Delyth Williams
The annual updating round is with us again and since the last update appeared in Estates Gazette, at (1987) 281 EG 1422, at least 28 cases have been reported on the subject of rent review. This article summarises these developments and it is hoped that it will act as an initial source of reference for the busy practitioner.
Notices and counternotices
Most practitioners will be aware that the general rule emanating from the case of United Scientific Holdings Ltd v Burnley Borough Council (1977) 243 EG 43 and 127; [7] EGD 195 is that time is not of the essence in the service of rent review “trigger” and other notices. In Factory Holdings Group Ltd v Leboff International Ltd [1987] 1 EGLR 135; (1986) 282 EG 1005 Warner J considered the circumstances in which a landlord or a tenant could attempt to make time of the essence of a provision or provisions in a rent review clause. In that case, the rent review provisions of the lease of a warehouse provided for the landlord to serve a “trigger” notice and, if within two months the parties had not agreed, the question was to be referred to arbitration as soon as practicable and not later than four months before the expiration of the notice. After the four-month period had passed, the tenant sent a letter to the landlords requiring them, within 28 days, to refer the calculation of a fair market rent to arbitration. Warner J held that, where a rent review clause contains time-limits in respect of which time is not of the essence, it is none the less open to one party to serve a notice making time of the essence in circumstances where it is fair that he should have the right to do so. As the tenant in the present case could himself have applied for the appointment of an arbitrator to the president of the RICS it was not fair for him to be able to make time of the essence.
In Panavia Air Cargo Ltd v Southend-on-Sea Borough Council [8] 01 EG 60 land, an aircraft hangar and other buildings were demised from 1978 to 2035 at a rent of £2,700 pa with a review in 1985 and every subsequent five years. The parties were to agree (or determine) the current rack-rent during the seventh year and the rent for the next period was to be either 25% of that figure or £2,700 (whichever was the greater). If no agreement had been reached six months before the commencement date of the next five-year period, the landlord could require the appointment of a surveyor to determine the revised rent (or could apply to the president of the RICS to make such an appointment). The surveyor was to give his decision within two months of his appointment. However, if the review was not determined until after the commencement of the next period, the rent was to remain payable at the old rate until the next quarter day following the decision. Time was expressly stated not to be of the essence of the rent review schedule. If the revised rent had not been determined by a date 12 months after the commencement of the relevant period, the rent payable during the relevant period was to be the current rent plus 25%. Negotiations were opened in September 1984, but the landlord had not taken steps to ensure the appointment of a surveyor by January 1986.
Mr Edward Nugee QC (sitting as a deputy judge) held that the landlord was entitled to have the amount of the rent payable for the review period determined by a surveyor and, further, it was open to the plaintiffs to make time of the essence of the final paragraph of the rent review provisions (namely the provisions concerning a delay of more than 12 months).
In Power Securities (Manchester) Ltd v Prudential Assurance Co Ltd [7] 1 EGLR 121; (1986) 281 EG 1327 the machinery of the review formula was complicated, but the main issue was whether time was of the essence in so far as it concerned a requirement that a component part of the review formula should be agreed by a named date. The component part was a figure of the total income receivable from the demised premises. It was in the interests of the landlords to contend that time was of the essence for this purpose and that the time-limit had passed without the required agreement having been reached.
The landlords’ main argument, in support of the contention that the general rule was displaced in the circumstances, was that there was an express provision as to what was to happen in the case of default. Millett J held that the strength of such a provision as a contra-indication depended on its nature and purpose, as there were considerable differences between default clauses in this respect. In the present case, it was understandable and necessary that some time-limit should be fixed by which the tenants were to satisfy the landlords as to the true amount of income from the demised premises and that some provision in default should be included. The learned judge was of the opinion that, in all the circumstances, this did not imply that time was of the essence, as the default provision was entirely consistent with the assumption that time was not of the essence. While recognising that the cases on the topic are not easy to reconcile, Millett J was of the opinion that the following principles emerge from the case law:
(1) The correct approach to a rent review clause is to begin with a presumption that time is not of the essence of the time-limits laid down for the various steps to be taken for the determination of a revised rent or, it may be added, of any component element in its calculation.
(2) This presumption will be displaced if, on a consideration of the lease as a whole, and in particular of the provisions of the rent review clause as a whole, it appears that the parties have evinced a contrary intention.
