Lease — Rack-rental value ascertained by agreement — Procedure in default of agreement — Independent valuer to be appointed — Time to be of the essence — Failure to appoint valuer by appointed day — Whether landlord still entitled to rent review — High Court holding that landlord not losing right to rent review
This case concerned two identical rent review clauses in two leases. The first related to a shop in Victoria Street, London SW1, and the second related to a display case adjoining the shop. The plaintiff company was the present landlord and the defendants were the original lessee and the present lessee by assignment, both being members of the same group of companies. The rent for the shop was substantial, whereas the rent for the display was quite small. There were no material differences between the two leases. The leases contained provisions for a rent review taking effect on March 25 1990. Clause 3(a) contained the crucial rent review provision, which stated in summary form: Immediately after December 25 1989 the rack-rental value of the demised premises on that date should be ascertained by agreement in writing signed by or on behalf of the lessors and the lessee or in default of such agreement before March 25 1990 (time in this respect being of the essence of the contract) should be estimated and certified by an independent valuer. A question arose whether the landlord had lost its right to review the rent by reason of not having obtained a certificate of an independent valuer by March 25 1990.
Held Judgment was given for the landlord.
1. The landlord did not lose its right to its rent review when March 25 1990 passed without an independent valuer having estimated and certified the rack-rental value.
2. The correct interpretation of clause 3(a) was that if, by March 25 1990, there was a default of agreement about the rack-rental value of the premises on the previous December 25, then the procedure for having the rack-rental value estimated and certified by an independent valuer could be put into effect. That interpretation fitted into the context of the lease as a whole. The complete procedure might take some considerable time and clause 3(a) taken as a whole did not contemplate that the whole process must be over within three months.
3. In the context of the lease as a whole, the period between December 25 and the following March 25 was seen as a period of negotiation with a view to reaching agreement, and the power of the landlord to initiate the independent valuer procedure arose on March 25 if no agreement had then been reached.
4. As regards the “time of the essence” provision, there were two cases in which the judge regarded the provision as an indication that the time-limit was to relate to the independent valuer’s certificate, not to the default of agreement: see C Bradley & Sons Ltd v Telefusion Ltd (1981) 259 EG 337 and Art & Sound Ltd v West End Litho Ltd [1992] 14 EG 110.
5. In at least two other cases the provision was regarded as no more than a confirmation that, if the deadline for reaching agreement had arrived and there was no agreement, then the right of the landlord to initiate the independent valuer procedure was not to be delayed while further attempts to reach agreement took place: see Wrenbridge Ltd v Harries (Southern Properties) Ltd (1981) 260 EG 1195 and Kings (Estate Agents) Ltd v Anderson [1992] 05 EG 166.
6. However, it was not necessary to decide which line to follow in the present case. There was a crucial distinction between the structure of the rent review clauses considered in those cases and the one in the present case. In contrast to the other cases, the instant case specified only one rather than two time-limits. The “time of the essence” provision followed immediately after the single cut-off date, whereas in the other cases it was significantly separated from both of the cut-off dates. Those other clauses far more readily lent themselves to the “time of the essence” provision being read as referring forward to the time-limit for the decision of the independent expert.
7. Accordingly, neither the “time of the essence” provision nor the other cases on similar but, nevertheless, significantly different clauses should govern or affect the conclusion that the landlord’s construction of the lease was correct. The landlord did not lose its right to its rent review when March 25 1990 passed without an independent valuer having estimated and certified the rack-rental value. In the case of the lease of the shop, a valuer was after that date validly appointed by the president of the RICS. In the case of the lease of the showcase, a valuer had not been appointed but the landlord was entitled to apply for an appointment.
Paul Morgan QC (instructed by Berwin Leighton) appeared for the landlord; Benjamin Levy (instructed by the legal department of C & J Clark Ltd) appeared for the lessees.
