Rent review clause — Formula in underlease referred to rent in headlease — Original headlease surrendered and new headlease granted — Whether rent review clause void for uncertainty — Whether rent that would have been payable could be determined — Clause held valid
The appellants have an underlease of part of shop premises in Birmingham granted in 1970 for a term expiring in 1990. By clause 5 of the underlease “The rent payable by the lessee as from the 25th day of March 1983 shall be 78/85th parts of the rent payable by the lessor as from such date in respect of the principal premises as fixed in the manner provided by the said superior lease”.
The original headlease was granted in June 1969 for a term of 21 years to a predecessor in title to the respondents; that lease contained one rent review on March 25 1983. In 1973, following an agreement between the owner of the reversionary interest and the respondents’ predecessor in title, the 1970 headlease was surrendered and a new headlease was granted for a term of 32 years from December 25 1972 with rent reviews in 1982, 1989, 1994 and 1999. Both the grant of the new headlease and the transfer of that lease to the respondents were expressly stated to be subject to, and with the benefit of, the underlease now held by the appellants.
Mr Michael Wheeler QC (sitting as a deputy High Court judge), applying the reasoning of the House of Lords in Sudbrook Trading Estate Ltd v Eggleton [1983] 1 AC 444, decided that the rent review clause in the underlease was not rendered void for uncertainty and ordered an inquiry as to what the proper rent would have been had the original headlease not been surrendered ([1988] 1 EGLR 45).
The appellants appealed, contending that (1) the Sudbrook case could be distinguished, as in that case, in the absence of machinery for determining a purchase price, a fair and reasonable price could be determined objectively; in the present case the review rent in March 1983 was a proportion of the rent as determined under the original headlease and as that lease had been surrendered no other express or implied measure existed. (2) Had the original headlease subsisted, the headlessors might have forgotten or forgone the rent review in the headlease.
Held The appeal was dismissed. The true construction of clause 5 in the underlease was that the underlessees were to pay 78/85ths of a fair market rent; the explanation for the fraction was not to ensure that the review rent was no more than the designated proportion of the rent under the headlease, but because the demised premises in the underlease were only part of the demised premises in the headlease.
As the rent review clause in the original headlease referred to a “fair market rack rent” it could be assumed that this was the standard the parties intended in the reference in the underlease to the fraction of the rent under the headlease. Once it is established that the clause requires the underlessees to pay 78/85ths of a fair market rent for the premises as a whole, the Sudbrook case applied; the standard is capable of objective ascertainment and specific machinery is inessential.
Edward Evans-Lombe QC and Peter Griffiths (instructed by Gregory Rowcliff & Co, for Martin W Amey & Co, of Birmingham) appeared for the appellants; and Robert Pryor QC and Paul Rees (instructed by Philip Hodges & Co) appeared for the respondents.
