C H Bailey Ltd v Memorial Enterprises Ltd
[1974] 1 All ER 1003Between: C H Bailey Ltd
And: Memorial Enterprises Ltd
Judges:
Lord Denning MR
Megaw LJ
Sir Eric Sachs
Subject References:
Landlord and tenant
Rent
Review
Retrospective operation
Time for review
Date for ascertainment of new rent
Increased rent payable from specified date
Landlords failing to take steps to secure a review on or before specified date
Effect
Provision for increase in rent if market rental value 'found' to exceed existing rent on specified date
Increased rent to be 'substituted from such date'
Market value on specified date eventually determined over three years later
Whether landlords entitled to invoke rent review clause
Whether increased rent payable from specified date or from date of ascertainment
Case References:
Essoldo (Bingo) Ltd's Underlease, Re, Essoldo Ltd v Elcresta Ltd - (1971) 23 P & CR 1; 115 Sol Jo 967
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
Property Holding Co Ltd v Clark - [1948] 1 All ER 165; [1948] 1 KB 630; [1948] LJR 1066; CA, 31(2) Digest (Reissue) 1038, 8213
Judgment date: 16 November 1973
By a lease dated 16 March 1967 the landlords let to the tenants the fourth floor of an office building. The term was from 25 March 1967 until 21 September 1983. The rent was to be £2,375 to be paid by equal quarterly payments in advance on the usual quarter days. Clause 4(6)(ii) contained the following rent review clause: 'If on the Twenty-first day of September One thousand nine hundred and sixtynine the Market Rental Value (as defined by paragraph (iii) of this sub-clause) shall be found to exceed the rent of Two thousand three hundred and seventy-five pounds hereby reserved there shall be substituted from such date for the yearly rent hereby reserved an increased yearly rent equal to the market value rental so ascertained.' Under cl 4(6)(iii) the market rental value meant the fair annual rack rent at which the premises could be let with vacant possession. The figure was to be determined by agreement between the parties or, in default of agreement, by arbitration. The landlords did not in fact take any steps to secure a review in September 1969. On 15 September 1970, however, they wrote to the tenants drawing their attention to the rent review clause in the lease and asked that an increased rent be paid on account of it. The question of the amount of the increased rent was submitted to arbitration and on 23 March 1973 the arbitrator determined 'the fair annual rack rent as at 21 September 1969 to be the clear net yearly rent of £5,350'. The tenants claimed that the landlords were not entitled to rely on the rent review clause since the clause required the market rental value to be 'found', ie to be determined, on or before 21 September 1969 and the landlords had therefore left it too late; alternatively that, if the clause could be invoked, it could not be operated retrospectively so as to make the increased rent payable from 21 September 1969 since the nature of 'rent' in English law was such that it had to be certain at the time when it became payable.
Held-
(i) On the true construction of cl 4(6)(ii) 21 September 1969 was the date by reference to which the new rent was to be ascertained; it was not necessary that the new rent should be determined, whether by agreement or by arbitration, before or on that date. Accordingly the landlords were not precluded from invoking the clause by reason of the fact that the date had passed (see p 1006 b and d, p 1008 d e and g h and p 1010 c d, post).
(ii) The date from which the increased rent became payable was to be determined according to the natural meaning of cl 4(6)(ii), and not according to some special technical meaning attributable to the word 'rent'. Since cl 4(6)(ii) provided that the increased rent, when ascertained, 'shall be substituted from such date', ie 21 September 1969, it followed that the increased rent had to be paid from that date, even though that meant that it operated retrospectively (see p 1006 f, p 1007 a, c and e f, p 1009 e and p 1010 a to c and d e, post); Essoldo Ltd v Elcresta Ltd (1971) 23 P & CR 1 disapproved.
Notes
For requirement that rent must be certain, see 23 Halsbury's Laws (3rd Edn) 538, 539, para 1196, and for cases on the subject, see 31(1) Digest (Reissue) 472-474, 3873-3882.
Appeal and cross-appeal
By a lease dated 16 March 1967 the plaintiffs, C H Bailey Ltd ('the landlords'), let to the defendants, Memorial Enterprises Ltd ('the tenants'), premises on the fourth floor of a building known as Sackville House, 40 Piccadilly, London, W1, from 25 March 1967 until 21 September 1983 at the yearly rent of £2,375 payable by equal quarterly payments in advance. By a letter dated 15 September 1970 the landlords wrote to the tenants referring to the rent review provisions in cl 4(6)(ii) of the lease and stating that on enquiry it had been found that the market value rental of the premises was £4 per square foot; the letter stated that the landlords therefore considered that £5,912 was a fair rental and that they 'shall be glad to have your agreement to that figure before proceeding further'. By letters dated 28th and 30 September the tenants' solicitors replied that, as the market rental value had not been assessed on or about 21 September 1969, the landlords were not entitled to increase the rent under cl 4(6)(ii).
By a writ issued on 15 July 1971 the landlords brought an action against the tenants claiming a declaration that they were entitled to increase the rent of the premises as from 21 September 1969, or from such date as the court might declare, to a yearly rental equal to the market value rental as ascertained in accordance with cl 4(6)(iii) of the lease. On 2 February 1972, at the trial of the action, Eveleigh J granted a declaration that the landlords were entitled to a yearly rent equal to the market rental value on 21 September 1969 as ascertained in accordance with cl 4(6) of the lease 'such rent to be payable on and from the quarter day rent following such ascertainment'. The landlords appealed against that order seeking a declaration that they were entitled to recover from the tenants a yearly rental equal to the market value rental as ascertained in accordance with the terms of the lease as from 21 September 1969. By a respondents' notice under RSC Ord 59, r 6(1), the tenants gave notice that, at the hearing of the appeal, they would contend that the order of Eveleigh J should be varied to an order that in the events which had happened the landlords were not entitled to increase the rent of the premises from 21 September 1969 or during the term of the lease.