Landlord and tenant — Rent review clause — Whether time of the essence — Whether the case was one of the exceptions to the general rule laid down in ‘United Scientific Holdings Ltd v Burnley Borough Council’ that the time-table in a rent review clause is not of the essence of the contract — Lessee’s right to determine lease on giving not less than six months’ prior notice — Lessor’s right, subject thereto, to a review of the rent on giving the same length of notice, in both cases to take effect at the end of the third year of the lease — Whether the interrelation of the review provision with the break clause in the lease was a contra-indication negativing the general rule — Held that, as time was of the essence in relation to the break clause and as the break clause and the review provisions were interrelated, time was of the essence in the case of the review provisions — The lessor’s notice purporting to exercise the claim to review, being served out of time, was invalid — Appeal from judge dismissed
This was an
appeal by the plaintiff, Abdul Jabbar Al Saloom, from a decision of John Mills
QC, sitting as a deputy High Court judge (1980) 255 EG 541, [1980] 2 EGLR 106,
in an action against Shirley James Travel Service Ltd, the defendants and
present respondents. The appellant had sought a declaration that a notice
served by him as lessor was effective to require a review of the rent payable
under a lease of which the respondents were the lessees. The judge had refused
the declaration.
Derek Wood QC
and Gregory Hill (instructed by Moreton, Phillips & Son) appeared on behalf
of the appellant; P M H Mottershead QC and A C Geddes (instructed by Boyce,
Evans & Sheppard) represented the respondents.
Giving
judgment, WALLER LJ said: This is an appeal from a decision of Mr John Mills
QC, sitting as a deputy High Court judge, when the judge refused the
declaration claimed in an originating summons. The question was whether time
was of the essence or not in a clause, part of which was a rent review clause.
The summons
asked for a declaration that on the true construction of clause 5 of the
underlease, ‘the plaintiff’s right under that clause to require a review of the
rent payable under the above-mentioned . . . underlease was effectively
exercised by a notice dated January 5 1979 and given to the defendants by the
plaintiff’s solicitors on his behalf’.
The facts were
as follows: an underlease of 4 West Halkin Street, Westminster, was granted on
September 11 1969 for a term of seven years from mid-summer 1969 to mid-summer
1976, and on August 19 1976 an extension of that underlease was agreed between
the parties, extending the lease from June 24 1976 to June 24 1983.
The important
clause, with which this case has been concerned, is clause 5; it is quite
unnecessary to read any other of the clauses of the underlease, but I must read
clause 5:
PROVIDED
ALWAYS AND IT IS HEREBY AGREED that at the expiration of the third year of the
term hereby granted the Lessee shall have the right on giving to the Lessor not
less than six months’ notice in writing prior to the expiration of the said
third year of the term to determine this Lease and if such notice shall be
given and the Lessee shall up to the time of such determination pay the rent and
perform and observe the covenants on its part hereinbefore performed and
contained then immediately on the expiration of the said third year the present
demise and everything herein contained shall cease and be void but without
prejudice to the right and remedies of either party against the other in
respect of any antecedent claim or breach of covenant and subject to the
Lessee’s right of determination as aforesaid the Lessor shall have the right on
giving to the Lessee not more than twelve nor less than six months’ notice in
writing prior to the expiration of the said third year of the term to review
the yearly rent for the time being payable hereunder and if the Lessor shall
give to the Lessee such notice as aforesaid then from the commencement of the fourth
year of the said term the yearly rent payable in respect of the demised
premises shall be such a sum as shall be agreed between the Lessor and the
Lessee as representing a fair rack rental market value of the demised premises
for a term of four years. . . .
I need not read
any more of the clause. The lease originally ended in the mid-summer of 1976;
the new sublease was from mid-summer of 1976, as I have already mentioned. The
break date was mid-summer 1979 and the last day for the service of ‘six months’
notice in writing prior to the expiration of the said third year of the term’
was either December 23 or 24 1978. That was the last day on which either the
notice to determine the lease or the notice to review the rent should be given.
In November of
1978 the present appellant acquired the reversion to the lease and on January 5
1979 — that is to say, nearly two weeks after December 23 1978 — the
appellant’s solicitors served a notice purporting to exercise the claim for a
review. On January 30 an answer was sent by the tenant saying that that notice
was invalid and, as I have already said, the question before the court which
arose was whether or not that was a valid notice for a review of rent.
