need say nothing about that for the moment.
I would
immediately observe that in fact Prudential Property Services were not the
tenant under the lease. The legal term of years was vested in a company, A C
Frost & Co Ltd, a nominee, it is said in the evidence, for Prudential
Property Services Ltd, so that in any event the declaration which is sought
even after amendment is entirely inappropriate. It is said that the letter,
though sent by Prudential Property Services Ltd, was sent on behalf of the
nominee company and that is not disputed by the landlords.
I turn then,
first, to consider the facts. This lease was granted by one Keith Depty and one
Robin Westly on May 21 1982, to tenants Chiltern HiFi (Chesham) Ltd. There were
sureties to the lease, but that does not matter. The term was for 20 years from
May 21 1982, and there were provisions for rent review at four-yearly
intervals; thus the initial rent of £4,500 per year was to apply only until May
2 1986.
The terms of
the lease are irrelevant to the present dispute, other than the stipulations
contained within the rent review clause, to which I now turn. That is contained
in the fourth schedule, and by part (b) of para 1 of that schedule the rent
review dates are designated. In consequence, May 21 1986, May 21 1990, May 21
1994 and May 21 1998 are rent review dates. I pause there to say that there is
a drafting slip there, in that the draftsman obviously became confused between
the concept of a rent review period and the initial period of the lease
whereunder for four years the initial rent of £4,500 was to be paid. Nothing
turns on that incongruity in the reddendum to the lease in the present dispute.
The review is
an upwards-only review, and it is stipulated that the reviewed rents payable by
the tenant during the first review period, and the remainder thereof — that
must mean the other rent review periods — shall be determined in the manner
following — that is to say, it shall be whichever shall be the higher of the
rents then current in the open market — and again the word ‘rent’ has got lost,
yet another indication of the sloppy drafting of this lease — and the open
market — I interpose the word ‘rent’ of the demised premises for the
appropriate review period.
That is then
defined — market rental — and nothing turns upon that. Then by para 2 of the same
schedule we have the machinery for the determination of the figure. It is to be
determined as follows and I quote:
(a) It shall be such sum as shall be specified in
a notice in writing by the landlord to the tenant in the case of the first
review period at the expiration of the period of three years and six months
after the commencement of the term hereby granted; and in the case of the
remaining review periods at any time before the expiration of three months
before commencement of the relevant review period.
I pause there
to observe that upon the first rent review date, being May 21 1986, the rent
was revised without problems to an annual rent of £9,000; and that after that
date and before the second review date the residue of the term became vested in
A C Frost & Co Ltd, and the reversion upon the lease in the defendants.
The review
timetable therefore required that by February 20 — being three months before
the relevant review date — the landlords should specify in a notice in writing
the rent which they required. The lease then continues:
(b) as shall within one month after such notice
be agreed between the parties in writing, in substitution for the same sum
— that is the
sum in the landlord’s notice —
or, (c) it
shall be determined at the election of the tenant by counternotice in writing
to the landlord, not later than one month after the landlord’s said notice
(time to be of the essence hereof), by an independent surveyor appointed for
that purpose by the parties jointly in writing, or upon their failure to agree
upon such appointment, within one month after the date of the said
counternotice, then by an independent surveyor appointed for that purpose by
the President for the time being of the Royal Institution of Chartered
Surveyors; and every determination shall be made insofar as not inconsistent
with the provisions of the Arbitration Act, 1950, or any statutory modification
or re-enactment for the time being in force; and shall be subject to further
provisions of the next succeeding sub-clause.
The next
succeeding subclause deals with the problem of any shortfall of rent which
results from the determination after the due date of the revised figure. No
thing turns upon that in the present proceedings.
