Landlord and tenant — Rent review clauses in leases of business premises — Summonses seeking on behalf of landlords summary judgments under RSC, Order 14, for alleged arrears of rent — Issue in present proceedings was as to effect of a provision in the rent review clauses defining the ‘full yearly market rent’ to be determined by an independent valuer appointed by the president of the RICS — The rent under the hypothetical letting for the residue of the term of the lease was to be on the basis that the lessee would be obliged to perform and observe the existing covenants and conditions but that the provisions of the rent review clause itself were to be excluded — Thus on the first review the rent for valuation purposes would be taken to be the rent for the next 20 years without any rent review during that period, although the lessor in fact could get a rent review in 5 years — A higher rent would be determined on this basis than if the hypothetical conditions included periodic rent reviews — It was argued strongly on behalf of the lessees that this result, which was contrary to the underlying principles expressed in United Scientific Holdings Ltd v Burnley Borough Council, could not have been intended — Held, however, that the wording of the provision in the leases was clear and must be applied, so that the rent would fall to be assessed on the basis of no rent review — A late suggestion about the possibility of rectification was rejected — No justification for giving leave to defend — Summary judgment for lessors
The present
proceedings concerned three summonses seeking summary judgment under RSC, Order
14. The applicants in all three cases were the lessors, Smiths Industries Ltd.
Two of the summonses arose out of a dispute between the lessors and a firm of
chartered quantity surveyors, Young & Brown, lessees of the fourth and
fifth floors of premises at 57A, B and C Hatton Garden, London EC1. The firm of
surveyors was sued in the names of the partners, Messrs B P Pugh, G L Smith, J
A M Freeman and C B Clark. In the third summons the defendants were F A Welch
Holdings Ltd and the premises concerned were the basement, ground floor and
first and second floors in the same building in Hatton Garden. There were
certain differences in the leases but the particular provision in dispute in
the present proceedings was the same, namely, the provision for valuation of
the rent on the basis of a lease for the residue of the whole term excluding
rent review.
D P Friedman
(instructed by J E Kennedy & Co, of Harrow) appeared on behalf of Smiths
Industries Ltd; J R Gaunt (instructed by Nicols & Co, of Clapham)
represented the partners in Young & Brown; J S Brock (instructed by
Stoneham, Langton & Passmore) represented F A Welch Holdings Ltd.
Giving
judgment, GOULDING J said: I have to give judgment on three summonses, each
seeking summary judgment under Order 14 of the Rules of the Supreme Court, in
favour in each case of the same party as applicant, a company called Smiths
Industries Ltd, represented before me by Mr Friedman. The summonses are brought
in two different actions and on the counterclaim to yet a third action. Two of
these summonses are closely connected and as to their merits inseparable, and
they are conveniently dealt with together. The third is in a rather different
position, involving a different opponent of Smiths Industries Ltd and I think
it is fairer that I should keep that as separate as I can.
Now let me
come to the two that go together. They arise out of a dispute between Smiths
Industries Ltd and a firm of chartered surveyors who are Smiths’ tenants in
respect of the fourth and fifth floors of business premises known as 57A, B and
C Hatton Garden. The firm of surveyors are sued by the names of their partners,
Pugh, Smith, Freeman and Clark, but it will be convenient to refer to them by
their firm name, Young & Brown.
Smiths
Industries Ltd by a writ dated June 9 1981 sued Young & Brown (originally
in the Queen’s Bench Division) for alleged arrears of rent amounting to £6,150,
and the summons in that action, now transferred to this division, is for
judgment for that amount with interest, if any, and costs.
The tenants,
Young & Brown, say that on the true construction of the lease on which they
hold the fourth and fifth floors that sum is not due, thus raising a question
of construction which Young & Brown have sought to determine in a separate
action in this division brought by them against Smiths Industries Ltd and against
Young & Brown’s solicitors as second defendants. In that action Young &
Brown claim declarations against Smiths Industries Ltd to establish their
construction of the lease and in the alternative there is a claim for damages
against the solicitor defendants as their professional advisers when the lease
was negotiated. Smiths Industries Ltd in that action counterclaims for a
declaration establishing its, that is the landlord’s, view of the construction
of the lease. There is a summons under Order 14 which seeks that the
declaration should be made forthwith.
Those are the
two summonses which, as I say, go together and I shall now give judgment upon
them.
