Landlord and tenant – Lease – Rent review – Rent review clause giving defendant landlords right to review yearly rent – Defendants reviewing and increasing rent in 1988 – Defendants subsequently electing not to initiate review – Claimant tenant contending rent reverting back to initial reserved rent – Defendants contending that rent remaining at increased 1988 level – Parties asking court to rule on proper construction of rent review clause – Ruling in favour of defendants
Two 99-year building leases of commercial property in Oswestry town centre were entered into in the 1960s between the defendant local authority, as landlord, and the claimants’ predecessor in title, as tenant. The claimants were the current tenants of the property. The leases provided for rent reviews every 25 years, which only the landlords had the right to instigate, and under which the reviewed rent might not fall below the initial reserved rent. Clause 5(1)(a) of the principal lease provided that: “On the expiry of each period of 25 years … the landlords shall have the right to review the yearly rent for the time being payable hereunder … Provided further that in no event shall the rent payable by the tenants to the landlords after each such date of review be less than the rent of £2,500 per annum hereby reserved.” Those terms were echoed in all material respects in clause 5(1) of a supplemental lease the following year.
In 1988, the defendants carried out a rent review, and the rent was increased. In 2013, the defendants elected not to instigate a rent review. The claimants contended that, on the true construction of the rent review clause, the effect of the landlord electing not to instigate a rent review in 2013 was that the rent reverted back to the initial reserved rent. The defendants contended that the effect was that the rent remained at the 1988 increased level. The defendants’ rationale for not instigating a rent review in 2013 was its concern that the reviewed rent would be less than the 1988 increased rent. If the claimants were right, they would obtain a substantial reduction in the rent payable, totalling some £1m over the next 25 years.
Held: A ruling was made in favour of the defendants.
When interpreting a contract, the court was concerned to find the intention of the party or parties by identifying the meaning of the relevant words in the light of the natural and ordinary meaning of those word, the overall purpose of the document, any other provisions of the document, the facts known or assumed by the parties at the time that the document was executed and common sense, but ignoring subjective evidence of any party’s intentions. The usual effect of a rent review was to alter the passing rent for the remainder of the term or until a further review took pace. That was because the rent, once reviewed, became the rent reserved by, and payable under, the lease and it could be altered in amount only by an express provision to that effect: Co-operative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97 and Melanesian Mission Trust Board v Australian Mutual Provident Society (1997) 74 P & CR 297 applied. Basingstoke and Deane Borough Council v Host Group Ltd [1988] 1 WLR 348, Charter Reinsurance Co Ltd v Fagan [1997] 2 AC 313, Welsh v Greenwich London Borough Council (2001) 81 P & CR 12, Martin v David Wilson Homes Ltd [2004] 3 EGLR 77, Hemingway Realty Ltd v City of London Clothworkers [2005] 1 EGLR 36 and Mediterranean Salvage and Towage Ltd v Seamar Trading and Commerce Inc (The Reborn) [2009] EWCA Civ 531 considered.
In the present case, the defendants’ construction of the rent review clause was to be preferred. The crucial clause was clause 5(1)(a) of the principal lease. The defendants were entitled to place considerable reliance on the words “the landlords shall have the right to review the yearly rent for the time being payable hereunder”. That was because the reference to “the rent for the time being payable hereunder” was clearly a reference to the initial rent and also to any subsequent increased rent. It also indicated very clearly that if the landlord did not avail himself of that right then the “rent for the time being payable hereunder” shall continue to be paid, and if that was a subsequent increased rent then it was that which would continue to be paid, rather than defaulting to the initial reserved rent. The clause could only sensibly be read as a reference to what was actually payable at the relevant time, which in the present case could only be the subsequent increased rent. Accordingly, where the landlord had elected not to instigate a rent review, the rent remained at the 1988 increased level.
Mark Wonnacott QC (instructed by Hill Dickinson LLP, of Liverpool) appeared for the claimants; John Brennan (instructed by Lanyon Bowdler LLP, of Shrewsbury) appeared for the defendants.
Eileen O’Grady, barrister
