Landlord and tenant — Rent review provisions — Construction — Appeal from decision of Mr Michael Wheeler QC, sitting as a deputy judge of the Chancery Division — Underlease of premises known as 366-375 Strand and the Strand Palace Hotel — Reviews at seven-year intervals — Reviewed rent to be the aggregate of certain items including ‘(a) the excess of the rental value on the relevant date above two hundred and fifty thousand pounds of those areas being parts of the ground floor and the basement of the demised premises as shown edged red on the plans annexed hereto and marked C and D (on the basis that those areas are actually let for or are available for letting for shopping and retail purposes’ — Of the areas edged red the greater part was used as the Strand Palace Hotel, and was physically adapted for that purpose, and the remainder for shopping and banking — On these provisions and facts somewhat complex questions of construction arose — There had been previous proceedings in 1980, in connection with the first rent review, when Fox J decided a number of questions ((1980) 256 EG 915, [1980] 2 EGLR 123) — The present proceedings arose from differences in connection with the second rent review and a summons was issued by the tenants seeking further guidance from the court — The parties had agreed in the formulation of six questions, superseding those in the summons — The judge made declarations in answer to those questions, but issues were raised on the appeal effectively on two only of these declarations — These were: (i) For the purpose of assessing the rental value of the areas edged red on Plans C and D it should be assumed that each area is being separately let so that the rental value is the aggregate of the values of individual areas; (ii) That the words ‘on the basis that those areas are . . . available for letting for shopping and retail purposes’ mean that they are to be taken to be available for letting for those purposes only
Appeal disagreed with the first of these declarations but agreed with the
second — The natural construction of the language used, ‘rental value’ (as
opposed to ‘rental values’ or ‘aggregate rental values’) indicated a single
hypothetical letting of the whole of the areas shown as edged red — An argument
for the opposite view based on two extra red lines on the plans was shown to be
founded on a clerical error — On the second issue the court agreed that the
words quoted meant that the areas in question were to be valued on the basis
that they were available for shopping and retail purposes only, not for these
and other purposes — Appeal allowed to the extent required to make the
necessary substitution for the first declaration
The following
cases are referred to in this report.
Basingstoke and Deane Borough Council v The Host Group Ltd [1988]
1 WLR 348; (1987) 56 P&CR 31; [1987] 2 EGLR 147; 284 EG 1587, CA
Burchell v Clark (1876) 2 CPD 88; 46 LJCP
115; 35 LT 690; 25 WR 334
Matthews v Smallwood [1910] 1 Ch 777
This was an
appeal by Daejan Investments Ltd, the landlords, from a decision of Mr Michael
Wheeler QC, sitting as a deputy judge of the Chancery Division (reported at
[1989] 03 EG 78) on an originating summons for the construction of rent review
provisions in an underlease of the premises known as 366-375 Strand, London
WC2, and the Strand Palace Hotel. The respondents were the tenants, Trusthouse
Forte Albany Hotels Ltd, who had taken out the summons.
David
Neuberger QC and Miss Erica Foggin (instructed by Herbert Smith) appeared on
behalf of the appellants; Derek Wood QC and Kirk Reynolds (instructed by
Paisner & Co) represented the respondents.
Giving
judgment, SLADE LJ said: This appeal is of a now familiar species, since it
concerns the construction of a rent review clause, though the clause itself is
of an unusual form. The appellant, Daejan Investments Ltd, is the landlord and
appeals from a judgment of Mr Michael Wheeler QC, sitting as a deputy judge of
the Chancery Division, which is now reported at [1989] 03 EG 78. The present
tenant, and respondent to the appeal, is Trusthouse Forte Albany Hotels Ltd.
The lease in
question is an underlease dated June 16 1972, and made between the appellant
(‘Daejan’) as landlord, and J Lyons & Co Ltd (‘Lyons’) as tenant (‘the
underlease’), whereby Daejan demised to Lyons:
ALL THAT piece of land situate in the
City of Westminster and being on the north side of the Strand the south and
east sides of Exeter Street and the west side of Burleigh Street Together with
the shops hotel and buildings erected thereon and known as Numbers 366 to 375
Strand and the Strand Palace Hotel All which said land and premises are
delineated and coloured pink and red on the plan A hereto and are hereinafter
called ‘the demised premises’ . . .