The lease by
Smiths Industries Ltd to Young & Brown is described, and it would appear
correctly described as a subunderlease, but nothing turns on that. It is dated
February 6 1978 and in it Smiths Industries Ltd is described as the lessor and
the tenant firm as the lessee. The lease demises, as I have said, the fourth
and fifth floors of a building in Hatton Garden for a term of 23 years computed
from June 24 1977 and then the reddendum is in these terms:
Paying
therefor for the period commencing on the first day of August 1977 and expiring
on the 31st day of October 1977 one peppercorn if demanded and for the
remainder of the first year of the term hereby granted rent at the rate of
£15,000 per annum during the second year of the term hereby granted from the
24th day of June 1978 the rent of £17,000 per annum during the third year of
the term hereby granted from the 24th June 1979 the rent of £18,000 per annum
and during the remainder of the said term such annual rents as may be
determined or agreed pursuant to the provisions for review hereinafter
contained.
Then there are
a number of covenants on the part of the lessee, including in clause 3,
subclause (1), a covenant to pay the rents and any increases therein ‘as
hereinafter provided’.
Then there is
in clause 3, subclause (4), a covenant by the lessee to pay the tenant or
occupier of the lower floors of the building from time to time a rateable
proportion of the cost of certain services to be provided by such lower
occupier.
There are a
great number of other covenants on the part of the lessee. One referred to in
argument is in clause 3, subclause (33), of the lease, which contains a number
of prohibitions of assignment, underletting or parting with possession of the
whole or part of the demised premises. Paragraph (d) of that clause 3,
subclause (33), prohibits underletting without the previous written consent of
the lessor, not to be unreasonably withheld, with provisos empowering the
lessor as a condition of giving consent to require a number of things. One such
condition is in subparagraph (d)(iii):
That in the
case of an underletting the rent reserved by the underlease shall for the whole
of the term thereby granted (a) be at a rack rent of not less than the yearly
rent hereby reserved during the same period or in the event of an underletting
of less than the whole pro rata the rent reserved in respect of the
whole, (b) incorporate rent reviews as to periodicity generally applicable at
the time of such underletting for lettings of similar property in comparable
locations and in no event at intervals of more than five years.
I need not
refer to clause 4, which contains covenants on the part of the lessor, Smiths
Industries Ltd.
Then we come
to clause 5, which is a rent review clause and on which the controversy has
arisen. It is a long clause and I do not think that I need read most of it at
full length. Subclause (1) of clause 5 is as follows (the whole clause being
divided into 10 subclauses):
The annual
rent payable hereunder shall be subject to review to which end the lessor may
give notice in writing to the lessee in accordance with the provisions of this
clause requiring the annual rent of £18,000 (or such increased sum as results
from the application of this clause) payable hereunder on and after the
relevant material date (as hereinafter defined) to
lessor represents the full yearly open market rent of the property. Such notice
may be given at any time not more than 12 nor less than 6 months before all or
any of the following dates namely
— then there
are references to June 24 in each of the years 1980, 1985, 1990 and 1995, that
is to say at five-year intervals through a term of 25 years as opposed to the
actual term of 23 years, but beginning two years earlier in 1975. Then the
subclause continues:
(each of such
dates being called a ‘material date’) and after the giving of any such notice
the following provisions of this clause shall take effect for the purpose of
reviewing the rent reserved by this subunderlease (or such increased rent as
aforesaid) in accordance with such notice.
Subclause (2)
provides that the lessee can object to the lessor’s proposed rent by serving a
counternotice within four weeks.
Then subclause
(3) provides that if agreement is not reached within a specified time the
revision of the rent is to be
referred to
an independent valuer appointed by the lessor with the agreement of the lessee
or (in default of agreement) appointed by the President for the time being of
the Royal Institution of Chartered Surveyors upon the application of the lessor
such valuer being called upon to certify in writing (as an expert and not as an
arbitrator) what sum in his opinion represents the full yearly open market rent
of the property as hereinafter defined.
Subclause (4)
is the one on which the particular point has arisen that is now in dispute. It
defines the full yearly open market rent and I must read it word for word:
The full
yearly open market rent of the property for the purposes of this clause is that
rent (exclusive of rates and other payments (if any) to be made by the lessee
by virtue of this subunderlease) which would be obtainable upon the day three
months before the relevant material date if this subunderlease was not then
subsisting upon a letting with vacant possession of the property for the
residue of the term hereby granted and on the basis that the lessee would be
obliged to perform and observe the covenants and conditions on the part of the
lessee contained herein but excluding therefrom the provisions of this clause
and disregarding those matters referred to in section 34 of the Landlord and
Tenant Act 1954 as amended by section 1 of the Law of Property Act 1969.
