Landlord and tenant — Rent review clause in lease — Whether trigger notice by landlords effective — Whether notice was given within the time laid down in the review clause — Whether time was of the essence — Law of Property Act 1925, section 196(4) and Recorded Delivery Service Act 1962, section 1 and Schedule 1 — Authorities considered
tenants were a firm of auctioneers, valuers and surveyors — Defendant landlords
were a property company — Plaintiffs sought a declaration that a notice given
by the defendants to initiate a rent review was ineffective — The lease in
question, of offices, was for a term of 21 years from January 1 1979 — The
lease allowed either party to give the other six months’ notice in writing
expiring at the end of the 7th or 14th year of the term requiring a revision of
the rent, the revised rent to be fixed by agreement or, in default, by a
nominated valuer — In the same clause there was a break option in favour of the
tenants, exercisable at the expiration of the 7th or 14th year on six months’
previous notice in writing — On June 28 1985 the defendants sent a letter by
recorded delivery to the plaintiffs requiring a rent review — The letter was
actually received by the plaintiffs on Monday July 1 — The judge’s finding was
that the postman arrived at the plaintiffs’ offices on the morning of Saturday
June 29 with the recorded delivery letter but there was no one there to sign
the receipt for the recorded delivery; the offices were not yet open — In
accordance with official instructions he took the letter back to the post
office and delivered it against the signed receipt on the following Monday
morning, July 1 — It was common ground that the first seven years of the term
expired at midnight on December 31 and that the six months’ notice required by
the review clause should have been given before midnight on Sunday June 30
question was whether, despite the fact that the notice was not actually
delivered to the plaintiffs until July 1, it must, by reason of section 196(4) of
the Law of Property Act 1925 (read with the Recorded Delivery Services Act
1962), be deemed to have been given on June 29 — The answer turned on the
meaning of the last part of section 196(4), ‘that service shall be deemed to be
made at the time at which the registered letter would in the ordinary course be
delivered’ — Scott J rejected the defendants’ submission that the time was
Saturday June 29, as, if there had been someone at the office when the postman
arrived, the letter would have been delivered against a signature — This would
be equivalent to saying that the letter would be deemed to be delivered at the
time when the postman, on instructions, was withholding delivery — The judge
held that delivery in the ordinary course of post required, in the case of
recorded delivery letters, an available recipient — The notice was therefore
out of time
having been found to be out of time, the next question was whether time was of
the essence — The plaintiffs naturally submitted that it was, the defendants
that it was not — The plaintiffs relied on statements in United Scientific
Holdings Ltd v Burnley Borough Council and on two Court of Appeal decisions, Al
Saloom v Shirley James Travel Service Ltd and Legal & General Assurance
(Pension Management) Ltd v Cheshire County Council — The presence of the break clause was, on
these authorities, a ‘contra-indication’ displacing the prima facie rule that
time was not of the essence — Scott J accepted that the two Court of Appeal
cases, which
the essence and that the defendants’ notice, being out of time, was ineffective
important and interesting passage at the end of his judgment Scott J referred
to another Court of Appeal case, Metrolands Investments Ltd v J H Dewhurst Ltd
and to the reasoning of Slade LJ (who gave the judgment of the court) therein —
In that case, despite the presence of a break clause, the rule that time was
not of the essence was held to apply — A distinguishing feature in that case
was that the timing procedure was under the control of the arbitrator — Scott J
expressed both his doubts about the two Court of Appeal cases by which he was
bound and a preference for the reasoning of Slade LJ in the Metrolands case —
The Metrolands case was, however, distinguishable on its facts from the two
previous Court of Appeal decisions and could not be regarded as overruling them
The following
cases are referred to in this report.
