Chancebutton Ltd and Another v Compass Services UK & Ireland Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lawrence Collins |
| Judgment Date | 28 May 2004 |
| Neutral Citation | [2004] EWHC 1293 (Ch) |
| Date | 28 May 2004 |
| Court | Chancery Division |
| Docket Number | Case No: HC04489 |
[2004] EWHC 1293 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Lawrence Collins
Case No: HC04489
Mr Martin Rodger (instructed by Simmons & Simmons) for the Claimants
Mr Kirk Reynolds QC (instructed by Hammonds) for the Defendant
Hearing date: 28 th May 2004
APPROVED JUDGMENT
I Introduction: the Lease
In this action the Claimants seek a declaration as to the meaning of a rent review clause in a lease of office premises.
On June 23, 1989 office premises on the second floor of Mulliner House, Flanders Road, Turnham Green, London W4 were demised by P&O Property Holdings Limited to Sutcliffe Catering Group Limited from June 24, 1982 for a term of 25 years less one day. The unexpired residue of the term created by the Lease is now vested in the Defendant while the reversion is now held by the Claimants. The Claimants do not know why there was a gap between the date of the Lease, and the date of commencement of the term, but have put forward evidence suggesting that the original tenant, Sutcliffe Catering Group Ltd, agreed in 1980 to take a lease when the building as completed, and that the building was ready for occupation in 1982.
The term granted under the Lease is defined in clause 2 by the following words:
" TO HOLD the same except and reserved (and subject) as aforesaid unto the Tenant from and including the Twenty-fourth day of June One thousand nine hundred and eighty-two for the term of TWENTY FIVE YEARS less one day"
The rent reserved under the Reddendum was (i) a peppercorn until June 6, 1985 (ii) the Initial Rent of £104,100 until June 24, 1987 and (iii) thereafter the Initial Market Rent or the rent payable immediately prior to the relevant Review Date or such increased rent as might be payable pursuant to the rent review provisions of clause 3, whichever were the greater. The first day for payment of rent and other sums under the Lease was June 7, 1985.
Clause 3(2) of the Lease made provision for rent review to the "Current Market Rent" at each Review Date. "Review Date" is defined in clause 3(1)(a) to provide for reviews at 5 yearly intervals, "the last day of the fifth, tenth, fifteenth and twentieth years respectively of the term hereby granted", i.e. June 24 in the years 1987, 1992, 1997 and 2002. The last rent review was due to take place with effect from June 24, 2002.
The expression "Current Market Rent" is defined in clause 3(1)(b) of the Lease as follows:
"Current Market Rent shall mean the gross full market rent without any deduction whatsoever at which the demised premises might reasonably be expected to be let at the relevant Review Date in the open market without a fine or premium and with vacant possession by a willing landlord for a term equal to the term originally granted under this lease and under a lease on the same terms and conditions in all other respects as this present lease …"
Clause 3(4) provides for the determination of the Current Market Rent either by agreement between the parties or in default of agreement by a single arbitrator acting as an expert.
An independent expert has been appointed and he has invited the parties to draw up a statement of agreed facts. It has become apparent that there is an issue between the parties as to the duration of the hypothetical term to be assumed under clause 3(1)(b).
The Claimants contend that the hypothetical term is a term from June 24, 1982 for 25 years less one day. The Defendant contends that the hypothetical term is a term of 25 years commencing on the relevant review date, namely June 24, 2002.
II Claimants' argument
The words "a term equal to the term originally granted under this lease" contain two elements: a date from which the term commenced and a duration.
The natural meaning of the expression "for a term equal to the term originally granted under this lease" is a term commencing on June 24, 1982 and having a duration of 25 years less one day.
The term originally granted under the Lease was not a term of 25 years from June 24, 2002. A term of that duration from that date of commencement would not be "equal to" the term originally granted. It would commence on a different day and entitle the tenant to occupy the premises for 20 years beyond the date on which the term originally granted will end.
Had the parties intended the assumption at each review to be a term of 25 years from and including the review date it would have been easy for them to have said so. There would have been no reason for them to use the complex wording used in clause 3(1)(b). They would simply have referred to a letting for "a term of 25 years commencing on the relevant review date".
There is a presumption that the hypothesis upon which the rent should be fixed on a review should bear as close a resemblance to reality as possible: Basingstoke & Deane Borough Council v Host Group Limited [1988] 1 WLR 348, 353–4;Canary Wharf Investments (Three) v Telegraph Group Ltd [2003] 3 EGLR 31, paras 11–20.
The Claimants' construction is consistent with reality. The Defendant does indeed enjoy a lease for a term of 25 years commencing on June 24, 1982 and does not have a term of 25 years commencing on the review date. The Defendant's construction requires a departure from reality which is not justified by the language of clause 3(1)(b).
The Defendant's construction can only be sustained by ignoring the date of commencement of the term originally granted. To justify that approach as a matter of construction two things would be necessary: (a) great weight would have to be put on the words "at the relevant review date" and (b) a restricted meaning would have to be given to the words "equal to". As to those:
(a) The relevant review date would have to become the date of commencement of the hypothetical term; but a letting "at" a particular date is not the same thing as a letting for a term commencing on that date. The direction to assume a letting "at the relevant review date" does no more than identify the date on which the transaction takes place.
(b) A term of 25 years commencing on the review date would not be "equal to" the term originally granted. Looked at without regard to the date of commencement it could be said to be a term equal in duration to the term originally granted, but there is no justification for ignoring the date of commencement.
The Defendant's contention is at variance with well known authority. The courts have consistently construed rent review clauses requiring that the hypothetical term be "equal to" or "equivalent to" the term of the actual lease as requiring that the rent be determined on the assumption that only the unexpired residue of the original term remains: Ritz Hotel (London) Limited v. Ritz Casino Limited [1989] 2 EGLR 135; Lynnthorpe Enterprises Limited v. Sidney Smith (Chelsea) Limited [1990] 2 EGLR 131 (C.A.); St. Martin's Property Investments Limited v. CIB Properties Limited [1999] L&TR 1 (C.A.). These authorities are consistent with the Claimants' submission that the "term equal to the term originally granted under this lease" referred to in clause 3(1)(b) is a term of 25 years from and including June 24, 1982. The alternative construction, that the term of 25 years is to commence on the review date produces a result which is at variance with reality in that a tenant who has only 5 years remaining on the lease would be required to pay a rent calculated on the assumption that he had 25 years remaining.
III Defendant's argument
The authorities contain statements of principle as to the role played by the "presumption in favour of reality" in interpreting valuation formulae in rent review provisions.
In Norwich Union v. Trustee Savings Bank [1986] 1 EGLR 136; Ritz Hotel (London) Ltd. v. Ritz Casino Ltd [1989] 2 EGLR 135; Lynnthorpe Enterprises Limited v. Sidney Smith (Chelsea) Limited [1990] 1 EGLR 148; and St. Martin's Property Investments Ltd v. CIB Properties Ltd [1999] L&TR 1 the presumption of reality was considered to favour an interpretation that the notional term was to be the unexpired residue of the term as at the review date, because that was the reality of what the tenant had...
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