Before leaving
the quotation from para 2 of that fourth schedule I would observe that, fitting
the schedule to the facts of this case, the notice by the landlord, as I have
pointed out, had to be served by February 20. As will be seen in a moment, that
notice was given and the letter giving it is not impugned as a valid notice on
February 14 1990; thus it was in time. As a result, the counternotice had to be
given by March 14 1990 and in relation to that date time is expressed to be of
the essence. Once the landlord’s notice had been served, if a counternotice
were served then a further month is stipulated by the lease, and time is not
made of the essence in relation to that one-month period for the agreement by
the parties upon their choice of independent surveyor. Put another way, whereas
the first stipulation that the counternotice must be served within a month
involves a deadline for the serving of the counternotice, the month that is
stipulated for the agreement upon the identity of an independent surveyor does
not involve a deadline at all; it merely enables the application to be made to
the President once that one-month period has elapsed and once it is apparent
that there has not within that period been any agreement. It is my view, on the
terms of this clause, that either party to the lease could after that month
apply to the President for such appointment.
In the
landlord’s notice of February 14 1990 the figure of £17,500 pa was stipulated.
The notice was contained in a letter from the landlords’ solicitors, John
Broomfield & Co, consultant surveyors and valuers. They wrote their letter,
dating it February 14. It has been assumed that all letters arrived in the
ordinary course of post. Again, nothing turns in this case upon whether we
should therefore regard
bears, although, in my view, it should be treated as given on the date it
arrives. Because nothing turns on it, it is easier to treat the documents as
they are dated.
The letter was
addressed to Mr Brook of Prudential Property Services at the address and it
read as follows:
Dear Sir
117 High
Street, Chesham
Following
your letter of fourth January we write firstly to thank you for the
arrangements made for us to inspect the accommodation held on lease by
assignment at the above address by A C Frost & Co Ltd
I pause and
interject that the landlords therefore had no doubt who the tenant was, and
were writing to Prudential Property Services as the agent of that tenant. The
letter continues:
You will know
that we are instructed by the freeholder to settle with the company the rent to
be paid as from the forthcoming review date. Please be advised now that, having
considered carefully the size and location of the premises, and the terms of
the lease as made on 21st May 1982 and subsequently assigned to your company,
that we assess the open market rental value for the third period of the lease
to be in the sum of £17,400
— which was
then repeated in parenthesis in words —
per annum
exclusive, and that this is the rental which we ask you to confirm for payment
from 20th May 1990. For the avoidance of doubt, we confirm that this
communication represents our client’s formal notice in writing as per the
provisions of clause 2 of the said lease.
I interject
again that the reference to ‘clause 2’ could be a reference only to para 2 of
the fourth schedule. There is in the lease an operative clause 2, but it is
singularly not that which the writer of the letter had in mind, for clause 2 of
the lease merely reads:
The tenant
hereby covenants the landlord in the terms set out in the fifth schedule,
and all the
covenants of the tenant are contained in that fifth schedule. So there is an
obvious drafting slip or mislabelling of the relevant clause; but it is so
obvious that no one could conceivably have been misled by it. Anyone reading
the landlord’s letter knew that the provisions of the fourth schedule, and para
2 of it, were now being invoked by the landlords; in short, knew that the
landlords’ letter was the landlords’ trigger notice for the rent review.
The landlords’
agent’s letter continues:
In due course
the lease and counterpart will need to be endorsed with a note of the review
rent, and our clients will prepare a standard form of memorandum for signature
by the parties. Please kindly acknowledge safe receipt of our communication. We
trust that with the local evidence available our own assessment can be agreed
by your goodselves.
Yours
faithfully,
The response
to that letter came not from the person — H Brook Esq — to whom it had been
addressed, but from a colleague of his within Prudential Property Services. It
was undated, but appears to have been despatched on March 5 and received on
March 6. If, therefore, it be a counternotice, then it was within the one-month
period; and it is common ground that there is no other document which was sent
within that period. This letter, therefore, is the only possible counternotice.
The letter is
addressed to John Broomfield & Co at their address. It takes up their
reference on the previous letter, gives the writer’s reference. It is sent also
by recorded delivery, like the trigger notice, and it reads thus:
Dear Sir
Re 117 High
Street, Chesham.
I hereby
acknowledge receipt of your letter of 14th February 1990 incorporating rent proposal
of £17,500 per annum for the review effective 20th May 1990.
The syntax
then goes a little awry, but it is important that the letter be quoted verbatim
and in full.