Al Saloom v Shirley James Travel Service Ltd
(1981) 42 P&CR 181; [1981] EGD 404; 259 EG 420, [1981] 2 EGLR 96, CA
Coventry City Council v J Hepworth & Son Ltd
(1982) 46 P&CR 170; 265 EG 608, [1983] 1 EGLR 119, CA
Hewitt v Leicester Corporation [1969] 1
WLR 855; (1969) 67 LGR 436; 20 P&CR 629; [1969] EGD 340; 210 EG 459; sub
nom Hewitt v Leicester City Council [1969] 2 All ER 802, CA
Kemp v Wanklin [1894] 1 QB 583
Legal & General Assurance (Pension
Management) Ltd
v Cheshire County Council (1983) 269 EG 40, [1984] 1 EGLR 102, CA
Metrolands Investments Ltd v J H Dewhurst Ltd
[1986] 3 All ER 659; [1986] 1 EGLR 125; (1986) 52 P&CR 232; 277 EG 1343, CA
Richards (C) & Son Ltd v Karenita Ltd [1972]
EGD 9; (1971) 221 EG 25
Samuel Properties (Developments) Ltd v Hayek [1972] 1 WLR
1296; [1972] 3 All ER 473; (1972) 24 P&CR 223; [1973] EGD 266; 225 EG 1749,
CA
United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904; [1977] 2 WLR 806;
[1977] 2 All ER 62; (1977) 33 P&CR 220; [1977] EGD 195; 243 EG 43 &
127, HL, [1977] 2 EGLR 61
In this case, heard in Leeds by Scott J,
the plaintiff tenants, Stephenson & Son, auctioneers, valuers and
surveyors, of York, sought a declaration that a notice by their landlords, the
defendants, Orca Properties Ltd, given in purported pursuance of the rent
review clause in the plaintiffs’ lease of office premises at 20 Castlegate,
York, was invalid.
T G Hartley
(instructed by Cowling Swift & Kitchin, of York), appeared on behalf of the
plaintiffs; C O J Behrens (instructed by M A Ashley-Brown, of York) represented
the defendants.
Giving
judgment, SCOTT J said: The question in this case is whether a rent review
notice served by a landlord on a tenant was effective. The plaintiffs are the
tenant, the defendant is the landlord.
By a lease
dated August 29 1979 the property, 20 Castlegate, York, was demised to the
plaintiffs by the defendant’s predecessor in title for a term of 21 years from
January 1 1979. The rent reserved was provided for in these terms:
Paying therefor during the said period
and term the net yearly rent of one thousand, five hundred and fifty pounds
clear of all deductions (except the landlord’s property tax) by equal
half-yearly instalments of seven hundred and seventy five pounds payable in
advance on the first day of April and the first day of October in every year,
the first payment being for the nine months ending at 30th day of September
1979 being made on the execution hereof but subject to variation as hereinafter
provided.
Clause 4(b)
contains this rent review provision:
Either party shall be at liberty to give
to the other six months notice in writing to expire at the end of the seventh
or fourteenth year of the term hereby created requiring a revision of the rent
hereby reserved in accordance with the rents prevailing at the date of the
expiration of such notice, such revised rent to be fixed by mutual agreement
between the parties during the currency of the notice and in default thereto by
a valuer nominated by the President of the York and District Auctioneers and
Estate Agents Association for the time being, such revised rent to be
substituted for the rent hereby reserved upon the expiration of such notice and
for the remainder of the term hereby created until a further revision made
under this clause.
Clause 4(d)
confers a break option on the tenants. It is in these terms:
If the tenant shall desire to terminate
the term hereby granted at the expiration of the seventh or fourteenth year
thereof and shall give to the landlord six months previous notice in writing of
such their desire and shall up to the time of such determination pay the rent
and perform and observe the covenants on their part hereinbefore reserved and
contained. Then immediately on the expiration of the seventh and fourteenth
year, as the case may be, the present demise and everything herein contained
shall cease and be void but without prejudice to the rights and remedies of
either party against the other in respect of the antecedent claim or breach of
covenant.
Clause 4(f)
provides that the provisions of section 196 of the Law of Property Act 1925
shall apply to any notice hereunder as if the same were a notice authorised or
required by that Act.
On Friday June
28 1985 an agent acting for the landlord caused to be posted a recorded
delivery letter addressed to the tenant, giving notice of the landlord’s
intention to have a rent review. The letter was in these terms:
In accordance with your lease dated the
1st January, 1979 we hereby, on behalf of the landlord, give you the formal
notice that it is their intention to review the rental under the aforementioned
lease as from the review date, 1st January, 1986. We would assess the rental to
be £8,000 per annum exclusive.
