Landlord and tenant — Arbitration in regard to provisions in rent review clause — Arbitration Act 1979, section 2 — Determination of preliminary points of law by the court — Court satisfied that determination of the application would be likely to result in substantial savings in costs and that the questions were questions in respect of which leave to appeal would have been given after an award — The second of the five-year rent reviews in this case had been referred to arbitration and it was clear that questions of law had arisen between the parties — The lease was for 21 years from July 1 1977 and the subject-matter was a hotel which included a gaming casino licensed under the Gaming Act 1968 — The rent review clause provided for the ascertainment of the market rent of the demised premises — Among the stipulations was one that in assessing the market rent no account should be taken of the turnover or profits of the business carried on by the tenant and that an arbitrator should not be entitled to call for or inspect his accounts — It was also provided that the rent should be determined on the basis that ‘the Tenant does not hold but will immediately be able to obtain a licence under the Gaming Act 1968’
six questions on the true construction of the rent review clause were raised in
the present section 2 application — (1) Was the length of the hypothetical term
at the review date to be assumed to be equal to the whole length of the actual
lease or to the length of the unexpired residue at that date only? — (2) Was it
open to the parties’ surveyors to value the subject premises by reference to
profits in addition to available current rental values? — (3) Was it open to
the arbitrator to take account of the turnover or profits of a company in the same
group as, or otherwise associated with, the respondent lessees? — (4) Must the
review rent be determined on the assumption that the hypothetical tenant would
be starting the casino from scratch and so disregarding any reputation or
clientele accruing to the premises as a casino previously? — (5) On the assumption that the tenant does
not hold, but would immediately be able to obtain, a licence under the Gaming
Act 1986, does ‘tenant’ mean the hypothetical or the actual tenant? — (6) A
question which depends on the answer to question (5), what assumption has to be
made about the hypothetical tenant in relation to a gaming licence?
answers to the above six questions were as follows — (1) The hypothetical term
at the review date would be equal to the then unexpired residue of the actual
term — (2) It was open to the parties’ valuers to submit valuations by
reference to profits in addition to evidence of rental values, the task of the
arbitrator being to evaluate the evidence put before him in accordance with the
principles of valuation — (3) The arbitrator could not exclude evidence as to
the turnover or profits of other companies in the same group as, or associated
with, the lessees, but, having regard to a specific prohibition in the lease, the
arbitrator was under a duty to put out of his mind anything he had learnt from
such evidence as to the profits or turnover of the lessees themselves — (4)
This question is answered by the provision in the lease as to the disregard of
goodwill — (5) The effect of the assumption that the tenant does not hold, but
will immediately be able to obtain, a gaming licence is notionally to take away
the licence actually held and to provide that the market rent should be
determined on the footing that any person minded to take an interest in the
premises would be able to make his offer in the knowledge that he would be
granted a licence contemporaneously with the grant of the lease — (6) The short
answer to this question is that the range of prospective tenants is necessarily
limited to those who, having notionally been awarded a licence, will be likely
to obtain a renewal and in whose hands it will not be liable to cancellation or
revocation — Remaining questions on the summons did not arise for determination
The following
cases are referred to in this report.
Aik Hoe & Co v Superintendent of Lands
and Surveys, First Division [1969] 1 AC 1; [1968] 3 WLR 52, PC
Basingstoke and Deane Borough Council v The Host Group Ltd
[1988] 1 WLR 348; (1987) 56 P&CR 31; [1987] 2 EGLR 147; 284 EG 1587, CA
Cornwall Coast Country Club v Cardgrange Ltd
[1987] 1 EGLR 146; (1987) 282 EG 1664
Daejan Investments Ltd v Cornwall Coast Country
Club (1984) 50 P&CR 157; [1985] 1 EGLR 77; 273 EG 1122
Norwich Union Life Insurance Society v Trustee Savings Banks
Central Board [1986] 1 EGLR 136; (1986) 278 EG 162
Segama NV v Penny Le Roy Ltd [1984] EGD 74;
(1984) 269 EG 322, [1984] 1 EGLR 109
This was an
application under section 2 of the Arbitration Act 1979 by the lessors, Ritz
Hotel (London) Ltd, for the determination of questions arising in an
arbitration between the applicants and the lessees of part of the Ritz Hotel,
Ritz Casino Ltd, the respondents to the application.
