The Gazette 1978

SEPTEMBER 1978,

GAZETTE

RENT REVIEW CLAUSES— WHEN TIMEMEANS MONEY

MICHAEL W. TYRRELL, B.A. (Mod.), Solicitor.

frequency with which the rent might be reviewed is a matter for agreement between the parties but will generally be anything between every three to ten years the shorter the better from the point of view of the Landlord with the rapidly rising values of property and the rents that can be obtained therefrom. Common Forms of Rent Review Provisions The two most common forms of rent review provisions are, firstly, where a Lease is granted for a fixed term at a fixed rent for the entire term but with provrsioh that the Landlord may at stated times review the rent by complying with a certain procedure. In other words the rent is originally fixed for the whole term of the Lease with a provision allowing the Landlord to review at stated intervals only. For example, a Lease for twenty one years at an annual rent of £7,000 for the entire twenty one years but with provision that every seven years at a fixed time the Landlord may, by complying with whatever requirements are set out in the Lease as condition precedents to the valid exercise of such review, (for example by service of a Rent Review Notice at a stated time) be entitled to review the rent. The important point to note here as we will see below is that what the Landlord might be construed to have is an option to review that is not mandatory or in any way necessary to the continuing validity of the Lease as a rent has already been provided for the entire term. It is of course in the Landlords interest to exercise such an option on the assumption that the rental market value of the property has risen. The second most common type of rent review provision which are usually termed as "machinery" or "obligation" clauses arise where a Lease is granted for a fixed term but at a fixed rent for only a portion of that term with provision that at the expiry of the portion of the term referred to and at subsequent stated intervals that the rent for the further portion of the term up to the next stated interval shall be reviewed and agreed between the parties. In other words to differentiate this from the first type of rent review proviso the rent is only fixed for a portion of the term of the Lease and therefore review is mandatory at the expiry of that portion as there is no fixed rent for the remainder of the term. For example, a Lease for twenty one years at an annual rent of £7,000 for the first seven years but with provision that in the seventh and fourteenth year of the term at a fixed time the Landlord shall, by complying with whatever requirements are set out in the Lease as condition precedents to the valid exercise of such review, (for example as above by 179

This article is not concerned with the review of rent at the termination of a tenancy and a renewal being granted thereafter either under the Landlord and Tenant legislation or otherwise but deals solely with reviews to take effect during the period of an already existing term of years. The subject of rent reviews is not one dealt with in any depths in any Irish text book as in this country and in the United Kingdom the review of a rent whether commercial or otherwise is deemed to be purely a matter of contract between the parties to a Lease or alternative equivalent document in which the time and manner of review is set out and any such review is to be carried out strictly in accordance with the terms agreed. It might thus be assumed that the parties to a Lease ought to be reasonably certain that the conditions contained therein on the face of them will be strictly enforceable and in the absence of extenuating circumstances such as fraud will be applied to the letter by the Court. Such a simplistic approach however, cannot be adopted as the interpretation by the Courts of rent review clauses over the last decade has highlighted the difficulties that can be encountered in construing such provisions and the pitfalls that unwary draftsmen might fall into in the event of a Landlord's failure to implement the terms of the clause to the letter. The case law on this subject emanating from our Courts is virtually nil, there having been no Irish decisions to the writer's knowledge in the High or Supreme Court at all. In 1977 however, in two English cases that came before the House of Lords on appeal the interpretation of rent review clauses underwent a radical change and no longer can the parties to a Lease be certain that provisions relating to the time limits within which the machinery to review a rent should be put in motion will be applied in certain circumstances in what previously was thought to be the apparent tenor of the Lease. Before analyising the recent case law it is necessary to look at the most common types of rent review clauses the purposes of which are to allow a Landlord to review the rent at certain times during the term for which the premises are let in order to take account of inflation and the rising market values which attach to such properties. One is generally talking in this area of the letting of commercial properties which will attract a higher rent than a domestic letting and-which will usually be let for a reasonably long term from five years to ninety years or more, the longer the term the more importance naturally being attached to the adequacy of the terms for the review of the rent. The