The residue of the term created by the
underlease became vested in the respondent (‘Forte’) in 1977.
By clause 1 of
the underlease Daejan demised the demised premises to Lyons:
. . . subject to and with the benefit of
(1) the existing underlease or parts thereof and (ii) the documents set out in
the Schedule hereto for the term of SEVENTY-FIVE YEARS computed from the Fifth
day of July One thousand nine hundred and sixty-three (less the last three days
thereof) YIELDING AND PAYING during the said term the yearly rent of FIVE
HUNDRED AND FIFTY THOUSAND POUNDS (subject to review as hereinafter mentioned)
by equal quarterly payments in advance on the Fifth day of January the Fifth
day of April the Fifth day of July and the Fifth day of October in every year
the first payment being a proportion from the Sixteenth day of June One
thousand nine hundred and seventy-two to the Fifth day of July next and to be
made on the execution hereof PROVIDED as follows:
(i) that as from the Fifth day of July One
thousand nine hundred and seventy-nine and at the expiration of each successive
period of seven years calculated from such date (such date and the date of each
such expiration being hereinafter referred to as ‘the relevant date’) the rent
shall be the aggregate of (a) the excess of the rental value on the relevant
date above Two Hundred and Fifty Thousand Pounds of those areas being parts of
the ground floor and the basement of the demised premises as shown edged red on
the plans annexed hereto and marked C and D (on the basis that those areas are
actually let for or are available for letting for shopping and retail purposes)
such excess to be multiplied by 1.8125 (b) the initial rent of Five Hundred and
Fifty Thousand Pounds herein provided and (c) a sum equal to any increase of
rent currently payable in accordance with the provisions of Clause 1 of the
Head Lease and . . .
Clause 1(ii)
then specified the rent which was to be payable after July 5 2011.
The reason for
the choice of 1.8125 as the multiplier in clause 1(i)(a) can be a matter only
for speculation.
Clause 2 of
the underlease contained a number of covenants on the part of the tenant. In
particular, clause 2(8) provided, inter alia, as follows:
(a) That there shall not at any time during the
said term be exercised or carried on in or upon the demised premises or any
part thereof any trade or business manufacture or occupation whatsoever of an
offensive noisome noxious noisy or dangerous nature and that no clothing or
other articles shall be put out on the demised premises for the purposes of
drying or bleaching and that no part of the demised premises shall be used as
or for an asylum for persons of unsound mind or as a hospital nursing home or charitable
institute or school club or society or place of public amusement Provided
nevertheless that part of the ground floor of the demised premises abutting on
to the Strand may be used as shops or a Bank and the business of a good class
Hotel and/or Restaurant may be carried on upon the remainder of the demised
premises subject to such business being conducted at all times in a quiet and
orderly manner and so as not to cause the forfeiture of any licences which may
be held for selling wine beer and spirits upon the demised premises in
connection with such business. . .
(c) That no part of the demised premises shall be
used as a betting shop . . .
By clause 2(14) the tenant covenanted:
Not to do or omit or suffer to be done or
omitted any act manner or thing in on or respecting the demised premises
required to be omitted or done (as the case may be) by the Town and Country
Planning Acts or which shall contravene the provisions of the said Acts and at
all times hereafter to indemnify and keep indemnified the Landlord against all
actions proceedings costs expenses claims and demands in respect of any such
act matter or thing contravening the said provisions of the said Acts.
By clause 2(15), so far as material, the
tenant covenanted:
Not to assign underlet or part with the
possession of the demised premises or any part thereof Provided always that the
Tenant may:–
(a) With the prior written consent of the
Landlord Sub-underlet the whole or any part or parts of the demised premises
for (i) a term or terms not exceeding Twenty-one years and reserving a rack
rent or (ii) a term or terms exceeding Twenty-one years reserving a rack rent
with provision for a review of the rack rent not less frequently than at the
expiration of the twenty-first year of the term and every twenty-one years
thereafter without in either case taking any fine or premium or
(b) With the prior written consent of the
Landlord assign the whole of the demised premises (such consent not to be
unreasonably withheld). . .