My client is
not agreeable to settlement of rental proposal on this basis, and in accordance
with clause 2 of the lease please acknowledge this letter on the landlords’
behalf as formal notice of our disagreement to your rent proposal. Our rent
proposal is £9,000 per annum. I will be inspecting the property in the next few
days and will contact you to commence the negotiation on this review.
Yours
faithfully
It is signed
John Gay, for and on behalf of Prudential Commercial Property Services. They,
on any view, were acting as agent for the tenant, although they were not in
fact the tenant. If the notice is a valid counternotice, then it is not
disputed by the landlords that it was duly served within the time provided and
on behalf of A C Frost & Co Ltd. It appears, however, that Mr Gay and the
solicitors then acting became a little confused, and launched the proceedings
in the name of Prudential Property Services — a matter which may have
implications as to costs or as to the section 27 proceedings, but which I can
ignore in relation to the construction issue which now faces the court.
The letter did
not provoke a response from the landlords’ surveyors and was followed by a
further letter on March 21, which read as follows:
I refer to
recent correspondence in respect of this matter. I note that you have proposed
a figure of £17,500 per annum in respect of the forthcoming rent review
effective from 20th May 1990. I should be grateful if you would provide me with
a breakdown of your floor areas together with a note of any comparable evidence
you may have in support of your proposal in order that I may give the matter
due consideration. Yours faithfully
and it is
signed by another surveyor within Prudential Commercial Property Services — a
Mr Anthony Doyle. That letter was very promptly replied to — indeed by return
of post — and the letter was faxed before being posted on March 23 1990. The
response sent read:
We write to
thank you for your letter of 21st and for the enquiry which you make. We note
all you say, and once you have undertaken your inspection of the property we
will gladly exchange floor area notes with you. Please look at the terms of the
lease and the subsequent correspondence. Our view is that the lessee is
estopped from arguing that the review rent should be less than the amount of
£17,500 per annum exclusive as sent out in the rent notice sent on 14th
February last. We make this observation having regard to the provisions of
clause 2(c). Having looked at our file we can see that we have not received a
counter-notice containing the request to have the rent determined by an independent
surveyor. Please let us hear further from you. In terms of evidence we think
you will find that your own tenancy of 3 White Hills has been the subject of
the equivalent of the zone A rent of some £22 per square foot ever since
September 1988. We await to hear from you.
I need not
read the subsequent correspondence, but it is sufficient to say that on March
23 1990 the landlords are therefore taking the point that no valid
counternotice has been given. It is their first response to the tenant’s letter
of March 6, and of course the one-month time-limit on which time is made of the
essence for the giving of that counternotice had by then passed, for that
time-limit would have expired on March 14 or 15, depending on the date of
arrival of the trigger notice dated February 14. I do not know whether the
non-acknowledgment of the tenant’s earlier letter was deliberate, and whether
the landlords’ agents were sitting there waiting for, as they saw it, the trap
to fall; or whether it was inadvertent; or whether it was simply a minor
discourtesy on their part in not acknowledging the tenant’s notice of March 6.
Certain it is
that, in my view, whether they replied to it or not, that could not make the
notice into a counternotice in the absence of a letter from them saying, ‘We
don’t think your letter was a counternotice but we will treat it as such’,
which singularly, of course, did not occur here. So one cannot draw inferences
as to the effect of the counternotice from the fact that they did not reply. It
is, however, of some relevance — not huge relevance, but some relevance — that
they were asked with such particularity to acknowledge the letter on the
landlords’ behalf, ‘as [a] formal notice’.
There has been
a plethora of decisions on the effect of counternotices in the context of rent
review clauses. My attention in this case has been drawn to no less than eight
decided cases in relation to counternotices. May I say, first of all, that I
think it is of great importance in this type of situation that one remembers at
all times that the task of the court is to construe a document — that is the
lease — and then, in the light of that decision on the construction of the
document, to conclude whether in the facts of a particular case the
communication made by that particular tenant does or does not satisfy the
requirements of the instrument which has just been construed. It is quite
wrong, therefore, in my view, slavishly to take decided cases and to say:
‘Well, here was a letter written in identical terms in relation to an identical
clause. Without more ado that is conclusive; the court must come to the same
conclusion in this case as it came to in the other case.’ In this manner a seductive jurisprudence is
being constructed about the phraseology of rent review clauses, and even that
of letters given in response to them. I have to say that I think this is
entirely misguided. We must bear in mind that unless they are landmark
decisions which lay down principles of law – and a classic example that
instantly springs to mind would be United Scientific Holdings Ltd v
Burnley Borough Council [1978] AC 904 — all such decisions will be either
pure construction of documents or pure decisions on facts of particular cases,
or a combination of both.
illustration or inspiration for arguments as to the instruction and effect of
leases.
