Old-fashioned rent review clause — No express ratchet provision — Drastic fall in rental value since last review date — Whether tenant impliedly empowered to serve trigger notice
The plaintiff tenants held office premises in Southampton under a lease for 50 years and six months granted by the defendant landlords to a predecessor of the tenants in 1964. The yearly rent reserved in the reddendum was £2,400 for the first 14 years and six months and thereafter such rent as provided for by clause 4. By that clause rent review could be initiated at seven-year intervals by a landlords’ notice specifying an “increase of the rent” for the next rental period, which would be deemed to be the agreed “increased rent” if the tenants failed to serve a counternotice to negotiate within a prescribed time-limit. On timely service of such counternotice, and in default of agreement, the question of “whether any and if so what increase should be made” could be referred to arbitration, such reference to be on the sole application of landlords or tenants to the president of the RICS should the other fail to concur in a joint nomination of an arbitrator.
The 1964 machinery contained none of the assumptions and disregards to be found in modern precedents and in 1975 the original parties executed a memorandum embodying a compromise agreement on the extent to which certain major improvements effected by the tenants would be taken in to account. The memorandum further provided that as from December 25 1990 reviews “shall take place” at five-year intervals. In June 1995 the plaintiff tenants, acting on advice that the rental value of the premises had fallen dramatically since the last review some four and a half years previously, purported to serve a notice initiating a review of the rent for the period commencing December 25 1995. The landlords refused to co-operate and continued to claim rent at the level fixed in 1990. By the present summons the tenants sought a declaration that they were entitled to initiate the review provisions, it being common ground that the central question was whether clause 4 of the lease as amended by the memorandum allowed for downwards as well as upwards review.
Held The declaration was refused.
1. Despite the lack of express provision in the nature of a ratchet it was clear that the review machinery was solely geared to “increases”. That factor, taken together with the express initiating power given to the landlords alone and the expectations of the market in general in 1964, left no room for implying a like power in favour of the tenants. Nor could such a power be implied from the later memorandum which was clearly intended to incorporate the agreed changes into the existing review machinery.
2. The right of the tenants (after initiation by the landlords) to apply unilaterally for the appointment of an arbitrator was not a contrary indication as a tenant might have good reason for seeking a prompt determination of the increase, if any, to be paid over the next rent period in early settlement.
3. The recent decision of the Court of Appeal in Royal Bank of Scotland v Jennings [1996] EGCS 168 was distinguishable if only because the landlord in that case had conceded that the rent review clause could operate downwards as well as upwards.
4. Under the terms of clause 4 the tenants could not argue for a mandatory rent review rather than one at the landlords’ election without showing an implied intention which the court would resist: see Weller v Akehurst [1981] 1 EGLR 105 that no rent should be payable if review did not take place.
Robert Powell-Jones (instructed by the solicitor to Royal Insurance Group) appeared for the plaintiffs; Charles Morgan (instructed by McCarrahers, of Southampton) appeared for the defendants.
