Construction of rent review clause–Provision for additional rent payable by tenant to the landlord from each relevant review date until the next relevant review date–Additional rent to be such a sum as is equal to 50% in the increase in the under-rents payable (or deemed to be payable) on each relevant date in excess of the apportioned basic annual rent or the aggregate of the relevant parts as set out in the lease–Relevant date defined–At first rent review the increase of rent was agreed and resulted in an increase to a level of rent representing half the under-rents actually passing
premises consisting of six separate warehousing units at Caxton Road,
Bedford–Plaintiff landlords contended that rent review clause to be construed
so that at each relevant date there was added to the part of the basic rent
apportioned to each of the underlet units half the difference between the
figure to which the relevant under-rent had been increased and the apportioned
basic annual rent–The defendant tenants contended that the important comparison
was between the under-rents before and after review and to which the 50% was to
be applied, this figure to be added to the basic rent which would be exactly
half the rent passing under the relevant underlease
the passing under-rents, it would have been extremely simple so to provide–The
construction of the clause supported by the defendants does not work once one
gets to the second and later rent reviews–The construction contended for by the
plaintiffs does little, if any, violence to the words used by the rent review
clause, while by contrast the defendants’ construction requires either
additional words to be read into the section or a special meaning to be given
to the words ‘the increase in the under rents’
No cases are
referred to in this report.
By an
originating summons the plaintiffs, WGTC Nominees Ltd, the owners of a
reversion to a lease, sought a declaration as to the proper construction of the
rent review clause in a lease of warehouse premises at Caxton Road, Bedford.
The defendant tenants were Hamilton Installations Ltd.
John Furber
(instructed by Nabarro Nathanson) appeared for the plaintiffs; Michael Rich QC
(instructed by Wood Nash Kimber) represented the defendants.
Giving
judgment, MR E C EVANS-LOMBE QC said: This case concerns the
construction of provisions as to the payment of rent under a lease dated April
23 1976. The plaintiffs are the successors in title of the original lessors.
The defendants are the original lessees.
By clause 1 of
the lease, the demise was for a period of 99 years from April 23 1976 of
premises described in the first schedule. These consist of six separate sets of
premises used for warehousing [at Caxton Road, Bedford], which are referred to
in the proceedings as units 1 to 6.
The lease
results from a sale and lease-back transaction between the defendants and the
plaintiffs’ predecessors in title. Prior to the transaction, the defendants had
let units 2 to 5 by a lease dated February 20 1976 between them and J Lyons
& Co Ltd. Clause 1 of the lease is expressed to be subject to and with the
benefit of that lease, referred to as the ‘Lyons lease’. It seems that at the
date of the lease units 1 and 6 were unlet.
Further, clause
1 of the lease contains provisions for payment of rent as follows:
Yielding and
paying therefor unto the landlord yearly during the said term and so in
proportion for any less period than a year (1) the basic annual rent of
£37,550.38; (2) the additional rent calculated in accordance with the
provisions of the second schedule hereto.
There then
follow provisions for the time for payment of the rent and also for the payment
of additional rent to cover the premiums for insuring the premises and, by
clause 2(1)(b), to pay a management charge representing 2 1/2% of each
quarterly payment of rent.
The dispute
between the parties arises from the proper construction of the second schedule,
which contains the provisions defining the additional rent payable under clause
1(2). The operative paragraph of those provisions is para 2, which reads:
The
additional rent payable by the Tenant to the Landlord from each relevant date
until the next relevant date shall be such a sum as is equal to 50% of the
increase in the under rents payable or deemed to be payable on each relevant
date in excess of the apportioned basic annual rent or the aggregate of the
relevant parts as set out in para 1(4) of this schedule, or the additional rent
payable during the period immediately preceding the appropriate relevant date,
whichever shall be the greater.
It is accepted
that I am not concerned with the words ‘or the additional rent payable’ to the
end of the clause, since these are provisions designed to ensure that any
alterations to the rent payable under the lease shall be upwards only.
A relevant
date, for the purposes of that paragraph, is defined in para 1(1) of the
schedule as capable of taking place in one of four different circumstances,
namely:
1. By subpara
(a), the date of the commencement of the term created by the lease.
2. By subpara
(b), any date upon which rents become payable under any underlease granted in
pursuance of the lease after the date of its commencement.
3. The date of
any rent review of any underlease.
4. By subpara
(d), the expiration of five years from the last relevant date in respect of the
whole or any appropriate part of the premises’ demise, subject to an exception,
the details of which are not material to this judgment.
For the
purposes of para 2, the under-rents are defined in subpara (a) of para 1 as
being:
The full and
open market yearly rent of any part of the premises sublet
and contains
provisions for a deemed rent to deal with the circumstance which existed in
relation to units 1 and 6 at the commencement of the lease, where any part of
the premises let had not been sublet at the date of the lease or (which does
not seem to have occurred) where any premises have been sublet at less than a
full open market rent.
Para 1(4) of
the schedule, ‘for the avoidance of doubt’, apportions the basic annual rent of
£37,550.38 as between those units 2 to 5 covered by the Lyons lease in the sum
of £24,545.50 and units 1 and 6 in the sum of £6,502.44 for each of them.