The areas of
the basement and ground floor of the demised premises which are edged red in
plans C and D in the underlease were at the date of the underlease and have at
all material times been used and occupied as to part for the purposes of the
Strand Palace Hotel, and as to the remainder for shopping and bank (or allied)
purposes independent of the hotel. Those areas which are so used and occupied
for retail or bank purposes, including ancillary areas such as storage, in
general front on to the Strand. There is with our papers (exhibit GWA2) a copy
of plans C and D, on each of which those areas which are used for shopping,
bank and ancillary purposes are hatched in green. The remainder of the ground
and basement floors are used and occupied as part of the hotel. Those areas hatched
in green which are used for shopping or bank purposes are physically adapted
and laid out for such purposes. The remaining areas are physically adapted and
laid out for the various purposes of the hotel, including, for example,
restaurants, kitchens, reception areas, staff dining-rooms, stores and service
areas.
In 1980 Fox J
(as he then was) was asked to consider various questions relating to the basis
on which the areas edged red on plans C and D ought to be valued on the first
rent review. In their summons, Forte sought, inter alia, a declaration
in effect that the areas edged red on plans C and D ought to be valued in their
existing physical condition. Daejan, for their part, contended that the rental
valuation ought to be made on the basis that such parts of the demised premises
as were not actually let for shopping and retail purposes at the relevant date
should be treated as being in a state reasonably appropriate for such use. The
dispute was limited to those parts of the premises not already in use as shops;
it was agreed that the latter must be valued in their actual physical state.
Fox J, in a judgment reported at (1980) 256 EG 915, [1980] 2 EGLR 123,
preferred Forte’s contention. He made a declaration that the relevant areas
were to be valued in their existing state. In the course of his judgment, he
said this (at pp 916-917):
It is pointed out by way of preliminary
on behalf of the defendants that the clause does require certain suppositions
to be made if sensible effect is to be given to it; for example, that any
necessary planning permission to enable user for shopping or retail purposes
has been given, and that any provisions in the underlease which might prevent
such user or alteration of the premises for such user have been suitably varied
or waived or appropriate consents given. These considerations do not, I think,
advance the defendants’ contentions. The clause requires one to assume that the
areas in question, which are now used for hotel purposes, should be available
for letting for shopping and retail purposes. Any question of contravention of
planning control or of the provisions of the underlease goes directly to
availability. I do not think that the premises are ‘available’ for a purpose if
there are in existence lawful prohibitions, whether statutory or contractual,
against the user of the premises for such purpose. But it seems to me that
premises can be available for shopping and retail purposes irrespective of
their physical condition. Availability, I think, does no more than assume that
the premises are on offer with vacant possession and that they can be used for
the specified general purpose without illegality or breach of covenant.
Fox J accepted
that the purpose of the clause was to protect the landlord against inflation,
but said (at p 917):
I cannot see any satisfactory basis upon
which I should read in words to give the landlord the rental benefit of
physical premises other than those actually contained in the under-lease. You
protect the landlord against inflation by reassessing every seven years the
rent of the actual premises which he owns and not of other premises. I do not
see why the landlord should get the benefit of assumed alterations which the
landlord has not made.
The judgment
of Fox J was not appealed and it is common ground that his decision is binding
on the parties.
A second rent
review became due as at July 5 1986. In the summer of 1986 a difference of
opinion arose between the parties as to the basis upon which the surveyor, yet
to be appointed, was to make his determination for the purpose of the new rent
review. Forte accordingly issued a summons seeking the further guidance of the
court.
