Landlord and tenant — Rent-review clause in lease — Construction — Clause provided for the rent to be reviewed at five-yearly intervals, the term being one for 25 years from March 23 1979 — After defining ‘market rent’ in fairly standard terms and providing for certain matters to be disregarded in ascertaining the rental value, the review clause then said ‘and there being disregarded this clause’ — Landlords submitted that this meant that the notional lease which had to be considered at the first review date was a lease for 20 years with a rent fixed at the market rent at the review date and payable at the amount then fixed for the whole of the 20-year term — Landlords considered that this interpretation would be in their interests as it would give them an initially higher rent than if the notional rent were subject to rent review, and this might be more advantageous than a lower initial rent subject to review increases — Tenant submitted that the solution was to strike out the words ‘and there being disregarded this clause’ — Held that clause had to be interpreted literally, disregarding rent reviews in the lease — Rent to be determined in accordance with landlords’ submission
This was an
originating summons taken out by the plaintiffs, Securicor Ltd, tenants under a
lease for 25 years from 1979 of industrial premises at Basingstoke, the
landlords being PosTel Properties Ltd, defendants in these proceedings. The
summons raised questions as to the construction of the rent-review clause in
the lease.
Kirk Reynolds
(instructed by Hextall Erskine & Co) appeared on behalf of the plaintiffs;
Nicholas J C Stewart (instructed by Maxwell Batley & Co) represented the
defendants.
Giving
judgment, JUDGE BLACKETT-ORD said: I have before me an originating summons
taken out by two members of the Securicor Group and raising the question of the
construction of the rent-review clauses contained in two leases granted by the
National Provincial Bank Ltd. The landlords are now PosTel Properties Ltd, the
custodian trustee for the Post Office’s superannuation fund.
The clauses
are, for all purposes, in similar terms, apart from the precise figures of the
original rent. I can deal with that which forms the first exhibit to the
affidavit of Mr R P Taylor [group property manager] for the plaintiffs and is
the lease to Securicor Ltd, dated April 30 1979, of industrial premises at
Basingstoke. The term was for 25 years from March 23 1979. The original rent
was £9,950, payable quarterly in advance on the usual quarter days. There is
provision for an additional insurance rent and, in effect, a service charge.
The reddendum itself does not refer to any possible increases in the original
reserved rent.
Then one goes
straight to clause 6 towards the end of the lease, which contains provisions
relating to the review of the original rent, and I must read most of that.
Subclause (1) provides for rent to be revised at the end of the fifth, tenth,
fifteenth and twentieth years of the term (and those dates are defined as the
‘review dates’) in accordance with the following provisions of the clause.
Subclause (2) provides that the revised rent is to be whichever is the greater
of the previous five years’ rent or the market rent of the premises at the
relevant review date. Subclause (3) is then largely concerned with the
definition of ‘market rent’ and begins in these terms:
The
expression ‘market rent’ means the annual rental value of the premises in open
market which might reasonably be demanded by a willing landlord for a lease
with vacant possession at the commencement of the term for a term equal to the
residue of the term unexpired at the relevant review date. . . .
Pausing there,
it is the reasonable open market rent, at the review date, for the balance of
the term; and as we have now got to the first review date, we contemplate a
lease for a term of 20 years, with vacant possession — and I suppose with a
willing landlord, whatever that means.
Having got so
far, the clause goes on to say that the rental value is to be ascertained on
the basis of the supposition — if not the fact — that the tenant has complied
with the repairing covenant in the lease. I think that is a summary of that
provision. Then it goes on to say that certain things are to be disregarded if
otherwise applicable. First, certain matters set out in section 34 of the
Landlord and Tenant Act 1954; second, any work carried out by the tenant before
the commencement of the present actual lease — that being, of course, aimed at
a sitting tenant who has taken a new lease, and work which he has carried out
is disregarded if it is before the lease with which I am now concerned; third,
so far as may be permitted by the law, all restrictions whatsoever relating to
rent or to security of tenure — so we are back in the open market; and fourth,
the wording is:
and there
being disregarded this clause
Then I think
one must assume a full stop, and the clause continues:
Such lease
being on the same terms and conditions (other than as to amount of rent) as
this present demise without the payment of any fine or premium.
