Rent review clause – Landlord alone having power to initiate – Arbitrator determining rent below level of current rent – Whether clause impliedly intended to operate upwards only
The reddendum of a 35-year lease granted in 1974 of industrial premises in Basingstoke reserved for the first five years an annual rent of £95,300, and during the remainder of the term the same rent “or such increased sum” as may be substituted under clause 4. That clause entitled the landlord to serve at five-year intervals a notice requiring a review of the “lease rent” and declared that if the “review standard rent” should exceed the “initial standard rent” then the lease rent should be increased so that the “review lease rent” bore the same proportion to the review standard rent as the “initial lease rent” bore to the initial standard rent, such “increased rent” to be paid as from expiry of each five-year period “until the lease rent is further increased” under the same clause. By definitions in the same clause, initial standard rent signified the rent (agreed by the parties at £0.65 per sq ft) at which a like building in the locality could be let on the open market at the date of the lease; review standard rent signified the fair annual rent for such a building as assessed at each review; lease rent meant the rent reserved for the demised premises; initial lease rent meant the lease rent of £0.95 per sq ft agreed to be payable as from the date of the lease; review lease rent meant the lease rent payable following each relevant review. On April 19 1994, when the defendant tenant was paying a review lease rent of £539,200 pa, the plaintiff landlord sent a notice requiring review. On the figures subsequently determined by the arbitrator the tenant claimed that the rent for the next period should not exceed £412,071 pa. The judge accepted the landlord’s claim for a continuing rent of £539,200. The tenant appealed, pointing, inter alia, to the absence of any “ratchet” provision which would otherwise ensure an upwards-only operation.
Held (Peter Gibson LJ dissenting) The appeal was dismissed.
1. It could not be assumed that the underlying purpose of a rent review provision was, as the tenant contended, simply to anticipate changes in the value of money: see Basingstoke and Deane Borough Council v Host Group Ltd [1987] 2 EGLR 147 per Nicholls LJ at p148. The market at the date of the lease, hence the balance struck in negotiations, would also reflect the desire of investors for the certainty of income afforded by an upwards-only review.
2. The persistent use of the word increase, coupled with the fact that only the landlord could initiate the review, afforded a strong indication that the clause was intended to operate upwards oni.: see Royal Bank of Scotland v Francis Edward Jenning, (C A unreported, October 24 1996) distinguished. Moreover, the prescribed machinery for adjusting the rent proportionately to the rent for a standard building did not lend itself to downward adjustment. On a proper interpretation the only rent which could be substituted for the lease rent was an increased rent.
Paul Morgan QC and David Hodge QC (instructed by Dibb Lupton Alsop) appeared for the appellant; Jonathan Gaunt QC (instructed by Herbert Smith) appeared for the respondent.