Here I am
assisted immensely by the other cases, but I do not consider that I am
following or not following particular decisions. I have to deduce from the
cases the principles of law with which to approach my task of construction, and
indeed my assessment of the facts, and then apply them to the facts of this
case and the lease in this case; and the facts in this case really mean the
letter which I have quoted of March 5.
I turn then to
those cases. Although not the earliest case on counternotices, the decision in Amalgamated
Estates Ltd v Joystretch Manufacturing Ltd (1980) 257 EG 489, [1981]
1 EGLR 96 is a decision of the Court of Appeal. It does indicate the approach
to be taken in what I term the ‘counter-notice situation’. The Court of Appeal,
consisting of Naughton, Templeman and O’Connor LJJ, rejected in that case a
contention by the tenant that a sufficient counternotice had there been given.
I need briefly to turn to the facts of that case and the context in which that
notice fell to be served. Under the lease in question — and I quote from the
third paragraph of the relevant proviso in the lease:
The open
market rental value shall be determined in manner following; that is to say (a)
specified in notice in writing signed by or on behalf of the Landlord and
posted by recorded delivery post in a pre-paid envelope addressed to the Tenant
at the demised premises at any time provided that if a notice is posted after
the review date the open market rental shall not be payable until the second
quarter day following the posting of said notice
— and I can
then omit words —
or (b) agreed
between the parties before the expiration of three months immediately after the
date of posting such notice
— and I omit
words again. Then in a separate subparagraph a further possibility:
determined at
the election of the Tenant (to be made by counter-notice in writing served by
the Tenant on the Landlord not later than the expiration of the said three
months)
— so it is the
same three months that are referred to above —
by an
independent surveyor appointed for the purpose by the parties jointly in
writing or upon their failure to agree, upon such appointment within one month
immediately after the date of service of the said counter-notice, then by an
independent surveyor appointed for that purpose on the application of either
party alone by the President for the time being of the Royal Institution of Chartered
Surveyors
— and I again
omit words.
The clause
therefore had a very close generic relationship or similarity to the fourth
schedule of the lease of the premises, which I am now considering. In relation
to that clause in Amalgamated Estates Ltd v Joystretch Manufacturing
Ltd other problems of construction arose which the court had to consider
and which do not arise here. It is sufficient to say that a trigger notice was
given by letter by the landlord and that it was responded to in these terms:
We are in
receipt of your letter of December 8th 1978 and the contents of same.
We cannot
agree with your rent increase for, as you know, they are building a new Centre
which is going to push Regent Street right out of position. There are shops
very close to our own that are being offered for around £4,000 per annum.
Perhaps therefore you should explain how you arrive at £10,000.
(I observe
that, happily, that was not Regent Street, London, but Regent Street, Rugby,
that was being referred to.)
The landlords
did not reply to that letter, and subsequently contended successfully before
the Court of Appeal that the letter was not a sufficient counternotice. If one
applies any form of analysis to that letter, brief as it was, it is difficult,
indeed, to get out of it anything other than the critical statement, ‘We cannot
agree with your rent increase’. There was then some special pleading as to the
local trading and property development situation, and a request for information
— therefore nothing beyond an intimation that, ‘We do not agree’ was given by
that letter. Nevertheless, it was contended by the tenant that that was a
sufficient counternotice.