Paul Morgan
(instructed by Berwin Leighton) appeared on behalf of the applicants; David
Neuberger QC (instructed by M J Kusel & Co) represented the respondents.
Giving
judgment, VINELOTT J said: This is an application under section 2 of the
Arbitration Act 1979. It raises a number of questions as to the true
construction of a rent review clause contained in a lease dated July 1 1977 and
made between the Ritz Hotel (London) Ltd of the first part, Mecca Ltd of the
second part and Grand Metropolitan Ltd, who were joined as guarantors of Mecca
Ltd, of the third part.
(a) The relevant provisions of the lease are
shortly as follows. The parties are described as ‘The Landlord The Ritz Hotel
(London) Ltd’, ‘The Tenant Mecca Ltd’ and ‘The Guarantor Grand Metropolitan
Ltd’.
(b) Clause 1, a definition clause, provides:
The expressions ‘the Landlord’ and ‘the
Tenant’ shall wherever the context so admits include the person or persons for
the time being deriving title under the Landlord and the Tenant respectively.
(c) Clause 2 contains a description of the
property (part of the Ritz Hotel) to be demised to the tenant.
(d) Clause 3 is headed ‘Term’ and provides that:
The term for which the premises are
demised is 21 years from the First day of July 1977.
(e) Clause 4(1) provides that:
The yearly rent is £180,000 subject to
the provision for review mentioned below . . .
I must read the main part of clause 4(2)
in full:
The rent shall be reviewed on the
expiration of the 5th, 10th, 15th and 20th years of the term each of which such
dates are hereinafter called ‘the review date’ and after each such review date
the yearly rent shall be the greater of: (a) the rent hereinbefore reserved or
(b) the rent payable following any previous review or (c) the market rent of
the demised premises taking no account of (i) any effect on the rent of the
fact that the Tenant or any company within the same Group (as defined by
Section 42 (1) of The Landlord and Tenant Act 1954 or any statutory
modification or re-enactment thereof for the time being in force) or its or
their predecessors in title has been in occupation of the demised premises (ii)
any effect on the rent of any improvements to the demised premises by the
Tenant or by any company within the same group as defined as aforesaid or its
or their predecessors in title (iii) any goodwill attached to the demised
premises by reason of the business carried on thereat at the review date and it
is expressly agreed that in assessing the market rent no account shall be taken
of the turnover or profits of the business carried on by the Tenant in the
demised premises and that any Arbitrator appointed hereunder shall not be
entitled to call for or inspect the accounts of the business carried on by the
Tenant in the demised premises. But having regard insofar as possible to the
rental values then current for similar properties let on similar terms with
vacant possession for a term equivalent to the term hereby granted without a
premium with the same provision for rent review and otherwise subject to the
provisions of this Lease on the basis that at the time when the market rent
falls to be agreed or determined the Tenant does not hold but will immediately
be able to obtain a Licence under the Gaming Act 1968 . . .
Clause 4(2) then goes on to set out the
procedure to be followed if the landlord and tenant fail to agree the new rent
before the review date.
(f) Clause 5 contains a number of covenants on
the part of the tenant. Subclause (7) is headed ‘Use’. Para (a) contains some
immaterial restrictions as to the use of a part of the demised premises. Para
(b) contains a covenant:
Not to use the remainder of the demised
premises for any purpose other than a high class gaming casino and ancillary
thereto for all usual facilities including a bar restaurant offices and lounges
or in the event of such user becoming illegal for such other purpose as the
Landlord may approve (such approval not to be unreasonably withheld in the case
of a use which is appropriate to the use by the Landlord of the Ritz Hotel).
It then provides that if approval has not
been granted within 30 days of being requested the tenant is to have the right
to surrender the lease. Para (c) contains a usual covenant not to do ‘anything
which may be a nuisance or annoyance to the Landlord or its Clients’, and (d) a
covenant ‘Not to use the demised premises for any noxious noisy or offensive
trade or business nor for any illegal or immoral act or purpose’.
