Bywater Properties Investments LLP and Others v Oswestry Town Council
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Stephen Davies |
| Judgment Date | 14 February 2014 |
| Neutral Citation | [2014] EWHC 310 (Ch) |
| Date | 14 February 2014 |
| Court | Chancery Division |
| Docket Number | Case No: 3MA90237 |
[2014] EWHC 310 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
MANCHESTER DISTRICT REGISTRY
Manchester Civil Justice Centre,
1 Bridge Street West, Manchester M60 9DJ
His Honour Judge Stephen Davies
SITTING AS A JUDGE OF THE HIGH COURT
Case No: 3MA90237
Mark Wonnacott QC (instructed by Hill Dickinson LLP, Liverpool) for the Claimants
John Brennan (instructed by Lanyon Bowdler LLP, Shrewsbury) for the Defendant
Hearing date: 11 February 2014
Introduction
This is a Part 8 claim to determine a point of construction in relation to rent review clauses contained in two 99 year building leases of commercial property in Oswestry town centre. The leases were entered into in the 1960's between Oswestry Town Council, the defendant, as landlord and Woolworths, the claimants' predecessor in title, as tenant. They provide for rent reviews every 25 years, which only the landlord has the right to instigate, and under which the reviewed rent may not fall below the initial reserved rent ("the threshold limit"). On the first occasion, in 1988, the landlord elected to instigate a rent review, and the rent was increased. On the second occasion, in 2013, the landlord elected not to instigate a rent review. The issue between the parties is that the claimants, the current tenants, contend that on a true construction of the rent review clause the effect is that the rent reverts back to the initial reserved rent, whereas the defendant contends that the effect is that the rent remains at the 1988 increased level.
The defendant's rationale for not instigating a rent review in 2013 was its concern that the reviewed rent would be less than the 1988 increased rent. Equally, the reason why the claimants contend that in such circumstances the rent should revert back to the initial reserved rent is that they would obtain a substantial reduction in the rent payable, totalling some £1M over the next 25 years, if they are right. Nonetheless the court is not concerned with these matters, only with the proper construction of the leases.
The material terms of the leases
I begin by setting out the material terms of the leases.
The principal lease is dated 15 May 1963. The reservation of rent was in the following terms:
"Paying therefor yearly during the said term (subject as hereinafter provided with respect to the periodical reviews thereof) the rent of £2,500 …"
The rent review clause, as material, appears at clause 5(1)(a) in the following terms:
"On the expiry of each period of 25 years … (… "the date of review") the Landlords shall have the right to review the yearly rent for the time being payable hereunder on giving to the Tenants not more than 24 nor less than 3 months notice in writing prior to each such date of review of their intention so to do and if the Landlords shall give to the Tenants such notice as aforesaid then from and after each such date of review the yearly rent … shall be … the fair ground rental market value of the demised premises … Provided Further that in no event shall the rent payable by the Tenants to the Landlords after each such date of review be less than the rent of £2,500 per annum hereby reserved"
The supplemental lease is dated 24 April 1964, and relates to land adjoining the land comprised in the principal lease. The reservation of rent was in the same terms as the principal lease, save that the word "thereof" was omitted from the words in parentheses and that the rent was £1,500.
Clause 5(1) was in the following terms:
"The Landlords shall have the right to review the yearly rent for the time being payable hereunder at the same times and upon the same terms and conditions as … the principal lease PROVIDED that in no event shall the rent payable by the Tenants to the Landlords after each date of review in respect of this Lease be less than the rent of £1,500 per annum hereby reserved."
The respective cases, summarised
In short, it is the claimants' case that a problem arises because the rent review clauses do not make express provision for the circumstance which arises in this case, where the landlord has invoked the rent review procedure on the first review date, with the result that the rent has been increased, but the landlord elects not to invoke the rent review procedure on the second review date. Mr Wonnacott QC for the claimants submits that, whilst the clauses expressly provide that where the landlord invokes the rent review procedure then with effect from the first review date the increased rent is payable "from and after each such date of review", they do not make express provision as to the rent payable after the second review date in the event that the landlord elects not to invoke the rent review procedure on that occasion. His argument is that the rent payable from the second review date in such circumstances could, logically, be either the initial reserved rent or the subsequent increased rent, and that where one would expect to provide express provision to answer this question, immediately after the words "from and after each such date of review", there is nothing. His argument is that in the absence of express provision the court has to decide which it should be by a process of construction. His essential submission is that in such circumstances, where the rent may be reviewed upwards or downwards (subject to the threshold limit), then it is more consistent with the commercial purpose of such a clause for the rent to default back to the initial reserved rent than to remain at the subsequent increased rent. His submission is that the wording used in the leases, properly analysed, is consistent with his case or, at the very least, not inconsistent with his case.
In contrast, the defendant's case is that the wording of clause 5(1)(a), properly analysed, demonstrates quite clearly that in such circumstances it is the subsequent increased rent which continues to apply. Mr Brennan for the defendant submits that in such circumstances it is necessary for the claimants to show that there is a proper basis for implying the words which they seek to read into the leases, and that they have failed to do so. His submission is that the defendant's construction is more consistent with the commercial purpose of the lease.
The relevant legal principles
As Mr Wonnacott submitted, there are no special principles applicable to the construction of rent review clauses: CWS v Nat West Bank [1995] 1 EGLR 97, per Hoffman LJ (as he then was) at p.101C-D. The approach to the construction of contracts generally is succinctly summarised by Lord Neuberger in his speech in the recent decision of the Supreme Court in Marley v Rawlings [2014] UKSC 2, at pars 18 and 19:
"18. During the past forty years, the House of Lords and Supreme Court have laid down the correct approach to the interpretation, or construction, of commercial contracts in a number of cases starting with Prenn v Simmonds [1971] 1 WLR 1381 and culminating in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900.
19. When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party's intentions. In this connection, see Prenn at 1384–1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989, per Lord Wilberforce, Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251, para 8, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21–30."
Mr Brennan referred me to the summary given by Nicholls LJ (as he then was) in Basingstoke & Deane Borough Council v Host Group Ltd [1988] 1 WLR 348 at 353D as follows:
"The question raised on this appeal is one of construction of a rent review clause in a lease. In answering that question it is axiomatic that what the court is seeking to identify and declare is the intention of the parties to the lease expressed in that clause. Thus, like all points of construction, the meaning of this rent review clause depends on the particular language used interpreted having regard to the context provided by the whole document and the matrix of the material surrounding circumstances. We recognise, therefore, that the particular language used will always be of paramount importance. Nonetheless it is proper and only sensible, when construing a rent review clause, to have in mind what normally is the commercial purpose of such a clause."
Referring to chapter 5 of "The Interpretation of Contracts" by Sir Kim Lewison (5 th edition), Mr Brennan placed particular emphasis on the "golden rule" of construction, that:
"In construing all written instruments, the grammatical and ordinary sense of the words is to be...
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