In considering
what such a counternotice had to do in the context of a lease which did not
specify any form of counternotice other than that it be in writing — which
again is the identical context to the present lease — Templeman LJ, at the top
right-hand column of p493, observes:
It is true
that no magic formula is required but, in my judgment, the tenant must make it
clear to the landlord that he proposes to have the rent decided by arbitration
in accordance with the provisions of the lease. The landlord and tenant may
reach a compromise before arbitration has been reached, but, nevertheless, on
the plain words of the lease it seems to me that the tenant is directed to
serve a counternotice making it clear to the landlord that he proposes to go to
arbitration if that is his intention. I cannot spell that out of the tenant’s
letter, which simply said he did not agree with the landlord’s £10,000 and
asked for an explanation.
and his
lordship observes that similar views had been expressed by Golding J in Bellinger
v South London Stationers (1979) 252 EG 699, [1979] 2 EGLR 88, and
Mr Michael Wheeler, sitting as a deputy judge of this division, in Oldschool
v Johns (1980) 256 EG 381. His lordship was therefore impliedly
approving both of those two decisions, in each of which the landlord had indeed
succeeded in defeating the suggestion that a counternotice had been served.
I would turn
for a moment to the Oldschool case, because that does contain some
helpful observations; and also one observation with which I must respectfully
register a slight disagreement. In Oldschool v Johns (1980) 256
EG 381, [1980] 2 EGLR 113 Mr Michael Wheeler QC had to consider a similar
problem, a similar clause. He observes — I read from p385, left-hand column:
I think that
the notice must either be in a form which clearly says it is a counternotice
under clause 5(2)(c) or it must clearly indicate to the landlord that the
tenant is exercising his election to have the rent fixed independently.
That is
clearly part of the ratio decidendi; it is clearly something which was
looked upon with approval by the Court of Appeal in Amalgamated Estates v
Joystretch; and I would respectfully adopt that approach; that is to say,
that in order to be a counternotice the document must either state, ‘This is a
counter-notice under [the relevant clause]’; or, if it does not do that,
then it must state clearly that the tenant is exercising his election to have
whatever remedy the clause contemplates, ie reference to independent expert,
reference to independent surveyor acting as arbitrator, or as may be.
So one can do
it either by shorthand, simply saying, ‘This is a counter-notice under clause
whatsoever’, or by longhand, by a document which explains what you want.
On the
right-hand column of p385 of the same report an observation is summarised from
counsel’s argument in the other earlier case to which I referred, Bellinger v
South London Stationers Ltd. Goulding J quoted counsel there:
So [says
counsel] I must ask myself whether anyone receiving the letter . . . must have
realised at once that the tenant was requiring arbitration; or, putting it
another way in the judge’s later words, that the recipient would be in no doubt
as to what the tenant was up to.
If (which I do
not believe to be the case) the learned judges in Bellinger or in Oldschool
were adopting that submission and argument and were therefore holding that one must
— and I quote — ‘realise at once’ upon reading the letter what it meant, I
would respectfully demur.
In the light
of the subsequent decisions to which I shall refer and in the light of the
observations of Templeman LJ and the other lord justices in Amalgamated
Estates v Joystretch it is, in my view, sufficient that to be an
effective counternotice a letter makes it clear that the tenant is exercising
the relevant election; and the tenant may do that either by indicating
that the letter is a counternotice under the relevant clause or by spelling out
the consequences which he seeks to achieve.
Before leaving
the other cases, I would, however, make nodding reference to certain of the
authorities. I was referred, in addition to those to which I have referred, to Edlingham
Ltd v MFI Furniture Centres Ltd (1981) 259 EG 421, [1981] 2 EGLR 97.
There, the clause had a similar provision for trigger notice and then for the
rent to be ‘determined (at the election of the Tenant such election to be made
by counternotice in writing served by the Tenant upon the Landlord not later
than the expiration of the said three months) by an independent surveyor’. That
stipulation and, indeed, all stipulations in the clause were made of the
essence.
The tenant
responded to the landlord’s trigger notice in these terms.
I refer to
your letter dated February 7
— That is the
trigger notice —
and return
herewith one copy of the notice duly acknowledged.
Will you
please accept this letter as counternotice to the effect that we consider that
the rent of £50,000 is excessive and will appreciate it if you will kindly
forward to us comparables on which you have based this figure.