(3) Where the parties have not only required a step to be taken within a specified time but have expressly provided for the consequences in case of default, this provides an indication, of greater or less strength, that time is to be of the essence, but it is not necessarily decisive. Whether it is so or not must depend on all the circumstances of the case, including the context and wording of the provision, the degree of emphasis, the purpose and effect of the default clause and any other relevant consideration.
(4) In the end, the matter is one of impression to be derived from a consideration of the rent review clause as a whole, together with any other relevant considerations, avoiding fine distinctions, but giving effect to every provision in the lease.
In Phipps-Faire Ltd v Malbern Construction Ltd [7] 1 EGLR 129; (1987) 282 EG 460 the question before Warner J was whether time was of the essence of a provision under which the tenants might, after a particular date, serve on the landlords a notice proposing the amount of the revised rent and this was to be the revised rent for the relevant period unless the landlords, within three months after service of such a notice by the tenants, applied to the president of the RICS for the determination of a rent by a valuer. The tenants served a notice proposing that the rent should be the same figure as during the previous five years. When the landlords did not comply with the three-month time-limit the tenants sought a declaration that the revised rent should be that contained in the notice.
The tenants submitted that there were contra-indications sufficient to displace the general rule and reliance was placed on the dictum of Griffiths LJ in Henry Smith’s Charity Trustees v AWADA Trading & Promotion Services Ltd (1983) 269 EG 729 where he stated:
Clause 2 allows the landlord to serve a rent review notice at any time during a five-year review period; so, if rents are rising fast, the landlord may think it to his advantage to delay serving his notice. However, the tenant is given the chance of protecting himself against this tactic by serving a notice on the landlord requiring him to serve a notice within six months and, if the landlord does not do so, clause 2 expressly prohibits the landlord from serving another notice during that review period. This clause must be read with time being of the essence otherwise the protection of the tenant is either destroyed or greatly reduced.
Warner J was of the opinion that the presence of the “default” provision and other contra-indications were not sufficient to rebut the general presumption. To do so, a contra-indication must be a “compelling one”.
The confusion caused by two inconsistent notices purporting to be “trigger” notices emanating from different agents of the landlords on the same day was considered by His Honour Judge Paul Baker QC (sitting as a High Court judge) in Cordon Bleu Freezer Food Centres Ltd v Marbleace Ltd [7] 2 EGLR 143; (1987) 284 EG 786. The difficulties arose from assignment of the landlords’ reversion because, shortly after the assignment, the solicitors acting for the new landlords sent the tenants a trigger notice stating a rent of £30,000 pa and, on the same day, the agents who had acted for the old landlords (but who did not make it clear for whom they were acting) sent a trigger notice stating a rent of £45,000 pa. In response to the notice from the new landlords, the tenants gave a counternotice suggesting a rent of £16,000. In response to the notice from the old landlords’ agents, the tenants disputed its validity but, if they were wrong, they purported to give a “duplicate” counternotice of £16,000. The landlords applied to the president of the RICS to appoint a surveyor. Such an application was “out of time” if the effective counternotice was served in response to the new landlords but “in time” if served in response to the old landlords. The learned deputy judge held that the old landlords’ agents did not have authority to serve a trigger notice on behalf of the new landlords. In addition, the letter written by the tenants with a view to protecting their position if the trigger notice served by the old landlords’ agents was upheld could not be regarded as an effective counternotice. The end result was that the landlords’ application to the president was out of time and the rent for the review period was £16,000.
What amounted to a clear counternotice was one of the matters in question in Glofield Properties Ltd v Morley [8] 02 EG 62. In this case, the machinery for determining the revised rent stipulated that the “open market rental value” was to be:
(a) … such sum as shall be specified in a notice in writing by the Lessor to the Lessee at any time not earlier than twelve months prior to the commencement of the review period, or the second review period, as the case may be; or
(b) as shall within three months of such notice be agreed between the parties in writing in substitution for the said sum; or
(c) … determined at the election of the Lessee by counternotice in writing to the Lessor not later than three months after the Lessor’s said notice (time to be of the essence hereof) by an independent surveyor …
In August 1982 the landlord’s agents gave the formal notice specifying a rent of £9,750 pa and, in September, the tenants’ agents replied that they acted for the tenants and concluded: “Please accept this letter as formal objection and counternotice.” The issue before Hutchison J was whether the tenants’ agent’s letter was a sufficient counternotice and the learned judge held that the test was whether the letter clearly conveyed to the landlord that it was an election for independent determination. In the instant case, “Please accept this letter as formal objection and counternotice” was a sufficiently clear election.
