The Gazette 1978

SEPTEMBER 1978,

GAZETTE

application to appoint an arbitrator outside of the time stipulated was invalid. Draftsmen therefore should note that when settling such a Clause where the rent is not fixed for the entire term that the obligation of the Landlord to set the machinery in motion for review should be written in mandatory terms (i.e. the Landlord shall serve notice etc.,) as otherwise a note of discretion could creep into the interpretation of the Clause and leave it open to a possible construction as an option and therefore subject to absolute rigidity as regards the time limits contained therein. The Pendelum Swings We shall now turn to the two cases decided by the House of Lords in 1977 namely (1) United Scientific Holdings Limited v. Burnley Borough Council and (2) Cheapside Land Development Company Limited and Another v. Messels Service Company (1977) 2 A.E.R. p. 62 which cases have thrown a totally new light on the interpretation to be given especially to the first type of Clause considered beforehand which until 1977 in the United Kingdom (and possibly by implication in Ireland as persuasive authority, although there is not precedent from our own Courts) were deemed to be in the nature of options and therefore time was of the essence for their exercise. Both cases concerned applications for declarations relating to rent review clauses in leases and were both the subject of appeals from the Court of Appeal which were heard together in the House of Lords, both cases concerning in law substantially the same points. In the case of United Scientific Holdings Limited v. Burnley Borough Council (the "U.S.H. Case") the Landlord granted to a Tenant a Lease for the term of ninety-nine years from the 31st August 1962 at a rent of £900 per annum for the first ten years and thereafter £1,000 per annum plus any additional rent payable under provisions contained in a schedule to the Lease. The schedule stated inter alia that "during the year immediately preceding the period of the second ten years of the said term (i.e. during the ninth year of the term) . . . " the Landlord and the Tenant shall agree or failing agreement shall determine by arbitration the sum total of the then current rack rent reasonably to be expected on the open market for Leases of the property and a quarter of the sum total so ascertained or £1,000 whichever is the greater shall be the rate reserved by this Lease in respect of the next succeeding ten years. The Landlord did not avail of the provision by the 31st August 1972 when the first ten years of the Lease had elapsed. In October 1972 the Landlord sought to implent the rent review provisions and the Tenant asserted that as time was of the essence and the time in which to review had passed the Landlord was not entitled to do so and the Tenant sought a declaration to determine the rent payable. It was held at first instance that as the Landlord had not exercised his right to review within the prescribed time he could not now do so and that the rent therefore remained at £1,000 per annum. The Court of Appeal upheld this decision confirming that time was of the essence both decisions however being reversed in the House of Lords. In the case of Cheapside Land Development Company Limited and Another v. Messels Service Company, (the Cheapside case) the Landlord granted a Lease for twenty- one years from the 8th April 1968. For the first seven 183

Tenant before the expiration of six calendar months before the end of the eighth year of the said term or (in the absence of such agreement by such date) such amount as may be determined by an arbitrator to be nominated by . . . on the application of the Landlord to be made within fourteen days after the date six calendar months before the end of the eighth year of the said term". In September 1974 negotiations started to fix a new rent under Clause 1 (b) but no agreement was reached. The date for applying to the arbitrator passed and negotiations continued until February 1975 when the Tenant took the attitude that the Landlord was out of time and could not therefore increase the rent. On the 5th March the Landlord applied to appoint an arbitrator and the Landlord sought a declaration that he was entitled to apply and had validly applied for the appointment of the said arbitrator. The Court held, in applying Samuel Properties (Development) Limited v. Hayek that as Clause 1 (b) empowered the Landlord alone to go to arbitration the right conferred on the Landlord was in the nature of an option and accordingly the condition as to time which was attached to that right was to be treated as mandatory. It followed that since the Landlord had failed to comply with the time limit imposed by Clause 1 (b) the application out of time to appoint an arbitrator was invalid. Templeman J. after reviewing the authority was of the view that at first sight the review Clause indicated an obligation as opposed to an option as there was no one rent for the whole term. The Landlord's Counsel had submitted that under Clause 1 (b) in order to decide which of two rents is greater there must therefore be two rents to be compared which would appear to be the language of obligation and that a rent must be calculated in order to be able to make such a comparison. Templeman J. however took the view that the Clause that dealt with the ascertainment of the rent that was to be compared with the original rent of £2,750 per annum stipulated that it was to be an amount that "may" be agreed (and that is permissive) and if there is not agreement such amount as "may" be determined (not shall be determined). Further the Clause provided that the application by the Landlord for arbitration was to be made within a specific time and provided that "in case" of such arbitration (not words of obligation) the amount shall be determined by the arbitrator. The Court was of the opinion that the indications of any obligation here were over-ruled by contra-indications of options. That the Clause merely empowered, not obliged, the Landlord to go to arbitration if no agreement was reached and imposed on him the right to do so only if he applied to the arbitrator within the fourteen days. The Court therefore did not accept the Landlord's argument and as such held that if the Landlord failed to exercise his right to review the rent then the rent would remain the same as the basic rent originally reserved for the first part of the term. The basic rent in this case was to be compared in Clause 1 (b) with such amount as may have been agreed and as no other rent was agreed (i.e. nil) then the original rent is the greater and it stands for the period. In this Clause there were some indications that it was a Clause of obligation rather than one of option but construing the Clause the Court felt itself bound to come to the conclusion that it was an option type Clause, the time limits therefore were mandatory as being of the essence, and that any