The learned
judge, McNeill J, did not consider that that was a valid counternotice and,
having quoted from several cases, including the Oldschool case, to which
I have referred, commented:
I do not
think it is necessary for the purposes of this judgment to express a view as to
whether or not a counternotice, to be effective, must expressly refer to the
relevant clause of the lease which is in point. My inclination would be to say
that that degree of formality is probably unnecessary. But the notice must
identify the form of relief which the tenant is seeking and must do so
unequivocally.
With respect
to the learned judge, he is therefore disagreeing with Mr Wheeler in the Oldschool
case, which he says he is following, Mr Wheeler having indicated that the
election can be either by, if by expressing making your letter, a counternotice
or by, as I put it a moment ago, doing it longhand and spelling out the relief
that you need. McNeill J is limiting the valid counternotice to a letter which
does the second thing, which spells out the relief. I quote again:
. . . the
notice must identify the form of relief which the tenant is seeking and must do
so unequivocally. If a notice may be read as an invitation to negotiate or as
an election to arbitrate it seems to me to be a defective notice.
In other
words, if a notice can be read in the alternative, as either an invitation to
negotiate or as an election to arbitrate, he would see it as ambiguous. He continues
a little later:
It is not a
question, as Templeman LJ put it, of a ‘magic formula’, but in his words ‘the
tenant must make it clear to the landlord that he proposes to have the rent
decided by arbitration in accordance with provisions of the lease’.
His lordship
did not consider that it had been made clear or, rather, as he put it, it was
not unequivocal. In Sheridan v Blaircourt Investments Ltd
Nicholls J also used in similar context the phrase ‘unequivocal’, holding that
it was not possible to construe the wording in four successive letters as an
unequivocal intimation to the landlord’s advisers that the tenant was requiring
ascertainment of the substituted rent to be referred to a referee.
In view of the
very different content of those letters to the letter which I have to consider,
I do not find that decision of any real help. There, the letters were expressly
contemplating a later reference — all but parading the point that those letters
were not exercising the relevant election.
If there is —
and I doubt that there is — but if there is any conflict on the case as to
whether one should look for a ‘clear’ or whether one should look for an
‘unequivocal’ election (words which in this context I am bound to say I do not
find it easy to see producing different results) then, in my view, that
conflict is laid to rest by two things.
First, by the
fairly obvious proposition that Amalgamated Estates v Joystretch
is a decision of the Court of Appeal, and none of the other decisions to which
I refer is, and I am bound to follow that decision. Second, by the fact that in
Nunes v Davies Laing & Dick Ltd [1986] 1 EGLR 106, the then
Vice-Chancellor, Sir Nicolas Browne-Wilkinson, considered the entire problem of
counternotices in some detail. I will omit the full quotation of the clause in
the lease before him, but I need to quote the notice and the counternotice. The
trigger notice read:
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
— which he
then specified —
shall be the
annual sum of £23,000.
That provoked
a response which I am bound to observe was expressed rather as a crossproposal
or crossnotice, rather than a counternotice, for it read:
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
Then it was
signed.
The problem
was summed up succinctly and most helpfully by the Vice-Chancellor, who pointed
out that there are, in reality, two questions: (1) what in law is required to
constitute a valid election under the relevant clause; and (2) whether the
letter in question did so. His lordship then considered the earlier cases.
Under his heading: ‘What are the legal requirements of a valid notice?’ (and of
course he is considering only a valid notice under that lease, not the lease
now before the court, but his observations are of immense assistance and
provide persuasive argument and reasons). His lordship observed:
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 paragraph (c).
His lordship
then observed that the authorities disclose two possible tests: ‘a clear’
indication or that the counternotice must be ‘unequivocal’ and that there may
be a difference between what is clear and what is unequivocal, and his lordship
observes:
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 . . .
And I interpose
there: ‘under the relevant clause of the relevant lease’. Applying that test,
his lordship held that what I termed the crossnotice was a sufficient
counternotice under that clause of that lease.