In British Rail Pension Trustee Co Ltd v Cardshops Ltd [7] 1 EGLR 127; (1986) 282 EG 331 the main question before the court was whether the letter by the tenants was a valid counternotice to the landlords’ rent review “trigger notice”. The tenants’ counternotice was in the correct form but was headed “subject to contract”. The court held that the proper test was whether a reasonably sensible businessman, in the light of all the circumstances, would be left in any real doubt as to whether the tenant was exercising his rights under the rent review clause. In the circumstances, it was held that the tenants’ letter constituted a valid counternotice to the landlords’ “trigger notice”.
Two Scottish cases on the question of time of the essence and the rent review notice may also be of interest to those practitioners south of the border. In Leeds Permanent Pension Scheme Trustees Ltd v Williams Timpson Ltd 1987 SCLR 571 the lease provided that the rent should be reviewed at the fifth, tenth and fifteenth anniversary of the lease “provided the landlord shall have given not less than six months’ written notice of its intention to review the rent … prior to the term date from which such … rent would be payable”. If the parties could not agree on the new rent “not less than four months before the expiration of any of the revision years then, not later than three months before the expiration of such revision years … each party shall appoint” a valuer to negotiate an open-market value. If agreement could not be reached on that basis, the parties were further bound to submit the matter to an arbiter two months before the expiration of the revision year. If, within the time-limit specified, a valuer to negotiate or an arbiter had not been appointed, the matter was to be remitted to the president of the RICS to appoint a member to settle the revised rent. The rent was due for review for the year beginning May 15 1986.
The landlord gave notice of its intention to review the rent on December 5 1985, some three weeks late. The defenders refused to accept any revision of the rent. The pursuers raised an action for declarator that they were entitled to have the rent reviewed as at May 15 1986 by the surveyor. The Court of Session (Outer House) held that there was nothing in the terms of the lease to rebut the presumption that time was not of the essence.
In Yates (Petitioner) 1987 SLT 86 the lease provided for the landlord to give the tenants three months’ written notice prior to the term for review of his intention to exercise his right to require a review. The tenants had to intimate their non-acceptance of the proposed rent within 21 days, failing which the rent specified would become the rent due. If the tenants did not accept the figure, there was provision for a binding reference to a surveyor. In the event of the landlord not giving due notice of the exercise of his right to require a review of the rent, there was provision that he could require the rent to be reviewed with effect from the succeeding term. The relevant term for review was June 24 1984. By letter dated January 10 1985 the landlord proposed a fair rental for the new term of £62,000. The letter also dealt with other matters including a statement that the landlord would appoint an agent to act on his behalf and discuss rents.
On March 4 1985 solicitors acting for the tenants wrote intimating non-acceptance of the proposed new rent of £62,000. A new rent was not agreed and the landlord and tenants sought a summary trial on the question of whether the letter of January 10 1985 was a sufficient notice within the terms of the lease and, if so, whether the tenants had failed to intimate non-acceptance timeously with the effect that the rent became the figure proposed by the landlord in his letter of January 10 1985.
The Outer House held that the letter of January 10 1985 was not a sufficient notice since, objectively considered, it did not amount to the notice specified in the lease. Further, the terms of the lease disclosed that the timetable was of importance and thus mandatory; and, accordingly, that the landlord’s notice required to be issued precisely three months before the relevant date.
The hypothetical lease
The question of whether the hypothetical lease upon which the valuer is asked to value contains a rent review(s) during the residue of the term has been the subject of litigation culminating in the decision of the Court of Appeal in Equity & Law Life Assurance Society plc v Bodfield Ltd [7] 1 EGLR 124; (1987) 281 EG 1448. In this case, the Court of Appeal considered the guidelines laid down by the Vice-Chancellor in British Gas Corporation v Universities Superannuation Scheme Ltd [1986] 1 EGLR 120; (1986) 277 EG 980 where he stated:
(a) words in a rent exclusion provision which require all provisions as to rent to be disregarded produce a result so manifestly contrary to commercial commonsense that they cannot be given literal effect;
(b) other clear words which require the rent review provision (as opposed to all provisions as to rent) to be disregarded (such as those in the Pugh case [Pugh v Smiths Industries Ltd (1982) 264 EG 823]) must be given effect to, however wayward the result; and
(c) subject to (b), in the absence of special circumstances it is proper to give effect to the underlying commercial purpose of a rent review clause and to construe the words so as to give effect to that purpose by requiring future rent reviews to be taken into account in fixing the open market rental under the hypothetical letting.
