Landlord and tenant — Rent review clause in lease — Time of the essence — Lease providing for rent of £850 per annum for first seven years of 14 years’ term — Rent for next seven years at ‘open market value’ as defined in the lease — Such value to be (a) the sum specified in a notice by the landlord sent to the tenant before the beginning of a clear period of two quarters of a year beginning on one of the usual quarter days preceding the review date, or (b) agreed between the parties within three months after the posting of such notice, or (c) determined by the election of the tenant by an independent surveyor according to a procedure laid down — Landlord’s notice under (a) not sent within the required time — Submitted by landlord that nevertheless the rent from review date should be at the open market value and that the court should order an inquiry as to that amount — Submission rejected — As a result of the failure to adhere to the time-table, in which time was expressly made of the essence of the contract, the rent would continue at the old figure of £850 per annum
The plaintiff
in these proceedings by originating summons was Florence Lily Weller, the
lessor of a shop, store and dwelling-house with which the proceedings were
concerned, and the defendants, Richard Charles Akehurst and Jill Susan
Akehurst, his wife, were the lessees. The case raised questions as to the
correct interpretation of the rent review clause in the lease in the events
which had happened.
N L V Mears
(instructed by Mayo & Perkins, of Eastbourne) appeared on behalf of the
plaintiff; J S Colyer QC and Jonathan Brock (instructed by Burton &
Ramsden) represented the defendants.
Giving
judgment, FOX J said: This case is concerned with the interpretation of a rent
review clause in a lease. The lease is dated August 14 1972 and is a lease of a
shop, store and dwelling-house. The term demised was 14 years from July 1 1972.
Clause 1 of
the lease makes the following provisions as to rent:
(a) For the first Seven Years of the said term a
yearly rent of £850
(b) For the next Seven Years of the said term the
open market value of the demised premises at the review date which revised rent
shall remain constant during the whole period referred to in this subclause. .
. .
Provided that
for the purpose of subclause (b) hereof it is hereby agreed that the following
definitions and provisions shall apply namely:
(1) The expression ‘open market value’ means the
annual rental value of the demised premises on the open market which might
reasonably be demanded by a willing Landlord on a lease for a term of years
certain equivalent to the length of the residue unexpired at the review date of
the term of years hereby granted with vacant possession at the commencement of
the term but upon the supposition (if not a fact) that the tenant has complied
with all the obligations as to repair and decoration herein imposed (but
without prejudice to any rights or remedies of the lessor in regard thereto)
and there being disregarded (if the section is applicable) those matters set
out in paragraphs (a)(b) and (c) of Section 34 of the Landlord and Tenant Act
1954 and there being disregarded (so far as may be permitted by law) all
restrictions whatever relating to rent or to security of tenure contained in
any statute or order or regulation thereunder . . . such lease being on the
same terms and conditions as this present demise without the payment of any
fine or premium.
(2) The expression ‘review date’ means the
expiration of the Seventh year of the said term for the purpose of
ascertainment of the open market rental value under sub-clause (b) hereof.
(3) The open market rental value shall be
determined in manner following that is to say it shall be such annual sum as
shall be
(a) specified in a notice in writing signed by or
on behalf of the Lessor and posted in a prepaid envelope addressed to the
Tenant at the demised premises at any time before the beginning of a clear
period of two quarters of a year (commencing on one of the usual quarter days
hereinbefore mentioned) immediately preceding the review date or
(b) agreed between the parties before the
expiration of three months immediately after the posting of such notice as
aforesaid in substitution for the said sum or
(c) determined by the election of the Tenant (to
be made by notice in writing to be served by the Tenant upon the Lessor not
later than the expiration of the said three months) by an independent surveyor
appointed for that purpose by the parties jointly in writing or upon their
failure to agree upon such appointment within one month immediately after the
service of the said counter-notice then by an independent surveyor appointed
for that purpose on the application of either party alone by the President for
the time being of the Royal Institution of Chartered Surveyors and in either
case in accordance with the provisions of the Arbitration Act 1950.
(4) (1) In
the event of the determination of such independent surveyor not having been
published prior to the review date for any reason whatever then in respect of
the period of time (hereinafter called the said interval) beginning with the
review date and ending on the quarter day immediately following the date on
which such determination shall have been published the Tenant shall pay to the
Lessor in manner hereinbefore provided rent at the yearly rate payable
immediately before the review date PROVIDED that at the expiration of the said
interval there shall be due as a debt payable by the Tenant to the Lessor on
demand a sum of money equal to the amount whereby the yearly rent determined by
such independent surveyor shall exceed the yearly rent at the yearly rate
aforesaid but duly apportioned on a daily basis in respect of the said
interval.
Subparagraph
(2) I can omit.