The tide at
that point seems historically to have turned in the tenant’s favour; Nunes is
followed, in the sense of being chronologically succeeded, by two later cases
to which my attention was drawn: Glofield Properties Ltd v Morley [1988]
2 EG 62; [1988] 1 EGLR 113 (a decision of Hutchinson J) and Barrett Estate
Services Ltd v David Greig (Retail) Ltd [1991] 2 EGLR 123 each of
which were decided in favour of the tenant.
I should say I
derive no assistance from Barrett, because in Barratt the clause
was sufficiently different as to avoid the very problems which one faces in the
instant case. There, all that the counternotice needed to indicate was that the
tenant did not agree the figure, which is a very different task for a
counternotice to achieve than that required by the present clause.
In Glofield,
presented with similar requirements for trigger notice and counternotice, the
landlords having served a trigger notice, the tenants’ agents responded:
We act for
the tenant of the above premises. We have been passed a copy of your letter . .
.
— being the
trigger notice —
. . . in
which you proposed a rent of £9,750 per annum at the forthcoming rent review.
Please accept this letter as formal objection and counternotice. We would
suggest an early meeting to discuss the matter in detail.
It was
contended by the landlords in that case that this was not an unequivocal
election, that it was, indeed, suggesting a meeting and discussion. His
lordship relied extensively both on the Amalgamated Estates decision and
on the Nunes decision and respectfully demurred to the decision of
McNeill J in Edlingham, if and in so far as it conflicted. Faced with a
possible conflict between decisions at first instance, he followed the most
recent of those decisions, that in Nunes, given that it had considered
the earlier decision. A fortiori, I, too, should follow the decision in
the Nunes case.
After
considering the way in which the clause worked and applying the test suggested
by the Amalgamated Estates case, his lordship concluded that that letter
was an effectual counternotice. That, in my view, rather vindicates the
observation made by Mr Wheeler in the Oldschool case, that I have
already adopted, that the election can be either by expressly describing one’s
letter as a counternotice under the relevant clause or, alternatively, by doing
it longhand. If we look at the letter sent in the Glofield case again,
it is clear that that did not in longhand, as I put it, express an election to
go to reference or arbitration; it merely gave formal objection, suggested a
meeting to discuss the matter in detail, but nevertheless used the magic words
‘counternotice’:
Please accept
this letter as formal objection and counternotice.
I add emphasis
which was not in the actual document to the words ‘and counternotice’.
My attention
has been drawn also to the existence of a body of law on the construction of
notices to quit. It is sufficient to say that that was not pressed upon me. I
expressed the view in argument, and I express it even more strongly now, that
those decisions do not assist the court at all in construing notices in the
context of trigger notices and counternotices relevant to rent review.
I turn now to
the facts of this case and consider whether this letter of March 5 does or does
not satisfy the requirement of this lease in relation to the giving of a
counternotice and making an election. I observe in the first place that it is
wrong to take the letter in total isolation. One must read it in the context
not just of the lease but in the context of the letter to which it is
responding. I return again to the provisions of the lease. It is clear that
under para 2(c) of the schedule:
It shall be
determined at the election of the tenant by counter-notice by an independent
surveyor . . .
It does not say
there: ‘by a counternotice which spells out that which is required’ — that is
reference to an independent surveyor and appointment of a President if the
parties cannot agree upon him, which the remainder of the subparagraph of the
schedule envisage. It does not say the counternotice must spell all this out;
it merely says ‘by counter-notice in writing’.
So the
requirements are that there be a counternotice, that it be in writing and that
it be within time. The letter was in writing of course, it was in time. Was it
a counternotice? I hold, following the
earlier decisions, that it would be a counternotice if either it expressed
itself to be just that or, alternatively, if, without referring to the clause
number or perhaps even without using the word ‘counternotice’, as I earlier put
it, the draftsman had in longhand spelled out just what he required, thus
describing the consequences of a counternotice. Either method would be a valid
election.
Mr Gay did not
spell it out ‘in longhand’; and, on behalf of the landlords, it is urged upon
me that he also did not express his letter to be a counternotice. I am bound to
say that I think that he did. I think that any reasonable landlord, reading
this letter, although he might not instantly have known that this was an
election, would immediately have consulted his lease and have known that the
relevant notice had been served upon him.