The letter was
delivered to the plaintiffs at 20 Castlegate on Monday July 1 1985. It is
common ground that the first seven years of the 21-year term expired at
midnight on December 31 1985 and that the ‘six months notice in writing to
expire at the end of the seventh . . . year of the term’ should have been given
before midnight on Sunday June 30 1985. The plaintiffs contend that the rent
review notice contained in the letter was out of time and ineffective. The
defendant landlord contends, first, that, by reason of section 196(4) of the
Law of Property Act 1925, the letter should be deemed to have been delivered on
Saturday June 29 1985 and so was not out of time and, second, that time was not
of the essence of clause 4(b) of the lease.
The first
question for me to decide is whether the notice, notwithstanding that it was
not actually delivered to the plaintiffs until July 1 1985, must, by reason of
section 196(4) of the 1925 Act, be deemed to have been given on June 29.
Section 196(4)
is in these terms:
Any notice required or authorised by this
Act to be served shall also be sufficiently served, if it is sent by post in a
registered letter addressed to the lessee, lessor, mortgagee, mortgagor, or
other person to be served, by name, at the aforesaid place of abode or
business, office, or counting-house, and if that letter is not returned through
the post-office undelivered; and that service shall be deemed to be made at the
time at which the registered letter would in the ordinary course be delivered.
Three
preliminary points can be made. First, under section 1 of the Recorded Delivery
Service Act 1962 it is provided, inter alia, that:
. . . any enactment which makes any other
provision in relation to the sending of a document or other thing by registered
post or to a thing so sent shall have effect as if it made the like provision
in relation to the sending of that thing by the recorded delivery service or as
the case may be, to a thing sent by that service.
Para 1 of the
First Schedule to the 1962 Act provides that:
Any reference, however worded, —
(a) in any enactment the provisions of which
apply to, or operate in consequence of the operation of, any enactment amended
by section 1 of this Act; or
(b) in any enactment relating to the sending of
documents or other things otherwise than by registered post or to documents or
other things so sent; to the registered post or to a registered letter or
packet, shall be construed as including a reference to the recorded delivery
service or to a letter or packet sent by that service; and any reference,
however worded, in any such enactment to a Post Office receipt for a registered
letter or to an acknowledgment of or certificate of delivery of a registered
letter shall be construed accordingly.
So section
196(4) applies to the recorded delivery letter sent by the defendant on June 28
1985.
Second, the
phrase ‘if that letter is not returned through the post-office undelivered’
must in the context mean returned to the sender. The letter of June 28 1985 was
not returned to the sender undelivered, so, in my judgment, the first sentence
of section 196(4) applies. The notice comprised in the recorded delivery
envelope was ‘sufficiently served’. The question, however, remains whether it
was timeously served. That question turns on the effect of the second sentence
in section 196(4): ‘that service shall be deemed to be made at the time at
which the registered letter would in the ordinary course be delivered’.
Third, the
expression ‘in the ordinary course’ in the sentence I have just read means, in
my judgment, in the context of the subsection, in the ordinary course of post.
Accordingly, I must
would, in the ordinary course of post, be delivered to an addressee in York.
This, in my opinion, is a question of fact to be decided on the evidence before
me.
There were two
relevant witnesses. One was Mr I Reynolds [FRICS], a partner of the plaintiff
firm. In paras 2 and 3 of his affidavit sworn on October 17 1986, he said:
As a partner in the plaintiff firm I have
responsibility for the premises at 20 Castlegate, York, and most of my work is
conducted from that address. The premises are open for business on Monday to
Saturday inclusive in each week and save in exceptional circumstances I arrive
at 20 Castlegate, York, between 8.30 and 9 am on Saturday mornings. I can
confirm by reference to my diary that I was present in my office at 20
Castlegate, York, between 8.30 and 9 am on Saturday, the 29th June, 1985.
(3) When I arrive at the office on Saturday
mornings the post has already been delivered. I, or a member of my staff,
collect the post from inside the front door of the premises. The only occasions
on which post is not delivered prior to my arriving at the premises on a
Saturday is during a postal strike or immediately prior to Christmas or a New
Year when the postal service is disrupted.
In
cross-examination Mr Reynolds confirmed that on Saturday June 29 he had arrived
at 20 Castlegate at 8.30 am, by which time the post had already been delivered.
