Those
drafting leases are fully aware that the user provisions have the potential to
produce a profound effect at review. Nevertheless it is inevitable that even a
carefully drafted provision may contain deficiencies which are seized upon by
an eagle-eyed opponent when the chips are down at rent review. It is a sad fact
that most of the recent disputes concerning user provisions have not arisen out
of any disagreement over the use to which the premises are actually being put,
but rather over the uses to which the premises could be put; since the
valuer, at review, must reflect the latter rather than the former, it is money
which lies at the root of the litigation.
user
Ever since
the well-known decision in Law Land Co Ltd v Consumers’ Association
Ltd (1980) 255 EG 617 it has been recognised that a user provision which
limits the use of the premises to the business of a named tenant is, in
principle, irreconcilable with a review to open market rental value based on
vacant possession. The Court of Appeal in that case resolved the problem by the
device of leaving the name of the tenant blank in the hypothetical lease, to be
filled in by the hypothetical bidder. This has the effect of opening up the
user to the business of any bidder, but giving them a lease which is then
virtually unassignable because, with the name filled in, the lease is then
tightly restricted. However, the overall effect is to remove the restriction on
use which does, of course, have a significant effect on rental value.
Modern draftsmen
will not, in the light of this problem, knowingly create a named tenant user
provision; however, one recent decision illustrates a way in which this can
occur inadvertently. In Orchid Lodge (UK) Ltd v Extel Computing Ltd
[1991] 2 EGLR 116; [1991] 32 EG 57 the landlord, when giving a licence for a
change of use, simply defined the new permitted use by reference to a specific
planning consent. It was the planning consent which was limited to a named
individual, but this was, of course, incorporated into the licence and thus the
Law Land effect was produced.
In another
recent decision, Post Office Counters Ltd v Harlow District Council
[1991] 2 EGLR 121; [1991] 36 EG 151, the issue was whether a particular user
clause should be construed as giving rise to a named tenant restriction. The
litigation arose out of a lease granted by the defendants in 1978 to the Post
Office; this lease was now vested in the plaintiffs, a wholly-owned subsidiary
of the Post Office. This lease contained a provision which required the tenants
‘to use the demised premises for the purposes only of a Branch Post Office and
offices in connection therewith’; it also contained an absolute prohibition on
assignments and underlettings. The question for the judge, on an application
for the remission of an arbitrator’s award under the rent review provisions,
was whether the arbitrator had been correct to treat the user clause as
limiting the use of the premises to that of a branch office of a named
organisation, ie the Post Office. Having taken that view, the arbitrator had
applied the Law Land approach which, as explained above, effectively
‘opens’ the user clause to any business carried on by the hypothetical tenant;
he had, therefore, added 7.5% to the rent which would have been appropriate had
the user been restricted in a ‘normal’ fashion.
The tenants
argued that the user clause should not be construed in this way. In their view
the wording ‘a Branch Post Office’ carried a generic rather than a specific
meaning. Accordingly, it should be treated as allowing use by anyone as
a branch or subpost office and was, therefore, not restricted to use by the
original lessee.
The judge,
Mr Gavin Lightman QC, sitting as a deputy judge, decided that the arbitrator
had been correct. Although there had been no evidence on the structure of the
Post Office, he felt that the normal meaning of the phrase ‘Branch Post
Office’, written with the use of capital letters (as opposed to, say, ‘a post
office’), was a branch of the Post Office. He thought that this interpretation
was reinforced by the inclusion of an absolute prohibition on assignments or
sublettings which indicated a general intention when drafting the lease that
the use of the premises should be confined to the original lessee.
It is
difficult to disagree with the meaning to be attached to the words used in the
lease. Given the date of the lease it is unlikely that the parties appreciated
the consequence of including that type of user provision in a lease which also
contained a review to open market rent based on vacant possession. This, of
course, is one of the inherent delights of drafting: the ever-present fear
that, during the life of the document, developments in the law will emerge for
which the draftsman did not cater.
user restriction
The other
two cases for discussion were straightforward disagreements over the scope of
the restrictions on use. The first, Mars Security Ltd v O’Brien
[1991] 2 EGLR 281, concerned the meaning to be placed on the user clause
contained in a lease of premises in Regent Street. The user clause expressly
permitted the premises to be used as a club so long as the lease was vested in
the defendant and so long as he personally occupied the property; ‘no other
trade or business’ was to be carried on without the consent of the landlord,
which was not to be unreasonably withheld. The issue between the parties, which
emerged during the course of a rent review arbitration, was whether the
structure of this clause meant that there was an absolute prohibition on anyone
other than Mr O’Brien using the premises as a club, or whether the use of the
premises as a club by anyone other than Mr O’Brien was an ‘other trade or
business’, to which the landlord could not unreasonably refuse consent.
Naturally, the former, narrower, construction was favoured by the tenant, and
the latter, wider use was argued for by the landlord.
The judge,
again Mr Gavin Lightman QC, sitting as a deputy judge, ruled in favour of the
landlord. In his view the user clause had the legal effect of giving to Mr
O’Brien express permission to use the premises as a club so long as he retained
the lease and so long as he personally occupied the premises. If he wished to
continue that use, but without personally occupying, or if any assignee wished
to use the premises as a club, then the remainder of the clause applied; the
landlord’s consent must be sought but that could not unreasonably be withheld.
Our final
case on user is Skillion plc v Keltec Industrial Research Ltd
[1992] 1 EGLR 123. Here the plaintiffs were the current landlords under a lease
granted to the defendants in 1985. The user provisions limited the use of the
premises to that for ‘the research development testing manufacture repair and
training in the use of engines motors and components and mechanical devices
together with ancillary office accommodation and storage.’
The dispute
between the parties, which, yet again, arose in the context of a rent review,
centred on the meaning to be attached to the words ‘mechanical devices’. The
landlord argued that this phrase should be given its ordinary meaning, while
the tenant argued that its meaning was restricted by the context in which it
appeared so that it was limited to devices ‘consisting of all or part of an
apparatus for providing motive power.’
Given that
any dictionary-based definition of ‘mechanical devices’ would not result in the
restricted meaning favoured by the tenant, the latter needed to argue for the
application of what is known as the eiusdem generis rule. This is a rule
of construction which limits the meaning of general words used in a legal
document to the class of items appearing in a preceding list of specific
things. It was in relying on this rule that the tenant was arguing that
‘mechanical devices’ were limited by the words ‘engines motors and components’.
Although
Knox J did spend time considering the ambit of the eiusdem generis rule,
he concluded that, in the event, he could construe the lease without any resort
to that rule at all. In his view, there was no doubt that another rule of
construction did apply, namely the contra proferentem rule. The lease
therefore, as any contract, has to be construed against the party who is
proffering, ie the landlord. This meant that the user clause must, if
necessary, be construed in favour of the tenant, so as to confer a wider rather
than narrower use (the irony of which, in the context of rent reviews, the
judge was quick to appreciate). Approaching the clause in this spirit, his
detailed analysis of its structure led him to conclude that the words should
carry their wider meaning and that they must have been included with a view to
extending the list of permitted activities.
As always in
cases which do come down to detailed questions of construction, it would be
hard to feel outraged by any particular outcome. The arguments of the parties
seemed fairly evenly balanced and, without knowing the amount of rent at stake,
it is easy to see how litigation materialised.
The lesson
to be learned is a general one: the offending phrase was both general and
unusual. It is precisely this type of wording which is likely to produce
arguments once the particular ambit of any lease provision becomes an issue and
should be avoided by the draftsman.