In the Equity & Law Life Assurance Society case (supra) a 70-year lease of an industrial estate (which was granted in 1968) provided for an annual rent of £22,500 for the first three years, £27,500 for the next seven years and £38,500 thereafter or such increased rent as might be agreed or determined, in manner thereafter provided. This clause provided for the rent review every 14 years and for the rent to be a sum equal to the amount by which 85% of the net rental value exceeded £28,000 by way of an additional rent, ie the tenant was to receive a 15% discount on the current market rent. The open market rent was to be reached on the basis of a hypothetical lease and that, instead of the 70-year lease continuing for the remainder of the term, a new lease for the unexpired residue of the term was to be granted and “upon the terms of this lease other than as to duration and rent”. This meant that the terms as to future rent reviews should be excluded. Both parties agreed that this could not mean that all the terms of the lease which in any way related to duration or rent should be excluded, but they could not agree as to what narrower meaning was intended. The landlord submitted that the exclusion was intended to apply to terms which quantified duration and rent (with the result that the rent review provisions should be excluded). The tenant contended for the even narrower construction of reference only to the duration of the lease and the quantified amounts of the rents initially reserved.
In the Court of Appeal, Dillon LJ welcomed the rough guidelines stated by the Vice-Chancellor in the British Gas Corporation case but stressed that they were only guidelines and not mechanistic rules of construction to be applied rigidly in every case. The function of the court in each particular case was to construe the particular rent review clause which was in issue. Dillon LJ went on to add that the Vice-Chancellor’s guidelines cannot entitle the court to construe and apply, not the clause which the parties have entered into, but the different clause which they might have or probably would have entered into if their lawyers had thought rather more deeply about how the intricate scheme they were setting up would work in practice. The rent review provisions in the lease were complex but one subclause (the effect of which was to limit the rent payable following such review to the greater of £28,500 and 85% of the net rental value so ascertained) was not, in the Court of Appeal’s opinion, to be imparted into the hypothetical letting because they were terms of the actual lease as to rent.
Construction of the clause
The proper construction of the words “at the date of review” was one of the matters at issue in Prudential Assurance Co Ltd v Gray [7] 2 EGLR 134; (1987) 283 EG 648. The rent review clause in a subunderlease was unusual in providing for the initial rent of the 14-year reversionary term to be increased retrospectively as from the commencement of the term, notwithstanding the fact that it might not be determined until nearly 18 months thereafter. The revised rent, when determined, was to be payable for the whole of the 14-year term and was not subject to subsequent review. The question at issue was the proper construction of the words “at the date of review” in a provision defining the commercial yearly rent as meaning the yearly rent at which the demised premises might reasonably be expected at the date of review to be let in the open market. The landlords contended that the date of review should be given its ordinary meaning as the date on which the new rent was actually determined (either by agreement or arbitration) or, alternatively, the date of the “trigger” notice initiating the rent review. The tenants contended that the “date of review” was the date of the commencement of the term. Mr Donald Rattee QC (sitting as a deputy judge) held that of the three possible interpretations of the term “at the date of review” the one to be preferred was the one reflecting the natural ordinary meaning in the context of the letting. Such a meaning was attributable to the landlords’ first contention, namely the date upon which the new rent was actually determined.
In Standard Life Assurance Co v Oxoid Ltd [7] 2 EGLR 140; (1987) 283 EG 1219 the Court of Appeal had to consider the proper construction of an unusual rent review clause in a lease of industrial premises in which the rent review was to be determined by applying a mathematical formula to “standard accommodation”. The main difficulty arose as to the meaning of the phrase “standard accommodation”, as the characteristics stipulated were that it must be a single-storey industrial building in the same locality and of a like age as the subject premises, but there was no mention of size. At the date of the lease, there were six other units in existence on the industrial estate and all were single-storey but their sizes varied from 10,000 sq ft to 15,000 sq ft. The landlord argued that for the purposes of the rent review formula the “standard accommodation” should be taken as 10,000 sq ft or 11,000 sq ft, but the tenant argued that it would be an unfair distortion to apply such a standard size to premises in fact 10 times larger. Peter Gibson J held that as a matter of construction the landlord’s view was correct. The Court of Appeal was of the opinion that the judge at first instance had defined “standard accommodation” too narrowly, as the ambit of inquiry should not have been confined to the particular industrial estate and it should have been left to the good sense of the surveyor who would have to determine the rent. In the end, the matter came down to the identification of appropriate properties in the vicinity, which would be a matter for the surveyor in the event of dispute.