The other
witness was Mr MacCowan, a supervisor in the customer services section of the
York Post Office. He swore two affidavits. In his first affidavit he said:
A letter sent with a pre-paid first class
stamp from a York address to another York address in June 1985 would, if posted
in time for the last collection of the day, in the ordinary course of post be
delivered on the following weekday 29th June, 1985 being a Saturday was a
normal delivery day for mail.
(5) A letter posted from a York address to
another address on 28th June, 1985 with a pre-paid first class stamp would, if
posted in time for the last collection of the day, be delivered in the ordinary
course of post on the 29th June, 1985.
(6) The date for delivery of a recorded delivery
letter with pre-paid first class stamp and a recorded delivery fee paid, if
handed in to a post office in time for the last collection of the day would, in
the ordinary course of post, be the same as the date for delivery of a letter
with a pre-paid first class stamp posted in time for the last collection of the
day.
(7) The delivery of a recorded delivery letter is
dependent upon a signature being obtained at the time of delivery. If,
therefore, there is no one present at the time of delivery the letter would not
be delivered.
In his second
affidavit Mr MacCowan produced a copy of the recorded delivery slip dated June
28 1985 and a copy of the envelope in which the letter of June 28 1985 had been
sent, and in para 3 he said:
Having seen the documents exhibited
hereto, I can state that the recorded delivery envelope was received by the
post office prior to the last collection of the day on the 28th June and would,
therefore, have been within the last collection of the day for delivery in the
ordinary course of post on the 29th June, 1985.
In
cross-examination, Mr MacCowan gave some important additions to this evidence.
He said that on ordinary weekdays there would, in York, be two deliveries of
post, the first between 7 and 9.30 am and the second later in the morning. If a
signed receipt for a recorded delivery letter could not be obtained on the
first morning delivery the postman would try again on the second delivery. He
made clear that a recorded delivery letter would not be left at the addressee’s
premises if no one was there who could sign a receipt for it. He said also that
recorded delivery letters addressed to commercial premises were likely to be
successfully delivered in the second of the day’s deliveries rather than in the
first. The reason was that commercial premises would often not be open at the
time when the first delivery took place. On Saturdays, unlike ordinary
weekdays, only one delivery, the 7/9.30 am delivery, would be made.
This evidence
makes it reasonably easy to infer what had happened to the recorded delivery
envelope containing the letter of June 28 1985. It would, in the ordinary
course of post, have been taken by the postman to 20 Castlegate on the morning
of Saturday, June 29. The postman must have made his delivery to 20 Castlegate
before the office was opened by Mr Reynolds, between 8.30 am and 9 am. So the
postman would have delivered the ordinary post but not the recorded delivery
envelope. That envelope would have been taken back to the post office and
delivered against the signed receipt on the following Monday.
Mr Behrens,
for the defendant, submitted that ‘the time at which the . . . letter would in
the ordinary course be delivered’ was Saturday June 29. If there had been
someone at the office when the postman had arrived in the morning the letter
would have then been delivered against a signature. The time of delivery in the
ordinary course of post could not, he submitted, depend on whether or not the
premises to which the letter was addressed were, when the postman arrived,
occupied or empty.
I agree that
this must be so where ordinary post is concerned, but delivery of ordinary post
involves no one other than the postal authorities. The post is simply left at
the premises. Delivery of a recorded delivery letter is, however, different.
Delivery cannot, in the ordinary course of post, be effected unless someone
signs a receipt. If no one is available to sign or is willing to sign a
receipt, delivery will not be effected. I do not see how ‘the time at which the
. . . letter would in the ordinary course be delivered’ can be held to be a
time when the postman would, in accordance with his standing instructions, be
bound to withhold delivery. Delivery in the ordinary course of post requires,
where recorded delivery letters are concerned, an available recipient; it
cannot take place at a time when there is no available recipient.
Mr Behrens has
referred me to Kemp v Wanklyn [1894] 1 QB 583. That case involved
the meaning of the words ‘in the ordinary course of post’. Lord Esher MR made
clear that the words meant the general course of post in the district and that
any special arrangements made between the post office and addressees were irrelevant.
But the arrangements made by the post office regarding recorded delivery
letters, which require a signed receipt before delivery can take place, are
general arrangements. The requirement of a signed receipt is part of a delivery
in the ordinary course of post of a recorded delivery letter.
