Rent review: dark art or rainy sky?
| Published date | 07 March 2016 |
| DOI | https://doi.org/10.1108/JPIF-12-2015-0085 |
| Pages | 186-190 |
| Date | 07 March 2016 |
| Author | Malcolm John Dowden |
| Subject Matter | Property management & built environment,Real estate & property,Property valuation & finance |
LEGAL BRIEFING
Rent review: dark art
or rainy sky?
Malcolm John Dowden
Gwentian Consulting Limited, Reading, UK
Abstract
Purpose –The purpose of this paper is to consider the impact on rent review clauses of a recent UK
Supreme Court ruling on the interpretation and application of contractual provisions. Although the
ruling in Arnold v. Britton (2015) UKSC 36 concerned service charge provisions, the court’s approach
has significant implications for rent reviews where a fixed or indexed increase is intended.
Design/methodology/approach –Review of the Supreme Court’s approach and findings in a case
concerning clauses that provided for fixed percentage increases in long leases.
Findings –It is no part of the court’s function, through the process of contractual interpretation, to
rescue a party from a bad bargain.
Research limitations/implications –Supreme Court ruling in Arnold v. Britton was considered in
the context of recent rulings on rent review clauses.
Practical implications –When drafting for a fixed or stepped increaseatrentreview,partiesmust
ensure that any formulae or other provisions governing calculation produce results that are fair and in line
with the parties’actual intentions. The court will not use the process of contractual interpretation to rescue
a party from a bad bargain, and will not interveneto override clear wording. Although the court has power
to decide in favour of commercial common sense where a clause is ambiguous or unclear, there is a limit to
the “red ink”that the court can apply, and no room for remedial interpretation where a clause is clear.
Social implications –Where contract provisions are clear it is not open to the court to intervene, by
means of contractual interpretation, to protect or to rescue a party who has been disadvantaged,
however seriously, if the clause is clear. Where such cases arise in a contract covered by English law, or
in similar common law jurisdictions, any protection must be found in statute.
Originality/value –Practitioner’s review and comments on recent Supreme Court authority.
Keywords Contract, Rent review, Interpretation, Common law, Indexation, Service charge
Paper type Viewpoint
Legal briefing
Rent review clauses are contractual provisions that allow for rent to be adjusted during
the term to reflect changes in the value of money, altered market conditions or legal
restrictions that might affect the attractiveness of a property in the letting market. The
objective of an open market rent review clause is to arrive at a rent that would be likely
to apply on a letting agreed between a willing lessor and a willing lessee of hypothetical
premises comparable to those actually let to the tenant, on terms derived from those of
the actual lease.
Factors that might distort the hypothetical letting, such as goodwill or
improvements attributable to the actual tenant, are disregarded. Other matters are
assumed to ensure that the landlord is not disadvantaged –for example, that the
premises are in good repair and available for immediate letting with vacant possession.
There are also underlying control mechanisms available to the court to ensure that
neither party suffers unfair detriment. For example, where the actual lease includes a
provision that is properly considered “onerous”from the tenant’s perspective, that
provision may justify the application of a discount at rent review. A provision may be
Journal of Property Investment &
Finance
Vol. 34 No. 2, 2016
pp. 186-190
©Emerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-12-2015-0085
Received 28 December 2015
Accepted 28 December 2015
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1463-578X.htm
186
JPIF
34,2
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