Canary Wharf Investments (Three) v Telegraph Group Ltd
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE NEUBERGER,‘MR. JUSTICE NEUBERGER’ |
| Judgment Date | 25 June 2003 |
| Neutral Citation | [2003] EWHC 1575 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No. HC03 C00747 |
| Date | 25 June 2003 |
[2003] EWHC 1575 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London. WC2A 2LL
Mr. Justice Neuberger
Case No. HC03 C00747
MR. M. BARNES, Q.C. (instructed by Messrs. Linklaters) appeared on behalf of the Claimant.
MR. P. MORGAN, Q.C. (instructed by Messrs. Berwin Leighton & Paisner) appeared on behalf of the Defendant.
The issue raised in this case is the length of a hypothetical lease to be valued for rent review purposes. The relevant facts of the case are as follows. By an underlease (the Lease) made on 4 March, 1994 the predecessors in title of the present landlord, Canary Wharf Investments (Three), granted to the predecessors in title of the present tenant, Telegraph Group Ltd., a twenty-five year lease of four and a half floors of a building in Canary Wharf together with car parking spaces (the premises).
The Lease contains certain “Lease Particulars” to which I must make reference. In the Particulars, ‘TERM and TERM COMMENCEMENT DATE’ are defined as being twenty-five years, commencing on 1 April 1992. The “INITIAL RENT” is defined as £3,839,610 per annum. The “RENT COMMENCEMENT DATE” is 1 June, 1992, and the “RENT REVIEW DATES” are 1 April, 1997 and every fifth anniversary of such date during the term.
The relevant parts of Clause 3 are as follows, “The Landlord HEREBY DEMISES unto the Tenant the Premises … to hold the … Premises unto the Tenant from and including the Term Commencement Date for the Term YIELDING AND PAYING unto the Landlord … during the Term … yearly and proportionately for any fraction of a year the Initial Rent and from and including each Rent Review Date, such Rent as should become payable under and in accordance with the provisions of the fourth schedule”. Hereafter, references to paragraph numbers are to paragraphs in the fourth schedule.
Before turning to the details of the fourth schedule I should explain briefly how it is structured. Unusually, the first review, which was to take place on 1 April, 1997, was only to relate to the car parking spaces and was governed by paragraph 2.1. Thereafter, the subsequent reviews —that is, the current review from 1 April, 2002 and the reviews every five years thereafter —were to be of the whole of the premises in accordance with the provisions of paragraph 2.2.
Paragraph 1 contains certain definitions. Paragraph 1.3 defined “open market rent” as being the rent at which the premises, subject to certain assumptions
“could be expected to be let as a whole at the Relevant Rent Review Date by a willing landlord to a willing tenant with vacant possession and without payment or receipt by any person of any premium or any consideration, under the rent, for the grant thereof, the term of 25 years and otherwise on the terms and conditions and subject to the covenants and provisions contained in the hypothetical lease, and making the assumptions but disregarding the disregarded matters.”
Paragraph 1.3(A) defines hypothetical lease as meaning,
“A lease on the terms and conditions and subject to the covenants and provisions contained in this lease, subject to the following : (a) such lease shall exclude … the amount of the rent payable hereunder … (b) the rent reserved under such lease shall be reviewed on the fifth anniversary of the term commencement date of such lease and at five yearly intervals thereafter in accordance with the provisions of the review of rent contained in this schedule, but assuming that (i) the provisions of paragraph 2.1 hereof and the references to the Parking Space Rent are excluded; (ii) paragraph 2.2 applies to the first, as well as each subsequent Rent Review Date; (c) such lease shall incorporate all necessary consequential amendment which may be required to take account of the matters referred to in paragraphs (a) and (b) above”.
I need not refer to paragraphs 1. 4 or 1.5. I must, however, refer to paragraph 1.6 which defines Parking Space Rent as meaning,
“The clear yearly rent at which a single car parking space could be expected to be let as a car parking space at the first Rent Review Date by a willing landlord to a willing tenant with vacant possession, and for a term of five years on terms and conditions and subject to covenants and conditions as might then reasonably be agreed in accordance with open market practice”.
