United Scientific Holdings Ltd v Burnley Borough Council; Cheapside Land Development Co Ltd and Anor v Messels Service Co
[1977] 2 All ER 62(Judgment by: Lord Salmon)
Between: United Scientific Holdings Ltd v Burnley Borough Council; Cheapside Land Development Co Ltd and Anor
And: Messels Service Co
Judges:
Lord Diplock
Viscount Dilhorne
Lord Simon of Glaisdale
Lord SalmonLord Fraser of Tullybelton
Subject References:
LANDLORD AND TENANT
RENT
Review
Failure to comply with time limit
Construction of clause
Presumption that time not of the essence
Rebuttal of presumption
Contra-indications in express words of lease or in interrelation of rent review clause itself and other clauses or in surrounding circumstances
Failure to comply with time limit not precluding landlord from invoking clause unless presumption that time not of the essence rebutted
Retrospective operation
Certainty of rent
Increased rent determined under review clause payable from specified date
Increased rent not determined until after specified date
Whether increased rent payable retrospectively from specified date
Case References:
Accuba Ltd v Allied Shoe Repairs Ltd - [1975] 3 All ER 782; [1975] 1 WLR 1559; 30 P & CR 403; Digest (Cont Vol D) 581, 3952d
Bailey (C H) Ltd v Memorial Enterprises Ltd - [1974] 1 All ER 1003; [1974] 1 WLR 728; 27 P & CR 188, CA; Digest (Cont Vol D) 581, 3952e
Boone v Eyre - (1779) 1 Hy Bl 273 n; 1 Wms Saund 320 c; 2 Wm Bl 1312; 126 ER 160; 12 Digest (Reissue) 524, 3630
Cutter v Powell - (1795) 6 Term Rep 320; 101 ER 573; 12 Digest (Reissue) 146, 844
Essoldo (Bingo) Ltd's Underlease, Re, Essoldo Ltd v Elcresta Ltd - (1972) 23 P & CR 1; 31(1) Digest (Reissue) 480, 3951
Farrell v Alexander - [1976] 2 All ER 721; [1976] AC 59; [1976] 3 WLR 145, HL
Finch v Underwood - (1876) 2 Ch D 310; 45 LJCh 522; 34 LT 779, CA; 31(1) Digest (Reissue) 293, 2394
Greater London Council v Connolly - [1970] 1 All ER 870; [1970] 2 QB 100; [1970] 2 WLR 658; 134 JP 336, CA; Digest (Cont Vol C) 423, 144a
Gregson v Riddle - (1784) cited in 7 Ves at 268; 32 ER 109, LC; 40 Digest (Repl) 118, 916
Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd - [1962] 1 All ER 474; [1962] 2 QB 26; [1962] 2 WLR 474, CA; 41 Digest (Repl) 363, 1553
Hughes v Metropolitan Railway Co - (1877) 2 App Cas 439; 46 LJQB 583; 36 LT 932; 42 JP 421, HL; 21 Digest (Repl) 392, 1221
Jackson v Union Marine Insurance Co Ltd - (1874) LR 10 CP 125; [1874-80] All ER Rep 317; 44 LJCP 27; 31 LT 789, Ex Ch; 12 Digest (Reissue) 484, 3435
Kenilworth Industrial Sites Ltd v E C Little & Co Ltd - [1975] 1 All ER 53; [1975] 1 WLR 143; 29 P & CR 141, CA; Digest (Cont Vol D) 580, 3952c
Knight, Re, ex parte Voisey - (1882) 21 Ch D 442; 52 LJCh 121; 47 LT 362, CA; 31(1) Digest (Reissue) 473, 3874
Lennon v Napper - (1802) 2 Sch & Lef 682; 12 Digest (Reissue) 382, 1437
Martindale v Smith - (1841) 1 QB 389; 1 Gal and Dav 1; 10 LJQB 155; 5 Jur 932; 113 ER 1181; 39 Digest (Repl) 744, 2216
Mount Charlotte Investments Ltd v Leek and Westbourne Building Society - [1976] 1 All ER 890
Parkin v Thorold - (1852) 16 Beav 59; 22 LJCh 170; 16 Jur 959; 51 ER 698; 12 Digest (Reissue) 381, 2760
Peeters v Opie - (1671) 2 Wms Saund 346; 85 ER 1144
Pordage v Cole - (1669) 1 Wms Saund 319; 1 Lev 274; 2 Keb 542; T Raym 183; 1 Sid 423; 85 ER 449; 12 Digest (Reissue) 523, 3624
Richards (C) & Son Ltd v Karenita Ltd - (1971) 221 Estates Gazette 25