Subclauses (5)
and (6) provide for the procedure and costs of the reference to the independent
valuer. Subclause (7) in effect provides that any substituted rent must not be
less than the previously existing rent, and subclauses (8) and (9) contain
further machinery in the event of the sequence of dates being delayed. The
final subclause (10) of clause 5 is a break clause:
If either the
lessor or the lessee shall be desirous of determining the term hereby created
on the 23rd day of June 1985 and of such desire shall have given to the other
six months’ previous notice to that effect
then there is
a parenthesis requiring the lessee to have paid rent and performed the
covenants — and the subclause continues
then at the
23rd day of June 1985 the term shall cease and determine but without prejudice
to any rights or remedies of either party against the other in respect of any
antecedent claim for breach or non-observance of the said covenants and
conditions therein contained.
I do not think
it is necessary to read the rest of the lease.
At the first
review point the machinery of clause 5 was duly set in operation, the
appointment of an independent valuer was obtained from the president of the
Royal Institution of Chartered Surveyors and his nominee was a Mr G C Grover.
Mr Grover found something that I think surprised him in the terms of subclause
(4) of clause 5. He gave his valuation but thought it right to draw attention
to the point that had troubled him. I do not think I can introduce it better than
by reading the concluding and operative portions of his valuation. He says:
Now I, George
Clifford Grover, having accepted the said appointment and having inspected the
premises and considered the terms of the subunderlease referred to above and
the submissions made by both parties do hereby determine and award: (i) That
the rent for the period from June 24 1980 to June 23 1985 shall be at the
annual rate of £36,750. (ii) That the parties shall bear their own costs of the
reference and the cost of my award shall be borne equally between the two
parties.
Then comes his
explanation:
In arriving at
my award I have had strict regard to the wording of clause 5(4). In my view the
subclause requires the ‘full yearly open market rent’ to be determined for the
residue of the term granted, otherwise in accordance with the lessees’
covenants and conditions of the subunderlease, but excluding the provisions of
‘this clause’, (ie the rent review clause) from this definition.
In effect,
therefore, I interpret that the ‘full yearly open market rent’ on first review
is defined as being the rent for the next 20 years excluding provision for
review.
I do not know
whether this was the intention of the parties on the grant of the subunderlease
but this rent review clause does not follow that contained in the superior
underlease held by Smiths Industries, the rent under which I have also been
requested to determine.
If I am wrong
in law in my interpretation of the definition of ‘full yearly open market rent’
and the definition includes the landlords’ right to review the rent upwards
only every five years, then my determination would have been £30,600.
So there was a
difference of £6,150 between the actual award of Mr Grover at £36,750 and the
alternative figure of £30,600, which he says he would have decided upon had he
thought otherwise about construction.
It is easy to
see that Young & Brown feel unfairness in the clause as literally read and
as in fact interpreted by Mr Grover. The fourth subclause of clause 5 requires
the valuer to estimate a rent obtainable at the appropriate date upon a letting
with vacant possession for the residue of the term granted by the lease. So
that at the first review date the notional lease on which the valuation is
based is to be for 20 years, at the second it will be for 15 years, at the
third for 10 years, at the fourth for five years, but in determining the rent
under that hypothetical lease the valuer is to assume the terms of the existing
lease excluding the rent review clause. Thus the tenant is bound to pay a rent
at this first review based on a notional lease with a fixed rent for 20 years,
although in fact the landlord will have an opportunity to get a fresh review
after only five years. The landlord gets an advantage it would not get, so I am
told, under more common forms of rent review clause and which certainly seems
to involve a somewhat one-sided assumption for the purpose of valuation.
Young &
Brown wish to defend the action brought against them by Smiths Industries Ltd
and to obtain the declarations they seek in their own action against that
company. They say that when you look at the lease as a whole something has
obviously gone wrong in clause 5 subclause (4), and as a matter simply of
interpretation one can disregard the words ‘but excluding therefrom the
provisions of this clause’, so that at the first review date the valuer would
be valuing a hypothetical lease for 20 years with a five-year review provision.
I can summarise the arguments that Mr Gaunt presented for Young & Brown as follows.
