The Gazette 1981

GAZETTE

SEPTEMBER 1981

Time Limits in Rent Review Clauses in Leases

by

David Tomkin and Robert Pearce Faculty of Law, University College, Cork

O WING to high and endemic inflation in both England and Ireland in recent years, most commercial leases now provide for periodic reviews of rent. The tenant has the advantage of a long term, which a lessor would not be prepared to grant at a fixed rent in a period of high inflation, and the lessor has the advantage of the increases which would normally be expected from periodic reviews. There can, however, be problems. Time is not normally of the essence One of the problems concerns the observance of any time limits which may be laid down in the lease. This problem was dealt with in a number of English cases. After some vacillation in the earlier cases, the House of Lords in United Scientific Holdings Ltd. v. Burnley B.C. 1 in 1977, concluded that, whatever the form of a rent review clause, time was not normally of the essence. This decision, and the earltef-eases, are comprehensively reviewed in an article in the November 1978 issue of this Gazette by Michael W. Tyrell. 2 The question has now — for thefirst time — received the attention of the Irish Supreme Court in Hynes Ltd. v. Independent Newspapers Ltd? In that case, the plaintiff held commercial premises in Galway City from the defendant for a term of 99 years from January 1st 1972, at the yearly rent of £42,000. The lease provided that in every seventh year of the term the lessor would be entitled to serve a notice to initiate the prescribed process for fixing rent. This notice had to be served before 1st October in the seventh year. In 1978, the seventh year of the lease, the defendants served notice upon the plaintiffs. The notice, however, was not delivered until 17th November. This was more than six weeks after the time appointed. The net question was — did the delay in serving notice render it invalid? Was time of the essence? McWilliam J., whose decision was upheld by the Supreme Court, held that the delay did not render the notice invalid and that time was not of the essence. He was content to follow the decision of the House of Lords in the Burnley case, without further examination of the law. He adopted and applied a passage from Halsbury's Laws of Eng- land? "The modern law in the case of contracts of all types may be summarised as follows. Time will not be of the essence unless: (1) the parties expressly stipulate that conditions as to time must be strictly complied with; or (2) the nature of the subject-matter of the contract or the surrounding circumstances show that time should be of the essence;or(3) a party who has been subjectto

unreasonable delay gives notice to the party in default making time of the essence." In the Supreme Court, O'Higgins C.J. and Kenny J. (with both of whose judgments Parke J. concurred) undertook more extensive analyses of the law and policy involved, but came to the same conclusion. O'Higgins CJ. considered the English cases on rent review clauses and then analysed the reasoning behind the decision of the Law Lords in Burnley. This was that: " . . . with one reservation, they were prepared to regard the inclusion in a lease of a rent review clause as, in reality, an acceptance by the tenant of an obligation to pay to the landlord a rent so determined and, further, that this acceptance was an inseverable part of the whole consideration for the landlord's grant of the term of years for the length agreed. The majority view was to this effect even when the right to initiate or to "trigger" the rent review was exclusively that of the landlord. It was recognised that there could be exceptions as where a break clause was included in the lease entitling the tenant to surrender if the rent were increased." The Chief Justice went on to suggest that the timetable for the review or determination of the new rent was regarded by the Court as subsidiary to an obligation already accepted by the tenant and as mere machinery for effecting the parties' intention that there should be periodic reviews of rent. No new contract or relationship was created and, in this respect, it differed from an option. Accordingly, he said, the House of Lords ruled "that a presumption existed stemming from the application of equitable principles, that in all rent review clauses, even if the right of review was unilateral, the presumption was that time should not be regarded as essential to the initiation or operation of the rent review". O'Higgins C J. found this reasoning compelling. Without enforceable rent reviews a landlord would refuse to grant long leases. In the absence of special circumstances, it would be unfair and inequitable for a tenant to escape a rent review because time was not observed. Kenny J. adopted a different approach. He was of the opinion that the cases in which it had been held that time was of the essence in relation to rent review clauses had "ignored or overlooked the principles developed in the Court of Chancery two hundred years ago". At common law, time limits had always to be strictly observed, but in equity "relief would be given against failure to comply with a stipulation as to time in a contract unless time was of the essence of the

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