Landlord and tenant — Rent review clause — Whether time of the essence in respect of step following service of landlord’s notice — Review clause provided that if within two months of the service of such notice the landlord and tenant had been unable to agree on a fair market rent, then the question ‘shall as soon as practicable and in any event not later than four months’ before the expiry of the landlord’s notice be referred for decision to a surveyor — The four months’ time-limit was not complied with — Similarity of above provision to that in Touche Ross & Co v Secretary of State for the Environment where it was held not to involve the consequence that time was of the essence — As in the Touche Ross case, despite the prima facie force of such expressions as ‘in any event not later than’, there were indications which told in favour of the general rule in United Scientific Holdings Ltd v Burnley Borough Council that time was not of the essence — Landlords’ submissions upheld — Steps to determine a revised rent to proceed
This was an
originating summons to determine the true construction of a rent review clause
in a lease relating to premises on the Widford Trading Estate at Chelmsford.
The plaintiffs were the landlords, Thorn EMI Pension Trust Ltd, and the defendants
were the tenants, Quinton Hazell plc (formerly Quinton Hazell (Holdings) Ltd).
Jonathan Brock
(instructed by Rowe & Maw) appeared on behalf of the plaintiffs; Kirk
Reynolds (instructed by Sharpe Pritchard & Co, agents for Newsome, Vaughan
& Co, of Coventry) represented the defendants.
Giving
judgment, GOULDING J said: This is an originating summons which raises a short
point of construction on a rent review clause and it has been very well argued
on both sides. The clause is contained in a lease dated July 4 1968 of certain
business property on the Widford Trading Estate at Chelmsford. The plaintiff is
now the landlord and the defendant is the tenant under that lease, and they
have been so at all material times. The property was demised for a term of 33
years from December 25 1965 and the reddendum provides for (a) a peppercorn
rent from the commencement of the term to June 30 1968 and thereafter a yearly
rent of £2,650, (b) ‘the increases of rent as hereinafter provided’, and (c) a
yearly insurance rent equal in amount to the premium paid by the landlord. The
reference to ‘increases of rent’ is explained by clause 5(2) of the lease which
reads:
(a) If the Landlord shall desire to review the
rent hereinbefore reserved at or after the expiration of the eighth sixteenth
and twenty-fifth years of the term hereby granted (or any of them) and of such
desire shall give to the Tenant not less than six calendar months previous
notice in writing then as from the date of the expiration of the said notice or
of the expiration of the relevant year of the term hereby granted in respect of
which such notice shall have been given (whichever shall be the later) for the
residue of the term hereby granted or until any subsequent review as herein
provided the rent first hereby reserved shall be revised and shall be such an
annual sum as may be agreed between the Landlord and Tenant or as may be
determined as provided by the following subclauses of this present clause to be
the fair market rack rental of the demised premises Provided that in no
circumstances shall the rent payable hereunder following any such review be
less than the yearly rent payable by the Tenant at the date of the Landlord’s
notice calling for the review in addition to the insurance rent
(b) If within two calendar months after the
service by the Landlord of the notice referred to in subclause (a) of this
present clause the Landlord and the Tenant have been unable to agree upon a
fair market rack rental (as defined by subclause (c) of this present clause)
then the question of what is a fair market rack rental of the demised premises
shall as soon as practicable and in any event not later than four months before
the expiration of the said notice or of the expiration of the relevant year of
the term hereby created in respect of which such notice shall have been given
(whichever is the later) be referred for decision to a Surveyor to be mutually
agreed between the Landlord and the Tenant or in default of agreement to be
nominated by the President for the time being of the Royal Institution of
Chartered Surveyors and such Surveyor whether agreed or nominated as aforesaid
shall act as an expert and not an Arbitrator and the decision of such Surveyor
shall be binding on both the Landlord and the Tenant but subject to the proviso
contained in subclause (a) of this clause The said Surveyor’s fee shall be
payable by the Landlord and Tenant in equal shares The fair market rack rental
as so agreed or determined shall subject to the proviso contained in subclause
(a) of this clause be the annual rent payable hereunder for the residue of the
term or until any subsequent review (as the case may be) in lieu of the rent
first hereby reserved and in addition to the insurance rent
(c) The expression ‘fair market rack rental’ shall
for the purposes of this clause mean the amount which would in addition to the
insurance rent be the annual amount obtainable at the date of agreement or
determination as aforesaid as between a willing Landlord and a willing Tenant
in respect of the demised premises on a letting thereof as a whole with vacant
possession for a term of eight years and subject to similar covenants and
conditions as those contained in this Lease but ignoring any goodwill value
attaching to the Tenant’s business and ignoring the provisions of this present
clause for revision of the rent but subject to the proviso contained in
subclause (a) of this Clause
Clause 5(2)
contains a further paragraph which it is not necessary for me to read.
