Underlease — Commercial premises — Construction of rent review clause — Whether rent could be reduced below that currently due — High Court holding against that construction — Appeal dismissed
By an underlease dated March 25 1974, the respondent’s predecessor in title demised to the appellant an office building, Harmsworth House, Bouverie Street, and office premises at 36 Tudor Street, London EC4, for a term from December 25 1973 to June 20 2009 at £530,000 pa, together with an insurance rent. The rent was to be reviewed every five years during the term. The rent was reviewed to £1,575,000 with effect from December 25 1988. The lease provided for the rent of £530,000 to be reviewed again, with effect from December 25 1993. The appellant contended that the rental value at that date was £427,000. The respondent argued that it was less than £1,575,000, but more than £530,000. An issue arose as to the rent payable from December 25 1993. The High Court held that on its true construction, the rent review clause precluded the rack-rent reserved by the underlease, including the rent payable on review, from being reduced on a subsequent rent review.
The appellant appealed to the Court of Appeal. Clause 1 contained the following proviso: “Provided always and it is hereby agreed that the rent first hereby reserved shall at the end of every fifth year of the term be increased to the then current market value of the demised premises and in this connection the following procedure shall be adopted: subclauses (a) to (c) described the procedure by which “the then current market rental value” would be determined and certified. Clause (c) continued: “… the rent hereby reserved shall as from the expiration of the fifth year of the said term under review be increased to an amount so certified. (d) Under no circumstances shall this clause operate to effect a reduction in the rent hereby reserved. (f) The term ‘the then current rental value’ for the purpose of this Underlease shall mean the rent (not being less than the yearly rent of Five hundred and thirty thousand pounds (£530,000) payable hereunder) …”.
Held The appeal was dismissed.
1. There was no contradiction or inconsistency in the underlease of a nature to allow the court to correct or override its provisions as a matter of construction and in the absence of an action for rectification the underlease must therefore be construed as a whole.
2. The term “the rent hereby reserved” in para (d) of the proviso referred to the rack-rent including reviewed rent.
3. The wording of para (d) of the proviso was unambiguous, emphatic and mandatory. The appellant’s construction would require the court to ignore its clear meaning.
4. Although this construction rendered the words in parentheses in para (f) otiose it was accepted that the existence of an otiose phrase was of little assistance in the construction of leases. The court was aware of the use of “linguistic overkill” by draftsmen. In addition, the appellant’s own construction would have resulted in viewing para (d) as otiose.
5. The fact that on this construction the respondent lessor might be the subject of a windfall was of little assistance to the court and yielded to the actual wording of the relevant provisions. In any event, clauses in the nature of the present were not uncommon in commercial leases.
Jonathan Gaunt QC (instructed by the Treasury Solicitor) appeared for the appellant; Kim Lewison QC (instructed by Sweptstone Walsh) appeared for the respondent.