Nearer home,
in my view, is the decision of the Court of Appeal in Hewitt v Leicester
Corporation [1969] 1 WLR 855, where a letter was sent by recorded delivery
and was returned marked ‘Gone away’. Lord Denning MR said at p 858:
Once it appeared that the letter of May
20th, 1965 was returned through the post marked ‘gone away’, then it was quite
plain that it was not served at all. We are not bound to ‘deem’ a notice to be
served at a particular time when we know that in fact it was not served at all.
In the present
case the letter was not in fact delivered on Saturday, June 29. It was not, on
that day, brought to the address on the letter, 20 Castlegate, at a time when a
receipt could be obtained. It was delivered in the ordinary course of post on
Monday July 1. In my judgment, in the circumstances, the deeming provision in
section 196(4) does not require Saturday June 29 to be treated as the day of
delivery. It follows that, in my judgment, the notice effected by the June 28
letter was out of time.
Was time of
the essence? This question requires
reference to authority. The leading authority is United Scientific Holdings
Ltd v Burnley Borough Council [1978] AC 904. At p 930 Lord Diplock
said:
My Lords, I see no relevant difference
between the obligation undertaken by a tenant under a rent review clause in a
lease and any other obligation in a synallagmatic contract that is expressed to
arise upon the occurrence of a described event, where a postponement of that
event beyond the time stipulated in the contract is not so prolonged as to
deprive the obligor of substantially the whole benefit that it was intended he
should obtain by accepting the obligation.
So upon the
question of principle which these two appeals were brought to settle I would
hold that in the absence of any contra indications in the expressed words of
the lease or in the interrelation of the rent review clause itself and other
clauses or in the surrounding circumstances, the presumption is that the
timetable specified in a rent review clause for completion of the various steps
for determining the rent payable in respect of the period following the review
date is not of the essence of the contract.
The guidance
given by this expression of principle requires me to ask myself whether in this
lease there are any contra-indications of the sort Lord Diplock had in mind. Mr
Hartley, for the plaintiffs, the tenants, relies on the presence in the lease
of clause 4(d), the break option. That, it will be recalled, gives the tenants
the right to determine the lease at the end of the seventh or 14th years of the
term upon six months’ previous notice in writing. It is well settled that in a
break clause of that character time will, in the absence of some indication to
the contrary, be assumed to be of the essence.
At p 929 in United
Scientific Holdings v Burnley Borough Council Lord Diplock said:
There is a practical business reason for
treating time as of the essence of such a clause, which is similar to that
applicable to an option to acquire property. The exercise of this option by the
tenant will have the effect of depriving the landlord of the existing source of
income from his property and the evident purpose of the stipulation as to
notice is to leave him free thereafter to enter
surrender provided for in the break clause.
So, submitted
Mr Hartley, time should be of the essence of clause 4(b) as well as of clause
4(d). Mr Hartley had two reasons why this should be so. First, he relied on the
similarity of the wording of the notice requirements in the two subclauses;
second, he relied on the interrelation between the two subclauses. The tenants
should, he submitted, be able to know before it was too late for them to
exercise their break option whether the landlord was going to trigger off the
rent review procedure.
Mr Hartley
relied on two Court of Appeal authorities in support of his submission. First,
there is a decision of the Court of Appeal in Al Saloom v Shirley
James Travel Service Ltd (1981) 42 P&CR 181*. There the lease was for a
term of seven years. Clause 5 of the lease was in these terms:
Provided always and it is hereby agreed
that at the expiration of the third year of the term hereby granted the lessee
shall have the right on giving to the lessor not less than six months’ notice
in writing prior to the expiration of the said third year of the term to
determine this lease.
*Editor’s note: Also reported at (1981)
259 EG 420 CA., [1981] 2 EGLR 96
— I then omit the next few lines —
And subject to the lessee’s right of
determination as aforesaid the lessor shall have the right on giving to the
lessee not more than 12 nor less than six months’ notice in writing prior to
the expiration of the said third year of the term to review the yearly rent for
the time being payable hereunder.
