In a series
of cases which constitute yet more fall-out from the recession, over-rented
tenants have sought to argue that the wording of their rent review clauses
entitles them to a downwards review of the rent. In some, the issue has turned
solely on whether the clause is upwards and downwards; in other cases it has
been agreed that the clause is upwards and downwards, but the landlord has
contended that only he can initiate the review process.
only
In two cases,
the issue has been whether the wording of the clause rendered the review
upwards only. In Royal Insurance Property Services Ltd v Cliffway Ltd
[1996] EGCS 189 the rent review clause allowed the landlords to serve a notice
specifying an ‘increase of the rent’. This figure would be deemed to be the
agreed ‘increased rent’ unless the question of ‘whether any and if so what
increase should be made’ was referred to an arbitrator. The central question
for the court was whether the lease allowed for a downwards review. Rattee J
was quite satisfied that, despite the absence of any express provision that the
review was to be upwards only, this was indeed the overall effect of the
wording of the clause. Throughout the clause there were references to
‘increases’ and only the landlord could initiate the review machinery.
A similar
conclusion was reached by the Court of Appeal in Standard Life Assurance
v Unipath Ltd [1997] EGCS 69. Here a rent of £95,300 pa was reserved for
the first five years, and thereafter ‘such increased sum’ as might be
substituted under the provisions for review. These entitled the landlord to
initiate a review and provided for such ‘increased rent’ to be paid as from the
expiry of each five-year period ‘until the lease rent is further increased’.
A majority
of the Court of Appeal ruled that this was an upwards-only clause. The court
acknowledged that it could not always be assumed that the purpose of a rent
review clause was simply to anticipate changes in the value of money; it might
also reflect the desire of investors for the certainty in income afforded by an
upwards-only clause. Here there were constant references to an increase in rent
and these were coupled with the fact that only the landlord could initiate the
review. All this pointed to a very strong intention that the clause should
operate on an upwards-only basis.
option
In another
three cases, where it was accepted that the clause itself could produce a
downwards movement in the rent, the question was whether the review was merely
at the landlord’s option, or whether it was an express or implied requirement
of the lease that the review must take place.
In Harben
Style Ltd v Rhodes Trust [1995] 1 EGLR 118, the rent review clause
provided that the market rent for a review period means ‘such yearly rent as
may be agreed in writing…or in default of such agreement. As may be
determined…by a surveyor appointed by the President of the RICS at the request
in writing of the landlord’. The clause went on to declare: ‘In the event that
the yearly rent is not ascertained at all… the tenants shall pay…rent at the
rate of the rent immediately preceding the… review period’.
When the
landlord refused to co-operate with the review process, the tenants argued that
the machinery for review had broken down so that the court was free to
substitute its own mechanism. Judge Rich QC did not agree. In his view, the
clause itself provided for what was to happen if ‘the yearly rent is not
ascertained at all’; the previous rent was to remain payable. Hence there was
no need for the court to intervene.
In Royal
Bank of Scotland plc v Jennings [1997] 19 EG 152, a similar question
came before the Court of Appeal. Here the rent review clause provided that the
revised rent could be agreed between the parties or, in the absence of
agreement, ‘determined by a specialist valuer nominated by the President of the
RICS upon application of the landlord’. It then provided: ‘If and so far as any
revised rent has not been ascertained…before the first day appointed for
payment of rent for the relevant review period, rent shall continue to be
payable…at a rate equal to the highest rent previously payable hereunder until
the first day for payment after the revised rent has been ascertained.’ Again
the landlords refused to participate in the review process and the tenants
sought, and obtained, from the trial judge a mandatory injunction compelling
them to apply for the appointment of a valuer.
The
landlords argued that this ruling had been wrong and that the clause conferred
on them an option to review which they were perfectly entitled to
decline to exercise. The Court of Appeal disagreed. Sir Richard Scott V-C was
satisfied that ‘the implication to be gained from the lease as a whole… is that
there will be a rent review for each of the rental periods’; notably the
provisions for the payment of an interim rent were expressed to be ‘until…the
revised rent has been ascertained’.
Finally, in Addin
v Secretary of State for the Environment [1997] 14 EG 132, the court
again agreed that the landlord must co-operate in the review process. Here the
tenant had covenanted to pay for each review period ‘the higher of [£148,500]
or such sum as shall be assessed as the current open market rent’. Jacob J
construed these words as amounting to a contractual agreement that the rent must
be reviewed; hence, the court could substitute its own machinery for carrying
out that review if the landlord did not choose to operate that laid down in the
clause itself.
These
decisions make it clear that it is well worthwhile for any over-rented tenant
to check very carefully the precise terms of his rent review clause. If this
does not expressly provide for an upwards-only review and does not refer
exclusively to ‘increases’ in rent, it may be possible to argue that it allows
an upwards or downwards review. As can be seen from the second batch of cases
referred to above, it will then be a matter of deciding whether the clause requires
a review to take place; if so, the tenant is well on the way to having his rent
brought down.
