Landlord and tenant — Rent review clause in lease — Revised rent ascertained by arbitrator’s award published some months after review date — Question as to what was the due date for payment of the arrears of rent so ascertained having regard to the fact that the lease provided for rent to be paid in arrear in equal quarterly instalments on the usual quarter days — Landlords claimed that the arrears ascertained by the award became due when the award was published — Tenants contended that arrears did not become due until the next quarter day following — Landlords purported to forfeit lease under forfeiture clause providing for forfeiture if rent due remained unpaid for 21 days, no rent having been paid for more than 21 days from publication of award — Judge held that tenants’ contention was correct, that the arrears of rent were not due until the next quarter day and that the forfeiture was unlawful — Held by Court of Appeal that the judge had come to correct conclusion — No previous authority on point apart from certain dicta in the United Scientific Holdings case, where the point was not under consideration — Desirability that modern rent review clauses should deal with the matter specifically, as was done in Torminster Properties Ltd v Green — Appeal dismissed
This was an
appeal by the present landlords, South Tottenham Land Securities Ltd, from a
decision of Woolf J in an action in which they were plaintiffs, the defendants
being R & A Millett (Shops) Ltd and Alan Cyril Millett, the original
lessees under a lease of 99 years from May 6 1959, who were sued on their
covenant. The present tenants, assignees of the lease, Richard James Driscoll,
Ian David Stile and Ava Dawn Dobres, were the third parties in the proceedings.
The decision of Woolf J was reported at (1983) 268 EG 703, [1983] 2 EGLR 122.
D M W Barnes
QC and Robin Belben (instructed by Slowes) appeared on behalf of the
appellants; R Tager (instructed by Philip Hodges & Co) represented the
respondents (the original lessees); the third parties were not represented.
Giving the
first judgment at the invitation of Oliver LJ, O’CONNOR LJ said: This appeal
raises a single point for decision by this court, namely, when is a new rent
fixed under a rent review clause after the review date due for payment where
the lease lays down that the rent is to be paid in equal quarterly instalments
on the usual quarter days?
The facts
giving rise to the dispute are all agreed. The lessors granted a lease for 99
years on May 6 1959. The rent reserved was £640 a year payable in equal
quarterly instalments on the usual quarter days. The lease contained a rent
review clause for review at 21-year intervals during the period of the lease.
Therefore, the first review date was March 25 1980. I will read the relevant
clauses in a moment. The parties were unable to agree a new rent and under the
terms of the review clause the matter went to arbitration. The arbitrator
published his award on October 31 1980. The lease contained a forfeiture clause
which permitted the landlords to forfeit the lease if the rent due
remained unpaid for 21 days. No rent was paid within 21 days of October 31, and
on November 26 the landlords forfeited the lease, by taking possession of the
premises principally, as they were vacant — it was a shop. In due course they
brought an action demanding the difference between the old rent, which had been
paid for the quarters of June and September 1980, and the new rent which had
been fixed by the award of October 31 down to the date of the forfeiture. The
defendants complained that the forfeiture was unlawful because no rent under
the arbitration award was due until the next quarter day following, namely,
December 25. That was the issue. The learned judge held that the defendants’
contention was right and that the arrears of rent (which it is convenient to
call them) were not due until the next following quarter day.
I turn to the
relevant terms of the lease. Clause 1 provides that the lessee shall pay
yearly during
the said term and so in proportion for any less time than a year the respective
rents following (that is to say) (a) until the twenty-fifth day of March One
thousand nine hundred and eighty the rent of six hundred and forty pounds and
(b) from the said twenty-fifth day of March One thousand nine hundred and
eighty and until the twenty-fifth day of March Two thousand and one a yearly
rent of six hundred and forty pounds or such amount (whichever be the greater)
as may be agreed between the landlords and the lessee before the said
twenty-fifth day of March One thousand nine hundred and eighty or in the
absence of such agreement as may be determined by an arbitrator to be nominated
by the President for the time being of the Royal Institution of Chartered
Surveyors on the application of the landlords made before but not more than two
quarters before the twenty-fifth day of March One thousand nine hundred and
eighty.
Thereafter
similar provisions were made for the review dates at 42 and 63 years. Then the
clause continues:
and so that
in the case of any such arbitration the amount to be determined by the
arbitrator shall be the amount which shall in his opinion represent a fair
yearly rent for the demised premises having regard to rental values then
current for property let without a premium with vacant possession and to the
provisions of this lease (other than the rent hereby reserved) to be paid
without any deduction (except for landlords’ Property Tax) by equal quarterly
payments on the twenty-fifth day of March the twenty-fourth day of June the
twenty-ninth day of September and the twenty-fifth day of December in every
year the first of such quarterly payments to be calculated from the sixth day
of May one thousand nine hundred and fifty-nine and made on the twenty-fourth
day of June One thousand nine hundred and fifty-nine.