In an
endeavour to reach agreement, so far as possible, as to the principles which
should govern the valuer in operating the rent review provisions in the
underlease, the parties agreed on a number of propositions which are set out at
p 82 of the report of the deputy judge’s judgment. They also formulated six
questions for his determination which were intended to elaborate and supersede
the questions formulated in the originating summons. These questions were as
follows:
1 For the purpose of assessing the rental value
of the areas edged red on Plans C and D should it be assumed that
(a) each area is being separately let, so that the
rental value is the aggregate of the values of individual areas
OR
(b) all the areas edged red are being let under a
single lease
OR
(c) the areas are let by whichever method
produced the higher rent?
2 Insofar as any of those areas is actually sublet
for shopping and retail purposes to any existing subtenant at the relevant
date, should any such area, for the purposes of either 1(a) or (b) be valued
(a) subject to and with the benefit of the
existing sublease
OR
(b) as if it were available for letting with
vacant possession
OR
(c) on whichever of the two bases produces the
higher rent?
3 Do the words ‘on the basis that those areas
are . . . available for letting for shopping and retail purposes’ mean
(a) that they are to be taken to be available for
letting for those purposes only
OR
(b) that they may also be taken to be available
for letting for any other purpose permitted by the plaintiffs’ Lease?
4 Insofar as any area must be valued on the
basis of a hypothetical letting in the open market, is it to be assumed that
the term of the letting is
(a) a term equal to the unexpired residue of the
term of the plaintiffs’ Lease
OR
(b) such term of years as might reasonably be
expected to be negotiated in the open market between willing parties?
5 Would any such hypothetical lease contain
provisions for rent review which
(a) were, with regard to frequency and in all
other respects, such as might reasonably be expected to be negotiated in the
open market between willing parties
OR
(b) were, with regard to frequency the same as
those contained in the
expected to be negotiated in the open market between willing parties?
6 Would the
other terms of any such hypothetical letting be
(a) those which might reasonably expected to be
negotiated in the open market between willing parties
OR
(b) those which are contained in the plaintiffs’
Lease adapted so far as necessary for the purposes of a letting or letting of the
particular area or areas in question?
The learned
deputy judge answered these questions by declaring that on the true
construction of the rent review provisions:
. . . the single surveyor who is to be
appointed to determine as expert the amount of the ‘rental value’ (as therein
defined) as from July 5 1986 must determine the same upon the following basis,
namely
(i) For the purpose of assessing the rental
value of the areas edged red on Plans C and D it should be assumed that each
area is being separately let so that the rental value is the aggregate of the
values of individual areas.
(ii) In so far as any of those areas is actually
sublet for shopping and retail purposes to any existing subtenant at the
relevant date any such area should be valued subject to and with the benefit of
the existing sublease.
(iii) That the words ‘on the basis that those areas
are . . . available for letting for shopping and retail purposes’ mean that
they are to be taken to be available for letting for those purposes only.
(iv) That in so far as any area must be valued on
the basis of a hypothetical letting in the open market it is to be assumed that
the term of the letting is a term equal to the unexpired residue of the term of
the Lease.
(v) That any such hypothetical Lease would
contain provisions for rent review which were with regard to frequency the same
as those contained in the Plaintiff’s Lease but in all other respects such as
might reasonably be expected to be negotiated in the open market between
willing parties.
(vi) That the other terms of any such hypothetical
letting would be those which are contained in the Lease adapted so far as
necessary for the purposes of a letting or letting of the particular area or
areas in question for shopping and retail purposes and in particular
That there should be suitably modified
the definition of the premises thereby demised the matters reserved and
excepted from the said lettings the rights and appurtenances granted together
with the premises thereby demised and in particular that the permitted user of
the premises is restricted to shopping and retail purposes only notwithstanding
the provisions of Clause 2(8) of the Lease and the modification of Clause 2(11)
so as to permit the adaptation of the premises thereby demised so as to be
suitable for use for shopping and retail purposes.
While the
correctness of the second, fourth and fifth of these declarations is not
disputed on this appeal, Daejan challenges the first and third and also that
part of the sixth which reflects the third. It is common ground that the
outcome of the appeal relating to the sixth must depend on the outcome of that
relating to the third. Effectively, therefore, questions 1 and 3 above
represented the two issues on this appeal.
