Two underleases granted to same tenant — First lease in possession — Second lease of reversion to succeed first lease — Provisions in both leases similar — Rent review provision in first lease — Term of hypothetical lease in issue — Whether hypothetical term same as unexpired term of first lease or first and second lease combined — Whether hypothetical tenant assumed to have security of tenure
The defendant is the landlord of warehouse premises, in Fleming Way, Crawley, West Sussex, the subject of two underleases granted in June 1973. The underleases were granted on the same day to the same tenant. The first underlease was for a term of 16 years expiring at Lady Day 1989 and the second was an underlease of the expectant reversion commencing at Lady Day 1989 and for a term of 34 years. The second lease was on the same terms as the first and subject to the first not having been forfeited. The two underleases thus gave, in effect, terms amounting in aggregate to 50 years. The transaction was probably thus arranged to minimise the stamp duty otherwise payable on a 50-year term.
The plaintiff tenant sought a declaration as to the meaning of the 5-year rent review provisions in the first underlease. These required the rent to be determined on the assumption of a lease for a term of years equivalent in length to the “residue unexpired” at each rent review date and that all restrictions relating to security of tenure should be disregarded. The plaintiff contended that at the 1988 rent review it must be assumed that the hypothetical lease was for one year, as this was the same as that unexpired under the 16-year term of the first underlease. For the landlord it was submitted that the unexpired term must include the 35-year term of the reversionary underlease that will follow the present underlease.
Held 1. It was legitimate in construing the first underlease to have regard to the contemporaneous execution of the reversionary underlease and to treat the two as forming two parts of one overall transaction. However, the references in the first underlease to the “term” must as a matter of grammar be references to the term granted by the first underlease alone. It followed that the hypothetical term for the purposes of the 1988 rent review was a letting for one year only. The terms of the underleases were too explicit to let in the general principle that rent review clauses must be construed so as to require the tenant to pay for what he actually gets: Basingstoke and Dean BC v Host Group Ltd [1987] 2 EGLR 147.
2. The requirement in the rent review provisions that there shall be disregarded all restrictions whatsoever relating to security of tenure contained in any statute or order, rules or regulations thereunder has a meaning in the context evincing an intention to have regard to the rights at common law of the hypothetical tenant without regard to statutory intervention concerning security of tenure.
Derek Wood QC and John Male (instructed by Clifford Chance) appeared for the plaintiff tenants; and David Neuberger QC and Kim Lewison (instructed by Braby & Waller) appeared for Provident Mutual Life Assurance Association, by substitution the defendant landlords.