Samuel Properties (Developments) Ltd v Hayek - [1972] 3 All ER 473; [1972] 1 WLR 1296; 24 P & CR 233, CA; 31(1) Digest (Reissue) 481, 3952
Schuler (L) AG v Wickman Machine Tool Sales Ltd - [1973] 2 All ER 39; [1974] AC 235; [1973] 2 WLR 683, HL; Digest (Cont Vol D) 123, 3613a
Seton v Slade, Hunter v Seton - (1802) 7 Ves 265; [1775-1802] All ER Rep 163; 32 ER 108, LC; 12 Digest (Reissue) 381, 2755
Smith v Hamilton - [1950] 2 All ER 928; [1951] Ch 174; 40 Digest (Repl) 242, 2042
Stickney v Keeble - [1915] AC 386; [1914-15] All ER Rep 73; 84 LJCh 259; 112 LT 664, HL; 40 Digest (Repl) 120, 942
Stylo Shoes Ltd v Wetherall Bond Street W1 Ltd - (1974) 237 Estates Gazette 343, CA
United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd, United Dominions Trust (Commercial) Ltd v Eagle Aviation Ltd - [1968] 1 All ER 104; [1968] 1 WLR 74, CA; Digest (Cont Vol C) 406, 18d
Wallis, Son and Wells v Pratt and Haynes - [1910] 2 KB 1003; 79 LJKB 1013; 103 LT 118, CA; on appeal [1911] AC 394; [1911-13] All ER Rep 989; 80 LJKB 1058; 105 LT 146, HL; 12 Digest (Reissue) 522, 3613
Walsh v Lonsdale - (1882) 21 Ch D 9; 52 LJCh 2; 46 LT 858, CA; 31(1) Digest (Reissue) 487, 4019
Watts and Attorney General for British Columbia v Watts - [1908] AC 573, PC
Weston v Collins - (1865) 5 New Rep 345; 34 LJCh 353; 12 LT 4; 29 JP 409; 11 Jur NS 190, LC; 40 Digest (Repl) 315, 2601
Judgment date: 23 March 1977
Judgment by:
Lord Salmon
My Lords, these two appeals raise important questions as to what principle should be applied in deciding whether provisions as to time in rent revision clauses should or should not be construed as being of the essence of the contract. Such clauses could easily be drafted so that they state expressly whether time is or is not to be treated as of the essence. So drafted they would present no difficulty. Unfortunately they rarely are. They should be, for if they were, a great deal of expensive litigation would be avoided. If, eg, the parties to the present appeals had expressly stated whether or not they intended the provisos as to time in the rent revision clauses to be of the essence, there would have been no litigation between them let alone litigation fought up to your Lordships' House for the purpose of deciding what the rent revision clauses mean.
I would add that a well-advised landlord is hardly likely to agree a rent revision clause which laid down that its provisions as to time were of the essence of the contract. Were he to do so, it would mean that should he take any step later than the time specified in the clause then however slight the delay and however little it affected the tenant, he would lose the benefit of the clause for the next five, seven or ten years or whatever the intervals for revision might be. In such circumstances he might be left with a rent for that period of perhaps a half or even a third of the then fair market rent. It is much more likely that the landlord would insist on a clause such as the one in Kenilworth Industrial Sites Ltd v E C Little and Co Ltd which provided that a failure to comply strictly with the time limits contained in the clause would not deprive the landlord of his right to have an increased rent determined by arbitration. In such a case he would not lose his right to an increase unless he had been guilty of an unreasonable delay which had prejudicially affected the tenant.