The first issue
The first issue
would not, it seems, have arisen but for one fact. While each of the plans C
and D annexed to the underlease shows a large area surrounded by a continuous
red line (with one break in that line on plan C, which is an obvious error)
each of them also contains an extra (relatively short) red line which appears
to divide the larger red-edged area into two. In the court below and in this
court, Forte invoked the presence of these two extra red lines to found an
argument that, for the purpose of assessing ‘the rental value’ of the area
edged red on plans C and D, it should be assumed that there were four areas
each being separately let, so that the rental value would be the aggregate of
the rental value of those four areas. The learned deputy judge accepted this
argument, saying (at pp 82-83):
As to question 1, there are some minor
indications in the wording of the rent review provision which could be said to
favour assumption (a) (for which Forte contend) or assumption (b) which arouses
little enthusiasm on either side (Daejan contend for assumption (c)). Finding
the answer is something of a coin-tossing exercise but, looking at plans C and
D, there are four separate areas edged red, a factor which seems to me to be
against the concept of all four being let under a single lease or (for that
matter) under one or more leases of two areas each, still less for subdivided
areas. Admittedly the rent review provision refers on the singular to ‘the
rental value’ of the areas edged red and not to ‘the aggregate rental
value’ of the areas. But it seems to me that assumption (a) is correct, namely
the aggregate of the rental values of the four individual areas.
In my
judgment, at least when read in isolation from plans C and D, the wording of
clause 1(i)(a) of the underlease presupposes a hypothetical letting of the whole
of the areas shown edged red on plans C and D. Otherwise the use of the
expression in the singular, ‘rental value’ (as opposed to ‘rental values’ or
‘aggregate rental values’) would be inapposite. I do not agree with the
submission made by Mr Derek Wood on behalf of Forte that, as a matter of
language, the use of the singular phrase ‘rental value’ is equally applicable
to the rental value of the areas let as a whole or let separately. This
hypothetical letting would be for a term equal to the unexpired residue of the
term of the underlease (see the deputy judge’s declaration no (iv)), and in so
far as any of the areas were actually sublet for shopping and retail purposes
to any existing subtenant at the relevant date, would be treated as being
subject to and with the benefit of the existing subleases (see his declaration
no (ii)). The hypothetical letting would thus as to part be of a reversionary
nature, but I see no difficulty about that.
Mr Wood
submitted that Forte’s argument in this context was supported by the presence
of the plural word ‘areas’ in clause 1(i)(a). In my judgment, there is no
substance in this point because, on any footing, the areas respectively shown
in plans C and D, being on different floors of the building, would have to be
referred to in the plural. His forceful argument on this question in the end
had principally to rest on the presence of the two extra red lines in plans C
and D to which I have referred.
He pointed out
that each of plans C and D was signed by a director of Daejan and of Lyons,
thereby indicating the importance which the parties attached to the plans. The
two extra red lines, he submitted, must be taken to have been inserted
deliberately and the only purpose of their deliberate insertion can have been
to differentiate on each plan between two distinct parts of the areas to be
valued.
Confidence in
the competence of the person who inserted the red edging on the originals of
plans C and D for the purpose of the underlease is not increased when one sees
that on plan C there is at least one obvious error, in that he has failed to
join up a boundary line in the north-west corner. For all this, I might perhaps
still have been able to accede to Mr Wood’s argument if I had thought it
reasonably likely that the two extra red lines had been deliberately included
by the draftsman for a purpose. However, I am wholly unconvinced that this can
have been so.
On an
examination of the particular positions of the two extra red lines in plans C
and D, there appears to be no possible rational explanation for their presence;
and Mr Wood, while repudiating any obligation to advance any such explanation,
has been able to suggest none. The extra red line on plan C divides ‘Entrance
Hall’ and ‘Reception’ and leaves a small area in the south-west corner of the
ground floor consisting partly of hotel premises and partly of sublet shop
premises. Still more significantly and less explicably, it appears impossible
to reconcile the position of the extra red line on plan D (near the south-east
corner) with its position on plan C (near the middle of the western boundary).