The benefit of
the lease is now vested in the respondents, Ritz Casino Ltd. The first rent
review was July 1 1982. The current rent is £537,500. The second review has
been referred to arbitration. Points of claim, the tenant’s case in answer and
points of reply have been exchanged and it has become apparent that there are
differences between the parties as to the interpretation of clause 4. The
parties are anxious that these questions should be resolved before the
arbitration proceeds further. I am satisfied that the determination of these
questions at this stage would be likely to result in a considerable saving of
costs and that the questions which it is now sought to determine are questions
in respect of which leave to appeal would have been granted after an award had
been made.
The first
question is whether the market rent of the demised premises
is to be ascertained on the assumption that the demised premises are let on the
review date for a term of 21 years from July 1 1987 or from July 1 1977.
The case for
the landlord is that on a literal construction the market rent has to be
ascertained on the assumption that the premises are let on the review date for
a term of 21 years (that being a ‘term equivalent to the term’ granted by the
lease). Mr Morgan drew my attention to the statement of principle by Nicholls
LJ (giving the judgment of the court) in Basingstoke and Deane Borough
Council v Host Group Ltd [1988] 1 WLR 348 at p 354,* that in
construing a review clause:
. . . if and in so far as a rent review
clause does not so require, either expressly or by necessary implication, it
seems to us that in general, and subject to a special context indicating
otherwise in a particular case, the parties are to be taken as having intended
that the notional letting postulated by their rent review clause is to be a
letting on the same terms (other than as to quantum of rent) as those still
subsisting between the parties in the actual existing lease. The parties are to
be taken as having so intended, because that would accord with, and give effect
to, the general intention underlying the incorporation by them of a rent review
clause into their lease.
*Editor’s note: Reported also at [1987] 2
EGLR 147 at p 149.
He submitted that the application of that
principle reinforces the literal interpretation of the language used; the
purpose of the review is to substitute the rent at which the premises could
have been let with vacant possession in the changed circumstances at the date
of the review (if higher than the original and any substituted rent) and that
that purpose requires the assumption that the term offered is the same as that
originally offered — unless, of course, that assumption is specifically
negatived by the terms of the rent review clause (which it almost invariably
is). The term of 21 years is, as Mr Morgan expressed it, a constant in both
equations.
I cannot
accept either submission. It seems to me that on a natural construction the
‘term equivalent to the term hereby granted’ is a term of 21 years from July 1
1977 of which 10 years have expired at the date of the review. The claim that
the use of an assumed term of 21 years as a constant brings the hypothetical
valuation closer to reality in my judgment also overlooks the reality that time
has passed since the grant of the lease. It is easy to imagine circumstances —
a lease for 21 years with five-yearly reviews and an onerous repairing covenant
of a building specially constructed for a particular purpose and with a limited
life intended to be coterminous with the expected demand for that use — where
the assumption on, let us say, the 15th year of the term of a fresh letting for
21 years would produce a manifestly unjust result. It is, it seems to me,
moreover, inconsistent with the general principle enunciated by Nicholls LJ in
the passage I have cited that the parties are to be taken to have intended that
the notional letting would be on the terms still subsisting.