A notice
purporting to start the rent review procedure was served out of time. Waller
LJ, with whose ex tempore judgment Oliver LJ and Fox LJ agreed, cited
Lord Diplock’s statement of principle at p 930 of the United Scientific
case and then said:
It was submitted before us on behalf of
the lessor that the interrelation or juxtaposition of the break clause did not
give rise to the conclusion that time was of the essence in this rent review
clause. The argument was that although a break clause might overcome the
presumption that time was not of the essence in a rent review clause, it would
only do so where there was a period of time between the date when the notice of
the rent review clause had to be given and the date when the notice of the
break had to be given; in other words, so that the tenant had appreciable time
in which to make a decision as to whether he wished to break the lease.
Waller LJ then
referred to other authorities and in particular to C Richards & Son Ltd
v Karenita Ltd [1972] EGD 9 and to Samuel Properties (Developments)
Ltd v Hayek [1972] 1 WLR 1296, and cited Lord Diplock’s remarks in
the United Scientific case about break clauses. He then concluded his
judgment thus:
As I have already said, both provisions
about break and rent review in this case were in the same clause and closely
allied to each other. The words ‘not less than six months’ notice in writing
prior to the expiration of the said third year of the term’ were used for both
break and rent review. Whether the word ‘interrelated’, ‘correlated’ or
‘associated’ is used, the implication of the use of the same phrase in the same
clause is overwhelming. The phrase must mean the same in each case, either that
in both time was of the essence, or in neither. In my view the phrase could not
change its meaning in the course of ten lines unless there were some qualifying
phrases to make such a change clear. I have no doubt that in both cases here
time was of the essence; I agree with the judge and I would dismiss this appeal.
The second
Court of Appeal authority relied on by Mr Hartley is Legal & General
Assurance (Pension Management) Ltd v Cheshire County Council (1983)
269 EG 40, [1984] 1 EGLR 102. The lease in this case was for a term of 21
years. Clause 3 of the lease had two subclauses; one containing a rent review
provision and the other a tenant’s break option. The rent review provision was
in these terms:
At the expiration of the seventh and
fourteenth years of the term hereby granted (the date of expiration of each
such period being hereinafter referred to as ‘the date of review’) the landlord
shall have the right to review the yearly rent hereinbefore reserved on giving
to the tenant not less than six months’ notice in writing prior to the date of
review of his intention so to do.
The break
option was in these terms:
If the tenant shall desire to determine
the present demise at the expiration of the seventh or fourteenth years of the
said term and shall give not less than six months’ previous notice in writing,
then immediately upon the expiration of such notice the present demise and
everything herein contained shall cease.
A notice
requiring a rent review was served by the landlord out of time. Dillon LJ, with
whose judgment Sir John Donaldson MR and May LJ agreed, referred to the United
Scientific case and to the Al Saloom case and said:
As it seems to me the decision of this
court in the Al Saloom case is indistinguishable from the present case
and binding on us, and that is enough to dispose of this appeal.
He went on,
however, to consider the implications of the break option on the question
whether time was of the essence of the rent review procedure and said:
The learned judge in the present case was
fully entitled, in my view, to say, as he did in his judgment, ‘I think the
tenant could reasonably expect that the notice would be given in sufficient
time for him to decide whether he wanted to break or not’. The reason for
having coincident dates is obviously that the tenant should have in mind, when
he decides whether he is going to break or not, whether or not the landlord is
going to invoke rent review procedure, and the reasoning which has led the
courts to hold that time is of the essence of a rent review clause where the
tenant’s break clause in the same lease is geared to a date later than the date
prescribed for the service of the landlord’s rent review notice leads equally,
I think, to the conclusion which this court reached in the Al Saloom
case and I would reach in this case, that time was of the essence of the rent
review clause in this lease.
That reasoning
provides a second ground for the decision. These two Court of Appeal decisions
are binding on me. Mr Behrens has naturally sought to distinguish them. He has
pointed to three differences between the lease in the present case and the
leases in the two Court of Appeal cases. First, the rent review machinery in
the lease with which I am concerned can be triggered off either by the landlord
or by the tenant. In the other two leases only the landlord could do so.
Second, the rent review under the lease in the present case may lead to a
reduction as well as to an increase in the rent. In the other two leases a
reduction in the rent was not a possible consequence of the rent review. Third,
the juxtaposition of the rent review provision and the break option is
different in the present case from the corresponding juxtaposition in the other
two leases.