It seems that
notwithstanding the taking place in the interim of events capable of
constituting ‘a relevant date’, within the meaning of para 1(1), in the
intervening period from the granting of the lease, the first increase in the
rent payable under the lease resulted from a review of all the rents payable
under the underleases on May 3 1979, at a time when the landlord was still the
original lessor, the Provident Mutual Life Assurance Association.
The increase
of rent was agreed and resulted in an increase to a level of rent representing
half the under-rents actually passing. The calculation of such increased rent
is set out in two letters of May 17 1979 and November 1979 written by the
Provident Mutual’s assistant surveyor. It is accepted, in particular on behalf
of the defendants, that the method of calculation shown in these letters bears
no identifiable relation to the actual words used by the second schedule,
although the result is in accordance with the defendants’ contentions as to how
the schedule falls to be construed.
The next
relevant date occurred as a result of a review of the under-rents taking place
on November 3 1984 and it is because the parties are unable to agree the
additional rent payable as a result of the consequent relevant date that these
proceedings have been brought. It appears that since the dispute has arisen the
defendants have been paying rent calculated in accordance with their
construction of the lease.
The plaintiffs
contend that para 2 is to be construed so that at such relevant date there is
added to the part of the basic annual rent apportioned to each of the underlet
units, under para 1(4) of the second schedule, half the difference between the
figure to which the relevant under-rent has been increased and the apportioned
basic annual rent. The plaintiffs contend that this is the natural meaning of
the words used by para 2 which, omitting irrelevant passages, reads:
The
additional rent payable by the Tenant to the Landlord from each relevant date
until the next relevant date shall be such a sum as is equal to 50% of the
increase in the under rents payable on each relevant date in excess of the
apportioned basic annual rent. . .
It is accepted
that the words ‘50% of the increase in the under rents’ are possibly confusing,
since those words lead one to look to a comparison between different levels of
under-rent and not between the level of under-rent as increased and the
apportioned basic annual rent. Mr Furber, for the plaintiff landlords, conceded
that the drafting would have been more felicitous had it read ‘50% of the
increased under-rents payable on each relevant date’. None the less, it was his
contention that the meaning of the paragraph was tolerably plain, namely an
intention to compare the level of under-rents with the apportioned basic annual
rent.
For the
defendants, Mr Rich drew particular attention to the words ‘50% of the increase
in the under-rents payable’. He contended that this demonstrates an intention
that the important comparison is to be drawn between levels of under-rent. He
took as an example the first review of the premises subject to the Lyons lease
in 1979. Prior to that review, the under-rent payable was £49,091. After the
review, it was £68,230. Applying the provisions of para 2 to the difference
between those two figures, namely £19,139, by dividing that figure in two,
throws up, so Mr Rich contends, an additional rent of £9,569.50, which when
added to the basic rent of £24,545.50 throws up a new rent payable in relation
to units 2 to 5 of £34,115. This is exactly half the rent passing under the
relevant underlease and this method of calculation will always throw up a
figure which is half such rent passing. It was Mr Rich’s contention that this
was, as a result, consistent with such indications as there are in the lease of
the intentions of the lessor and the lessee, in particular the fact that the
basic annual rent fixed by the lease in respect of units 2 to 5 is exactly half
the under-rent payable under the Lyons lease.
The
defendants’ contentions are subject to two objections. The first is that if it
had been the intention of the parties to the lease to make the rent half the
passing under-rents, it would have been extremely simple so to provide and not
necessary to draw a complicated provision like para 2 to carry such intention
into effect.
The second
objection is that without reading words into the paragraph or giving a special
meaning to some of them, it does not work once one gets to the second and later
reviews. If the comparison is to be taken between levels of under-rent between
the last two relevant dates, then on the review in 1984 the difference, of
which 50% becomes the additional rent, is the difference between the level
resulting from the 1979 review and that resulting from the 1984 review. This is
plainly not what the parties intended. Mr Rich’s contention was that the words
of the paragraph indicate an intention to compare levels of under-rent. To give
effect to that intention, the words ‘increase in the under-rents’ must be read
as meaning the increase resulting from the original under-rent ruling at the
commencement of the lease or the appropriate deemed under-rent in pursuance of
para 1(2) and the rent resulting from the most recent review.
I am unable to
accept this contention. In agreement with the submissions of the plaintiffs, it
seems to me that the construction contended for by the plaintiffs does little,
if any, violence to the words used by para 2 of the schedule. The words used
are not as clear as they might have been but their effect is tolerably plain
and it is the effect for which the plaintiffs contend.
By contrast,
in my judgment, the defendants’ construction requires either additional words
to be read into the section or a special meaning to be given to the words ‘the
increase in the under-rents’, which neither the rest of the paragraph nor the
other provisions of the schedule or of the lease justifies. In those
circumstances, it is not open to me to take into account, as Mr Rich contended
I could, any extrinsic fact, shown by the statement of facts agreed between the
parties to which I might have been able to have regard had I taken the view
that para 2 was ambiguous.
For these
reasons, it seems to me that the plaintiffs’ claim succeeds and I invite
counsel to address me on the form of order which I should make.
