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GAZETTE
SEPTEMBER 1978,
an irrevocable offer (being supported by consideration so
that it cannot be revoked) and in order to be turned into a
binding contract the offer must be accepted in exact
compliance with its terms. This is required both in Courts
of Law and Equity. Lord Diplock in the present case
agreed that the time in which to exercise an option to renew
or determine a Lease was of the essence. However such a
true option had the effect of either bringing into being a
new
contract or ending an existing one respectively, while
the determination of the new rent under a rent review
clause does neither. Such determination of a new rent, it
was stated, is merely an event on the occurence of which
the Tenant had in his
existing
contract already áccepted
an obligation to pay increased rents when determined
from time to time and the Tenant's acceptance of this
obligation is an inseverable part of the whole original
consideration of the Landlords grant of a term of years
for the length agreed. Without this it would be most
unlikely that a Landlord would ever grant a Lease for
more than a few years as inflation would very quickly
make the original rent illusory. Lord Diplock was of the
view that for the above reasons that the time stipulations
in a rent review clause are not of the essence and even if
the word "option" is contained therein as in the Samuel
case this was not in the nature of a true option and was
merely a dressing that would not take effect as such.
Possible Detriment to Tenant
This general principle having been laid down, which
was a complete revolution in judicial thinking, the Court
then looked at whether in the circumstances of the cases
at hand a tenant would be prejudiced by the rent being
determined at a date later than that stipulated in the
Lease. If any such detriment could be found the Court
could have leant in favour of the Tenant but Lord Diplock
was of the view that the Tenant suffered no serious
detriment with the possible exception that he did not
know in advance what the increased rent would be, which
in his Lordship's opinion was not a realistic prejudice as
his own valuer could estimate same and he had the added
benefit that he had the use of the money representing the
difference between the original rent and the increased
figure up until the date the new rent was determined. It
was accepted however, that should the Landlord have
caused unreasonable delay in exercising the review
and
the Tenant had suffered accordingly, in that event the
Landlord may be effectually estopped from putting in
motion the machinery to review at such later dates. In the
absence of such detriment to the Tenant however the new
rent when determined would be payable by the Tenant
retrospectively to the review date contained in the Lease
which as pointed out did not operate unfairly against the
Tenant who has had the use of the rent money in the
meanwhile.
The remaining Judges with the exception of Viscount
Dilhorne were unanimously in agreement with Lord
Diplock both as to his reasoning and his views on the
correctness of the previous cases referred to and Lord
Salmon further disagreed with the decision in the Mount
Charlotte case referred to above and considered that
Templeman J. only held as he did as he felt bound by
previous authority. Viscount Dilhorne agreed with his
colleagues to allow the appeals in the present cases but
did so on different grounds being of the opinion, contrary
to that of the rest of the House, that there remained a
distinction in law between machinery or obligation type
clauses and option type clauses providing for a review at
the initiation of the Lessor. In the present cases however,
he was of the opinion that the rent review Clause in the
U.S.H. case was of the machinery or obligation type and
that there was nothing therein to impute an intention to
the parties that time was to be of the essence. As to the
Cheapside case he did not think it incorrect to say that the
Lessors had an option but it was not one that could be
equated with an option to purchase as it was not intended
to secure for the Tenant an interest in property but was
merely to secure a variation of the term of the Lease.
However, the Landlord in this case had in fact served the
notice in the time required and Viscount Dilhorne stated
that the question whether time was of the essence here did
not therefore have to be decided in relation to that notice.
What had to be decided was whether time was of the
essence in refering the matter to the President of the
R.I.C.S within the stipulated time and he decided that it
was not, there being no reason to impute such an
intention to the parties. He did state however that in his
opinion that where a rent review has to be initiated by a
Lessor and is not automatic (i.e. machinery) then time is
of the essence when it is provided that the notice initiating
the review has to be given by a said date.
What puzzles the writer is that his Lordship agreed
with Lord Diplock's observation on the earlier cases
which includes the Iatters overruling of Samuel Properties
(Development) Limited v. Hayek which case, as we
have seen, discussed the effect of a classic option-type
clause. Perhaps Viscount Dilhorne was referring only to
Lord Diplock's observations regarding the inter-relation of
the rent review and the hmk clause that was contained in
that Lease the reasoning behind which would not conflict
with his own views, but this is not clear.
The new result of the U.S.H. and the Cheapside case
so far as the United Kingdom is concerned may be
summarised as follows:
1—No longer will the Courts differentiate between
option type clauses and machinery or obligation type
clauses as regards the effect of their exercise within a time
stipulated in a rent review clause and further no longer
will time be deemed prima facie to be of the essence in the
exercise of what has been described as option type
clauses.
2—A Landlord therefore may put into motion the
machinery to review a rent
after
the stipulated time has
passed unless he has been guilty of unreasonable delay
and
the Tenant has been prejudiced as a result to the
extent that he has been deprived of the benefit which it
was intended he was to obtain under the Lease. This is
difficult for a Tenant to prove as he in fact will almost
invariably benefit financially by a Landlords tardiness, as
described beforehand.
3—The new rent can be retrospective to the original
date for review contained in the Lease although not
applied for by the Landlord by that date.
4—Time can be made of the essence in the usual way
by the service of a notice to this effect after the review
date has passed.
5—Time may be made of the essence in the first
instance by the parties including in the Lease an express
condition to this effect.
Conclusion
We have seen from the authorities cited the revolution in
judicial thinking on this subject within a very short period
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