In Basingstoke and Deane Borough Council v Host Group Ltd [6] 2 EGLR 107; (1986) 279 EG 505 the lease was for a term of 99 years from 1979 with provision for upward reviews every five years. The revised rent was to be on the basis of “the reasonable then current ground rental value” for the unexpired portion of the term granted or for a term of 20 years, whichever was the greater. The main issue was as to whether the terms and conditions of the hypothetical lease should be the same as the actual lease (as the tenants contended) or such as the independent valuer would regard as reasonable for the lease of a bare site for development current at the relevant date. If the latter was correct, the second question was whether the bare site should be regarded as available for development only as a public house site (the covenanted use) or for any lawful use. His Honour Judge Micklem (sitting as a High Court judge) held that the terms of the existing lease taken as a whole were inappropriate to a bare site and it was not surprising that in the context of the lease the parties had regarded it as sensible to leave it to the valuer on each review (subject only to the specific directions given to him) what terms and conditions he regarded in the circumstances as reasonable. Further, the bare site should be regarded as available for development for any lawful use. In the Court of Appeal [1987] 2 EGLR 147; (1987) 284 EG 1587 the Court of Appeal held that unless it appears expressly or by necessary implication that the parties intended otherwise, a rent review clause is to be interpreted so that what is being valued are the premises subject to the terms of the actual lease (other than the quantum of rent) as those terms subsist on the review date.
In Bissett v Marwin Securities Ltd [7] 1 EGLR 115; (1986) 281 EG 75 the 30-year lease provided for the premises to be used for the operation of amusement machines. The demised premises were let at a rent of £12,500 with upward-only rent review provisions at mainly four-year intervals. For the purposes of the review, the rental value was defined as the highest of the following figures: (i) the full market value of the premises let with vacant possession or (ii) the previous rent plus an addition related to either the retail price index or the cost of living index or (iii) the previous rent plus an addition “calculated at 10% per annum on a compound basis from the date of the immediately preceding rent review”. At the initial rent review, the landlords specified a rent of £18,300 based upon the 10% compound addition, but this was resisted by the tenant on the ground that the 10% compound formula operated only if there had been a previous rent review. Vinelott J held that, construing the lease as a commercial document, it would be an odd result if the parties intended that the 10% escalation should start from the commencement of the term.
A provision for the delay of the first rent review date in the event of certain roadworks not being completed was considered by His Honour Judge Blackett-Ord (sitting as a High Court judge) in Ladbroke Group plc v Bristol City Council [7] 2 EGLR 139; (1987) 283 EG 1071. In this case the lease was for 125 years from July 1973 (pursuant to a building agreement) under which there was to be a basic rent for the first seven years of the term (with subsequent reviews). The clause in question provided that, if the roadworks had not been carried out by March 31 1973, the first review date should be delayed by one year for every year (or part) of delay until completion of the works or notification by the landlords that they would not be carried out. The lease, when granted, repeated the proviso except that the tense was altered to the past because, by then, the works had not been carried out. When, in 1981, the landlords gave notice that the works would not be carried out, the tenants argued that the period of delay of review was from March 31 1973 to the date of the notice while the landlords argued that the period was from July 5 1980 (the date in effect provided for in the lease). The court held that the meaning of the proviso was that the first review date (July 5 1980) was to be delayed by the period until completion of the roadworks or notice (ie the notice which operated in 1981). The period of delay was one year with the first review date becoming July 5 1981.
In Ipswich Town Football Club Co Ltd v Ipswich Borough Council [7] NPC 64 the 99 years’ lease provided for a rent of £3,000 for the first 14 years and thereafter at the “current market rental value of the Sports Ground” at seven-yearly intervals. The demised premises were as follows:
First All that piece or parcel of land [etc] hereinafter called “the main pitch”. Secondly all that piece or parcel of land … hereinafter called “the practice pitch” … all which said pieces or parcels of land…are hereinafter collectively called “the Sports Ground” together with the existing buildings and erections upon the Sports Ground.