In my
judgment, however, none of these points is a basis of legitimate distinction of
the two Court of Appeal authorities.
The third
point is, I think, of no weight whatever. The first two points do not, in my
view, incline against the conclusion reached by the Court of Appeal in the two
cases I have mentioned that time should be of the essence of the rent review provision.
The decisions in the two Court of Appeal cases require me, in my view, to hold
that time is of the essence of the rent review provision in the present case.
The construction and effect of leases, and in particular leases of commercial
premises, ought not, in my view, to be subjected to variation caused by minor
and apparently unimportant differences in language. Certainty is highly
important. It would be a disservice to the law if I were, in reliance on such
points of distinction as have been relied on in the present case, to give to
the rent review clause in the present case a different effect to that given to
the rent review clauses in the two Court of Appeal cases in question.
There is,
however, a third Court of Appeal decision to which I must refer. Metrolands
Investments Ltd v J H Dewhurst Ltd [1986] 3 All ER 659* concerned a
lease for a term of 21 years from February 19 1968. The reddendum to the lease
was in these terms:
. . . yielding and paying therefor during
the first three years of the said term the yearly rent of [£1,500] during the
next eleven years of the said term the yearly rent of [£1,800] and during the
remaining seven years of the said term the yearly rent at which the demised
premises might, on [19 February 1982] reasonably be expected to let without
premium in the open market between a willing landlord and willing tenant on
terms similar to those contained in this present Lease and assuming that the
Lessee has observed and performed all the covenants and conditions to be
observed and performed hereunder but disregarding any goodwill attached to the
demised premises by reason of the carrying on thereat of the Lessee’s business
such yearly rent to be agreed between the Landlord and the Lessee and failing
agreement to be determined by arbitration as hereinafter provided. Provided
always that the decision of such arbitrator shall be obtained before the
expiration of the first half of the Fourteenth year of the term hereby created.
But such yearly rent shall not in any event be less than [£1,800] . . .
*Editor’s note: Also reported at [1986] 1
EGLR 125; (1986) 277 EG 1343.
Clause 5 of
the lease was a break clause which required three months’ notice in writing
delivered to the landlord ‘within the six months previous to the end of the
fourteenth year of the said term’. So the open market rent for the last seven
years of the term was to be fixed by the arbitrator by August 19 1981, and
under the break clause notice determining the lease could be given at any time
between August 19 1981 and November 18 1981. There was, therefore, firm basis
for concluding that the parties to the lease contemplated that the tenants
would know the amount of the rent for the last seven years of the term before
having to decide whether or not to exercise the break option.
In the event,
the arbitrator failed to fix the rent for the last years of
reddendum?
Slade LJ gave
a reserved judgment of the court. He cited the passage from Lord Diplock’s
speech in the United Scientific case at p 930 with which every modern
judgment on the question whether time is of the essence of rent review
procedure invariably starts. He then referred to the tenant’s argument that
time was of the essence and said:
We now turn to the other suggested
contra-indication relied on by Dewhurst, based on the correlation of the
rent review clause with the break clause. Let it be said at once that there is
the clearest possible correlation of this nature. Earlier in this judgment we
have set out the timetable envisaged by the express provisions of the lease.
The relevant dates were clearly fixed by the draftsman in the contemplation
that any necessary decision of the arbitrator would be obtained at the very
latest before 19 August 1981, which was to be the start of the three month
period (19 August-18 November 1981) during which Dewhurst was to be
free, if thought fit, to serve a notice to determine the lease. The draftsman
manifestly envisaged a timetable by virtue of which the lessee would know the
rent which would be payable for the last seven years of the term by the time
when it came to make its decision whether or not to exercise its right to
determine the lease.
He then said:
One other important point is common
ground, as it appears to be have been before the judge. It is not disputed that
time is of the essence for the purpose of applying the time limit specified in
the break clause itself. The reasoning sufficiently appears from the following
passage in the speech of Lord Diplock in the United Scientific case.
He then cited
the passage at p 929 that I have myself cited.