Paragraph 2.1 is concerned, as I have mentioned, with reviewing the rent of the car parking spaces, and only the car parking spaces, on the first review date under the actual Lease, namely, 1 April, 1997. Basically, the effect of paragraph 2.1 is that that part of the initial rent attributable to the offices —some £3,755,610 —remains the same for the second period of five years under the actual Lease, but the balance of the initial rent attributable to car parking spaces is adjusted to take into account any increase in value in the car parking spaces between the grant of the lease and the first review date. As I have also mentioned, by paragraph 2.2, the provisions for a rent review of the offices and car parking spaces, i.e. the whole of the premises, then apply in in the normal way with effect from 1 April, 2002.
It is with the review from 1 April, 2002 that the parties are currently concerned. The issue is whether the ‘term of 25 years’ in paragraph 1.3 runs from 1 April, 1992, as the landlord contends, or 1 April 2002, as the tenant contends. The landlord's contention is based on the proposition that the actual twenty-five year term granted to the tenant ran from 1 April, 1992, and that the hypothetical term should have a similar commencement date. The tenant's contention is that the reference to twenty-five years in paragraph 1.3 naturally means twenty-five years from the date of notional grant —i.e. from the relevant review date, namely, 1 April, 2002.
In the case of almost any issue of interpretation of a commercial contract, one has to have regard to the central words used, the provision of a contract as a whole (in particular, the provisions which bear on the issue) commercial common-sense, and any relevant surrounding circumstances known to both parties. When it comes to the construction of rent review clauses in commercial leases “there are no special rules” —see the judgment of Hoffman, L.J, in Co-Operative Wholesale Society Ltd. -v—National Westminster Bank plc [1995], 1 Estates Gazette Law Reports 97, at 99C.
As Hoffman, L.J. acknowledged in that judgment, when it comes to deciding any aspect of the hypothetical lease to be valued for rent review purposes, authoritative guidance was given by the Court of Appeal in the judgment of the Court of Appeal, delivered by Nicholls, L.J. in Basingstoke & Dean Borough Council -v—Hose Group Ltd. [1988] 1 WLR, 348. At 353 D to E, Nicholls, L.J. observed:
“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”.
A little later on, at 354 D to E, Nicholls, L.J. said:
“Of course, rent review clause may, and often do, require a valuer to make his valuation on a basis which departs in one or more respects from the subsisting terms of the actual lease, but if, and insofar as, a rent review clause does not so require, either expressly or by necessary implication, it seems to us that in general, and subject to a special context indicating otherwise in a particular case, the parties are to be taken as having intended that the notional letting postulated by their rent review clause is to be a letting on the same terms (other than as to quantum of rent) as those still subsisting between the parties in the actual existing lease. The parties are to be taken as having so intended because that would accord with, and give effect to, the general intention underlying the incorporation by them of a rent review clause into their lease”.
More specifically, when it comes to an issue such as that raised in the present case —namely, the length of the hypothetical term —there are a number of cases which consistently show how this presumption, identified by Nicholls, L.J. is to be applied.
In the first of those cases, Norwich Union Life Insurance Society -v—Trustee Savings Bank (Central Board) [1986] 1 Estates Gazette Law Reports, 136, Hoffman, J. said at 137 G to H:
“There is, I think, a presumption that the hypothesis upon which the rent should be fixed upon a review should bear as close a resemblance to reality as possible. In this case, the reality was that at the date of the rent review, the tenant's interest was an unexpired period of ten years … The purpose of the rent review is to enable the rent to be adjusted as a subsequent date in order to take into account the effect of inflation and changes in the market since the original grant, but I think that the landlord would be having it both ways if he was entitled not only to an adjustment for changes in the market and changes in inflation, but also the assumption that what was being granted on the rent review date was a...
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