The Gazette 1978

GAZETTE

SEPTEMBER 1978,

Tenant before the expiration of six calendar months

before the end of the eighth year of the said term or (in the

absence of such agreement by such date) such amount as

may be determined by an arbitrator to be nominated by

. . . on the application of the Landlord to be made within

fourteen days after the date six calendar months before

the end of the eighth year of the said term".

In September 1974 negotiations started to fix a new

rent under Clause 1 (b) but no agreement was reached.

The date for applying to the arbitrator passed and

negotiations continued until February 1975 when the

Tenant took the attitude that the Landlord was out of

time and could not therefore increase the rent. On the 5th

March the Landlord applied to appoint an arbitrator and

the Landlord sought a declaration that he was entitled to

apply and had validly applied for the appointment of the

said arbitrator.

The Court held, in applying

Samuel Properties

(Development) Limited v. Hayek

that as Clause 1 (b)

empowered the Landlord

alone

to go to arbitration the

right conferred on the Landlord was in the nature of an

option and accordingly the condition as to time which

was attached to that right was to be treated as

mandatory. It followed that since the Landlord had failed

to comply with the time limit imposed by Clause 1 (b) the

application out of time to appoint an arbitrator was

invalid. Templeman J. after reviewing the authority was of

the view that at first sight the review Clause indicated an

obligation as opposed to an option as there was no one

rent for the whole term. The Landlord's Counsel had

submitted that under Clause 1 (b) in order to decide

which of two rents is greater there must therefore be two

rents to be compared which would appear to be the

language of obligation and that a rent must be calculated

in order to be able to make such a comparison.

Templeman J. however took the view that the Clause that

dealt with the ascertainment of the rent that was to be

compared with the original rent of £2,750 per annum

stipulated that it was to be an amount that "may" be

agreed (and that is permissive) and if there is not

agreement such amount as "may" be determined (not

shall

be determined). Further the Clause provided that the

application by the Landlord for arbitration was to be

made within a specific time and provided that "in case" of

such arbitration (not words of obligation) the amount

shall be determined by the arbitrator.

The Court was of the opinion that the indications of

any

obligation

here

were

over-ruled

contra-indications of options. That the Clause merely

empowered, not obliged, the Landlord to go to arbitration

if no agreement was reached and imposed on him the

right to do so only if he applied to the arbitrator within the

fourteen days. The Court therefore did not accept the

Landlord's argument and as such held that if the

Landlord failed to exercise his right to review the rent

then the rent would remain the same as the basic rent

originally reserved for the first part of the term. The basic

rent in this case was to be compared in Clause 1 (b) with

such amount as may have been agreed and as no other

rent was agreed (i.e. nil) then the original rent is the

greater and it stands for the period. In this Clause there

were some indications that it was a Clause of obligation

rather than one of option but construing the Clause the

Court felt itself bound to come to the conclusion that it

was an option type Clause, the time limits therefore were

mandatory as being of the essence, and that any

application to appoint an arbitrator outside of the time

stipulated was invalid.

Draftsmen therefore should note that when settling

such a Clause where the rent is not fixed for the entire

term that the obligation of the Landlord to set the

machinery in motion for review should be written in

mandatory terms (i.e. the Landlord

shall

serve notice

etc.,) as otherwise a note of discretion could creep into the

interpretation of the Clause and leave it open to a possible

construction as an option and therefore subject to

absolute rigidity as regards the time limits contained

therein.

The Pendelum Swings

We shall now turn to the two cases decided by the

House of Lords in 1977 namely (1)

United Scientific

Holdings Limited

Burnley Borough Council

and (2)

Cheapside Land Development Company Limited and

Another

Messels Service Company

(1977) 2 A.E.R. p.

62 which cases have thrown a totally new light on the

interpretation to be given especially to the first type of

Clause considered beforehand which until 1977 in the

United Kingdom (and possibly by implication in Ireland

as persuasive authority, although there is not precedent

from our own Courts) were deemed to be in the nature of

options and therefore time was of the essence for their

exercise. Both cases concerned applications for

declarations relating to rent review clauses in leases and

were both the subject of appeals from the Court of

Appeal which were heard together in the House of Lords,

both cases concerning in law substantially the same

points.

In the case of

United Scientific Holdings Limited

Burnley Borough Council

(the "U.S.H. Case") the

Landlord granted to a Tenant a Lease for the term of

ninety-nine years from the 31st August 1962 at a rent of

£900 per annum for the first ten years and thereafter

£1,000 per annum plus any additional rent payable under

provisions contained in a schedule to the Lease. The

schedule stated inter alia that "during the year

immediately preceding the period of the second ten years

of the said term (i.e. during the ninth year of the term)

. . . " the Landlord and the Tenant shall agree or failing

agreement shall determine by arbitration the sum total of

the then current rack rent reasonably to be expected on

the open market for Leases of the property and a quarter

of the sum total so ascertained or £1,000 whichever is the

greater shall be the rate reserved by this Lease in respect

of the next succeeding ten years. The Landlord did not

avail of the provision by the 31st August 1972 when the

first ten years of the Lease had elapsed. In October 1972

the Landlord sought to implent the rent review provisions

and the Tenant asserted that as time was of the essence

and the time in which to review had passed the Landlord

was not entitled to do so and the Tenant sought a

declaration to determine the rent payable. It was held at

first instance that as the Landlord had not exercised his

right to review within the prescribed time he could not

now do so and that the rent therefore remained at £1,000

per annum. The Court of Appeal upheld this decision

confirming that time was of the essence both decisions

however being reversed in the House of Lords.

In the case of

Cheapside Land Development Company

Limited and Another

Messels Service Company,

(the

Cheapside case) the Landlord granted a Lease for twenty-

one years from the 8th April 1968. For the first seven

183