In the first
place the letter was responding to the trigger notice. It was served with the
same degree of solemnity and particularity as the trigger notice by recorded
delivery. It was served by a writer who clearly was anxious that the letter get
to its addressee in time and who not merely sent it by recorded delivery but
asked for acknowledgment:
Please
acknowledge this letter [on the landlord’s behalf] as formal notice . . .
I pause there.
If the letter had stopped at that point and the next words ‘of our disagreement
to your rent proposal’ had been omitted, I doubt that this case would have come
to court. It is the inclusion of those words which, if one reads the letter in
isolation and without reference to the trigger notice itself and the clause in
the lease itself, introduce what I regard as a specious ambiguity to the
document.
If, however,
one reads the letter in context, and John Broomfield & Co, the authors of
the trigger notice, hardly could read it other than in the context of their own
earlier letter, then any momentary doubt that they had as to the effect of this
letter could and should have been quickly, if not instantly, resolved were they
to turn to the lease.
I slip into
the language of the first person and pretend for a moment to be the
hypothetical recipient of the letter dated March 6. If that hypothetical person
said to himself: ‘Dear me, what is this letter trying to do? It says here: ‘Please acknowledge this letter
on the landlord’s behalf as formal notice of our disagreement to your rent
proposal’, and he is asking me to do that in accordance with clause 2 of the
lease. So he thinks he is taking a step under clause 2.’
I leave the
language of the first person and I turn to clause 2 and, reexamining clause 2,
one finds that there is but one notice which a tenant can serve under it. It is
a counternotice under para 2 in fact. (The parties, of course, have been
calling it clause 2, but each of them is clearly referring to the same
stipulation.) There is but one notice
which the tenant can serve, ie the counternotice envisaged by clause 2(c). That
being the case, although I think that the addition of the words ‘of our
disagreement to your rent proposal’ is certainly an unhappy phrase and an
inappropriate phrase to add, nevertheless this letter is proffered, to the
person who received it as ‘formal notice under clause 2’, ie under para 2,
which must be para 2(c), and it must be intended to stop the time-limit
running.
Anyone who
gets a recorded delivery letter in which great care is taken to request an acknowledgement
is reasonably put on notice that the sender of the letter realises that he is
meeting a time-limit and I think those reflections, too, should have taken the
recipient of this letter fairly quickly beyond the doubt which he might
momentarily have had. I do not consider, therefore, that this letter fails to
be what I would term the clear giving of a counternotice under the relevant
clause of the lease. That being so, although not a model of drafting, it
satisfies the legal requirements of this particular lease and is a valid
election. In those circumstances the answer to the question posed to the court
is, in my view, better expressed in these terms:
It is
declared that a letter dated 5th March 1990 and sent by Prudential Property
Services Ltd on behalf of A C Frost Ltd, being the tenant at that time of a
lease dated 21st May 1982, the benefit of which lease is now assigned to the
plaintiff, who is now the tenant under that lease, did constitute valid
counternotice pursuant to clause 2 of the fourth schedule of the said lease of
premises known as 117 High Street, Chesham in Buckinghamshire.
I now consider
the ramifications which that has as to costs and I need in that context to
consider the complication that there are the other proceedings commenced five
days later in which an extension of time under section 27 of the Arbitration
Act 1950 was sought.
I have
expressed the view that the chances of success in the section 27 proceedings
were not great, partly by reason of the fact that I take the view that any
application for extension of time under section 27 must be pursued with such
diligence and be launched with such immediacy as is appropriate to the
particular time-limit of the arbitration clause which is in issue. Here, there
was a one-month time-limit directed to securing the rapid ascertainment of the
revised rent of the premises and there have at times been very significant
delays in these proceedings.
Those pauses
or delays, of course, do not affect in any way the problem of construction, but
they do affect the prospects of success and even more the position as to costs
in the section 27 proceeding. I therefore invite brief submissions from counsel
as to costs, knowing as I do, because they have told me, that there is a single
brief fee and I think that their submissions as to costs should be made
globally in relation to the costs of both matters. Mr Steinert, since you have
won the preceding that I have decided, I invite you to address me first.
Declaration
accordingly.