On June 1
1981, or very shortly thereafter, notice was served on the defendant of the
plaintiff’s desire for a review of the rent as from Christmas 1981 (that is,
the expiration of the 16th year of the term). That notice was clearly in time,
being more than six months’ notice to expire at Christmas 1981. Negotiations
took place between the parties, but they failed to agree on a revised rent, nor
did they agree on the name of a surveyor to determine it as an expert.
Accordingly on, or very shortly after, May 14 1982, by a letter of that date, the
plaintiff requested the president of the Royal Institution of Chartered
Surveyors to nominate an expert for the purposes of the rent review clause.
That notice was, of course, not given in accordance with the language of the
clause, whereby the revised rent in default of agreement is to be referred for
decision to a chartered surveyor to be mutually agreed or nominated by the
president of the Royal Institution of Chartered Surveyors, in any event, not
later than four months before the expiration of the notice. The specified four
months before the expiration of the plaintiff’s notice was August 25 1981. The
request to the president of the Royal Institution of Chartered Surveyors to
nominate a surveyor was not made until
late to have the rent reviewed in respect of the determination of the 16th year
of the term.’
The plaintiff
landlord relies on a leading case in the House of Lords, which I shall come to
in a moment, and says: ‘Time is not of the essence. I have given my trigger
notice in good time, and the machinery thereafter specifies periods which are
not of the essence. It is not too late for the request to be referred to a
surveyor whom the president of the Royal Institution of Chartered Surveyors
will in due course nominate.’
Of course, one
reported decision on a question of the interpretation of a legal instrument is
never binding authority, in the absolute sense, in respect of another and
different instrument. But in this case I have some unexpected guidance.
Unhappily worded as the clause appears to be, it evidently has been used in a
number of cases. There is a reported decision of the Court of Appeal on a rent
review clause differing only in a few respects from the present case, namely, Touche
Ross & Co v Secretary of State for the Environment (1982) 265 EG
982, [1983] 1 EGLR 123.
The Court of
Appeal had to consider a clause which very closely resembled that now before
me, though there are certain differences to which I shall refer. What, in
effect, was the judgment of the court was given by Dillon LJ. He read out the
clause, and he referred first of all to the well-known case in the House of
Lords of United Scientific Holdings Ltd v Burnley Borough Council
[1978] AC 904. The learned lord justice said that in that case the House of
Lords laid down in emphatic terms
. . . that in
the absence of any contra indications in the express 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 time-table 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 proposition
so expressed is quoted from Lord Diplock’s speech at p 930. Having considered
and expounded the United Scientific Holdings decision, Dillon LJ
considered the arguments before him. He paid attention to the words ‘in any
event’, which, in that case, were in the phrase that the fair market rack
rental ‘shall as soon as practicable and, in any event, not later than three
months after the service of the said notice’ be referred for decision to a
surveyor.
In the present
case, of course, the same words ‘in any event’ occur, only here the phrase is
‘not later than four months’. The learned lord justice clearly saw some force
in the argument but he did not consider it decisive, particularly in view of
the fact that what had to be done was reference made to a surveyor, not (he
said) the service of a notice on the president, but a reference to a surveyor
to be mutually agreed between the lessor and the lessee or nominated by the
president.
The learned
lord justice pointed out that there would be some time, necessarily, before the
identity of the surveyor could be known. Therefore, in a ‘fairly tight
timetable’ (as he called it), the ability to comply with the time-limit passed
out of the hands of the parties. That, the learned lord justice thought, was
some indication that time was not of the essence. He then dealt with another
argument which had been addressed to him, which I do not need to repeat, and
referred to certain authorities that had been cited. He concluded:
Obviously it
is undesirable that questions of whether time is of the essence in a rent
review clause should depend on minute differences of language. Since there is
no magical formula it is possible that small differences of language will lead
in some cases to opposite conclusions.
He declined to
express any view on whether or not a certain earlier case (Drebbond v Horsham
District Council (1979) 37 P & CR 237) had been correctly decided.