In a period of acute inflation, such as we have experienced for the last 20 years or so, and may well continue to experience for many years to come, what is a fair market rent at the date when a lease is granted will probably become wholly uneconomic within a few years. Tenants who are anxious for security of tenure require a term of reasonable duration, often 21 years or more. Landlords, on the other hand, are unwilling to grant such leases unless they contain rent revision clauses which will enable the rent to be raised at regular intervals to what is then the fair market rent of the property demised. Accordingly, it has become the practice for all long leases to contain a rent revision clause providing for a revision of the rent every so many years. Leases used to provide for such a revision to be made every ten years. Now the period is normally every seven and not infrequently every five years. To my mind, it is totally unrealistic to regard such clauses as conferring a privilege on the landlord or as imposing a burden on the tenant. Both the landlord and the tenant recognise the obvious, viz that such clauses are fair and reasonable for each of them. I do not agree with what has been said in some of the authorities, namely that a rent revision clause is for the benefit of the landlord alone and not at all for the benefit of the tenant. It is plainly for the benefit of both of them. It is for the benefit of the tenant because without such a clause he would never get the long lease which he requires; and under modern conditions, it would be grossly unfair that he should. It is for the benefit of the landlord because it ensures that for the duration of the lease he will receive a fair rent instead of a rent far below the market value of the property which he demises. Accordingly the landlord and the tenant by agreement in their lease provide that at stated intervals during the term, the rent should be brought up to what is then the fair market rent. The revision clause itself lays down the administrative procedure or machinery by which the fair market rent shall be ascertained. Sometimes this procedure or machinery is quite simple as in the Burnley Corporation appeal (which I shall call 'the first appeal'). Sometimes it is somewhat complicated as in the Cheapside Development Co Ltd appeal (which I will call 'the second appeal').
In the first appeal the lease was a building lease for a term of 99 years from 31 August 1962. Being a building lease, the rent was fixed at one quarter of the then rack rent being calculated at the rate of £900 a year until 31 August 1972, and thereafter during the residue of the term at the rate of £1,000 a year 'plus any additional rent payable under the provisions contained in the Schedule hereto'. The schedule was the rent revision clause and provided, so far as relevant, that in the year preceding the tenth year of the lease and every successive tenth year the then current rack rent reasonably to be expected on the open market should be agreed or, failing agreement, determined by arbitration 'and one quarter of the sum total so ascertained or £1,000 (whichever is the greater) shall be the rate of rent reserved by (the) lease in respect of the then next succeeding (ten years).'
I recognise that there is no provision for the rent to be revised downwards and that this appears to be to the disadvantage of the tenant.
In practice, however, this is hardly a serious disadvantage for rents have steadily much increased over a very long period and show no signs of ceasing to do so. It is, I think, hardly feasible that in the Burnley Corporation case the fair market rent will ever fall below £1,000 a year. Negotiations were opened by a letter of 10 May 1972 from the estate agents for the tenants to the landlords saying that they had been instructed to enter into negotiation to agree the new rent for the period 31 August 1972 to 31 August 1982. It seems plain from this letter that the tenants recognised that the rack rent reasonably to be expected on the open market had risen and that it should be possible to agree what the new rent should be for the coming ten year period. The landlords' representative then asked the estate agents to supply particulars of the rents reserved by the underleases: this the estate agents agreed to do.
There were nine underleases at the time, producing a total rental of some £12,500 a year but these particulars were never supplied to the landlords although they were obviously of considerable importance in calculating the new rent. On 21 August 1972 the tenants' solicitors wrote to the landlords saying that the rent revision clause was 'not susceptible of any legally enforceable meaning and ... void accordingly'. Further correspondence passed between the parties and finally, after 31 August, the tenants issued an originating summons to decide the question whether from the period of 31 August 1972 until 31 August 1982 the rent should remain at the figure at which it was fixed on 31 August 1962, or should be increased to a quarter of the fair market rent notwithstanding that this figure had not been agreed or determined by arbitration before 31 August 1972. Both parties had had an equal opportunity and indeed obligation of ascertaining the fair market rent by referring the matter to arbitration well before the date in question. Neither did so. It has been argued that the rent revision clause was solely for the benefit of the landlord. For the reasons stated earlier in this speech I cannot accept this argument.
Without the clause the tenant would never have obtained his 99 years' building lease and I can see nothing unfair to the tenant or generous to the landlord in providing that the one should pay and the other receive the fair market rent for the property during the whole of the term for which it was demised.
Equity and the common law were fused by the Supreme Court of Judicature Act 1873. Section 25(7) of that Act provides:
'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.'
This section is now replaced and re-enacted in different language by s 41 of the Law of Property Act 1925.