Slade LJ then
cited at some length from the passages in the judgment from the United
Scientific case that dealt with the interrelation of the rent review clause
with other clauses in the lease, and referred to Coventry City Council v
J Hepworth & Son Ltd (1982) 46 P&CR 170 — reported both at first
instance and in the Court of Appeal — where Lawton LJ had said at p 176:
It comes to this, that their Lordships .
. . were all of the opinion that, where you have a triggering off of a rent
review provision started by the landlord followed by an option given to the
tenant to break the lease if he so wishes, then time is to be presumed to be of
the essence of the agreement unless there are contra-indications.
Slade LJ
referred to other authorities and continued at p 668:
Throughout this debate, we think it must
be borne in mind that the ultimate object of the court in construing a rent
review clause, like any other contractual provision, must be to ascertain the
parties’ intentions from the particular words which they have used to express
those intentions, read, of course, in the light of any admissible evidence as
to surrounding circumstances; albeit with the assistance of the guidelines as
to construction afforded by earlier authorities. In many, perhaps most, cases
of which the present is one, the rent review (if any) can result only in an
increase, and thus is only for the landlord’s benefit. Essentially, therefore,
the question to which the court has to direct its mind is this: is the proper
intention to impute to the parties, from the words which they have used, the
intention that the landlord shall lose his right to a review if the stipulated
timetable is not strictly adhered to in the relevant respects.
A particular
and distinguishing feature of the rent-fixing machinery in the Metrolands
Ltd lease was that the timing of the procedure was under the control not of
the landlord but of the arbitrator. This feature was the reason why, in the
end, in Slade LJ’s view, time should not be treated as of the essence. He said,
at p 670:
If time was to be treated as being of the
essence in respect of this date, this would have meant that . . . delay in the
obtaining of the arbitrator’s decision by only one day beyond 19 August 1981
would have entirely deprived the lessor of its right to a review in respect of
the last seven years of this 21-year term and would have left it saddled with a
continuing annual rental as low as £1,800, which had been the rental payable
for the preceding eleven years. In these circumstances we think that the
following observations of Viscount Dilhorne in the United Scientific
case . . . are apposite, spoken as they were in relation to a lease which,
apart from the absence of the break clause, bore a marked similarity to that
under consideration in the present case.
Then comes
this citation from Lord Dilhorne’s speech:
It is most unlikely in these
circumstances that the lessors, if they had been asked at the time the leases
had been entered into to agree that time should be of the essence, would ever
have agreed to that and I see no reason for imputing to them an intention which
no reasonable landlord would have had.
Slade LJ then
went on:
In saying this, we do not overlook the
importance to the lessee of knowing before 19 August 1981 what the revised rent
was likely to be, so as to assist in deciding whether or not to operate the
break clause. Nevertheless, as it is reasonable to assume, the parties would
have been aware at the time when the lease was executed that the lessee would
by no means have been at the lessor’s mercy if the lessor did not choose to set
the rent review machinery in operation promptly; for the lessee itself had the
same right as the lessor to set the arbitration procedure in motion. If,
therefore, the lessee foresaw a risk of the arbitrator’s decision not being
obtained by 19 August 1981 and that risk caused it concern, an obvious remedy
lay in its own hands. For these reasons there can, in our judgment, be no doubt
that the potential detriment to which the lessor under this particular lease
would have exposed himself by agreeing that time should be of the essence as
regards the stipulated date for the obtaining of the arbitrator’s decision
would have far outweighed any potential detriment to which the lessee would
have exposed itself by agreeing that it should not be.
I have read at
some length from Slade LJ’s judgment, because the reasoning, based on a close
application of the principles underlying the judgment from the United
Scientific case, seems to me difficult to reconcile with the reasoning
leading to the two Court of Appeal decisions by which I am bound. Those two
cases in the Court of Appeal were not referred to in the Metrolands
case, either in the judgment of Slade LJ or apparently in argument before the
court. The Metrolands judgment, however, is distinguishable on its facts
from those two decisions and cannot, in my view, be regarded as overruling
them. My preference for the reasoning of Slade LJ and my doubts as to whether
the two earlier Court of Appeal cases reflect an application of the principles
expressed in the United Scientific case do not release me from the
authority of those two decisions. I hold, on that authority, that time was of
the essence of the rent review machinery in the present case and that this
action therefore succeeds.
Declaration as sought by plaintiffs
granted with costs.