He said that rent review clauses in leases of business premises are now very
well known and recognised by the courts and their purpose and intent are
equally well known. He referred me to part of the speech of Lord Salmon in United
Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 at p
948, where his lordship explained the purpose of rent review clauses as being
to meet the problem of acute inflation when what is a fair market rent at the
date when a lease is granted will probably become wholly uneconomic within a
few years. His lordship also said that it was totally unrealistic to regard
such clauses as conferring a privilege upon the landlord or imposing a burden
upon the tenant. He continued:
Both the
landlord and the tenant recognise the obvious, viz that such clauses are fair
and reasonable for each of them. I do not agree with what has been said in some
of the authorities, namely, that a rent revision clause is for the benefit of
the landlord alone and not at all for the benefit of the tenant. It is plainly
for the benefit of both of them. It is for the benefit of the tenant because
without such a clause he would never get the long lease which he requires; and
under modern conditions, it would be grossly unfair that he should. It is for
the benefit of the landlord because it ensures that for the duration of the
lease he will receive a fair rent instead of a rent far below the market value
of the property which he demises. Accordingly the landlord and the tenant by
agreement in their lease provide that, at stated intervals during the term, the
rent should be brought up to what is then the fair market rent. The revision
clause itself lays down the administrative procedure or machinery by which the
fair market rent shall be ascertained.
Mr Gaunt
referred me for the same purpose to what was said by Lord Dilhorne in Ponsford
v H M S Aerosols Ltd [1979] AC 63 at pp 76 and 77 where the noble and
learned lord explained rent review clauses in much the same way as Lord Salmon
had done, as being a protection against inflation, and further said:
In the
present case and in many others provision is made for the assessment to be made
by an independent surveyor. What has he to do?
Surely it is to assess what rent the demised premises would command if
let on the terms of the lease and for the period the assessed rent is to cover
at the time the assessment falls to be made. That rent may depend to some
extent on local factors such as deterioration of the neighbourhood. In
assessing it, the surveyor will be
be prepared to pay for the use and occupation of the premises. He will not
consider the tenant’s position separately.
Accordingly,
says Mr Gaunt, rent review clauses are a well-recognised form of provision to
keep the rent between the parties at arm’s length in line with market rents
notwithstanding inflation, ie to keep a fair rent up to date. So it is
certainly very surprising and not readily to be accepted as the parties’ intention
if the clause is plainly biased in favour of the landlord, as this clause, he
submits, is biased. He demonstrates that by the actual determination of Mr
Grover, which was for a figure, Mr Gaunt says, and he is not contradicted,
higher in real terms (that is allowing for the change in purchasing power of
the currency) than the rent originally agreed between the parties. Indeed, it
is striking to see what a difference the alternative constructions of the lease
make, something like 20% of the whole. There is no rational explanation of that
provision, continues Mr Gaunt, the basis of the valuation is artificial and
unnatural in its context and may act quite capriciously in giving, other things
being equal, a great benefit to the landlord at the first review occasion and a
diminishing one as the years go by.
Further to
those more general considerations Mr Gaunt invites me to consider the break
provision in subclause (10) of clause 5. The unexpected effect of the rent
review due to the artificial character, as he calls it, of the formula is
likely to drive Young & Brown to exercise their right of terminating the
contractual letting in 1985, relying on remaining in possession under the
Landlord and Tenant Act 1954 at a lower rent than that determined by the rent
review. Is it likely, is it really to be expected in a business transaction
that the parties would have put in provisions that work together in that
remarkable way? Indeed, this is not a
pure speculation of Mr Gaunt’s because Young & Brown’s solicitors, joined,
as I have said, as defendants in their Chancery action, have suggested that
operation in their defence.
Again Mr Gaunt
says there is a repugnancy in clause 5(4) as it stands because, he says, the valuer
is directed to value rent under a hypothetical lease, which is to be on the
basis that the lessee would be obliged to perform and observe the existing
covenants and conditions on the part of the lessee but excluding the provisions
of the rent review clause itself. Then he says, look at the other parts of the
lease. The reddendum contemplates annual rents that may be determined or agreed
pursuant to review provisions contained in the lease, and clause 3, subclause
1(1), contains a covenant to pay the reserved rents and any increases as
afterwards provided, and subclause (33) contemplates that a permitted
underletting will contain a rent review clause of a character usual at the time
of underletting for similar property in comparable locations.
