The Gazette 1978

GAZETTE

SEPTEMBER 1978,

form should contain the word "shall" in the context that in the proviso for review it should be provided that at the stated intervals for review on the expiry of the portion of the term for which a rent has been initially fixed it will be provided that the Landlord " shall* follow a certain machinery such as serving a Notice of Review at a specified time as opposed to providing that he "may" do so which could imply a discretion in the Landlord and turn what might have been a mandatory provision into an option, the important differentiation between which shall be seen below and the results of such discretionary working which can be seen in the case of Mount Charlotte Investments Limited v. Leek and Westboume Building Society Limited (1976) 1 A.E.R. 890 which, although overruled, shall be discussed later in this context. Prior to 1977 the leading case on this type of rent review provision was that of Kenilworth Industrial Sites Limited v. E. C. Little & Company Limited (1974) 2 A.E.R. and (1975) 1 A.E.R. 53 in which the Lessor granted a Lease of a factory for twenty one years subject to an annual rent of £2,980 for the first five years and thereafter at a rent to be agreed in accordance with the terms of the Lease. The Lease provided in clause 5 that "not more than twelve months nor less than six months before the expiration of the fifth, tenth and fifteenth years of the term, the Landlord shall serve upon the Tenant a notice to agree the rent of the said property for the next five years" there was however a further provision that "any failure to give or serve such notice shall not render void the right of the Landlord to require the agreement or determination of a new rent". The Landlord failed to serve a notice within the time specified but served such notice approximately three months after the time for doing so. The Lessees contended that the further provision referred to above was repugnant to the main body of Clause 5 as regards the time limits allowed and that the notice served therefore was of no effect. They further contend that the provisions of Clause 5 were in essence to be regarded in the nature of an option and that a term should be implied in the Lease that if the Landlord failed within the stated time to give the notice seeking agreement of a new rent that the rent which was payable in the preceding period should continue to be the rent payable in the succeeding five years. The Court of Appeal confirmed Megarry J.'s decision at first instance that Clause 5 was one which provided the Landlord with the machinery for the determination of the rent and imposed on him an obligation to set that machinery in motion by serving notice. The Clause however did not confer on the Landlord an option to require a review and therefore the requirement of strict compliance with the condition precedent for operating the review (i.e. the service of the notice within the time stupulated) did not apply as it would be an option. It would appear therefore that, even without the further provision in the Lease which purported to exonerate the Landlord from strict compliance with the time limits, that time would not be deemed of the essence in these circumstances. The Court held that there was no repugnancy between the main body of Clause 5 and the further provision and as the notice had been served within a reasonable time before the first five year period had expired that it operated as a valid notice to require the review of rent. It was not contended by the Lessee that a failure to comply with the time stipulations should 181

only to the set of circumstances that arose therein and were not intended to be extended in blanket form to all and any option clauses with a time limit for their exercise inserted). The dispute in the Stickney case concerned contract for the sale of land in which time is not necessarily of the essence as regards the date of completion unless one party is guilty of unreasonable delay and a notice is served limiting a reasonable time at the end of which the contract will be treated as void or of course unless the original contract contains a term making time of the essence. The circumstances of that case therefore were not analogous to the present one under consideration and Russell J. made no qualifications in expressing this view. The Court further was not dealing there with the general question of what stipulations as to time are to be regarded as the essence of the contract but rather with a technical question as to the effect of Section 25 (7) of the Judicature Act 1873 which Section refers to time stipulations in contracts in general, the Irish equivalent of which is Section 28 (7) of the Judicature (Ireland) Act 1877. Returning to the Samuel case, the Court found it had not jurisdiction to grant the Landlord relief in equity owing to his mistake with regard to the time limit. Had the result of the mistake been such as to involve, for example, a forfeiture of the Lease or some similar hardship the Court then may have had jurisdiction to intervene but such jurisdiction did not extend to waiving the terms of an option to allow the Landlord to improve his financial position when he failed to comply with the terms therein through his own lack of reasonable care. It was held that the powers of the Landlord to serve due notice to increase rent resembled an option and where the Lessor had failed to comply with the condition precedent to the exercise of the power, relief would only be granted if by unconscionable conduct on the part of the Lessee the Lessor had been led to believe that strict adherence to its terms would not be insisted upon. This case confirmed that a rent review provision in the terms mentioned above was to be deemed an option the exercise of which was subject to time being of the essence and any purported exercise outside of the strict time limits stipulated would render such exercise void. Therefore a Lessor had to be most careful not to let the time stipulated pass by even a day as this would preclude any review until the next date allowed in the Lease which in the above case was seven years later. It is not necessary to point out the severe lack of revenue this might cause to a tardy Landlord such being the position however in the United Kingdom until 1977. Fixing of New Rent Mandatory As to the second type of rent review clause referred to in which a Lease is granted for a fixed term with a rent fixed for only a portion of that term, the rent to be reviewed and agreed at the expiration of such part of the term, we have seen previously that this is not deemed to amount to an option to review for the simple reason that there is not a rent fixed for the entire term and it is mandatory therefore to fix a new rent at the expiration of the first portion thereof. In this type of situation the provisions as regards time for review will not necessarily be deemed to be of the essence and should a Lessor fail to review the rent at the time stipulated in the Lease the Courts may grant him leave to do so notwithstanding that the time has passed. All well drafted Leases in this