Landlord and tenant — Unusual rent review provisions — Reddendum provided for rent at specified but increasing amounts for five years and then ‘at a rent to be agreed or in default of agreement to be fixed by an Arbitrator to be appointed by the parties’ — The lease was for a term of 71 years from March 25 1963, ie until March 25 2034 — The landlord sought a declaration that the lease provided for an annual review of the rent after the fifth year, such rent to be determined by agreement or arbitration — The tenants submitted that, on the contrary, the lease provided, after the first five years, for the rent to be determined by one agreement or one arbitration and to stay fixed thereby for the remaining 66 years of the term — The county court judge granted the declaration sought by the landlord and the tenants, a bank, appealed
which in fact happened after the end of the first five years were not entirely
in accordance with the contemplation of the lease — After paying the stipulated
increases of £10 a year up to the £840 specified in the fifth year, the tenant
bank continued to pay increases of £10 in each of the next three years and then
the rent was increased to £1,400, at which it stayed — No further increase was
sought by the then landlord, the respondent’s husband, during the remaining 13
years of his life — It was agreed by both parties that no inferences as to the
true construction of the lease could be drawn from these events, but the fact
that the rent was increased to £1,400 a year was, of course, relevant — It was
contended on behalf of the tenants that, although the reddendum had not been
implemented with exactitude, the £1,400 represented the once-for-all agreement,
being the amount considered as a proper market rent for the remainder of the
term
obvious difficulties in the way of each party’s interpretation — A provision
for rent to be increased by stages in each of the first five years of the term,
to be followed by a fixed and unalterable amount (agreed or determined) for the
whole of the remaining 66 years was, to say the least, remarkable — On the
other hand, a provision for a rent review every single year for 66 years with
the possibility of arbitration on each occasion (a conclusion to which the
logic of the landlord’s argument led) was not altogether easy to accept,
despite some possible assistance from National Westminster Bank Ltd v BSC Footwear Ltd
as the court said, the true construction was largely a matter of impression —
The first five years of the term were not subject to reviews but to fixed
increments of
was at the end of the five years–The phraseology ‘thereafter at a rent to be
agreed’ (even if too much significance was not placed on ‘a rent’) pointed to
the conception of a rent to endure for the remainder of the term–Accordingly,
although the construction was difficult, and the result was curious, the court
decided in favour of the meaning for which the appellant bank contended,
namely, that the rent was to be subject to one agreement or, if necessary, one
arbitration at the end of the five years, such rent to last for the duration of
the term–Appeal allowed
The following
cases are referred to in this report.
Clarke v Findon Developments Ltd (1984) 270 EG 42, [1984] 1 EGLR
1266
National
Westminster Bank Ltd v BSC Footwear Ltd
(1980) 42 P&CR 90; [1981] EGD 295; 257 EG 277, [1981] 1 EGLR 89, CA
This was an
appeal by the tenants, Midland Bank plc, from a decision of Mr Recorder J J
Walker-Smith, sitting at Romford County Court, in favour of the applicant
(present respondent), Mrs Elsie Fanny Stedman, the landlord of a property at 2
Wangey Road, Chadwell Heath, Romford, Essex, in regard to the construction of
rent review provisions in the lease of the property.
Kim Lewison
(instructed by Kingsford Dorman & Routh Stacey) appeared on behalf of the
appellants; A Jordan (instructed by Smith Morton & Long, of Colchester)
represented the respondent.
Giving
judgment, GLIDEWELL LJ said: On April 16 1963 the late Mr C K Stedman
demised to the present appellant, the Midland Bank plc, a property known as 2
Wangey Road, Chadwell Heath, Romford, Essex. The demise was subject to an
existing lease made in October 1944 under which the property was let to a Mr
Dennis at the rent of £200 per annum. The term of that lease was ‘until one
year after the cessation of hostilities’, and it is common ground that Mr
Dennis must have held over, because that lease was still in force at the date
of the lease relevant to this appeal. The term of the lease entered into on
April 16 1963 was a period of 71 years from March 25 1963 until March 25 2034.
The lease contains many common form provisions, but the reddendum is in a most
unusual form. The provision is:
. . . To HOLD
the same unto the tenants from the twenty-fifth day of March One thousand nine
hundred and sixty three until the twenty-fifth day of March Two thousand and
thirty four but determinable as hereinafter provided and subject to and with
the benefit of the Lease thereof set out in the schedule hereto PAYING therefor
during the first year of the said term the yearly rent of eight hundred pounds
rising by annual increases of Ten pounds each to eight hundred and forty pounds
in the fifth year and thereafter at a rent to be agreed or in default of
agreement to be fixed by an Arbitrator to be appointed by the parties hereto .
. .
It then goes on
to provide what is to happen if the parties cannot agree on an arbitrator.