The equitable principles governing the construction and effect of stipulations in contracts as to time are correctly set out in Fry on Specific Performance: [F9]
'Time is originally of the essence of the contract, in the view of a Court of Equity, whenever it appears to have been part of the real intention of the parties that it should be so, and not to have been inserted as a merely formal part of the contract. As this intention may either be separately expressed or may be implied from the nature or structure of the contract, it follows that time may be originally of the essence of a contract, as to any one or more of its terms, either by virtue of an express condition in the contract itself making it so, or by reason of its being implied ...'
Under the lease dated 31 August 1962 both the landlords and the tenants were enabled and indeed obliged by the language of the rent revision clause to ensure that the rent for the period from 31 August 1972 to 31 August 1982 should be determined before 31 August 1972. Neither did so and
I find it impossible to hold that the clause was intended by either party to imply that the time provision in that clause was of the essence of the contract. It was in my opinion merely administrative machinery for carrying out the parties' agreement that the rent should be revised so that it should correspond with the current open market rent.
I recognise that the lease relates to what could fairly be described as a commercial transaction. In commercial transactions, provisions as to time are usually but not always regarded as being of the essence of the contract. They are certainly so regarded where the subject-matter of the contract is the acquisition of a wasting asset or of a perishable commodity or is something likely to change rapidly in value. In such cases if, eg the seller fails to deliver within the time specified in the contract, the buyer may well be seriously prejudiced. The time provision in a rent revision clause of the present kind, even in a lease concerning a commercial transaction, is however different in character and I regard it as not being of the essence of the contract unless it is made so expressly or by necessary implication. In the present case it is certainly not made so expressly nor, in my view, by implication. Nor is there anything to suggest that the tenant would be prejudiced by determination of the rent for the period from 31 August 1972 to 31 August 1982 being postponed until after 31 August 1972.
At first instance, Pennycuick V-C held that the rent revision clause was on the same footing as an option conferred on the landlord and that if the landlord failed to exercise his rights within the time specified in the option he lost them. The learned vice-chancellor relied strongly on the judgment of Russell LJ in Samuel Properties (Developments) Ltd v Hayek ( [1972] 3 All ER 473 at 478, [1972] 1 WLR 1296 at 1302), when he said:
'It was argued that there was a distinction (as to time limits) between options to determine, or to renew, or to acquire the reversion, and a right such as the present. I do not see why this should be so.'
I am afraid that I do for the following reasons. Options to determine or to renew are not agreements to determine or renew. They are no more than irrevocable offers (kept open for good consideration) to do so providing the tenant complies with certain conditions usually before a certain date.
If the tenant complies with the conditions in time he thereby accepts the offer. The offer plus the acceptance constitute a fresh agreement determining or renewing the lease as the case may be (see the United Dominion Trust case ( [1968] 1 All ER 104 at 107, [1968] 1 WLR 74 at 81), per Lord Denning MR). The same is true mutatis mutandis, of an option to acquire the reversion. Neither equity nor the common law would ever intervene to make a contract for the parties. Anything which falls short of complete acceptance of the offer is of no effect except sometimes as a counter-offer.
I do not regard the leases in either the first or second appeals, nor in Samuel Properties (Developments) Ltd v Hayek (to which I shall return), as vesting any option in the landlord to have the rent revised. In my opinion each lease constitutes, amongst other things, an agreement between the parties that, at stated intervals, the rents shall be revised so as to bring them into line with the then open market rent. The rent revision clauses specify the machinery or guidelines for ascertaining the open market rent. These provisions as to time are not, in my opinion, mandatory or inflexible; they are only directory. Nevertheless any unreasonable delay caused by the landlords and which is to the tenants' prejudice would prevent the rent being revised after the review date.
As far as the first appeal is concerned, I do not understand how, on the facts I have related the delay could properly be said to have been caused by the landlords rather than by the tenants. The lease not only enabled but put an obligation on the tenants as well as on the landlords to have the rent ascertained by arbitration in default of agreement. In these circumstances it hardly lies in the tenants' mouth to complain of the delay. Nor is there any evidence that they have been prejudiced by the delay for which they appear, if anything, to have been more responsible than the landlords.