The decision
of Hoffmann J in Norwich Union Life Insurance Society v Trustee
Savings Banks Central Board [1986] 1 EGLR 136 affords strong support for
this conclusion. In that case, as in the present case, the lease did not
specifically provide that the hypothetical lease was to be only for the
unexpired residue of the lease at the date of review. Hoffmann J held that it
was none the less implicit that the hypothetical lease would be a lease for the
unexpired residue of the term. Of course it is always dangerous to take a
decision on one rent review clause as a precedent in construing another rent
review clause. Rent review clauses seem unhappily to vary almost infinitely in
their terms. As Mr Morgan pointed out, in that case the lease was for 22 years
and provided for reviews at the end of the seventh and each subsequent five
years of the term. The review in issue was the first of the five-yearly
reviews. A new lease for 22 years at that date would provide for the first
review at the end of the seventh year, and that would conflict with the true
situation that obtained, namely, that the next rent review would be in five
years’ time. However, Hoffmann J founded his conclusion on more general
grounds, which I would respectfully adopt. He said (at p 137):
There is, I think, a presumption that the
hypothesis upon which the rent should be fixed upon a review should bear as
close a resemblance to reality as possible. In this case the reality was that
at the date of the rent review the tenant’s interest was an unexpired period of
10 years. He had been paying in the earlier part of the term a rent calculated,
at any rate for the first five years, according to the market rent for what was
then being granted, namely a lease for a period of 22 years. The purpose of the
rent review is to enable that rent to be adjusted at a subsequent date in order
to take into account the effects of inflation and changes in the market since
the original grant. But I think the landlord would be having it both ways if he
was entitled not only to an adjustment for changes in the market and changes in
inflation but also to the assumption that what was being granted on the rent
review date was a brand new lease rather than what was in fact the case, a
lease which by then was 12 years expired.
Mr Morgan
pointed out that at first sight a review in the 20th year of the term will on
this construction require the valuer to ascertain the market rent for a term of
one year only — and the market for the tail end of a lease for a purpose
requiring considerable expenditure might be a very artificial one. I find the
answer given by Mr Neuberger convincing. The lease comes within the protection
of the Landlord and Tenant Acts and prima facie the tenant would be
entitled to apply for a new tenancy. The purpose of requiring a review in the
20th year of the term is to enable the lessor to recover an up-to-date rent
during the period — frequently protracted — while the parties negotiate or the
court determines what is a fair rent for the grant of a new tenancy. The
landlord is then not left only with the right to apply for an interim award.
The second
question is in these terms: assuming that there are
available rental values current as at July 1 1987 for the subject premises let
on similar terms with vacant possession, is it open to the parties’ surveyors
to value the subject premises by reference to profits in addition to a
valuation by reference to such rental values?
The case for
the tenant is shortly this. Rental values for similar properties let on similar
terms provide the only direct evidence of the market rent which the arbitrator
is required to ascertain. There is no need to instruct him to ‘(have) regard in
so far as possible’ to such evidence. The only purpose of this provision must
therefore be to restrict him to such evidence if it is available: he can only
travel outside to less direct evidence (in particular, evidence of profits made
from similar businesses) if there is no direct evidence of comparable rents
available.
A similar
question came before Staughton J in Segama NV v Penny Le Roy Ltd (1983)
269 EG 322, [1984] 1 EGLR 109. One question was whether in a rent review
clause, under which an arbitrator was required to ascertain a ‘market rent’
defined as the yearly rental value ‘having regard to rental values current at
the relevant time for similar properties’, the arbitrator was precluded from
having regard to rents agreed subsequently. Staughton J, having stated the
question ‘whether, even if the arbitrator is directed by the clause to have
regard to rents agreed for similar property on or before the relevant date, he
is thereby precluded from having regard to any rents agreed subsequently’,
observed that:
The rule that the expression of one of
two things is the exclusion of the other might suggest that he is. But it
requires more than such prima facie inference as that rule provides to
exclude evidence which is otherwise relevant and
Then, after a careful review of the
authorities, he concluded, at p 326:
In that state of the authorities the
arbitrator was, in my judgment, entitled to hold that the evidence as to rents
agreed after the relevant date was admissible, and I consider that he was right
to reach that conclusion. If rents of comparable premises had been agreed on
the day after the relevant date, I cannot see that such an agreement would be
of no relevance whatever to what the market rent was at the relevant date
itself. If the lapse of time before the agreement for comparable premises
becomes greater then, as the arbitrator said, the evidence will become
progressively unreliable as evidence of rental values at the relevant date. The
same is no doubt true of rents agreed some time before the relevant date; but
nobody suggested to me that those should be excluded. So, too, political or
economic events may have caused a change in market rents, either before or
after the date. All those factors must be considered by the arbitrator in
assessing the weight to be attached to a rent agreed for similar premises,
whether before or after the relevant date. It may happen that no rents of
comparable premises that were agreed on the relevant date, or for months
beforehand, can be found, but a great number very shortly thereafter. It does
not seem to me right that the arbitrator should be bound to disregard them.
