Landlord and tenant — Rent review clause in lease — Increased rent retrospectively determined by arbitrator — Whether tenants liable to pay increased rent as from review date specified in lease, amounting to two quarters’ rent, notwithstanding that the rent payable was not determined by arbitration until some months after the date from which any variation in rent was to take effect — The arbitration took place in accordance with the rent review clause and no question arose as to its timing — C H Bailey Ltd v Memorial Enterprises Ltd, United Scientific Holdings Ltd v Burnley Borough Council, and Torminster Properties v Green referred to — Held that once the arbitrator had determined the rent, and the determination was binding on the tenant, the tenant was liable to make payment on the next quarter day, although it included rent for previous quarters going back to the date specified in the lease for variation — Subsidiary points discussed as to the effect of premature forfeiture and as to the date when the arbitrator’s award became binding on the tenants
In this action
the plaintiffs, South Tottenham Land Securities, claimed from the defendants, R
& A Millett (Shops) Ltd, and a guarantor, sums due in respect of rent under
a rent review clause in a lease of premises at 42 London Road, Enfield.
Although the first defendants had assigned their leasehold interest to third
parties, they remained liable under their covenants and the guarantor also
remained liable.
R Belben
(instructed by Slowes) appeared on behalf of the plaintiffs; Romie Tager
(instructed by Philip Hodges & Co) represented the defendants.
Giving
judgment, WOOLF J said: This case raises the issue as to the date from which a
tenant is under an obligation to pay an increased rent under a provision in a
lease for the review of that rent when the review takes place after the date
from which increased rent would otherwise have been payable; because, there
having been a dispute as to what the increased rent should be, the matter was
referred to arbitration.
Although the
issue is one which, I would anticipate, is likely to arise quite frequently in
practice, surprisingly there is no direct authority determining the issue to
which counsel have been able to draw my attention. In these circumstances I am
grateful to the assistance which I received from both counsel in answering the
problem.
The plaintiffs
are claiming against the defendants three sums by way of rent. The first and
second sums are the difference between the quarters’ rent which would have been
payable but for the review and the amount determined by the arbitrator to be
payable for those quarters as a result of the review. The third sum is a sum
which represents a proportion of the quarter’s rent at the increased rate
determined by the arbitrator. The period is limited to part of that quarter’s
rent, because during the quarter the landlord forfeited the lease for
non-payment of the earlier quarters’ rent at the increased rate.
There has been
no oral evidence called before me, because the facts, so far as they can be
ascertained, are agreed. The lease in question was made on May 6 1959 between
the Prudential Assurance Co Ltd and the first defendant as lessee and the
second defendant as guarantor. Under the lease the Prudential Assurance Co Ltd
demised to the first defendant the premises known as 42 London Road, Enfield,
for a period of 99 years from May 6 1959.
On February 7
1977 the first defendant assigned its interest under the lease to the third
parties, who have taken no part in these proceedings. On July 18 1978 the
Prudential conveyed their reversionary interest to the plaintiffs. The
plaintiffs, notwithstanding the assignment by the first defendant to the third
parties, are entitled to sue the first defendant and the second defendant on
the covenants they gave, which are set out in the lease.
So far as the
amount of rent which was payable, that is set out in the lease in clause 1 as
follows — I read only the relevant parts:
The lease
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 £640 and
(b) from the 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 £640 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.
Then I omit
part of the clause and continue:
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 the
provisions of this lease (other than the rent hereby reserved) to be paid
without any deduction (except for Landlord’s 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.
Clause 2:
The Lessee for
itself and its assigns hereby covenants with the Landlords in the manner
following (that is to say):¾
(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).
It is also
necessary to make reference to the provision with regard to the landlords’
right to forfeit in respect of non-payment of rent. That is contained in clause
4(i), which is in the following terms:
Provided
always and as hereby agreed and declared as follows
(1) 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 therefor 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 do not need
to read further.
Consequent
upon the review provisions contained in the lease, on April 9 1979 the
plaintiffs’ managing agents wrote to the third parties advising them of the
rent review provisions due to take effect from March 25 1980 and that the
plaintiffs proposed to take advantage thereof. Negotiations took place between
the parties in a rather listless manner, and on March 20 1980 the agents
applied in writing to the president of the Royal Institution of Chartered
Surveyors for the appointment of an arbitrator in accordance with the terms of
the lease. The president on June 16 1980 appointed Mr S J Pulling, a Fellow of
the Royal Institution of Chartered Surveyors, as the arbitrator.