In Samuel Properties (Developments) Ltd v Hayek the rent revision clause which laid down the procedure for having the open market rental value ascertained at the end of the seventh and 14th years of the term and the rent then being raised to that level, was dressed up to look like an option. Indeed the word 'option' appeared in the clause. But, for the reasons I have already stated, I do not think that it was a real option in the sense that any option to renew or determine a lease is an option. The clause required the landlord to give notice to the tenants six months prior to the expiry of the seventh year if he required the rent to be raised to the open market rental value. If within one month of the notice, the parties failed to agree the open market rental value this figure was to be determined by a valuer appointed by the president of the Royal Institution of Chartered Surveyors. But the date by which this determination was to be made was not specified. The landlord gave his notice about one month late. The Court of Appeal held that time was of the essence and that the landlord was precluded from putting the rent revision clause into operation. Clause 5 of the lease so far as relevant gave the tenant a true option to determine the lease at the end of the seventh year of the term by giving the landlords at least one quarter's notice in writing. This break clause was obviously inserted to protect the tenant should he not wish to pay the increased rent during the next seven year period of the term.
The proviso to the break clause strongly suggests however that the time provisions relating to rent revision were not of the essence of the contract. It reads:
'Provided always that if one quarter before the expiration of the first 7 ... years of the term ... the reviewed rent ... shall not have been reviewed then the right of the lessee to terminate as herein provided shall be extended until the expiration of 1 month from the date of the notification of the reviewed rent to the lessee.'
There is nothing in the proviso nor in any other part of the lease to suggest that the new rent may not be determined by the valuer and notification of this rent may not reach the lessee until after the expiration of the first seven year period. In my view Samuel Properties (Developments) Ltd v Hayek was wrongly decided and should be overruled.
In Mount Charlotte Investments Ltd v Leek and Westbourne Building Society ( [1976] 1 All ER 890 at 892) Templeman J stated rightly:
'The authorities disclose that there are at least two kinds of rent revision clauses. The first kind has been analysed as "an option to the landlord to obtain a higher rent" and in that case if the landlord does not comply with any time limits provided for the exercise of the option then he wholly fails. The time limits are said to be mandatory. The second kind of clause has been analysed as "creating an obligation on the landlords"-or sometimes the tenants as well-"to take the steps necessary to determine what the rent is going to be". If in the obligation cases the time limits prescribed by the document are not complied with, then the court construes those time limits as being purely directory, and, provided that the tenant has not been prejudiced by any delay, then the rent is fixed after the time limits have expired.'
Buckley and Roskill LJJ in their judgments in the first appeal expressed no enthusiasm for the dichotomy between so called option and obligation rent revision clauses. Indeed, they considered it to be unsound. I agree with this view. They based their judgments on wider grounds to which I shall return. They both however stated that they did not dissent from the narrower ground on which Pennycuick V-C decided the case, namely that the rent revision clause 'is for the benefit of the landlord solely ... (and is) on the same footing as an option.' For the reasons I have already given I am unable to accept the grounds on which Pennycuick V-C based his judgment.
After the passage which I have quoted from his judgment, Templeman J added ( [1976] 1 All ER 890 at 892):
'The analysis of the option rent review clause is a triumph for theory over realism ... The concept of the tenant granting the landlord an option and conferring benefits on the landlord does not accord with reality.'
Templeman J was however obliged by authorities then binding on him to give judgment for the tenants-I think reluctantly. For the reasons which I have already given I entirely agree with and gratefully adopt his trenchant criticism of the analysis of the so-called option rent revision clause.
I also agree with Buckley LJ when he said ( [1976] 2 All ER 220 at 230, [1976] 1 Ch 128 at 145):
'In each class of case [the so called option cases and the obligation cases] the circumstances and the nature of the contractual term should be considered in order to ascertain whether it is reasonable to impute to the parties an intention that time shall be of the essence, an important circumstance being the practical operation of the clause and its impact on the parties.'
I am afraid, however, that for the reasons I have already stated, I cannot agree that the circumstances or nature of the contractual terms in the Burnley case support the implication that the parties intended to make time of the essence. I recognise that it would probably be convenient for both parties to know the amount of the revised rent before it comes into operation. In my view, however, this by itself is not enough to enable the respondents to succeed.