I cannot myself
see anything there that creates a difficulty in applying the most literal
interpretation to clause 5(4). If the valuer is to exclude the provisions of
the rent review clause, naturally he disregards a reference to it in the other
parts of the document. Clause 3(33) does not refer to anything in the document
at all, merely to market practice, and the other clauses are perfectly easy to
interpret disregarding the possibility of rent review. Accordingly the
repugnancy point seems to me, if I may say so with respect, not to get off the
ground.
The other
matters are of course arguments that must be carefully taken into
consideration, but in the end I am not at all convinced by them. The noble and
learned lords who expressed their views on the character of rent review clauses
in the two authorities I have mentioned were not laying down a rule of
construction to determine the meaning of a clause in a lease however worded;
they were merely stating the common, economic or business purpose of such
clauses today (or at the time when their speeches were made, to be accurate). I
am guided in the end by what Lord Dilhorne said in the Ponsford case
just before the passage which I have already read. What I am about to read now
is from p 76 of the report. His lordship had been referring to an argument
based on comparison of the lease with the provisions of the Landlord and Tenant
Act 1954, and he said this:
If it be
thought to be unfair, as Parliament clearly thought it unfair, that a tenant
should pay a rent which reflected the value of the improvements made by him,
that is no ground for interpreting the words in question as the appellants
contend. It is not for us to rewrite the lease. It may be that the parties in
1968 did not consider what was to be the effect on the assessment of the rent
if the lessees made improvements. One does not know, but just as I see no
grounds for supposing that they did consider it, I see no ground for
concluding, if they did not consider it, that the landlords agreed that the
effect of improvements should be excluded.
So here, if
the House of Lords in the two cases thought of rent review clauses as clauses
operating in a balanced way to counteract inflation of the currency as between
landlord and tenant, it does not follow that in this particular lease such a
balance was aimed at or achieved. It may be, looking at nothing outside the
terms of the document and admissible evidence, that this bias of the clause in
favour of the landlord was stipulated for in negotiation against other
advantages allowed to the tenants. One just does not know from the document.
Or, again, it may well be that neither side gave any thought to this point. If
that be so, I am not, I think, to jump to the conclusion as a matter of
construction that had it been raised Smiths Industries Ltd would have been
content to have the alternative favoured by Young & Brown.
Accordingly it
seems to me, though it has taken most of a day to argue it, quite plain that
these defences are not well founded. They are simply matters of interpretation
of the document. I cannot see that they would be affected by anything to be
derived from a trial, and that being so the suggested defences would not
justify me, as I understand the court’s duty, in giving leave to defend.
However, so
far as Mr Gaunt is concerned, that is not quite the end of the story because he
goes beyond defences on construction and he now suggests that there could be a
defence, and more particularly a counterclaim, for rectification of the lease,
presumably by altering the words ‘but excluding therefrom’ in clause 5,
subclause (4), to ‘including therein’, so that the alternative basis mentioned
by Mr Grover would be the true one.
This
suggestion of rectification has come very late in the history of the
litigation. That of course is not fatal if there appears to be something in it.
It is worth referring, before I come to the particular basis of the claim, to
the judgment of the Court of Appeal in Joscelyne v Nissen [1970]
2 QB 86. This was a case cited against Mr Gaunt, but on the whole it appears to
help him rather than hinder him because it shows that to rectify a contract in
writing it is not necessary to have what the judgment describes as a complete
antecedent concluded contract. The Court of Appeal in Joscelyne v Nissen
referred with approval to a judgment of Simonds J (as he then was) in Crane
v Hegeman-Harris Co Inc [1939] 1 All ER 662, where that learned judge
said at p 664, speaking of an earlier case still:
The judge
held, and I respectfully concur with his reasoning and his conclusion, that it
is sufficient to find a common continuing intention in regard to a particular
provision or aspect of the agreement. If one finds that, in regard to a
particular point, the parties were in agreement up to the moment when they executed
their formal instrument, and the formal instrument does not conform with that
common agreement, then this court has jurisdiction to rectify, although it may
be that there was, until the formal instrument was executed, no concluded and
binding contract between the parties.