The various covenants in the lease generally observed the distinction between the “sports ground” (meaning the land demised) and any buildings and erections thereon. Between 1969 and the first review date the club spent £3.7m erecting a grandstand and other buildings on the sports ground. The issue between the parties was whether, at rent review, the independent surveyor should determine a rental value for the land only or for the land and buildings as they existed at the review date. Sir Nicolas Browne-Wilkinson V-C held that, as the lease was a carefully drafted document which distinguished between the “sports ground” on the one hand and the sports ground plus buildings on the other, as a matter of construction a valuation of the “current market rental value of the sports ground” required a determination of the rental value of the land without any buildings.
In Dennis & Robinson Ltd v Kiossos Establishment [7] 1 EGLR 133; (1987) 282 EG 857, which concerned an underlease for 25 years with four five-yearly rent reviews, the clause provided for the “full yearly market rent” to be determined on the basis of the rent “at which the property might reasonably be expected to be let in the open market”. The tenants submitted that there should be no assumption that there would, in fact, be a willing lessee to whom the property might reasonably be expected to be let, it being a matter for consideration whether, if the property were offered in the open market, anyone would wish to take a lease on the terms so offered. The landlord countered that the formula must be applied on the assumption that there would be a letting. The Court of Appeal was of the opinion that the language of the rent review clause required the following assumptions: (a) that there will be a letting of the property, (b) there is a market in which that letting is agreed, (c) the landlord is willing to let the premises, and (d) the supposed tenant is willing to take the premises. Although there was no express reference to a willing lessor and a willing lessee, such an implication was necessary to achieve an open market letting. Further, it is a matter for the valuer, using his experience and judgment, to determine the strength of the market for, although it is assumed that there is a market, there is no assumption as to how lively that market is.
User, improvements and disregards
The disregard of any effect on rent of any improvement was the matter at issue in Panther Shop Investments Ltd v Keith Pople Ltd [7] 1 EGLR 131; (1987) 282 EG 594, where the lease was for a term of 20 years with five-yearly rent reviews. The clause in question provided for the disregard of any effect on rent of any improvement carried out by the tenants or any person deriving title under them otherwise than in pursuance of an obligation to the landlords. Two improvements had, in fact, been carried out under a previous lease between the same parties. By the time the present lease was executed, these structures had become landlord’s fixtures. The issue was whether the effect on rent of these structures, erected as improvements before the present lease began, fell to be disregarded. Mr John Mowbray QC (sitting as a deputy judge) held that “improvements” for the purpose of the rent review clause meant improvements to the demised premises and the structures in the instant case were not improvements but were part of the premises. Accordingly, the effect of the improvements in question did not fall to be disregarded for the purpose of the rent review clause.
In James v British Crafts Centre [7] 1 EGLR 139; (1987) 282 EG 1251, after providing the definition of the “commercial yearly rent”, the rent review clause stated that the hypothetical lease was to be “in the same terms in all other respects as these presents”. The user covenant permitted the use of the premises for storage, sale and display of craftsmen’s work while the lessee was the British Crafts Centre. The assignment covenant permitted the sharing of occupation with a holding or subsidiary company, but only while the lessee was the British Crafts Centre. Scott J held (i) in the case of the user covenant it was intended to grant a personal privilege to the centre so that the hypothetical lease should contain a similar restriction; (ii) in the case of the assignment covenant the hypothetical lease should leave blank the name of the lessee (the intention being to prevent the privilege of sharing occupation to be enjoyed by anyone other than the original lessee whoever the original lessee might be).
In the Court of Appeal the landlords challenged the narrow construction placed by Scott J on the user covenant, but the court agreed with the judge’s construction. That construction involved less departure from the actual language of the covenant and gave effect to what appeared to be the intention of the parties. (The judge’s construction of the assignment clause was not challenged.)
Several interesting issues were raised in Young v Dalgety plc [7] 1 EGLR 116; (1986) 281 EG 427, where the main issue was whether certain items were landlord’s fixtures which should be taken into account in the determination of the open market rent under the rent review clause or whether they were tenant’s fixtures which should not be taken into account.