The decision
of the Court of Appeal in the Touche Ross case seems to have
depended on two points: first, the ‘presumption’ (as Lord Diplock called it)
that in such a context time is not of the essence, as established by the United
Scientific Holdings case and, secondly, the fact that it would be difficult
for a party to be sure of complying with the time-limits, since not merely had
an application for the nomination of a surveyor to be made, but the question
had to be referred to that expert within a short period of time. That latter
element in the case persuaded the court that it was impossible to find an
agreement expressed to take the matter out of the general principle laid down
in the United Scientific Holdings case.
Mr Reynolds,
who appears for the defendant in this case, submits that the second element is
not present here. There is, indeed, a difference of language. In the Touche
Ross case the language was that the question, in default of agreement and
within a specified time
. . . be
referred for decision to a Surveyor to be mutually agreed between the Lessor
and the Lessee or in default of agreement to be nominated on the application of
either party by the President for the time being of the Royal Institution of
Chartered Surveyors.
The lease in
the instant case, in the corresponding passage in clause 5(2)(b), uses this
language:
be referred
for decision to a Surveyor to be mutually agreed between the Landlord and the
Tenant or in default of agreement to be nominated by the President for the time
being of the Royal Institution of Chartered Surveyors.
It will be
observed that the words ‘on the application of either party’, which were
present in the Touche Ross case, are absent in the instant case.
Therefore, Mr Reynolds submits, it was impossible in the Touche Ross
case to interpret the words ‘referred . . . to a Surveyor’ as being satisfied
by a request to the president to nominate a surveyor. In the instant case,
those words being absent, it is possible and (Mr Reynolds submits) quite
natural to interpret the words ‘referred . . . to a Surveyor’ as being
satisfied by a request to the president to nominate one.
I am unable to
accept that submission. It seems to me that the language that I have
interpreted in accordance with the ordinary meaning of English words clearly
contemplates an actual reference within the time-limit to a surveyor whose
identity is known. I do not think that the preliminary step of requesting the
president to nominate a surveyor falls within the meaning of the phrase.
Accordingly it seems to me that the argument based on the difficulty of
complying with the time-limit where a nomination has to be obtained is
available in the present case as it was in the Touche Ross case.
There is,
however, another and more important difference between the language of the two
clauses. In the Touche Ross case the rent review clause began:
If the Lessor
shall desire to review the rent herein before reserved on the First day of
November 1981 and of such desire shall give to the Lessee not less than five
calendar months’ previous notice in writing. . .
In the instant
case it begins:
If the
Landlord shall desire to review the rent hereinbefore reserved at or after the
expiration of the eighth sixteenth and twenty-fifth years of the term hereby
granted (or any of them) and of such desire shall give to the Tenant not less
than six calendar months’ previous notice in writing. . .
Those words ‘or
after’ enable the landlord, if the 16th year has already expired, still to
serve a notice and not miss the opportunity of rent review altogether,
although, as I read the language of the clause, the revised rent will not
operate retroactively. I do not want to speculate on other points of difficulty
arising from those words ‘or after’, because they may at some time in the
future become of practical importance.
Mr Reynolds
has sought to persuade me that because the landlord is allowed to give a late
notice and is not obliged to give it at any particular time, therefore it is
more likely that in relation to the machinery for determining the revised rent
time is of the essence. He has referred me, in support of that submission, to
the case of Saloom v Shirley James Travel Service Ltd (1981) 259
EG 420, [1981] 2 EGLR 96. That related to a very different lease, and I do not
think it is necessary for me to state the facts or the decision. The only general
principle that I can get out of it is that expressed by Lord Fraser in the United
Scientific Holdings case at p 962, where he said:
The rule
would of course be excluded if the review clause expressly stated that time was
to be of the essence. It would also be excluded if the context clearly
indicated that that was the intention of the parties.
Then he gave an
example of a lease where a rent review clause was related in point of time to a
clause allowing the tenant to break the lease. I fully accept that general
principle, but I have been unable to see why the extended right given to the
landlord by the words ‘or after’ should make it necessary to exclude the United
Scientific Holdings principle when one comes to consider the machinery that
follows upon the trigger notice.
I think the
plaintiff is right in saying that time is not of the essence in the clause in
question, and that the determination of a revised rent pursuant to the notice
given in the instant case can proceed.
Accordingly, I
make a declaration in the terms of the first alternative in the originating
summons.