It is with
that in mind that I approach some correspondence which Young & Brown have
put in evidence. The two vital letters are one of March 4 1977 and another of
the 8th of the same month. That of March 4 was from Young & Brown’s estate
agents, a firm called City Agents, to Smith Melzack & Co, who were the
estate agents for Smiths Industries Ltd. City Agents say on the 4th that they
confirm Young & Brown are agreeable to the following terms. Term no 2 is:
Lease for a
term expiring June quarter day 2000, subject to rent reviews at June quarter
day 1980 and thereafter at five yearly intervals. There will be a mutual option
to determine at June quarter day 1985.
Then going on
we come to term 7, which relates to all that has gone before, ‘The
aforementioned is subject to formal lease.’
The reply from
Smith Melzack & Co confirms that Smiths Industries Ltd is prepared to grant
Young & Brown a lease on stated terms subject to contract, and the stated
terms include this:
Lease for a
term expiring June quarter day 2000 subject to rent reviews at June quarter day
1980 and thereafter at five yearly intervals. There will be a mutual option to
determine the lease a term expiring June quarter day 2000.
There is a
common intention, it is submitted, to have a rent review clause. Nothing is
said about any special or one-sided rent review clause, and it must have been
in the minds of experienced estate agents on each side that rent review clauses
just keep the market rent up to date in the way the House of Lords describes in
the authorities. That continuing common intention was not carried into effect
by the lease actually executed, Mr Gaunt submits, because what was put in it
was a very extraordinary clause that would not be within the common
professional understanding of ‘rent review clause’
misrepresenting, his argument. Therefore there was a slip or misunderstanding
that on the lines of Joscelyne v Nissen justified rectification by
the court. All the more so because, as Mr Gaunt says on instructions, though it
is not actually in evidence, no one was conscious of this point when the rent
review machinery was set in motion. It came as a surprise, he suggests — and I
will assume for the moment that it is so — to both parties when Mr Grover
raised the point and, although Mr Gaunt did not put it quite this way, Smiths
Industries Ltd are simply seeking to take advantage of a verbal misfortune of
the tenants and get something they were never meant to get.
I can see the
force, in a broad way, of that argument, but it contains I think a fatal error
of reasoning. For rectification it is necessary not only to see that something
in the written document is not in accord with a common intention but to see
what the common intention was. I do not know at all, and I should be merely
guessing if I said I did know, that Smiths Industries Ltd would have been
content with the rent review clause modified in the way that Mr Gaunt proposes.
What does seem to be clear is that both sides were represented, when it came to
drafting, by highly experienced solicitors who knew a good deal about leases
and agreed, in great detail, the wording of the lease, and I think their
clients, who, or, in the case of the company, whose officers, could not be
expected consciously to have every detail in mind, really intended to have the
benefit of and to be bound by whatever form of words should be agreed on their
behalf between their respective solicitors. The correspondence that Young &
Brown put in evidence does show indeed with what attention to the minutiae of
detail their own solicitors saw to the business.
Accordingly I
am forced to the conclusion that in spite of its superficial attraction the
claim for rectification is not only brought forward at a very late date but
does not really get off the ground. Accordingly, in these first two cases in my
judgment Smiths Industries Ltd are entitled, both in the action brought by them
and on their counterclaim in the action brought against them, to the summary
judgment which they seek.
Before looking
at the wording of the judgment I will go on to deal with the remaining case. It
is a case relating to a different property, different tenants, and a different
lease. The property is in the same building and the landlord is the same,
Smiths Industries Ltd, but in this remaining action (an action by Smiths
Industries Ltd for rent with a summons under Order 14 for summary judgment) the
defendant is a company called F A Welch Holdings Ltd, having as I was told by
counsel changed its name from Diamond Selection Ltd, its name at the date of
the lease. The property concerned is the lower part of the same building in
Hatton Garden, namely the basement, ground floor, and first and second floors.
The date of the lease is February 9 1976. Again it is a subunderlease. Smiths
Industries Ltd is described as the lessor and Diamond Selection Ltd as the
lessee. The term was for 25 years from midsummer 1975 and the reddendum was as
follows:
Paying
therefor during the first five years of the said term hereby granted the rent
of £19,000 per annum and during the remainder of the said term such annual
rents as may be determined or agreed pursuant to the provisions for review
hereinafter contained.
The covenants
and provisions other than clause 5, are very similar to those in the lease
which I have already considered, but there are certain important differences in
clause 5, though not within the vital provision numbered (4), which provides
for valuation on the basis of a lease for the residue of the whole term
excluding rent review.
