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GAZETTE
SEPTEMBER 1978,
years the rent was £117,340 per annum and the rent for
the second and third seven year periods was to be
determined in accordance with Schedule 2 of the Lease
which provided inter alia the rent for the second
period to be . . the yearly rent shall be £117,340 or a
sum equal to the market rent (if duly determined in the
manner hereinafter set out) which ever shall be higher".
The procedure for determining the market rent as
aforesaid had to be initiated by the Landlord serving on
the Tenant a Notice to Review specifying what he thought
the rent ought to be not more than twelve months nor less
than six months before the review date which was 8th
April 1975. If no agreement could be reached on the
amount of the rent then within two months of service of
the notice the Landlord could apply to the President of
the Royal Institution of Chartered Surveyors (R.I.C.S.)
to appoint a valuer. The Landlord served notice to review
on the Tenant within the appropriate time but when
negotiations did not result in agreement the Landlord
found that over two months had passed since the date of
service of the notice and on the Landlord's application to
the President of the R.I.C.S. to appoint an arbitrator the
President refused to do so without a Court ruling that the
application was a valid one and was not void as a result of
being applied for outside the time specified in the Lease.
The Landlord therefore sought a declaration to this effect
which was granted at first instance, reversed on appeal by
the Court of Appeal which in turn was overruled by the
House of Lords who upheld the original order.
Option Theory Abandoned
The House of Lords was virtually unanimous in
holding in both cases that the question as to whether the
time limits prescribed by a rent review clause were to be
treated as being of the essence did not depend on whether
or not the Clause could be construed as conferring an
option on the Landlord. Such a Clause could not in any
event be considered as being in the nature of a true option
since the effect of its exercise was not to create a new
contract or to determine an existing one but was a part of
the
original
contract a part of the consideration for which
was the insertion of the rent review clause without which
it would be unlikely a Tenant would have been granted a
Lease of any sort of reasonable duration. In the absence
of anything to the contrary in the wording of the Lease
itself (such as express words making time of the essence)
or in the inter-relation of the rent review clause itself and
other clauses (such as a clause allowing a Tenant to
determine the Lease (i.e. a break clause) in certain
circumstances which is tied into a rent review clause) or in
the surrounging circumstances the presumption was that
the time limit specified in a rent review clause for
completion of the steps for determining the rent payable
in respect of the period following the review date was
not
of the essence of the contract, and this was so even where
the rent review was not automatic and had to be initiated
by the Landlord (i.e. option type clause), the only Judge
not to agree on this particular point being Viscount
Dilhorne who agreed that the appeal in the present case
be allowed but on different grounds which I shall examine
later. There was nothing in the Leases in the present cases
to displace the presumption that strict adherence to the
time limits specified in die rent review provisions was not
of the essence of the contract. Accordingly the Landlords
in both cases were entitled to invoke the rent review
provisions notwithstanding that the time limits prescribed
in the Leases had expired. Both appeals therefore were
allowed and in the course of Judgment the cases of
Samuel Properties (Developments) Limited v. Hayek
and Mount Charlotte Investments Limited v. Leek and
Westbourne Building Society Limited were overruled. The
cases of Kenilworth Industrial Sites Limited v. E. C.
Little and Company Limited and Accuba Limited v.
Allied Shoe Repairs Limited were confirmed as to their
result but the Court found that the reasoning on which the
respective decisions were given was not correct as the
Courts in the above cases had distinguished categorically
between what were termed option type clauses and
machinery type clauses and the House of Lords was now
saying that the effect of both types of clauses where
similar as regards time stipulations for review and that
there was no justification in ordinary circumstances to
deem time in either to be of the essence and that
henceforth both types of clauses, subject to what has been
said before, were not to be deemed as not involving time
as being of the essence for their exercise.
The House of Lords further held that the rent was
payable retrospectively from the rent review date the
Tenant having had the use of the money between the
review date and date of Judgment and thereafter not being
prejudiced in any manner.
Lord Diplock stated that it was beyond doubt that
parties to a Lease could expressly provide that time was
or was not to be of the essence of the contract and it is
submitted by the writer that this is the obvious thing to do
although it is easy to suggest this in retrospect having had
the benefit of reviewing the spate of litigation that has
arisen in recent years out of this topic. No doubt the
parties to the Leases that gave rise to the said litigation
were of the same mind and it is a point that all
practitioners should remember when drawing up rent
review clauses in the future.
Reference was made in the case to Section 25 (7) of the
Judicature Act 1873 (Section 28 (7) of the Judicature
(Ireland) Act 1877) which states that "stipulations in
contracts as to time or otherwise which would not before
the passing of this Act have been deemed to be or to have
become of the essence of such contracts in a Court of
Equity shall receive in all Courts the same construction
and effect as they would have heretofore received in
equity." Section 25 of the 1873 Act (Section 28 of the
Irish Act) further provides that in the event of a conflict
between the Rules of Equity and the Rules of Common
Law that Equity shall prevail. Until the Judicature Acts
the Rules of Common Law and Equity had grown up
separately and Equity did not regard stipulations as to
time as being of the essence unless expressly provided for
while the Common Law did so regard time as being of the
essence as a general rule to which a large number of
exceptions grew until by 1873 the general rule had
developed that stipulations as to the time at which a party
was to perform a promise on his part were not regarded
as being of the essence so long as the failure to perform
the promise punctually did not deprive the other party of
substantially the whole benefit that it was intended he
would obtain from the contract.
However, this general principle did not apply either in
law or equity to what may be termed "if contracts" the
most relevant example of which to this subject is an
option. As Denning M.R. stated in
U.D.T.
(Commercials) Limited
v.
Eagle Aircrqft Services
Limited (1968)
1 A.E.R. p. 109 the grant of an option is
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