The Gazette 1981

GAZETTE

SEPTEMBER 1981

Time Limits in Rent Review Clauses

in Leases

David Tomkin and Robert Pearce

Faculty of Law, University College, Cork

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.

Burnley B.C.

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.

The question has now — for thefirst time — received the

attention of the Irish Supreme Court in

Hynes Ltd.

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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