On October 30
1980 Mr Pulling, having carried out his functions as arbitrator, wrote to the
plaintiffs and the third party as follows:
I give you
notice that I have made and published my award in writing in this matter and
that it may be obtained at my office at above address between the hours of 9 am
and 5 pm (Saturday and Sunday excepted) on payment of my charges amounting to
£345.00 inclusive of VAT or following receipt of a cheque to cover these
charges a copy of the award will be sent by post.
On October 31
the plaintiffs wrote to Mr Pulling enclosing the charges and saying they would
be glad to receive the award. It is not known on what date the award was in fact
received by the plaintiffs’ agents, but on November 6 1980 they wrote to the
solicitors who had previously been acting on behalf of the third party
informing them of the fact of the award and the amount of the award.
As I have
already indicated, on November 26 1980 the plaintiffs, not having received the
increased rentals which would be due under the award for the quarter ended June
24 1980 and the quarter ended
defendants are those sums which were not recovered from the third parties.
What is
contended on behalf of the defendants is that on November 26 1980 none of the
sums claimed by the plaintiffs were in fact due and therefore there was no
right of forfeiture.
Alternatively,
it is contended that if they were due prior to the date of forfeiture, they had
not been in arrear for the period of 21 days as required by the lease, and
therefore there was no right of forfeiture on November 26.
The reason why
it is argued that no sum was due on November 26 is because, although the
defendants concede that by that date the increased rent had been determined by
the arbitrator, they contend that under the terms of the lease the increased
rent was not payable until the quarter day following that determination, that
is to say on the quarter day in December 1980. The basis for the allegation
that, if any sum was due, it had not been due and in arrear for 21 days, is
that, although by October 30 the arbitrator may have determined the increased
rent, that determination created no obligation so far as the defendants are
concerned until they or the third party were notified of the contents of that
determination, and that was not until after November 6, when the third parties
received the letter of that date from the plaintiffs’ representatives.
At one time it
was doubtful whether there was any obligation on a tenant under a clause of the
sort under consideration here to pay increased rent for a period prior to that
increased rent being determined. In other words, it was doubtful whether a
determination could have a retrospective effect. However, such doubts were
resolved by the Court of Appeal in the case of CH Bailey Ltd v Memorial
Enterprises Ltd [1974] 1 WLR 728), where it was made clear that in the case
of a review provision of this sort, once the rent had been ascertained, that
could be applied to place the tenant under an obligation to pay an increased
rent from the date specified in a lease as being the date from which the
increase was to run, even though the increase was only determined later.
Lord Denning
MR at p 731 between letters F and G said with regard to the lease in that case:
The words of
that clause seem to me clear. They mean that, as from September 21 1969 the
increased rent shall be paid. But Mr Bromley says that the words, clear as they
are, are not to be given effect because of the nature of ‘rent’. He says that
‘rent’ has a special quality in English law. It issues out of the land. It can
be distrained for. In particular, it must be certain at the time when it
becomes payable. It cannot ever be assessed so as to operate retrospectively.
Accordingly, he says the increased rent in this case (which was assessed on
March 23 1973) is payable only from March 25 1973, and cannot be back-dated to
September 21 1969.
In support Mr
Bromley referred to Greater London Council v Connolly [1970] 2 QB
100, where both Lord Pearson and I said that rent has to be certain. But that
was said in an entirely different context. It has no application whatsoever in
the present case.
More to the
point is Re Essoldo (Bingo) Ltd’s Underlease (1971) 23 P & CR 1,
decided by Pennycuick V-C. There was a rent revision clause which was somewhat
similar to the one here. It provided for a fixed rent of £6,000 a year during
the first three years of the term; and then secondly ‘during the remainder of
the term’ an increased sum to be ascertained in the manner there provided.
Pennycuick V-C said that the nature of rent was such that it had to be certain,
and that it could not be determined retrospectively. Accordingly he held that
the revised rent only operated in the future, that is, after the date on which
the increased rent was ascertained. The words in that case were just as strong
as those in this case: ‘during the remainder of the set term’ the greater rent
should be paid. Yet Pennycuick V-C did not give effect to those words because
of the nature of ‘rent’. I think that case should not be followed. It is time
to get away from the medieval concept of rent. That appears from a passage in Holdsworth,
A History of English Law, vol VII (1900) p 262 which was referred to by
Evershed LJ in Property Holding Company Ltd v Clark [1948] 1 KB
630,648:
in modern law, rent is not conceived of
as a thing, but rather as a payment which a tenant is bound by his contract to
make to his landlord for the use of the land.
The time and
manner of the payment is to be ascertained according to the true construction
of the contract, and not by reference to out-dated relics of medieval law.