The effect of
that provision was that the quarterly payments were in arrear.
Clause 2 of
the lease provides:
The lessee
for itself and its assigns hereby covenants with the landlords in manner
following (that is to say): (1) To pay the said yearly rent hereinbefore
reserved at the times and in the manner at and in which the same is
hereinbefore reserved and made payable without any deduction (except as
aforesaid).
Lastly, clause
4(i) provides:
Provided
always and it is hereby agreed and declared as follows: (i) If the respective
rents hereby reserved or any part thereof shall be in arrear for twenty-one
days after the same shall have become due (whether any formal or legal demand
therefore shall have been made or not) or in the event of any breach of any of
the covenants and stipulations on the part of the lessee herein contained it
shall be lawful for the landlords or any person on their behalf at any time
thereafter to re-enter upon the demised premises.
I need refer
to no other terms in the lease. Just as a matter of history, the original
lessors’ reversion had been sold to the present plaintiffs and the lessees were
sued on their covenant, although they had assigned the lease to tenants who
held the shop and were third parties in the proceedings. The shop, as I have
said, was empty at the relevant time.
So there is
the question, when did the arrears of rent, which were ascertained by the award
on October 31, become due? The
plaintiffs’ contention is that those arrears became due when the award was
published. That is only one other way of saying, when the new rent had been
ascertained either by agreement or alternatively by award — in the present case,
by award. The defendants submit that, on the true construction of the lease and
in principle, the arrears did not become due until the next quarter day
following.
There is no
authority on this point. The only dicta of relevance are to be found in the
speech of Lord Diplock in United Scientific Holdings Ltd v Burnley
Borough Council [1978] AC 904 at p 935. That case was one of two cases
which came to the House of Lords on a different point, namely, whether time was
of the essence of the contract in rent review provisions. So this question was
entirely subsidiary. There was a further question which had been decided in the
Court of Appeal and was approved of in United Scientific, namely, that
the arrears of rent were rent, because there had been decisions to the contrary
in the past. Lord Diplock in a short passage had this to say about it:
The landlords
also sought a declaration that the market rent as determined by the valuer, if
higher than £117,340 per annum, would be recoverable with effect from April 8
1975, ie retrospectively to the review date.
He then deals
with the question as to whether it was rent. He held that it was and continued
at p 935 at E:
My Lords, under
the rent review clause in the instant case the market rent as determined in
accordance with the provisions of the clause if higher than £117,340 per annum
is expressed to be payable ‘in respect of the second period’; viz the seven
years starting on April 8 1975. Until the market rent has been ascertained the
landlords can only recover rent at the rate of £117,340 per annum, which
corresponds to the minimum rent in Walsh v Lonsdale. It is only
when the market rent has been determined and turns out to be higher than
£117,340 that the landowner can recover on the rent day following such
determination the balance that has been accruing since April 8 1975. Therein
lies the economic advantage to the tenant of delay in the determination of the
market rent to which I have previously referred.
The researches
of counsel show that this point was never considered either by the judge or the
Court of Appeal. It was not dealt with in argument and there is no reference to
it in any of the other speeches of their lordships. Viscount Dilhorne agreed in
these terms:
I agree with
what my noble and learned friend Lord Diplock has said with regard to the dates
from which the revised rents would be payable and with his observations on the
earlier cases:
but note that
that approval does not show that Viscount Dilhorne was considering whether the
rent was to be recoverable before the next following quarter day.
So there is
the only guidance from the case law. We were referred to a decision of the
Court of Appeal in 1983, Torminster Properties Ltd v Green [1983]
1 WLR 676. There again, Stephenson LJ said that the arrears were payable on the
next following quarter day, but the reason for that was that there was an
express clause in the lease to that effect — which is to be found on p 680 of
the report and I need make no further reference to it.
Mr Barnes, on
behalf of the landlords, submitted that, as a matter of principle, once the
arrears of rent had been ascertained, there is no reason why they should not
become due and payable as at the moment; and that, in the circumstances, the
landlords were entitled to forfeit the lease in the present case. He submits
that, in principle, there is no reason, commercial or in law, for keeping the
landlords out of their money, which everybody recognises has got to be paid
sooner or later. He submits that in the present case we should so rule.
