Landlord and tenant — Rent review clause in lease — Construction point — Clause admittedly defective — Whether it was legitimate to insert words on the ground of necessary implication — Conflicting suggestions on behalf of landlords and tenants as to words which should be inserted — Tenants’ suggestion involved more insertions than landlords’ — Judge found it difficult to decide between them but in the end preferred the landlords’ suggestion — He did so despite the fact that it would allow the landlords to serve a notice specifying any sum they wished as the market rent and that this sum would become the review rent unless there was agreement between the parties or the tenants made sure that they took the necessary steps in time to secure the appointment of an independent surveyor
This was an
originating summons to determine a matter of construction arising on the rent
review provisions in a lease between the plaintiff landlords, Wolverhampton
& Dudley Breweries plc, and the defendant tenants, Trusthouse Forte
Catering Ltd.
Peter St John
Langan QC (instructed by Bower Cotton & Bower) appeared on behalf of the
plaintiffs; J C Harper (instructed by Paisner & Co) represented the
defendants.
Giving
judgment, HARMAN J said: Question 1 of the originating summons in this matter
raises a short, but in my view quite difficult, question of construction.
The matter
arises out of a lease dated February 4 1974 between Wolverhampton & Dudley
Breweries and Trusthouse Forte Catering. The lease, being for a term of 21
years, contains as do so many modern leases provisions for review of the rent
at seven-year stages. The first seven years are taken up by express provisions
with defined sums and nothing helpful or useful can be derived from (A) (B) and
(C) of the reddendum.
One comes then
to (D) of the reddendum which is:
for the next
7 years of the said term either the yearly rent of £6,000 or the open market
rental value of the demised premises at the review date whichever is the higher
. . .
When I first
observed this subclause during Mr Langan’s opening, it seemed to me that it
might leave one with a lacuna such that it required one to know the one or the
other of two figures and to take the higher, and that if one did not know both
the figures there was no way one could determine which was the higher. Mr
Harper has pointed out to me that within the context of this document as a
whole the reddendum, which requires the rent to be paid during the said term,
that is throughout the whole 21 years, coupled with the provision for review
built in, does carry a necessary implication that if the figure which is
uncertain in (D) (that is the open market rental value of the demised premises)
remains uncertain, then the fixed sum of £6,000 must continue, and it seems to
me that that is a reason for coming to the conclusion that this is not one of
those unhappy cases, sometimes called ‘gap’ cases, where no effective rent has
been reserved. It has a material bearing on the matter, because if it were a
‘gap’ case the court would, I think, strive to fill the gaps if it possibly
could and would be the more willing to read implications into the review
machinery to make it work. However, I believe that my initial reaction was
wrong and no such pressure is upon the court from this reddendum.
From the
reddendum which I have read it will be obvious that there are terms there which
are not defined at this stage of the matter. ‘Open market rental value’ and
‘review date’ are both matters which require definition. They are in fact
defined in the second schedule to the document. That has a definition in (1) of
‘open market rental value’, on which for this particular question’s purposes
nothing turns, and then has in (2) a definition of review date as being the
expiration of the 7th and 14th years respectively of the said term, as the
context requires, and then in (3) comes the words which have given rise to this
summons. For this present purpose I had better read the whole down to the point
at which it ceases to become controversial:
The Lessors
shall serve notice on the Lessees requiring a review of the rent not earlier
than a clear two quarters of a year immediately preceding or later than two
clear quarters of the year immediately following the review date . . .
Pausing for an
instant as I read, it is odd that in the second line the reference is to ‘a
clear two quarters of a year’, but in the third line only to ‘two clear
quarters’, and one begins to wonder slightly about the drafting, or perhaps the
typing, of the document, and questions about ‘attorneys’ blundering clerks’
begin to raise themselves in the back of the mind of the reader.
The clause
goes on in line 5,
. . . . and
the market rental shall be (a) such sum as shall be agreed between the parties
before the expiration of 3 months immediately after the date of posting of such
notice as aforesaid in substitution for the said sum . . .
I pause again
to say that at that point quite evidently something is wrong. The phrase ‘in
substitution for the said sum’ is meaningless because there is no ‘sum’ which
is ‘said’ at that point. One therefore is clear that one is in difficulties
with the document. I return to the reading:
. . . . or
(b) determined at the election of the lessees, (to be made by counternotice in
writing served by the lessees upon the lessors not later than the expiration of
3 months after the said 3 months) by an independent surveyor appointed for that
purpose by the parties . . .
and so forth,
with a machinery provision to make the Arbitration Act apply.
As will be
apparent to anybody who has followed those recitals there is at once a lacuna.
So much Mr Harper entirely accepted. That something is wrong can be gathered
with certainty from the four corners of this clause.
One’s first
reaction, of course, was to refer to the counterpart to see whether the
counterpart to the lease produced any better guide so that one might see in
some way that there had been typing errors in the original which did not appear
in the counterpart. Unfortunately, the counterpart is even worse than the
original since it even omits the (a) before the provisions as to agreement
between the parties of a sum, and one is left with no assistance whatever from
the counterpart, and merely a certainty of blunder.
Mr Harper also
calls attention, and in my view this is material and falls to be borne in mind,
that this particular lease contains in subclause (5) of the second schedule the
express provision:
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.
Thus it is
quite plain that this is a document which carries very serious (to describe
them as penal is wrong) consequences in that the time-limits must be observed,
failing which the rights given have gone.