So I think
these rent review clauses are to be construed according to their natural
meaning. The clause in the present case says that increased rent, when
ascertained, ‘shall be substituted from such date’, that is, from
September 21 1969. It was, it is true, not ascertained until March 23 1973; but
once ascertained, it is substituted from September 21 1969. It must be
paid from that date. I know this means it operates retrospectively. But that is
the plain intention of the clause. And effect must be given to it.
So here,
clearly, the rent which was determined by the arbitrator can have retrospective
effect. However, in C H Bailey Ltd v Memorial Enterprises Ltd the
Court of Appeal were not considering the date on which the increased rent is to
be paid; they were dealing with the period in relation to which that increased
rent had to be paid. The decision of the Court of Appeal in that case was
followed in the leading case dealing with rent review provisions in leases,
namely, the House of Lords’ decision in United Scientific Holdings Ltd v
Burnley Borough Council [1978] AC 904.
The House of
Lords in that case were primarily concerned with the question as to whether the
timetables specified in rent review clauses in leases were normally to be
regarded as being provisions where time was of the essence of the contract. The
House of Lords came to the conclusion that the presumption was, in the absence
of a clear indication to the contrary, that the times set out in the tables
were not of the essence of the contract. However, in the course of giving the
leading speech in the House of Lords, Lord Diplock at p 934G, in a part of his
speech dealing with the subject of the date from which the new rent was
payable, said as follows:
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.
Graham J
following the decision of the Court of Appeal in C H Bailey v Memorial
Enterprises Ltd [1974] 1 WLR 728 held that the rent would be payable
retrospectively. That case had overruled a decision to the contrary given by
Sir John Pennycuick V-C in Re Essoldo (Bingo) Ltd’s Underlease (1971) 23
P & CR 1 upon the ground that the legal nature of rent required that it
should be certain at the time when it accrued due, so that a payment for the
use of land that was fixed retrospectively could not be ‘rent’.
Lord Diplock
then went on to express reasons why the decision to which I have already referred
in the Bailey case was correct. He then said:
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 express 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
landlord 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 determination of the market rent to which I have
previously referred.
On behalf of
the defendants in this case Mr Tager attaches very considerable importance to
the statement of Lord Diplock in the passage that I have just read that the
landowner can recover on the ‘rent day following such determination’. He
submits that there Lord Diplock was making it clear that once the increased
rent has been determined, it is only payable on the quarter day following the determination.
On behalf of
the landlords in this case it is correctly submitted that what Lord Diplock
said in the passage of his speech to which I have just referred was obiter.
Furthermore, it is right, as counsel submitted, that there was no reference in the
argument to the question of the day on which the increased rent was payable.
However, the speech of Lord Diplock was expressly adopted by Viscount Dilhorne
at the end of his speech, where at p 940 he says:
I agree with
what my noble and learned friend Lord Diplock has said with regard to the dates
from which the revised rent would be payable and with his observations on the
earlier cases,
and there is
nothing in the speeches of the other members of the House of Lords in conflict
with what Lord Diplock had to say.
Furthermore,
in a subsequent case in the Court of Appeal, Torminster Properties Ltd v
Green, given on March 17 1983 and not yet reported*, of which I have
been provided with a transcript, Stephenson LJ at the end of his judgment
seemed to be taking the same view as Lord Diplock, having referred earlier in
his judgment to the same speech of Lord Diplock. Although the statement of
Stephenson LJ in his judgment, like that of Lord Diplock, was obiter,
clearly I should have the greatest regard to what has been said by both Lord
Diplock and Stephenson LJ.
*Editor’s
note: Now reported at 267 EG 256, [1983] 2 EGLR 30.
However, quite
apart from the assistance which I obtain from those sources, returning to the
primary source in this particular
rent is to be paid as:
hereinbefore
reserved at the times and in the manner at and in which the same is
hereinbefore reserved and made payable.
The reference
in clause 2(i) to ‘manner’ can only be regarded as referring to the equal
quarterly payments referred to in clause 1. Equal quarterly payments cannot
have any application to the situation of the arrears which are sought to be
recovered by the landlord in this case. What does, however, have application,
in my view, is the fact that clause 1 provides that those payments are to be
made on the quarter days, and so I would, even in the absence of authority, be
of the view that in the normal way rent, albeit that it relates to a previous
period, which has been determined subsequent to that period, is only obliged to
be paid on the quarter day following its determination. This means that in this
case, once the arbitrator had determined the rent and that determination was
binding upon the tenant, the tenant was under an obligation to make payment on
the following quarter day.