In this case an agreement provided that as soon as the building was erected the lessors would grant a lease of the premises to the lessees. Two clauses in the agreement provided for the lessees to get approval for certain works and finishes and for the fitting-out works to be carried out as a matter of obligation. The rent review clause provided for the revised rent to be determined on an open market basis with vacant possession but excluding any effect of improvements carried out by the lessees otherwise than in pursuance of an obligation to the lessors. Although the drawings describing the original fitting-out works had been lost, a schedule containing 20 items thought to have been undertaken by the lessees as part of their fitting-out obligations was produced. One of the questions before Mervyn Davies J was whether items such as floor coverings or light fittings provided by the tenants pursuant to their fitting-out obligations were to be regarded as tenant’s fittings and fixtures or landlord’s fixtures (and therefore to be regarded at rent review). The learned judge held that they were tenant’s fixtures. The Court of Appeal held that the judge had reached the correct conclusions and the landlords had not obtained any title to the items in question. On the assumption that they were fixtures, they were tenant’s fixtures and not to be taken into account in determining the rent at rent review.
In SI Pension Trustees Ltd v Ministerio de Marina de la Republica Peruana [7] NPC 99 a lease was granted to J F & Partners Ltd for 21 years from 1973 and contained a covenant by the tenants “not to use the demised premises otherwise than as offices in connection with the lessees’ business of Mortgage, Finance and Insurance Consultants”. Subsequently, the lease was assigned to the Peruvian Ministry of Marine and the licence to assign contained a consent to change the use to offices for the purposes of the assignee’s diplomatic mission and a covenant not to use the premises otherwise than for that purpose. The license also provided that it was restricted to the particular assignment and the change of use authorised. The rent review provisions provided that the market rent was to be determined having regard to rental values current at the relevant time for similar property used for any purpose within the same use class under the Town and Country Planning (Use Classes) Order 1963 “as that which includes the use of the demised premises permitted hereunder”. Mervyn Davies J held that the reviewed rent was to be ascertained on the basis of a hypothetical letting of the premises with vacant possession. Such a hypothetical letting was to contain a user clause identical to that in the lease but, as the licence to assign granted on a personal consent to a change of use, it was not to be taken into account as one of the terms of the lease. Finally, the expression “lessee” in the user clause was to be construed not as referring only to the hypothetical lessee by name but as extending also to any assignee of the hypothetical lessee.
In Wolff v Enfield London Borough [7] 1 EGLR 119; (1987) 281 EG 1320 the clause provided that the fair market rent was to be the best annual rent obtainable between a willing landlord and a willing tenant on a letting of the premises as a whole with vacant possession for use for any purpose within Class III of the Town and Country Planning (Use Classes) Order 1972 or any other class of the order permitted by the local planning authority from time to time. The premises had been used for light industrial purposes and were vacant at present but permission had been given for use as a non-teaching unit of Middlesex Polytechnic. It was contended for the landlords that, in applying the clause, the reference to Middlesex Polytechnic should be ignored. In any event, this user did not relate to a use within any of the use classes in the 1972 order.
Whitford J held that, having regard to the terms of the rent review clause, and until there was a change in the planning permission, the rent should be revised on the basis of the fair value of the premises as a whole for light industrial use.
The Court of Appeal held, affirming the judgment of Whitford J, that the use authorised by the planning permission was a composite use which did not fall within any of the prescribed use classes. The consequence was that there was nothing in the rent review clause to permit the rent to be assessed by reference to any user authorised by a use class except for light industrial purposes within Class III of the then Use Classes Order.
Arbitration
The capacity of a person appointed was considered in North Eastern Co-operative Society Ltd v Newcastle upon Tyne City Council [7] 1 EGLR 142; (1986) 282 EG 1409. In this case, the lease provided that the rent review should be as agreed by the parties or, in default of agreement, as determined by an independent surveyor agreed by the parties or, in default of such agreement, by an arbitrator nominated by the president of the RICS “and this lease shall be deemed, for this purpose, to be a submission to arbitration within the Arbitration Act 1950”. The question was whether the independent surveyor (who was, in fact, appointed by the agreement of the parties and not by the president) was to be regarded as an arbitrator, under the 1950 Act or as an expert valuer. The plaintiff lessees wished to challenge the surveyor’s assessment of the rack rental value and argued that it would be strange if the person appointed by agreement between the parties was not to act in the same capacity as the person to be appointed by the president of the RICS. Scott J held that, although the indicia were not very strong, it was intended that the independent surveyor should act as an expert if appointed by the agreement of the parties but that he should act as an arbitrator if appointed, in default of such agreement, by the president of the RICS.