The present
case is, in my judgment, a fortiori. As was pointed out by Lord
Wilberforce, giving the judgment of the Judicial Committee of the Privy Council
in Aik Hoe & Co Ltd v Superintendent of Lands & Surveys [1969]
1 AC 1 at p 18, it is not the case that there are:
two clearcut and alternative methods of
valuation, each with its own separate rules. In the search for evidence to show
the market price of a given property on a given date, there may be a continuous
spectrum of cases varying from contemporaneous sales of precisely similar properties
(unlikely to be found in many cases) to sales at different dates of properties
differing greatly in nature and development. Where, as here, much of the
evidence is of the latter kind, it is not only proper but necessary, if the
comparison is to be relevant, to take account of different potentialities of
development which would seem important to a purchaser where what he is offered
is a property of a scale considerably larger than those whose sale price is
known: and this is nonetheless the case though the sale prices of these small
units may themselves take account of their industrial or development
potentiality.
That was said in the context of a case
where the appellant contended that there were two clear-cut and alternative
methods of valuation, one based on comparative sales and another (the ‘residual
method’) based on an estimate of the value of the land as developed less a
deduction for the cost of development and the likely delay and for
contingencies. But Lord Wilberforce’s observations are equally in point where,
as here, it is sought to include evidence as to the profit-earning capacity of
the property, other rent reviews, the prices realised on sales of other casino
properties and like matters in so far of course as such evidence is otherwise admissible
(as to which see the decision of Scott J in Cornwall Coast Country Club v
Cardgrange Ltd [1987] 1 EGLR 146 at p 154). In the real world it is very
unlikely that there will be direct evidence of near contemporaneous lettings of
comparable properties. It is for the arbitrator to evaluate such evidence as
there may be of lettings of other properties in the light of any other evidence
relevant to the determination of rental values which the parties may wish to
adduce.
The third
question is whether it is open to the arbitrator to
take account of the turnover or the profits or the accounts of a company within
the same group as Ritz Casino Ltd or a company otherwise associated with it if
such information would be available in the hypothetical open market. It is
common ground, in the light of the answer I have given to the second question,
that the arbitrator cannot exclude evidence as to the turnover or profits of
other companies whether in the same group as the tenant or associated with it
or not. It is specifically provided in the lease that:
no account shall be taken of the turnover
or profits of the business carried on by the Tenant in the demised premises and
that any Arbitrator appointed hereunder shall not be entitled to call for or
inspect the accounts of the business carried on by the Tenant in the demised
premises.
So if the accounts of the tenant’s parent
company are adduced in evidence the arbitrator must be careful to put out of
his mind anything he may have learnt from the accounts about the turnover or
profits of the tenant. That is all.
The fourth
question is framed in these terms: must the review
rent be determined on the assumption that the hypothetical tenant will be
starting the casino use from scratch and accordingly the review rent should not
take into account any goodwill or reputation or any of the clientele which had
accrued to the premises as a casino up to the review date? It is common ground that this question does
not give rise to any issue of interpretation or law. The reference to
disregarding goodwill or reputation simply repeats what is said in subclause
(2)(c) of clause 4 of the lease. The consequences of disregarding the tenant’s
occupation and any goodwill are for the arbitrator to determine.
Question 5 is: On the assumption that at the time the market rent falls to be
agreed or determined the tenant does not hold, but would immediately be able to
obtain, a licence under the Gaming Act 1968, is the reference to the tenant a
reference to (a) the hypothetical tenant under the hypothetical lease to be
valued for rent review purposes (hereinafter called ‘the hypothetical tenant’)
or (b) the actual tenant as at the review date, ie the respondent in the
arbitration (hereinafter called ‘the actual tenant’)?