Furthermore,
if he did not make payment on the following quarter day, then whether or not
the rent had been formally or legally demanded, after 21 days the landlord
would have a right of forfeiture under clause 4(i) of the lease. However, in
this case the landlord purported to forfeit prior to the quarter day after
determination, and in doing so he was acting prematurely and the forfeiture was
wrongful.
It is possible
to dispose of this case in that way without considering the question as to when
the award became binding upon the defendants. However, in case I am wrong in
relation to the views which I have just expressed, I should go on to deal with
the second argument that Mr Tager on behalf of the defendants advanced, namely
that in any event, even if the increased rent, once it had been determined,
became payable before the quarter day, there was no obligation on the defendants
in this case to make payment, because they did not know of the contents of the
award until within the 21 days prior to November 26, namely on or after
November 7 1980, the date on which the third party would have first received
notice of the contents of the award from the plaintiffs.
So far as this
argument is concerned, it is quite clear now that the determination was made by
the arbitrator on October 30, because the award is now available and that is
the date which it bears, and that is consistent with the letter of that date
which was written to the parties. But is it sufficient for the purposes of
creating an obligation on a tenant that an arbitrator has in fact determined
the rent if he does not disclose that fact to the parties? In my view it is not sufficient; in my view,
in the case of this arbitration, the position is the same as I understand it to
be in the case of commercial arbitrations of other sorts, as is set out in Munstill
& Boyd on Commercial Arbitration at p 510:
Publication in this context takes place when the parties have notice that the
award has been made and is available to the parties whether or not they have
notice of its contents.
The authority
for that statement is the recent decision of Parker J in the case of The
Archipelagos [1979] 2 Lloyd’s Rep 289 when, in dealing with the question as
to when time should run for calculating the period in which an application has
to be made to set aside or remit an award, Parker J stated, as appears from the
headnote, that:
(1) The
submission that time should be calculated from the date of receipt of the
copies of the award would be rejected in that it had been accepted as good law
for 140 years that time ran from the date upon which the award was made and
published to the parties and publication to the parties was completed on
notice,
the notice
being similar to the notice which the arbitrator in this case gave to the
parties on October 30 when he wrote to them informing the parties that he had
published his award and that it could be obtained from his office.
The advantage
of adopting the approach which I have just indicated is that that lays down a
clear and certain time from which the obligation arises: in those cases where
the lease does not require the landlord to wait until the next quarter day
before recovering the rent, he will be entitled to demand it immediately; in
those cases, such as this, where the obligation to pay only arises on the
following quarter day, such an approach will make it clear as to which quarter
day is the relevant quarter day. However, perhaps this case has underlined the
desirability for those who have the responsibility for drawing up the review
clauses in leases of making it clear as to when rent which is determined after
the date when it would otherwise be due is to be payable by a tenant so that
any uncertainty can be avoided.
Having come to
the conclusions which I have, that the landlord acted precipitously in
forfeiting this lease, it is agreed by the parties that the matter should be
remitted to the master for an assessment as to what damages, if any, are due to
the defendants in consequence of the wrongful forfeiture, the reason being
that, subject to any right of set-off which the defendants may have, it is
accepted that, although there was a wrongful forfeiture, now the landlords are
entitled to recover the increased rent for the quarter ended June 24 1980 and
the quarter ended September 29 1980. It is equally conceded by the plaintiffs
that they, having wrongfully forfeited, are not entitled to any rent for the
quarter ended December 25 1980, the wrongful forfeiture preventing the
provisions of the Apportionment Act 1870 applying to that quarter.
I therefore,
having come to the conclusions which I have stated, make no order other than
the matter be remitted to the master.
After a
short discussion the judge continued:
I will add to
my judgment. In view of the fact that the defendants argue that nothing is
recoverable for the two quarters ended June 24 and September 29 1980, I regard
that argument as being without substance. It seems to me that the position is
the same as that dealt with by the Court of Appeal in the Torminster
Properties Ltd case. There the court was dealing with a surrender, not a
forfeiture, of a lease, where there was a surrender, but the increased rent was
determined after the date of the surrender, and decided that, notwithstanding
the surrender, the increased rent was still recoverable. On that basis, it
seems to me, that whereas the landlords cannot recover the rent for the period due
on December 25 1980, they were entitled to recover the rent, which I will
identify as being that retrospectively determined by the arbitrator, for the
earlier quarters, because, although that rent was not payable until December 25
1980 and had not been ascertained until October 30 1980, the liability to pay
the increased rent had occurred before the forfeiture which took place on
November 26 1980.