I return,
then, to the subclause (3) to consider, having determined that there is
something wrong, what one should do. I am guided in this by the words of
Jenkins LJ in Re Whitrick, decd [1957] 1 WLR 884, for the citation of
principle at p 887, where the lord justice said in the second paragraph on that
page:
The reading
of words into a will as a matter of necessary implication is a measure which
any court of construction should apply with the greatest caution. Many wills
contain slips and omissions which fail to provide for contingencies which, to
anyone reading the will, might appear contingencies for which any testator
would obviously wish to provide. The court cannot rewrite the testamentary
provisions in wills which come before it for construction. This type of
treatment of an imperfect will is only legitimate where the court can collect
from the four corners of the document that something has been omitted and,
further, collect with sufficient precision the nature of the omission.
Here, as I have
said, the fact that the court can and must collect from the four corners of the
document that something has been omitted is agreed. Mr Harper does not contest
it. But, the second part of the lord justice’s principle is just as important:
‘One must collect with sufficient precision the nature of the omission.’
There was also
cited to me an earlier case upon a settlement, Re Daniel’s Settlement Trusts
(1875) 1 ChD 375, where a strong Court of Appeal overruled Sir George Jessel MR
on a question of construction and made an implication. The facts of both Re
Daniel and Re Whitrick are miles from this case and are of no help.
The principle, however, enunciated by Jenkins LJ is of help, and is said by both
sides to apply, not only to documents such as settlements and wills which are
the unilateral act of the settlor or testator but also to bilateral or
multilateral documents which are the result of consensual negotiation, such as
leases or, indeed, such as commercial contracts, and for that Chitty on
Contracts at para 765 is a guide and support by way of textbook authority.
Mr Harper’s
attack upon Mr Langan’s attempted implication here turns entirely on the
question of whether there is reasonable certainty that the implication Mr
Langan makes must be the correct implication. Mr Langan submits that having
gathered a blunder one should also gather with adequate clarity and certainty
the proposition that one can read into this lease in the fifth line immediately
before the little ‘a’ in brackets the words ‘specified in such notice or’ and
then ‘(a) such sum as shall be agreed.’
If that is done, he says that the matter is an implication, a correction
by construction of a document which is obviously faulty and about which it is
reasonably certain that that phrase must have been what the parties intended.
The result of
it is that if the lessor, serves a review notice which specifies a sum, then
unless either there is an agreement between the parties within three months
after the date of posting of that notice or there is an election by the lessee
for an arbitration by an independent surveyor, then that sum bites. It operates
entirely satisfactorily to make sense of the words ‘in substitution for the
said sum’ at the end of (3)(a) because the said sum will then be the sum
specified in such notice. It is plainly a possible implication in a document
where there is a blunder, and it is a persuasive implication.
Mr Harper’s
attack on it runs as follows. He says, in my view correctly, that I must be
reasonably certain that that is the right implication and that I cannot be so
certain because there is another equally appropriate set of words that could be
read into the document, which if read into the document would deal with the
difficulties as aptly as Mr Langan’s, or reasonably aptly at least, and that if
there are two reasonably apt implications I cannot with certainty say that one
of them must apply.
Mr Harper’s
implication is to say that in (3)(b) the election for arbitration shall not be
at the sole right of the lessee, but shall be at the mutual right, or
alternative right, of the lessor and the lessee. He says that if one implies by
way of construction into (3)(b) words such as the following, ‘determined at the
election of the’ — I insert — ‘lessors or’ — I go back to reading — ‘lessees to
be made by counternotice in writing served by the’ — I insert — ‘lessors or’ —
I go back to reading — ‘lessees upon the’ — I insert — ‘lessees or’ — I go back
to reading — ‘lessors not later than 3 months . . .’ one can get an entirely
businesslike, sensible and apt set of machinery. Further, he says that it must
be remembered that this is a lease where time is expressly made of the essence
of the operations by subclause(5) to which I have already referred. If that be
not the way it should have been written out, one is construing the lease so as
to leave the landlord with the right to plant what I described, and I think Mr
Harper accepted, as a time bomb under the lessee; a delayed action bomb ticking
away which, if the lessee does not remember the date accurately and allows the
review date to go past, will land him (if I may be colloquial) with whatever
sum the landlord has chosen to put into his review notice which starts the whole
process of (3) running. In my view it is correct that the landlord can put any
sum into his notice. He could put a million pounds a quarter into it. It is
clear that if Mr Langan’s construction were right the result would be that if
the tenant fails to exercise the election given by (3)(b) he would be landed
with such an appalling burden.
Mr Harper says
that I have got to deal with the oddity of the phrase at the end of (a) in (3)
‘in substitution for the said sum’, because, said Mr Harper, facing correctly
and boldly his difficulties, if I do not I shall leave the lease with a plain
nonsense verbally in it. He said that is quite easy. One can say, since we are
plainly dealing with a lease which is deficient in some ways, that there is a
deficiency here in that the word ‘sum’ is wrong and ‘in substitution for the
said rent’ ought to have been used rather than ‘in substitution for the said
sum’.
I find Mr
Harper’s argument impressive, particularly by reason of the danger to the
tenant that arises on the fact that the landlord may specify any sum and if the
tenant fails to act he may find himself paying a figure far beyond that which
he should have done. None the less, as it seems to me, Mr Langan’s construction
is right. Mr Harper’s ingenious set of insertions involves alterations at, I
think, four different places in the document. To my mind it is far more likely,
when construing a matter by implying extra words, that one single phrase is
what is to be implied rather than words dotted about up and down the document.
In my view, I do reach reasonable certainty that the correct reading of this
lease, which is agreed to be a document where there is a blunder, is to be
modified by construction by adding in the words, ‘specified in such notice or’
before (a)(3). It is, as I say, not an easy question. It is a question, I
think, capable of more exposition than I have given it. I have tried to
consider carefully whether I can reach a sufficient degree of certainty, and I
have concluded that Mr Langan’s suggestion is correct.