Buckley LJ relied on my judgment in the Court of Appeal in Stylo Shoes Ltd v Wetherall Bond Street W1 Ltd. In that case the rent revision clause required the ( [1977] 2 All ER 62 at 91) landlords, in the event of the revised rent not being agreed with the tenants, to apply not less than three months before the review date to the president of the Royal Institution of Chartered Surveyors to nominate an arbitrator to determine the revised rent. It does not appear from the report for how long the landlords delayed in making the application nor whether or to what extent the delay prejudiced the tenants. This was a case in which the landlords alone were to initiate the procedure for revising the rent and is perhaps more akin to the second than to the first appeal. However this may be, unless the facts in that case did reveal some unreasonably long delay which caused prejudice to the tenants then it was wrongly decided. I certainly do not think that any member of the court was purporting to lay down any principle to the effect that provisions as to time in rent revision clauses were generally to be considered as of the essence of the contract. If the Stylo Shoes case is to be regarded as a so-called option case then the court was bound by its own decisions in Samuel Properties (Developments) Ltd v Hayek with which I do not agree and consider should be overruled for the reasons which I have already indicated.
Most of what I have said applies as much to the Cheapside Land Development appeal as it does to the Burnley Corporation appeal but there are substantial differences between the two relating both to their respective leases and facts. In the Cheapside Land Development appeal (the second appeal), by a lease dated 13 March 1968, the landlords demised to the tenants parts of a building known as Winchester House, Old Broad Street, in the City of London for a term of 21 years from 8 April 1968 at a yearly rent:
- '(a)
- In respect of the period of the said term commencing on the [8th April 1968] ... and ending on the [8th April 1975] the yearly sum of ... (£117,340) ...
- (b)
- In respect of each of the following periods respectively of the said term, that is to say (i) the period commencing on the [8th April 1975] and ending on the [8th April 1982] ... and (ii) the period commencing on the [8th April 1982] and ending on the [8th April 1989] ... the respective rents to be determined in accordance with the provisions in the Second Schedule hereto.'
Schedule 2 contains the rent revision provisions. Clause 1, para (a) defines 'the market rent' and para (b) defines 'the review date' as 8 April 1975 and 8 April 1982 for the second and third periods respectively. Clause 2 reads:
'In respect of (i) the second period of the said term the yearly rent shall be the sum of ... (£117,340) or a sum equal to the market rent (if duly determined in the manner hereinafter set out) whichever shall be the higher ... '
Clause 3 reads:
'The market rent may be determined and notified to the Lessees in the manner following:
- (a)
- the proposed rent shall be specified in a notice in writing ("the lessors' notice") served by the Lessors ... on the Lessees not more than twelve months nor less than six months prior to the review date;
- (b)
- the Lessees may within one month after service of the Lessors' notice of the proposed rent serve on the Lessors a counter-notice ("the Lessees' notice") either agreeing the proposed rent or specifying the amount of rent which the Lessees consider to be the market rent for the period in question;
- (c)
- in default of service of the Lessees' notice or in default of agreement as to the market rent to be payable for the period in question the rent shall be valued by a Fellow of the Royal Institution of Chartered Surveyors agreed between the Lessors and the Lessees or in default of agreement to be appointed not earlier than two months after service of the Lessors' notice on the application of the Lessors by the President ...
of the said Institution whose valuation shall be ... final and binding upon the Lessors and the Lessees and shall be given in writing to the Lessors and the Lessees not less than fourteen days before the review date.'
On 5 September 1974 (seven months before the review date) the lessors served on the lessees their notice under cl 3(a) of Sch 2 in which they proposed the annual sum of £800,000 as the market rent for the period from 8 April 1975 to 8 April 1982. The lessees did not serve any counter-notice under cl 3(b) of Sch 2, but protracted negotiations took place between the parties continuing after 8 April 1975 in an attempt, which proved unsuccessful, to agree the market rent for the period in question.
Finally, on 25 June 1975, the lessors wrote to the Royal Institution of Chartered Surveyors asking for the president to appoint a fellow to determine the market rent but pointing out that an issue likely to be litigated had arisen between the parties as to whether the lessors were entitled to a review. The president thought it better to wait until the issue had been resolved before making any appointment.
On 27 June 1975 the lessors issued an originating summons which claimed the following relief:
- (1)
- a declaration that their application of 25 June 1975 to the president of the Royal Institution of Chartered Surveyors was a valid and effective application for the purposes of para 3(c) of Sch 2;
- (2)
- a declaration that a valuation by the Fellow of the Royal Institution of Chartered Surveyors appointed pursuant to the application would be valid and binding as to the market rent for the second period notwithstanding that such valuation would not be given until after 25 March 1975 and
- (3)
- a declaration that such market rent (if higher than £117,000 per annum) would be recoverable as rent with effect from 8 April 1975.