The landlord’s
contention is that the notional lease which has to be considered is one for 20
years with a rent fixed at the market rent at the review date and payable for
the whole of the 20-year term. The tenant’s contention is that the rent under
the notional lease should be subject to review in the same way as the rent
under the actual lease. The tenant, I think, does not dispute — it is difficult
to see how he could dispute — that the words ‘and there being disregarded this
clause’ (and this clause being the only clause in the lease dealing with rent
review) must bear their literal meaning. And indeed I have referred to certain
authorities in which that view has been taken by the court: that is to say, that
the provisions of rent-review clauses are normally to be taken, as one might
say, at their face value. There were two cases decided by Goulding J and
reported in the Estates Gazette: Pugh v Smiths Industries (1982)
264 EG 823, [1982] 2 EGLR 120 and Safeway Foodstores Ltd v Banderway
Ltd (1983) 267 EG 850, but I do not find them of assistance except that
they do indicate — as indeed does also the case decided by Walton J (to a
transcript of which I was referred) of National Westminster Bank plc v Arthur
Young McClelland Moores & Co, a judgment given on November 26 1984* —
that the court construes these clauses literally unless, of course, the
circumstances are extremely exceptional. I find it difficult to think what
circumstances those could be, because if one is forced to the conclusion that
something has gone so far wrong with the clause that the court should endeavour
to interpret it in some different way, then really there is no question of
taking it literally. But apart from that — and that sort of circumstance is not
found in the present case — I would only refer to what Goulding J said in the Safeway
case, at the bottom of the first page of the report:
I do not get
any great help from those decisions because I do not think that one can solve
questions of construction by comparing more or less similar but by no means
identical cases on documents differently worded.
*Editor’s
note: Since reported at (1984) 273 EG 402 and p 61 ante.
But Mr
Reynolds (for the tenant) exhorted me to strike out the words ‘and there being
disregarded this clause’. He conceded that this would be a bold course for me
to adopt, but he prayed in aid the last sentence of subclause (3) of clause 6
containing in brackets the words ‘other than as to amount of rent’. He referred
to two cases on the Landlord and Tenant Act 1954, Part II, as amended: the
decision of Stamp J, as he then was, in Regis Property Co Ltd v Lewis
& Peat [1970] Ch 695 and a decision of Megarry J in English
Exporters (London) Ltd v Eldonwall Ltd [1973] Ch 415. In each of
these there are observations suggesting that the rather similar wording in the
Act, referring to the new lease to be granted to a tenant or the interim
tenancy pending the final determination of the application as being on certain
terms and conditions ‘other than as to amount of rent’, is simply excluding the
amount of the existing rent from consideration. Because, obviously, the court
is being asked to fix a different rent and it would be absurd to bring into
account as binding the provisions determining the existing one. And so Mr
Reynolds says that that means that the reference in the last sentence of
subclause (3) to ‘other than as to amount of rent’ means simply that the court
should disregard the original rent figure but still allow the proposed notional
lease to contain the rent-review provisions of clause 6; that, he said, being
fair because — and it is mentioned in the affidavits — the landlord’s formula
will give them a greater rent than they would get initially if the notional
rent were to be subject to review.
But it is
necessary to construe clause 6 as a whole, and in the statute there is no such
provision as the direction in clause 6 that the
reference in the clause to the lease being on the same terms and conditions
‘other than as to amount of rent’.
In my judgment
the clause clearly provides that the market rent for the notional term is to be
ascertained disregarding the rent-review provisions in the lease. Accordingly,
the landlord’s contention is correct, and the rent should be decided by the
expert or arbitrator on that footing. Declarations were made accordingly.