Then:
(5) All stipulations as to time in the foregoing
subclauses numbered (1) (2) (3) and (4) shall be of the essence of the contract
and shall not be capable of enlargement save as agreed in writing by the
parties.
By a letter to
the tenant dated January 25 1979 on behalf of the lessor, it was specified that
the annual rent payable under the lease for the period of seven years
commencing on July 1 1979 should be £2,500 per annum. The notice contained in
that letter purported to be given under the provisions of clause 1 (3)(a) of
the lease. In fact, however, the clear period of two quarters of a year
commencing on one of the usual quarter days and immediately preceding the
review date commenced on December 25 1978 (not on January 25 1979). Clause 1
(3)(a) requires the notice to be sent at any time before the commencement of
the said clear period to which I have referred.
In these
circumstances, the originating summons asks:
(1) For a declaration that the letter of January
25 1979 was a valid notice for the purpose of clause 1 (3) of the lease.
(2) Alternatively, that it may be determined
whether upon the true construction of the lease the rent reserved for the
seven-year period from the review date is (a) the open market value (as defined
in the lease) of the premises at the review date or (b) £850 per annum or (c)
some other and if so what rent.
In the event,
it was conceded by the lessor (the plaintiff) that the letter of January 25
1979 was not a good notice for the purposes of clause 1 (3) of the lease
as it was not given in time. The question then is what rent is payable for the
seven years of the lease commencing on the review date.
It is
contended on behalf of the lessor that such rent is the open market value (as
defined in the lease) of the premises at the review date and that the court
should now order an inquiry to determine that. It is submitted by the tenant
that such rent is £850 per annum (ie the original rent).
The argument
on behalf of the lessor, put shortly, is this. The lease expressly provides that
for the second seven years of the term (ie the seven years from the review
date) the rent payable shall be the open market value. That expression is
defined in the lease in terms sufficiently certain to be capable of
ascertainment. Accordingly, while it is true that the particular machinery
contained in clause 1 (3) of the lease for ascertaining the open market value
cannot be operated (because the lessor failed to serve in due time the notice
which would bring clause 1 (3) into operation), nevertheless the open market
value is capable of ascertainment and the court should direct an inquiry for
that purpose. The rent so ascertained would then be the rent payable for the
second seven years of the term.
I do not feel
able to accept that argument. The open market value as defined in the lease is,
it is true (as indeed is conceded by the lessor) expressed with sufficient
certainty to be capable of ascertainment. But the lease expressly provides in
clause 1 (3) that the open market value shall be determined ‘in manner
following that is to say it shall be such annual sum as shall be . . .’ There then follows the series of provisions,
all of which hinge upon the giving by the lessor of such a notice as is
specified in clause 1 (3)(a). The lessor failed to give such notice within the
time specified in the lease. Further, clause 1 (5) provides that all
stipulations as to time in the relevant provisions of the lease shall be of the
essence of the contract and shall not be capable of enlargement save by
agreement between the parties.
The general
presumption is that strict adherence to the time-tables specified in the rent
review clause is not of the essence of the contract (see the decision of the
House of Lords in United Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904). But as Lord Diplock observes at p 923:
It is not
disputed that the parties to a lease may provide expressly that time is or time
is not of the essence of the contract in respect of all or any of the steps
required to be taken by the landlord to obtain the determination of an
increased rent, and that if they do so the court will give effect to their
expressed intention.
And at p 936
he said:
. . . the
best way of eliminating all uncertainty in future rent review clauses is to
state expressly whether or not stipulations as to the time by which any step
provided for by the clause is to be taken shall be treated as being of the
essence.
The position
therefore in the present case is that although the lease provides that the rent
shall be the open market value and defines that term with sufficient precision,
the lease also requires that the ascertainment of the open market value shall
be effected in a particular way and stipulates that time shall be of the
essence of the provisions in that procedure.
In my
judgment, the parties cannot have intended that if the lessor failed to observe
the time provisions she could still be free to obtain the determination of the
open market value by the court. The parties chose the procedure for rent review
with precision and made it plain that the procedure was only to be available on
a strict timetable. The lessor having failed to observe that timetable, it
seems to me that there is thereafter no room for the operation of
cannot ‘be determined in manner following’ (to use the language in clause 1
(3)) it cannot, in my view, be determined at all. Clause 1 (3) states in terms
that the open market value shall be ‘such annual sum as shall be . . .’. There
then follows (a)(b) and (c). That language, coupled with the direction for
determination ‘in manner following’ excludes, I think, the possibility of it
being any other sum or determined in any other way. For the court now to take
upon itself the determination of the open market value would, I think, be to
fly in the face of the clearly expressed requirement of strict compliance with
the time provisions. I think that the rent revision procedure was intended to
be carried out timeously or not at all. The provision for revising the rent was
in the lessor’s favour; only the lessor could invoke it. But the lessor could
only invoke it upon strict terms. I see no reason to suppose that the parties
intended that the lessor should get a rent increase in any other way.