When I look
back at the terms of the lease, in logic, once the new rent has been
ascertained, in this case on October 31, the amount of the arrears had become due
on the quarter days of June and September, and the part from September until
October 31 could not be due until the December quarter day. The effect of such
a decision would be that immediately the rent was assessed by the arbitrator
and his award published, the lessees would be in breach, because in the nature
of things they could not have paid the arrears on the dates when they
notionally had become due. Mr Barnes, quite rightly, does not submit that that
can be a proper construction of the lease. So one is left with this situation,
that as at October 31 the arrears cannot be treated as a single arrear. The
only arrears are the two sums of money which would have been due on June 24 and
September 29.
Now
commercially it may be said that there is no reason why the rent should not
become due on the date when the award was published. Mr Tager, for the
defendants, has submitted that this cannot be right, that rent under this lease
is agreed to be paid on rent days, namely, the quarter days in the year and that
where one has got an assessment in between quarter days, such as happened here,
there is good reason for saying that the arrears do not become due until the
next quarter day following. He has submitted that there are a number of grounds
for saying that that is a better solution — and I may say here and now that it
was the solution to which the learned judge came. He submits that certainty is
required and desirable between landlord and tenant under a lease such as this
as to when the rent is to be paid, and that if the lease contains a rent review
clause in terms such as we have here, then in order to give certainty to the
relationship between the two parties as to when rent is to be paid, the court
should confine it to payment on quarter days.
Some help in
that construction is in fact obtained from the terms of the lease itself.
Clause 2(1) provides that the rent is to be paid ‘at the times and in the
manner at and in which the same is hereinbefore reserved and made payable’.
Now, of course, the arrears cannot be paid in the manner laid down by the
lease, which is equal quarterly instalments. But some meaning can be given to
the times at which the rent is to be payable and the times are the quarter days
and no other. So that to that extent one can get from the terms of the lease
itself an indication that these arrears should not be due until the next
quarter day following.
Mr Barnes has
submitted that really the clause can have no application to arrears at all,
because it is a single clause and we should not divide the times and the
manner. In my judgment, that is not a sufficient reason for adopting a time
which is ascertainable only from the date when the award is published, where
there is an award, rather than a time which is found in the lease itself. It seems
to me that it is much better, in cases such as this, that there should be no
doubt about when the rent is due. If the parties choose to put into a lease
that rent is due on quarter days, then there are good grounds for saying, where
arrears arise in this fashion, that they should not be due until the next
following quarter day. In my judgment, the learned judge came to a correct
decision on this point.
It is to some
extent a choice between two periods, because, of course, I appreciate the
submissions Mr Barnes has made that as soon as the award is published, or the
rent agreed, one has got a date which is certain. The argument which took place
in the court below is no longer relevant here as to the date of publication,
but I must say something about it. The law is that an award is published when
the arbitrator notifies the parties that he has made his award, but they do not
know the contents of it until it is taken up and his fee paid. So that in the
present case the parties were notified by letter of October 30 that the award
was ready, they received the letter on October 31 — that is how the date of
publication was fixed — but of course they did not know the contents of it
until the award was taken up. The tenant cannot be expected to pay rent the amount
of which he does not know. So, therefore, the publication of the award as a
fixed day for discharging the obligation is, in my judgment, quite unworkable.
One has to allow some reasonable period of time in individual cases as to when
it can be said that the tenant has ascertained how much is due. In the nature
of things it is very unlikely to be the day when the award is published. That
seems to me to be an objection which points strongly to some other date as
being a suitable certain date when the rent is due. As I have said, in the
present case it does not seem to be possible to say that it was October 31. We
do not know when the actual details of the award reached the landlords. They
wrote off on the 31st enclosing the arbitrator’s fee. I do not know what the
days of the week were in 1980, but they are unlikely to have received it back
before November 2. Therefore, would it be November 2 from which the 21 days ran
or would it be November 3? Or some later
date? There are postal delays, there are
weekends to be considered. This kind of uncertainty points strongly to looking
for some more certain date from which the arrears of rent are to begin. It is,
as I have said, sufficiently found, in my judgment, in the lease. I am
confident that the learned judge came to a correct decision and that where you
have got a clause such as this then the arrears of rent do not become due and
payable until the quarter day next following the ascertainment of the new rent.
Lastly, modern
rent review clauses deal with this problem, so that it does not arise: see, for
example, the clause in Torminster. It is desirable that rent review
clauses in leases should deal specifically with what is to happen where there
is delay in arriving at the new rent beyond the review date.
I would
dismiss this appeal.
OLIVER LJ
agreed that the appeal should be dismissed for the reasons given by O’Connor
LJ.
The appeal
was dismissed with costs.