Before dealing
with this question, I must say something about the provisions of the Gaming Act
1968. The 1968 Act has since been amended, but none of the amendments is
material for this purpose. Under Schedule 2 to that Act, the procedure for
obtaining a licence is a two-stage one. The applicant must first obtain a
certificate of consent from the Gaming Board; armed with that consent he can
apply to the licensing justices for a gaming licence. The application to the
board must specify the premises in respect of which the licensing application
is proposed to be made. The Gaming Board are required [under Sched 2, para
3(5)] to have regard only
to the question whether, in their
opinion, the applicant is likely to be capable of, and diligent in, securing
that the provisions of this Act and of any regulations made under it will be
complied with, that gaming on those premises will be fairly and properly
conducted, and that the premises will be conducted without disorder or
disturbance.
For this purpose the board [Sched 2, para
3(6)(b)] must take into consideration the character, reputation and
financial standing of the applicant and any other person
by whom, if a licence were granted on the
relevant licence application, the club to which the consent application relates
would be managed, or for whose benefit, if a licence were so granted, that club
would be carried on.
The consent certificate must then ‘(a)
specify the applicant and those premises (b) specify a period within
which the relevant licence can be made’. (I shall throughout ignore references
to bingo clubs and licences.)
Application must then be made to the licensing authority, and that
authority is empowered [Sched 2, para 18(1)] to refuse to grant a licence
if it is not shown to their satisfaction
that, in the area of the authority, a substantial demand already exists on the
part of prospective players for gaming facilities of the kind proposed to be
provided on the relevant premises.
They may also refuse to grant or renew a
licence on the ground that the premises are unsuitable, that the applicant is
not a fit and proper person to hold a licence or that if a licence were granted
the club would be carried on for the benefit of a person who would not himself
satisfy that test.
A licence runs
for a period of one year but can be renewed for successive periods of one year
on application to the licensing authority. On application for renewal, the
Gaming Board must be notified of the application. There are provisions for the
revocation of a certificate of consent if (among other things) the information
given to the board is false in any material particular or if a licence held by
the holder of the certificate has been cancelled by virtue of a
disqualification order or by the licensing authorities or the court. There are
also provisions for the cancellation of a licence in appropriate circumstances,
and for the transfer of a licence to a suitable transferee who would have
satisfied the requirements for the issue of a certificate of consent. That is
all I need to say about the statutory machinery.
Mr Neuberger
of course relied on the use of the phrase ‘the Tenant’, which takes the reader
back to the definition clause, where it is provided that the expression ‘shall
wherever the context so admits include the person or persons deriving title
under the Tenant’; the words ‘the Tenant’ in that definition again pick up the
reference in the description of the parties ‘the Tenant Mecca Ltd’. The Ritz
Casino Ltd derived its title from Mecca Ltd. I do not think that the use of the
upper case ‘T’ in this part of clause 4(2) is entitled to more than a feather’s
weight. The draftsman has not been consistent throughout in his use of the
upper case ‘T’; in the proviso for re-entry in clause 6(1) he refers to there
being ‘any breach of any of the tenant’s covenants or if any tenant being a
corporation shall enter into liquidation’, though the use there of the upper
case would have been more appropriate; and a complementary looseness in the use
of the upper case where the lower case would have been more appropriate would
not be a matter occasioning surprise. Of course if scales are precisely evenly
balanced, the addition of a feather’s weight may bring the balance down on one
side; but I do not think
In the
pleadings that have been exchanged it is contended on the part of the Ritz
Casino that the assumption to be made is that at the date of the review Ritz
Casino Ltd ‘does not hold but will immediately be able to obtain a licence
under the Gaming Act 1968’. In Daejan Investments Ltd v Cornwall
Coast Country Club (1985) 50 P&CR 157* it was common ground between the
parties that:
when an applicant is not the freehold or
leasehold owner of the premises it must be shown that he will be able to occupy
the premises for gaming purposes. In effect, that means that the co-operation
of the person able to allow such occupation must be obtained in advance
and
It is impossible for more than one person
at the same time, and in relation to precisely the same property, to hold a
certificate of consent and a gaming licence.