Parts of the ground floor and basement of the building in the south-east corner
are and have at all material times been let to a bank. If Forte’s contentions
are correct, part of the bank’s premises would fall to be dealt with in one
valuation and part would fall to be dealt with in another.
In all the
circumstances, I for my part am convinced that the insertion of the extra red
lines in plans C and D was due to a manifest clerical error. Mr Wood has
rightly stressed that Daejan has not claimed rectification of the underlease.
However, the decision of this court in Burchell v Clark (1876) 2
CPD 88 establishes that, while ordinarily the provisions of a lease will
prevail over those of the counterpart where there is inconsistency between the
two, nevertheless, where the lease contains a manifest clerical error, the
counterpart may be looked at for the purpose of seeing where the mistake lies.
I do not find it surprising that on inspection of the counterpart underlease in
the present case, plans C and D annexed thereto will be seen to contain neither
of the two extra red lines.
Accordingly,
the two extra red lines on plans C and D annexed to the original underlease do
not, in my judgment, present any obstacle to our construing the phrase the
‘rental value’ in clause 1(i)(a) according to what seems to me the natural
meaning of the words used. An alternative route by which reference to the
counterpart is, in my judgment, permissible is to regard clause 1(i)(a) of the
underlease, when read together with plans C and D annexed to the original
underlease, as giving rise to a patent ambiguity which justifies reference to
the counterpart to explain it (see Matthews v Smallwood [1910] 1
Ch 777). I would accordingly answer question 1 in the sense of alternative (b)
and allow the appeal to this extent.
The second issue
Clause 1(i)(a) of the underlease directs
the valuer to assess the rental value of the relevant areas ‘on the basis that
those areas are
purposes’. Two points are common ground. First, in so far as parts of the areas
are at the review date actually sublet for shopping and retail purposes, the
valuer will have to conduct his valuation having regard to the existence and
terms of those actual sublettings. Second, at the date of the underlease and at
the most recent review date, none of the other parts of the relevant areas were
in fact available for letting for shopping and retail purposes; they were
and are in fact available only for hotel purposes. As to these other
parts, the rent review clause thus requires the valuer to effect his valuation
on a hypothetical basis which does not correspond with the actual facts.
The dispute
concerns this hypothetical basis. Forte contends that these other parts are to
be valued on the basis that they are available for letting for shopping and
retail purposes only. Daejan contends that they are to be valued on the basis
that they are available for letting both for shopping and retail purposes and
for any other purpose permitted by the underlease and by public law
(particularly planning law) as at the review date. The learned deputy judge (at
p 82), while preferring the former of these two constructions, said that he
suspected that in actual fact there was little to choose between the two
approaches. The argument in this court suggests that the parties consider that
there is a substantial difference between the two, in particular because
Daejan’s approach would require a valuation which assumed that these areas were
available for letting for (inter alia) hotel purposes. The possible
significance of this will appear below.
Mr Neuberger
in his able argument in support of Daejan’s construction referred us to the
judgment of this court delivered by Nicholls LJ in Basingstoke and Deane
Borough Council v The Host Group Ltd [1988] 1 WLR 348*, in which it
was said (at p 354):
Of course rent review clauses may, and
often do, require a valuer to make his valuation on a basis which departs in
one or more respects from the subsisting terms of the actual existing lease.
But if and in so far as a rent review clause does not so require, either
expressly or by necessary implication, it seems to us that in general, and
subject to a special context indicating otherwise in a particular case, the
parties are to be taken as having intended that the notional letting postulated
by their rent review clause is to be a letting on the same terms (other than as
to quantum of rent) as those still subsisting between the parties in the actual
existing lease. The parties are to be taken as having so intended, because that
would accord with, and give effect to, the general intention underlying the
incorporation by them of a rent review clause into their lease.
*Editor’s note: Reported also at [1987] 2
EGLR 147.