The question
which arises in this case is: what is the meaning of the rent reservation
clause and in particular of the words ‘thereafter at a rent to be agreed or in
default of agreement to be fixed by an Arbitrator’?
The present
respondent, the applicant in the court below, Mrs Stedman, who is the widow of
Mr C K Stedman, started these proceedings by originating application, in which
she sought:
A declaration
that the Applicant is entitled under clause 1 of the Lease (‘the Lease’) dated
16th April 1963 . . . to an annual review of the rent of the premises, . . .
such rent to be agreed by the parties and that in default of agreement an
Arbitrator be appointed . . .
The matter
came before Mr Recorder Walker-Smith (sitting as a deputy circuit judge) on
September 30 1988. He granted the declaration sought. The Midland Bank now
appeals.
The argument
for the bank, advanced with commendable economy by Mr Lewison–as indeed has
been the argument for Mrs Stedman advanced by Mr Jordan–is that the words of
the clause are clear. He concedes that they are unusual. A provision for a rent
to increase in each of the first five years and thereafter to be fixed for the
remaining 66 years of a term is one which I gather Mr Lewison, with his
experience, has never met and, certainly speaking for myself, I have never met.
Nevertheless, he invites us to conclude that the phrase ‘thereafter at a rent
to be agreed or in default of agreement to be fixed by an Arbitrator’ can only
mean that after the first five years of the term there was one agreement to be
made for a rent for the remainder of the term.
Mr Jordan, for
Mrs Stedman, submits, to the contrary, that what was envisaged was an annual
increase of the rent which was specifically provided for during the first five
years and that it must be inferred from that specific provision in the first
part of the reddendum that the parties envisaged and agreed that there should
be annual reviews thereafter of the rent. It must be understood that the phrase
‘the rent to be agreed’ meant that it was a rent for a year only that was to be
agreed and thereafter there would be further reviews each succeeding year. Mr
Lewison counters that by submitting that Mr Jordan is seeking not to interpret
the contract but to read into it words which are not present or, at the very
least, one word which is not present, ‘at a rent to be agreed annually‘.
The history of
what happens is of interest, but in the end much of it, the parties are agreed,
is not an aid to our interpretation or a matter upon which the court can
properly rely as an aid to interpretation.
After the end
of the first five years of the term, in March 1968, the appellant paid a rent
increased by a further £10 to £850 in 1968-69, by a further £10 to £860 in the
following year, and by yet a further £10 to £870 in 1970-71. But in 1971 the
rent increased to £1,400. There has been no subsequent increase and the bank
has continued to pay £1,400 per year.
Mr Stedman
died in February 1984. As I have already said, the applicant, the present
respondent, is his widow. On the one hand there is something of a mystery over
the fact that, contrary to what appeared to be the express terms of the lease,
the parties continued to pay and accept a rent increased by £10 a year for the
first three years after the end of the express agreement as to the rent up to
1968. It is agreed between the parties, as I have said, that we should not and
could not properly draw any inference from that. On the other hand, equally, we
may not draw any inference from the fact that during the 13 years of his life
that remained after the rent was increased to £1,400 in 1971 Mr Stedman sought
no further increase. But what Mr Lewison does rely upon, and in my judgment is
entitled to rely upon, is the fact that in 1971 the rent was increased to the
sum of £1,400. Mr Lewison submits that, although on the face of the lease an
agreement was to be made in 1968, what is clearly to be inferred is that,
having shelved that agreement for three years, the then parties did reach an
agreement in 1971 in accordance with the terms of the lease, and the rent they
agreed was £1,400–a substantial increase on the immediately preceding rent. He
invites us to infer that that sum was agreed as being what the parties regarded
as a proper market rent for the remainder of the term. The alternative
contended for by Mr Jordan, submits Mr Lewison, is really too bizarre to be
contemplated. As to the idea that the parties would have tied themselves into a
constant round of rent reviews year by year with the possibility of arbitration
year by year, Mr Lewison submits that the parties would not have contemplated
such an arrangement, either the bank on the one hand or Mr Stedman, who, the
evidence shows, was a property owner with other properties, on the other hand.
Mr Jordan saw
the difficulty of that argument and he sought to argue, somewhat faintly, that
what may have been contemplated was some arrangement for periodic reviews at
intervals of more than one year, with perhaps a rent being fixed on a sliding
scale, to increase annually over a period between reviews. But, in my judgment,
that interpretation is really not open to him in regard to this lease at all,
because it is upon the first part of the reddendum, with its increase year by
year for the first five years, that Mr Jordan must rely if he is to succeed at
all. The only possible alternative to the rent being fixed once and for all in
1971 is that what was intended was an annual review.
