Rent review — Premises used as an hotel — Hypothetical letting — Areas edged red — Hypothesis that areas actually let for or available for letting for shopping and retail purposes — Whether aggregate of rental values of four areas marked by red edging — Whether uses other than shopping and retail purposes can be considered — Lessors’ appeal allowed in part
In June 1972 the appellants, Daejan Investments Ltd, granted an underlease of premises known as the Strand Palace Hotel, Strand, London, to the predecessor in title to the respondent sublessees. The rent review clause of the underlease provided for a review in 1979 and in each seven years thereafter, the present appeal concerning the 1986 review. At each review, the rental value had to be determined of “those areas being parts of the ground floor and the basement of the demised premises 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) …”.
The areas edged red on plans C and D were at the date of the underlease, and have at all material times been, occupied and used as to part for the purposes of the Strand Palace Hotel and as to the remainder for shopping and bank purposes independent of the hotel. The appellant sublessors appealed the decision of Mr Michael Wheeler QC (sitting as a deputy judge of the Chancery Division), who had determined various questions of construction (see [1989] 03 EG 78); the appeal concerned only two issues, the appellants contending that the deputy judge was wrong in finding that: (1) for the purpose of assessing the rental value of the areas edged red it should be assumed that each area is being separately let so that the rental value is the aggregate of the values of the individual areas — there being two extra red lines on the lease which supported an argument that there were four areas not just two — and (2) the permitted user of the areas is restricted to shopping and retail purposes only.
Held The appeal was allowed in part.
1. The plans C and D annexed to the underlease contain not only the red edging but also two extra short red lines which thus divide the two areas into four. However, the review clause presupposes a hypothetical letting of the whole of the areas edged red on the two plans, otherwise the singular “rental value” would be inapposite. There was no rational explanation for the presence of the two extra red lines which, at one point, arbitrarily divided an area used as a bank into two areas. The extra red lines must be attributed to a clerical error, for they did not appear on the counterpart underlease. The appeal was allowed on this issue and it must be assumed that all the areas edged red are being let under a single lease.
2. The appellants’ contention that the areas edged red 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 lease and public law, was not accepted. 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. On this issue the appeal was dismissed.
David Neuberger QC and Nicholas Dowding (instructed by Herbert Smith) appeared for the appellants; and Derek Wood QC and Kirk Reynolds (instructed by Paisner & Co) appeared for the respondents.
