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GAZETTE
SEPTEMBER 1978,
RENT REVIEW CLAUSES—
WHEN TIMEMEANS MONEY
MICHAEL W. TYRRELL, B.A. (Mod.), Solicitor.
This article is not concerned with the review of rent at
the termination of a tenancy and a renewal being granted
thereafter either under the Landlord and Tenant
legislation or otherwise but deals solely with reviews to
take effect during the period of an already existing term of
years.
The subject of rent reviews is not one dealt with in any
depths in any Irish text book as in this country and in the
United Kingdom the review of a rent whether commercial
or otherwise is deemed to be purely a matter of contract
between the parties to a Lease or alternative equivalent
document in which the time and manner of review is set
out and any such review is to be carried out strictly in
accordance with the terms agreed. It might thus be
assumed that the parties to a Lease ought to be
reasonably certain that the conditions contained therein
on the face of them will be strictly enforceable and in the
absence of extenuating circumstances such as fraud will
be applied to the letter by the Court. Such a simplistic
approach however, cannot be adopted as the
interpretation by the Courts of rent review clauses over
the last decade has highlighted the difficulties that can be
encountered in construing such provisions and the pitfalls
that unwary draftsmen might fall into in the event of a
Landlord's failure to implement the terms of the clause to
the letter.
The case law on this subject emanating from our
Courts is virtually nil, there having been no Irish
decisions to the writer's knowledge in the High or
Supreme Court at all. In 1977 however, in two English
cases that came before the House of Lords on appeal the
interpretation of rent review clauses underwent a radical
change and no longer can the parties to a Lease be certain
that provisions relating to the time limits within which the
machinery to review a rent should be put in motion will be
applied in certain circumstances in what previously was
thought to be the apparent tenor of the Lease. Before
analyising the recent case law it is necessary to look at the
most common types of rent review clauses the purposes
of which are to allow a Landlord to review the rent at
certain times during the term for which the premises are
let in order to take account of inflation and the rising
market values which attach to such properties. One is
generally talking in this area of the letting of commercial
properties which will attract a higher rent than a domestic
letting and-which will usually be let for a reasonably long
term from five years to ninety years or more, the longer
the term the more importance naturally being attached to
the adequacy of the terms for the review of the rent. The
frequency with which the rent might be reviewed is a
matter for agreement between the parties but will
generally be anything between every three to ten years the
shorter the better from the point of view of the Landlord
with the rapidly rising values of property and the rents
that can be obtained therefrom.
Common Forms of Rent Review Provisions
The two most common forms of rent review provisions
are, firstly, where a Lease is granted for a fixed term at a
fixed rent for the entire term but with provrsioh that the
Landlord may at stated times review the rent by
complying with a certain procedure. In other words the
rent is originally fixed for the whole term of the Lease
with a provision allowing the Landlord to review at stated
intervals only. For example, a Lease for twenty one years
at an annual rent of £7,000 for the entire twenty one
years but with provision that every seven years at a fixed
time the Landlord may, by complying with whatever
requirements are set out in the Lease as condition
precedents to the valid exercise of such review, (for
example by service of a Rent Review Notice at a stated
time) be entitled to review the rent. The important point to
note here as we will see below is that what the Landlord
might be construed to have is an option to review that is
not mandatory or in any way necessary to the continuing
validity of the Lease as a rent has already been provided
for the entire term. It is of course in the Landlords interest
to exercise such an option on the assumption that the
rental market value of the property has risen.
The second most common type of rent review
provision which are usually termed as "machinery" or
"obligation" clauses arise where a Lease is granted for a
fixed term but at a fixed rent for only a
portion
of that
term with provision that at the expiry of the portion of the
term referred to and at subsequent stated intervals that
the rent for the further portion of the term up to the next
stated interval shall be reviewed and agreed between the
parties. In other words to differentiate this from the first
type of rent review proviso the rent is only fixed for a
portion of the term of the Lease and therefore review is
mandatory at the expiry of that portion as there is no
fixed rent for the remainder of the term. For example, a
Lease for twenty one years at an annual rent of £7,000
for the first seven years but with provision that in the
seventh and fourteenth year of the term at a fixed time the
Landlord shall, by complying with whatever requirements
are set out in the Lease as condition precedents to the
valid exercise of such review, (for example as above by
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