*Editors’s note: Also reported at [1985]
1 EGLR 77; (1985) 273 EG 1122.
(See at p 161.) † That was also common ground before me. It
follows that, if Ritz Casino Ltd’s contentions on this point were well founded,
the market rent would have to be ascertained on the assumption that any person,
other than Ritz Casino Ltd, when considering whether to make an offer for a
lease of the premises, would do so in the knowledge that either it would have
to wait until the expiry or revocation of the Ritz Casino Ltd’s gaming licence
before it could itself obtain a gaming licence and carry on business at the
casino or it would have to come to an arrangement with the Ritz Casino Ltd for
the transfer of its licence. In the meantime the prospective tenant would not
be entitled to make any profitable use of the premises without the landlord’s
consent. I can see no justification for importing that artificiality into the
determination of the market rent.
† Editor’s note: See [1985] 1 EGLR 77 at
p 79.
At the hearing
Mr Neuberger put forward an alternative and I think more attractive
construction. It is that the purpose of this part of clause 4(2) is notionally
to take away the Ritz Casino Ltd’s existing licence but to make it clear that
the Ritz Casino Ltd will still be a potential candidate and no doubt a favoured
candidate for a licence for the premises in respect of which it can be assumed
there will be a sufficient demand created by the notional taking away of Ritz
Casino Ltd’s licence to operate the Ritz Casino. The practical effect of that
construction would be that the market rent would have to be ascertained on the
footing that nobody holds a valid gaming licence in respect of the premises and
that while the arbitrator would be entitled to take into account the existence
in the market of persons who might stand a good chance of obtaining a
certificate of consent and a gaming licence if they obtained an interest in the
premises, he would also have to take into account ‘the uncertainty that
attached to any application for a certificate of consent and a gaming licence’.
(See the Daejan Investments case per Gibson J at p 168.)‡ That was in fact the conclusion which Gibson
J felt constrained to adopt in that case on the particular language of the rent
review clause under consideration. In the instant case it seems to me to
deprive the words ‘but will immediately be able to obtain’ of any practical
operation. If all that was intended was notionally to deprive ‘the Tenant’ of
its licence, leaving the field open to anyone who might be prepared to take an
interest in the premises and to take a chance on obtaining the necessary
consent and licence, the words that I have cited are at best otiose and at
worst misleading. It seems to me that the draftsman included them intentionally
so as to avoid the, to my mind, unsatisfactory result which Gibson J felt
compelled to adopt in the Daejan case on the language of the clause
there under consideration: namely, that the rent has to be adjusted downwards
to take account of the delay and risk to which a prospective tenant would be
exposed. The allowance to be made would clearly be difficult to determine and
might depend on arbitrary and extraneous matters, such as the times when
licensing justices sit to hear applications for licences. As I see it, the
plain purpose of the provision is notionally to take away the licence held by
‘the Tenant’ and to provide that the market rent be ascertained on the footing
that any person minded to take an interest in the premises would be able to
make his offer in the knowledge that he would be granted a licence
contemporaneously with the grant of the lease. Nothing, it seems to me, could
be simpler or more sensible.
‡ Editor’s note: See [1985] 1 EGLR 77 at
p 81.
The sixth
question, which arises only if I am right in my
conclusions on question 5, is as follows: must it be assumed that the
hypothetical tenant is (1) not someone who holds any gaming licence in respect
of any premises, (2) a person lawfully capable of obtaining a certificate of
consent from the Gaming Board and a gaming licence, (3) a person who has the necessary
qualifications to obtain such a licence and such consent?
Mr Neuberger
submitted that some limitation must be imposed on the quality or qualifications
of the hypothetical tenant, and he conjured up the awful prospect that the
arbitrator might feel compelled to take account of the rent that might be
offered by some wholly unsuitable person who would never in fact be in the
running for a certificate of consent or a licence. I think the short answer to
that submission is that the range of prospective tenants is necessarily limited
to those who, having notionally been awarded a licence, will be likely to
obtain its renewal and in whose hands it will not be liable to cancellation or
revocation. As Mr Neuberger himself submitted in his argument on question 1,
even in the penultimate year of the term the hypothetical lease will be of
interest primarily to those able to look forward with confidence to a
successful application for a new lease.
In the light
of my answer to question 5, the remaining questions raised in the summons do
not arise and I do not propose to enter into them.
I think that
will suffice to enable counsel to draw up a satisfactory declaration.