In Mr
Neuberger’s submission, the fact that premises are to be assumed to be
‘available for letting for shopping and retail purposes’ does not carry with it
any implication, let alone any necessary implication, that this is the only
permitted purpose. Forte’s construction, he argued, involves the reading into
the end of this phrase of the word ‘only’, which would be justifiable neither
for the purpose of giving the rent review clause business efficacy nor under
any other general principles of construction. On the other hand, Daejan’s
construction, he suggested, accords with the general principle stated by this
court in the case last cited, inasmuch as the user authorised under the
notional letting contemplated by the rent review clause would correspond with
the user permitted by the underlease, subject only to any necessary planning
consent being obtained. The decision of Fox J requires that the relevant areas
shall be valued in their existing physical condition. If Forte’s contention
were correct, Mr Neuberger submitted, it would have the best of both worlds;
the areas not used or let as shops would fall to be treated as fitted out as an
hotel but to be valued for letting as shops.
I see the
force of all these points, particularly the last, which may or may not have
been drawn to the attention of Fox J. Nevertheless, I am not persuaded by them.
I agree with Fox J that ‘availability’ in this context requires an assumption
that ‘the premises are on offer with vacant possession and that they can be
used for the specified general purpose without illegality or by breach of
covenant’: see (1980) 256 EG 915 at p 917, [1980] 2 EGLR 123. Furthermore, I
think that as a matter of language the rent review clause requires the valuer
to assume that the relevant premises are on offer for letting for shopping and
retail purposes and no other purposes; inclusio unius exclusio alterius. Subject
only to the obtaining of the necessary planning consents, shopping and retail
purposes are included in the purposes permitted by the underlease. If it had
been intended that the notional letting contemplated by the rent review clause
should be for any purpose permitted by the underlease, I cannot see why the
rent review clause should not have so stated or why it should have limited the
stated purposes to those of shopping and retail.
If Forte’s
contentions are correct, this of course means that the valuer has to assume
that those parts of the premises which are in fact adapted for use as hotel
premises and are currently used for hotel purposes are not available for
letting for such purposes. This assumption, departing as it does so far from
reality, at one stage caused me to doubt the correctness of those contentions.
However, Mr Wood has satisfied me that there is a good reason why as a
commercial matter the parties could well have so intended. The floors above the
ground floor of the building form part of the Strand Palace Hotel. If in his
valuation the expert valuer were obliged to take hotel purposes into account in
addition to shopping and retail purposes, the landlord would no doubt seek to
persuade him to assess a higher notional rent, by pointing out that any
hypothetical tenant of the relevant areas who wished to adapt them physically
and then use them for shopping and retail purposes would be likely to be outbid
by the occupier of the upper floors of the hotel, who would wish them to be
used as essential areas of the hotel — in other words, that such occupier would
be in the position of a special potential lessee. It seems a reasonable
inference that the restriction on the purposes contemplated by the notional
lease was included so as to deprive the landlord of this possible line of
argument; and that for the same reason those parts of the ground floor and
basement which were excluded from the red edging will be seen to comprise
(broadly) those parts which would provide essential access and other facilities
for the upper floors of the building, if they were to continue to be used for
hotel purposes.
On the second
issue I therefore accept Forte’s argument and reach the same conclusion as did
the learned deputy judge. I think he was right to make declarations in the
terms of para (iii) and (vi) of his order. As to the first issue, we have
clearly had the benefit of much fuller argument than he did, in particular as
to the relevance of the counterpart lease, which was drawn to his attention
only at a very late stage after he had prepared his judgment in draft. With
these advantages, I have come to a different conclusion on the first issue. I
would accordingly allow this appeal in part and vary the order of the learned
deputy judge by substituting for the declaration in para (i) of his order a
declaration that for the purpose of assessing the rental value of the areas
edged red on plans C and D it should be assumed that all the areas edged red
are being let under a single lease.
Finally, I
should mention one point. During the course of the argument, it appeared that
there might perhaps be a difference of opinion between the parties as to
whether those parts of the demised premises which were at the review date let
for the purposes of a bank were ‘actually let for . . . shopping and retail
purposes’ within the meaning of clause (1)(i)(a) of the underlease. This
question, however, has not been raised in the proceedings and has not been
argued before us. I have therefore refrained from expressing any opinion on it.
NEILL and
MUSTILL LJJ agreed and did not add anything.