The circumstances in which an “aggrieved” party can challenge an arbitrator’s decision were analysed in Lucas Industries plc v Welsh Development Agency [6] 1 EGLR 147; (1986) 278 EG 878 and the test laid down in that case was applied in Triumph Securities Ltd v Reid Furniture Co Ltd [1987] 2 EGLR 139; (1986) 283 EG 1071. The award was challenged on the ground that the arbitrator had erroneously laid down as a rule of law that a deduction of 14% (to represent te relationship of frontage to depth of ground-floor premises) should always be made. Harman J held that the arbitrator had not erred in law, as his adoption of a 14% deduction was his finding of the appropriate deduction in this particular case and was not intended as a statement of a general rule. On the test laid down in the Lucas Industries case, leave to appeal was refused.
A complaint against an abritrator’s award was dismissed in Norwich Union Life Insurance Society v British Railways Board [7] 2 EGLR 137; (1987) 283 EG 846, where the repairing covenant in a lease for 150 years with provisions for rent review at 21-yearly intervals required the tenant “to keep the demised premises in good and substantial repair and condition and when necessary to rebuild, reconstruct or replace the same”. The arbitrator considered that this covenant placed on the tenant a more onerous obligation than the usual covenant to keep the demised premises in good and substantial repair and he accordingly made a downward adjustment of 27.5% to reflect the difference. Hoffmann J was of the opinion that it was a matter of impression of the repairing covenant but the language indicated that the draftsman had two separate obligations in mind: first, that of repair and, second, that of rebuilding, reconstructing or replacing the entire premises. The learned judge was of the same impression as the arbitrator and the appeal was dismissed.
In United Co-operatives Ltd v Sun Alliance & London Assurance Co Ltd [7] 1 EGLR 126; (1986) 282 EG 91 Hoffmann J held that the relief of an injunction does not lie against the president of the RICS when making an appointment of an arbitrator or expert. The correct procedure for a person who considers an appointment to be void is application to the court for a declaration to that effect.
The interrelationship of a letter to the president of the RICS and time being of the essence was considered by Knox J in Staines Warehousing Co Ltd v Montagu Executor & Trustee Co Ltd [6] 1 EGLR 101; (1985) 277 EG 305. In this case an application for an appointment of an expert surveyor had to be made by the landlords before the named date, otherwise the landlords’ “trigger” notice became void. While negotiations were still in progress (and before the named date) the landlords’ surveyor wrote to the president stating that they were writing in accordance with the terms of the rent review clause “to make an in time only” application to the president for the appointment of an expert surveyor. Knox J held that (i) the lease did not require notice to the tenants of the application; (ii) the absence of the fee which should have accompanied the application did not prevent the application from being actually made and received; and (iii) the letter was a genuine application in compliance with the time-limit. The Court of Appeal [1987] 2 EGLR 130; (1987) 283 EG 458, upholding the judgment of Knox J, held that the landlords’ application had been effectively made in accordance with the procedure of the RICS, as the absence of an accompanying fee and a copy of the lease merely deferred the processing of the application.
Miscellaneous matters
The liability for the payment of rent arrears arising from a rent review was considered by the Vice-Chancellor in Parry v Robinson-Wyllie Ltd [7] 2 EGLR 133; (1987) 283 EG 559. In this case, the lease provided that, on the failure of the parties to reach agreement on the rent under review, it should be fixed by an independent surveyor and communicated to the parties and, immediately on such communication, the rent so determined would become the rent payable for the relevant three-year period. A receiver was appointed by the tenant company and the determinaion of rents by the independent surveyor under the rent review clause was considerably delayed. It was eventually communicated to the parties about a month before the lease was assigned to the defendant company. The plaintiff landlords claimed that the defendants were liable for the rent review arrears and that there was no hope of recovering the sums from the receiver. The Vice-Chancellor held that the receiver in the present case came under a liability, treated as accruing from day to day, to pay the increased rent when fixed. Te receiver was therefore liable to pay the rent review arrears and the defendant company (as assignee) was not liable. (See also the “continuing liability” cases in “Legal Notes” “Liability following assignment — I and II” (1987) 283 EG 653, 751.)