I was referred
to the decision of the Court of Appeal in Kenilworth Industrial Sites Ltd
v EC Little & Co Ltd [1975] 1 WLR 148, but I do not think that that
decision assists me on any aspect of the present case, since in Kenilworth
it was held that time was not of the essence of the provisions. And, in so far
as the case proceeded upon the basis of a dichotomy between ‘option’ clauses on
the one hand and ‘obligation’ or ‘machinery’ provisions on the other, it is now
inconsistent with the decision of the House of Lords in the United
Scientific case (see per Lord Diplock in the latter case at p 936). I was
also referred to Brown v Gould [1972] Ch 53. In that case the
lease contained a formula for ascertaining the rent but no machinery for working
out the formula. The question was whether the provision was void for
uncertainty. It was held that it was not; the court could itself work out the
formula. In the present case the lease provides both a formula and a specific
mode of working out the formula. The question is whether, in view of the
provisions that time is of the essence, any other mode of working out the
formula is permissible. For the reasons which I have given, I do not think that
it is.
I should add
this. If the lessor gave a bonafide notice under clause 1 (3)(a) stating
an amount which was in fact above the open market value and the tenant failed
to give a counternotice in due time, the tenant could not, I think, invoke the
definition to redress the position. The tenant would have to accept the amount
stated in the landlord’s notice. It would be a curious result if the tenant,
having failed to observe the timetable, is bound by the clause 1 (3) procedure,
but if the lessor fails to serve notice in time, the lessor can still get the
open market value determined by the court.
I should
mention that the expression used in the opening sentence of clause 1 (3) is
‘open market rental value’ not ‘open market value’, but that, I think
was merely a slip and the contrary was not contended.
The result in
my view is that the provisions of clause 1 (3) are wholly inoperative and that
the provisions of the lease do not permit the open market value to be
determined in any other manner than that specified in clause 1 (3).
In those
circumstances, the tenant asserts that the rent for the second seven years is
£850 per annum. It is contended that the position is expressly dealt with by
clause 4 (1). It is said that the language of that provision is very wide. It
begins: ‘In the event of the determination of such independent surveyor not
having been published prior to the review date for any reason whatever . .
.’ While I agree that that language is
indeed wide, it seems to me that clause 4 (1) is assuming that an independent
surveyor has been duly appointed under clause 1 (3). The provision, I think, is
simply dealing with the period which elapsed after the review date until the
quarter day after the determination of the rent by the surveyor. The whole
provision, I think, assumes that the surveyor will issue a determination, but
that there will be an interval before he does so. Thus the proviso begins
‘PROVIDED that at the expiration of the said interval . . .’ I do not think that clause (4)(1) is dealing
at all with the present circumstances where no surveyor has been or can now be
appointed. In my view, therefore, the lease contains no express provisions to
deal with the present case.
What then is
the position? That the parties should,
in the circumstances, have contemplated that no rent at all should be payable
for the residue of the term, I reject altogether. The lease grants a term for
14 years and it is inconceivable that the parties contemplated that no rent
might be payable during the second period of seven years. A liability on the
part of the tenant to pay rent must have been intended. The question is how
much? In my opinion, if the parties had
been asked at the time of the grant of the lease what was to happen if the
lessor chose not to serve a notice under clause 1 (3), or failed to serve such
notice in time, it is wholly reasonable to suppose that they would have said
that the old rent of £850 per annum was to continue. Thus, I do not think that
the parties could have been contemplating any reduction of the rent at all. The
lease was granted during a period of inflation, and it is clear that only the
lessor could set the clause 1 (3) procedure in motion. It was a provision for
the lessor’s benefit.
On the other
hand, I see no reason to suppose that they would have contemplated that the
rent should be increased in the event of no valid notice being given under
clause 1 (3) by the lessor. The lessor was adequately protected by clause 1 (3)
if he wished to increase the rent in line with the market. But, it having been
agreed that time was of the essence of those provisions, it cannot, in my view,
have been contemplated that, having failed to operate clause 1 (3), the lessor
should still be free to get the rent increased by a quite different machinery
not expressed in the lease at all. Clause 1 (3) was in general for the benefit
of the lessor, but the time provisions in clause 1 (3)(a) were for the
protection of the tenant.
What I am
dealing with is a rent review provision containing strict requirements for its
operation. It did not operate because the person at whose option the rent
review was to be made did not comply with the requirements. I think that in
those circumstances the reasonable and necessary inference is that the old rent
continues. I will so declare.