My Lords, the parties are bound by the lease to pay during the period commencing on 8 April 1975 and ending on 8 April 1985 the yearly rent of £117,340 or the market rent ('if duly determined in the manner hereinafter set out' (i e in Sch 2) ' whichever shall be the higher'). It do not consider that an agreement between the parties or a determination by a fellow of the Royal Institution of Chartered Surveyors as to the amount of the market rent adds any new contractual term. It merely quantifies the rent which the lessees are bound by the lease to pay during the period in question. The words 'if duly determined in the manner hereinafter set out' in my view do no more than indicate the procedure to be followed in determining the market rent. I cannot accept that if the time limits set out in the procedural directions are not strictly adhered to, the lessors are automatically deprived of their right to be paid the market rent.
There is certainly no express condition that unless the time scale is strictly observed the lessors shall lose these rights. Nor is there anything from which such a condition could be implied. Indeed all the implications are to the contrary. We know that the lessors' notice was served seven months before the review date and therefore complied with the provision that it should be served not more than 12 months nor less than six months before that date. Suppose it had been served a week or so longer than the maximum or less than the minimum period, it is, to my mind, incredible that the parties could have intended that this should deprive the lessors of the market rent for the next ten year period. The same is true about the provisions that in default of agreement between the parties as to the market rent or as to which fellow of the Royal Institution of Chartered Surveyors should value it, a fellow should be appointed by the president of the institution not earlier than two months after service of the lessors' notice. Suppose the fellow had been appointed seven weeks after service of the lessors' notice, could this vitiate his valuation and deprive the lessors of the market rent? Again, if the valuation was made and given in writing to the lessors and lessees 12 days before the review date when what I regard as the procedural directions in the lease say that it should be given not less than 14 days before the review date, could this deprive the lessors of the market rent for the next ten years? The answer to these last two questions is obviously No.
To hold that time is of the essence of any of the provisions in Sch 2 would, in my respectful view, make complete nonsense of it. I certainly agree that if the lessors had been guilty of unreasonable delay which had caused prejudice or hardship to the lessees they would have forfeited their rights to be paid the market rent from 8 April 1975 to 8 April 1985. But there is not a spark of evidence that the lessees have suffered any prejudice or hardship on account of the lessors not applying to the president of the Royal Institution of Chartered Surveyors to appoint a valuer until 25 June 1975. On the contrary, the lessees will have had the use of the difference between the market rent and £117,340 since April 1975. Even if the value of the market rent is only one-half or even one-quarter of the sum indicated in the lessors' notice, at the prevailing rates of interest the lessees should be substantially better off than if they had had to pay out the market rent from the review date.
I therefore conclude that the lessors are entitled to have the market rent determined by a fellow of the Royal Institution of Chartered Surveyors to be appointed by the president of that institution in accordance with the lessors' written request of 25 June 1975. Under the terms of the lease, the market rent, if it exceeds £117,340 a year is clearly payable as from 8 April 1975. Until the market rent is determined, the lessees will go on paying rent at the rate of £117,340 a year. After its determination (if it exceeds the present figure) the lessees will have to pay the balance which has been accruing and of which they have enjoyed the benefit since 8 April 1975. It used to be thought that rent was a special thing in English law. It could be distrained for; it issued out of land and had to be certain at the time when it became payable; and therefore it could not be ascertained or determined retrospectively (see Re Essoldo (Bingo) Ltd's Underlease). That case however was overruled by C H Bailey Ltd v Memorial Enterprises Ltd. Lord Denning MR ([1974] 1 All ER 1003 at 1007, [1974] 1 WLR 728 at 732) quoted with approval from Sir William Holdsworth's A History of English Law: [F10]
'... in modern law, rent is not conceived of as a thing, but rather as a payment which a tenant is bound by his contract to make to his landlord for the use of the land.'
Lord Denning MR ( [1974] 1 All ER 1003 at 1007, [1974] 1 WLR 728 at 732) went on to say:
'The time and manner of the payment is to be ascertained according to the true construction of the contract; and not by reference to outdated relics of mediaeval law'
a passage with which I entirely agree and gratefully adopt. Accordingly I am of the opinion that the lessors were entitled to all the declarations for which they asked and which were granted to them by Graham J whose order was reversed in the Court of Appeal and should be restored.
My Lords, for these reasons I would allow both these appeals.