The general
principles relating to rent review clauses were laid down by the House of Lords
in the case of United Scientific Holdings Ltd v Burnley Borough
Council; I give only the title of the first of two appeals, reported in
[1978] AC 904. It is unnecessary to read in any detail the speech of Lord
Diplock, because his conclusions are conveniently summarised at p 930, where he
said this:
So upon the
question of principle which these two appeals were brought to settle, I would
hold that in the absence of any contra-indications in the express words of the
lease or in the interrelation of the rent review clause itself and other
clauses or in the surrounding circumstances the presumption is that the
time-table specified in a rent review clause for completion of the various
steps for determining the rent payable in respect of the period following the
review date is not of the essence of the contract.
It was
submitted before us on behalf of the appellant that the interrelation or
juxtaposition of the break clause did not give rise to the conclusion that time
was of the essence in this rent review clause. The argument was that, although
a break clause might overcome the presumption that time was not of the essence
in a rent review clause, it would only do so where there was a period of time
between the date when the notice of the rent review clause had to be given and
the date when the notice of the break had to be given; in other words, so that
the tenant had appreciable time in which to make a decision as to whether he
wished to break the lease.
Our attention
was drawn to the facts in two cases: C Richards & Son Ltd v
Karenita Ltd (1972) 221 EG 25; and Samuel Properties (Developments) Ltd v
Hayek [1972] 1 WLR 1296 — in each of those cases there was a period of time
between those two dates — and to the comments of Lord Fraser in the United
Scientific Holdings case at p 962 where, in dealing with the question of
time in relation to a rent review clause, he said this:
The rule
would of course be excluded if the review clause expressly stated that time was
to be of the essence. It would also be excluded if the context clearly
indicated that that was the intention of the parties — as for instance where
the tenant had a right to break the lease by notice given by a specified date
which was later than the last date for serving the landlord’s trigger notice.
The tenant’s notice to terminate the contract would be one where the time limit
was mandatory, and the necessary implication is that the time limit for giving
the landlords notice of review must also be mandatory.
That passage was
relied upon by the appellant in this case.
In this case,
however, the periods were identical, except that the notice of review could not
be made more than 12 months before the appropriate date, and it was submitted
that, the final date being the same for both break and rent review clauses,
this was not enough to rebut the presumption.
In the passage
that I have quoted from Lord Diplock’s speech, he spoke of interrelation; in
another passage he dealt with the status of a break clause, and at p 929 he
said:
My Lords,
although a lease is a synallagmatic contract it may also contain a clause
granting to the tenant an option to obtain a renewal of the lease upon the
expiration of the term thereby granted. Such a clause provides a classic
instance of an option to acquire a leasehold interest in futuro, and it is well
established that a stipulation as to the time at which notice to exercise the
option must be given is of the essence of the option to renew. Although your
Lordships have not been referred to any direct authority upon the converse case
of a ‘break clause’ granting to the tenant an option to determine his interest
in the property and his contractual relationship with the landlord prematurely
at the end of a stated period of the full term of years granted by the lease,
there is a practical business reason for treating time as of the essence of
such a clause, which is similar to that applicable to an option to acquire
property. The exercise of this option by the tenant will have the effect of
depriving the landlord of the existing source of income from his property and
the evident purpose of the stipulation as to notice is to leave him free
thereafter to enter into a contract with a new tenant for a tenancy commencing
at the date of surrender provided for in the break clause.
As I have
already said, both provisions about break and rent review in this case were in
the same clause and closely allied to each other. The words ‘not less than six
months’ notice in writing prior to the expiration of the said third year of the
term’ were used for both break and rent review. Whether the word
‘interrelated’, ‘correlated’ or ‘associated’ is used, the implication of the
use of the same phrase in the same clause is overwhelming. The phrase must mean
the same in each case, either that in both time was of the essence, or in neither.
In my view the phrase could not change its meaning in the course of 10 lines
unless there were some qualifying phrases to make such a change clear. I have
no doubt that in both cases here time was of the essence; I agree with the
learned judge and I would dismiss this appeal.
OLIVER LJ and
FOX LJ agreed.
The appeal was dismissed with costs.