The first
thing to notice about clause 5 in this lease of the lower part of the building
is that it is divided into two main divisions numbered 1 and 2. Division 1
corresponds to the whole of clause 5 in Young & Brown’s lease and is on
very similar lines, but it does not contain the last subclause (10), that is to
say there is no provision for terminating the letting prematurely by notice in
1985 or indeed at any other point. Division 2 of clause 5 in the Diamond
Selection lease, which is itself subdivided, contains a provision for the
lessee Diamond Selection Ltd to receive contributions to the services it is to
provide for the building from other tenants to whom other parts of the building
may be let by Smiths Industries Ltd. It will be remembered that the lease to
Young & Brown contained a covenant by them to pay what was due to the
lower-floor occupiers.
Mr Brock
argued the construction of clause 5, division 1, subclause (4), in the first
instance on much the same lines as Mr Gaunt, whose arguments he adopted. The
general submissions as to the character of rent review clauses and the unfair
or capricious provisions of the present clause, were developed and indeed
adopted from Mr Gaunt or Mr Brock. He could not of course adopt the particular
argument founded on the break clause because there is no break clause in the
Diamond Selection lease. Mr Brock did, however, adopt the point about
repugnancy which I, as I have said, found unconvicing, and he had a new point
open to him alone, resulting from the different, additional contents of clause
5. When the valuer is told in clause 5, division 1, subclause (4), that his
valuation is to be on the basis of the lessee’s covenants and conditions ‘excluding
therefrom the provisions of this clause’ a doubt may arise whether ‘this
clause’ means division 1, that is the rent review clause, or whether it means
the whole of clause 5 including the part about contributions from other
occupiers towards the cost of services. Mr Brock submits that if Mr Grover went
wrong on that point his determination would be worthless, because clearly a
lessee under this lease would expect a lower rent if he was to bear the cost of
services without getting contributions. Mr Friedman, I may say, does not agree
that that is the true effect of omitting division 2 altogether, but I do not
find it necessary to go into that point because it seems to me quite plain that
the phrase ‘excluding therefrom the provisions of this clause’ in clause 5,
division 1, subclause (4), relate only to division 1. It also appears to me
plain that Mr Grover thought so too and made his valuation on that footing.
Taking the first point, if one reads all the references to subclauses and ‘this
clause’ in clause 5, they systematically treat division 1 as a self-contained
unit referred to as ‘this clause’. For example, in the very first subclause in
division 1 we are told that after the giving of the landlord’s notice
stipulating for a higher rent ‘the following provisions of this clause shall
take effect for the purpose of reviewing the rent’, and all the rest seems to
me entirely consistent with that view. It is indeed what one would expect even
if there were no context beyond subclause (4) of division 1 itself, because it
does not really make sense to exclude the particular provisions about service
charges whereas it is obviously a relevant and important point to exclude or
include the rent review provisions themselves. That Mr Grover was of the same
mind appears from his decision in this case because there, when explaining the
point that he thought required to be brought to attention, he says: ‘In my view
this subclause requires the ‘full yearly open market rent’ to be determined for
the residue of the term granted, otherwise in accordance with the lessees’
covenants and conditions of the subunderlease, but excluding the provisions of
‘this clause’ (ie the rent review clause) from this definition’. That is the
same language as he used in the Young & Brown case and it shows, I think,
that in both leases he was quite clear that what he was to disregard was just
the rent review clause. Accordingly, that point that was open to Mr Brock alone
does not in my view found any defence.
Mr Brock had
an alternative argument that, although the valuer was directed to disregard the
rent review clause in the lease he might none the less in looking at his
hypothetical 20 years’ lease assume that some sort of rent review clause of a
kind usual at the time in the market would be included. That seems to me
something that the language of the subclause will not bear. The valuer has to
find that rent which would be obtainable upon a specified day upon a letting
with vacant possession for the residue of the term, in the present case 20 years.
That language is not apt to allow the assumption of some rent review clause.
Again, one asks is it sufficiently certain?
What sort of intervals would you take?
But I do not rest it on that last point of uncertainty, I think the
language simply does not bear the suggested meaning. Mr Brock did not feel that
he could make any claim for rectification on behalf of his client F A Welch
Holdings Ltd.
Accordingly,
thinking as I do that there is no substance in any of the suggested defences, I
hold that in this action also Smiths Industries Ltd is entitled to summary
judgment on its summons.
Judgment was
given in favour of Smiths Industries Ltd with costs.
