Landlord and tenant – Lease – Implied term – Claimant tenants holding lease of railway premises from defendant landlord – Rent payable by reference to sub-lease – Issue arising as to rent payable following surrender of sub-lease – Whether claimants having ongoing liability to pay rent to defendant – Whether implied term for payment of rent if sublease determined – Whether claimants estopped from denying rent payable – Claim dismissed
The claimants were the former and current tenants respectively, and the defendant local authority was the landlord, of a number of railway arches and buildings at Kingsland Viaduct in Hackney. As a result of the extension of the East London Line of the London Overground, the claimants’ predecessor (LUL) and the defendant entered into a series of transactions regarding the property.
One of those transactions was a lease dated 3 May 1996 (lease C) between LUL and the defendant which provided for rent to be payable. On the face of the lease, the basic rent was calculated by way of reference to a sub-lease between LUL and W of the same date (lease D). Lease D was surrendered on 21 November 2003. LUL became the direct landlord of the sub-tenants and/or was entitled to sublet the individual arches to sub-tenants (the occupational tenancies).
Between 2004 and 2019 LUL, and from September 2009 the first claimant, continued to pay basic rent to the defendant using an approximation of the lease D calculation mechanism and applying such to the occupational tenancies.
The claimants argued that, given the surrender of lease D, basic rent was no longer payable under lease C and they sought recovery of the basic rent paid since that surrender. The defendant asserted that basic rent remained due and payable.
A dispute arose whether, because of the surrender of lease D, the basic rent payable to the defendant under lease C was, and would remain for the term of lease C, nil. The claimant sought a declaration to that effect.
Held: The claim was dismissed.
(1) The starting point in interpreting the rental provisions of lease C was to read the lease as a whole to see if the rental provisions of the lease were ambiguous or not in the context of the admissible background. Lease C was a professionally drafted contract which did not lack precision.
Looking at the rental provisions of the lease, and in particular the reddendum, this was a case where the rent identified in the reddendum was payable at the times stated. Therefore, the requirements were to pay the basic rent, as defined, yearly and then to pay other sums as they fell due.
Reading lease C as a whole, as part of the suite of agreements signed by the parties on 3 May 1996, and taking into account the admissible background, there was no ambiguity in the definition of basic rent which was payable by reference to sums received under lease D. There was no ambiguity surrounding what the express words meant or that there was more than one interpretation of the express words.
The express terms of lease C which provided for what was to be paid by way of rent, as opposed to how that was to be calculated, could be construed on a straightforward textual approach on the face of the documents, even taking into account the admissible background. Therefore, the question was whether it was appropriate in this case for the court to imply into the lease a clause providing for the payment of basic rent on a yearly basis by the claimants to the defendant in the event that lease D had determined: Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 and Cherry Tree Investments v Landmain Ltd [2012] 2 EGLR 141 considered.
(2) In order to imply a term, the court had to be satisfied that it would be: (i) reasonable and equitable; (ii) necessary to give business efficacy to the contract, so that no term would be implied if the contract was effective without it; (iii) so obvious that “it goes without saying”; (iv) capable of clear expression; and (v) not contradict any express term of the contract: Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2016] EGLR 8 applied.
In the present case, the court was prepared to imply into lease C a provision that rent would continue to be paid if the sub-lease was determined because without it the lease would lack commercial or practical coherence within the suite of documents executed in May 1996.
(3) Lease C, as written, did not make business sense nor did it reflect business efficacy when looked at in the context of the transactions as a whole. Business sense and efficacy pointed towards the parties having overlooked the need for lease C to provide an alternative calculation mechanism if lease D was determined in some way. If the express provisions of an existing lease resulted in there being no rent payable, an implication of term would be justified.
The implication of such a term here would entitle the defendant to continue to receive a proportion of the substantial yearly rent from the property protecting its commercial rental stream whilst allowing the landlord of the occupational tenants, now the claimants, to receive the other portion of the rent with that portion directly reflecting any improvement to the property: Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd considered.
The fact that lease C was a detailed commercial lease and was part of a broader commercial transaction within which all parties were legally represented, was no bar to implication. Negotiators of complex formal contracts might often not achieve a logical and coherent text. Despite the very detailed drafting of the basic rent provisions in lease D, the entirely separate point of what was to happen if lease D was determined, was simply overlooked in lease C: Wood v Capita Insurances Services [2017] AC 1173 considered.
(4) There was a common assumption between the parties which operated between 2004 and 2019 that rent remained payable by LUL and/or the first claimant to the defendant under lease C despite the surrender of lease D. The defendant had suffered a detriment as a result of its reliance on that common assumption as it could not pursue actions against either its former solicitors or the claimants due to effluxion of time. Accordingly, the claimants were estopped from denying that rent was payable.
Matt Hutchings KC (instructed by TFL Legal) appeared for the claimants; Ranjit Bhose KC and Shomik Datta (instructed by Hackney London Borough Council Legal Department) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of Rail for London Ltd and another v Hackney London Borough Council