Mr Lewison in
his skeleton argument referred to two authorities to one of which he drew our
attention, a decision of this court in National Westminster Bank Ltd v BSC
Footwear Ltd (1980) 42 P & CR 90.*
That was a case in which there was a lease in June 1957 of a shop and
maisonette for 21 years from March 1957 at a rent which was to be maintained
for the duration of that term. A clause in the lease provided that, if the
lessee was desirous of taking a further lease of the premises for a further
term of 21 years from the expiration of the term created by the lease, he was
entitled to require the lessor to grant him such a lease. The issue was
whether, upon the lessee’s requiring a second lease of 21 years, the rent for
that 21 years was to be a single rent for the whole 21 years or whether it was
proper for the arbitrator who was to fix that rent to do so for a limited
period only, with the prospect of a review in five or seven years. The judge at
first
period and could dictate, in effect, a review at the end of that limited
period. This court said that that was wrong and that, in effect, this was a
lease for 42 years with a break clause half-way through, with a rent to be
fixed for the second period of 21 years for the whole of it. Giving the leading
judgment, Templeman LJ (as he then was) said at p 93:
In my
judgment, this lease, including clause 4(2), is, in effect, a 42-year lease
with one rent review after 21 years; and what the landlords are seeking to do
now, for perfectly understandable reasons in the light of history, is to
redraft so that, instead of having one rent review after 21 years, they will
secure for themselves rent reviews after 26, 31, or whatever other years the
arbitrator thinks fit.
*Editor’s
note: Also reported at (1980) 257 EG 277, [1981] 1 EGLR 89.
Mr Lewison
seeks to rely upon that decision as an indication that the concept of a rent
being fixed for 21 years, in the absence of any words to the contrary, is one
which is perfectly acceptable. One hardly needs authority for the proposition
and, for myself, the facts of that decision are so far distant from the facts
of the present case that I do not think we can derive any more assistance from
it than that general proposition.
Clearly,
unusual though it may have been in 1963, a bargain which provided that after
five years a rent was to be fixed that was to endure for the remainder of the
term was a perfectly possible bargain. The question is: should we come to a
different conclusion in all the circumstances of the case? The learned recorder at the conclusion of his
judgment said:
The lease
that I construe is for a 71-year term. This is significantly longer.
— He meant by
that significantly longer than the term in National Westminster Bank Ltd
v BSC Footwear Ltd (supra) and Clarke v Findon
Developments Ltd (1984) 270 EG 42, [1984] 1 EGLR 1266, to which he was
referred —
The clause is
not in the same terms as either of the clauses referred to in National
Westminster Bank v BSC or Clarke v Findon. It is a
different clause in a different context. The lease is for a significantly
longer period. I prefer the construction of the clause for which the landlords
contend.
Clearly the
clause is capable of such a construction and in reaching my decision I take
into account the fact that for the period 1963 to 1968 there are annual
increases in rent. I take into account the length of the lease and the inherent
unlikelihood that in 1963 when inflation was a factor to be taken into account
the parties would enter into a lease which, if the tenant is right, would be an
extraordinarily bad bargain for the landlord who was an experienced
businessman, builder and property developer and who was concerned as to the
estate he was to leave to his heirs.
For myself I
take the view that the learned recorder was not entitled to take into account
that this was a bad bargain for the landlord. He was entitled to take into
account that it was in 1963 an unusual bargain. But equally, as I have already
indicated, I accept that a bargain that provided for annual rent reviews and
the possibility of annual arbitration would be an unusual and indeed unwieldy
bargain. The real question is: do the early words of the reddendum providing
for the rent to increase every year for the first five years lead to the
conclusion that what was intended thereafter was a review every year for the
remainder of the term? I pointed out in
argument that the first five years of the term were not subject to reviews. The
lease itself specifically fixed the rent for each of the first five years, and
the only review apparently provided for on the wording of the clauses is that
provided at the end of the first five years. It may be that one ought not to
place too much significance on the fact that the phraseology is in the
singular, that is to say ‘. . . thereafter at a rent to be agreed . . .’. But
the phraseology ‘. . . thereafter at a rent to be agreed . . .’, as Mr Lewison
submits, leads, in my judgment, to the conclusion that that was the rent which
was to endure thereafter for the duration of the term. The fact of agreed
increases during the preceding five years does not, in my view, lead to the
conclusion that any series of reviews after the first years was intended by the
parties or is to be read into the lease.
Accordingly,
and taking the view (with which both counsel agreed) that this in the end is
very largely a matter of impression, I conclude that the words in this lease,
difficult though they are to construe, really do have only one meaning, that is
to say the meaning for which the tenant bank contends, namely, that the rent
was to be subject to one agreement and, if necessary, one arbitration at the
expiration of the first five years and that the rent then agreed was to last
for the duration of the term.
In those
circumstances, I would allow this appeal, set aside the order made by the
learned recorder and, subject to any discussion, I take it no further order is
needed.
BOREHAM J agreed and did not add anything.
The appeal
was allowed, with costs of appeal and below; order of recorder to be set aside
and originating application dismissed.
