The Gazette 1978

GAZETTE

SEPTEMBER 1978,

in the Leases had expired. Both appeals therefore were allowed and in the course of Judgment the cases of Samuel Properties (Developments) Limited v. Hayek and Mount Charlotte Investments Limited v. Leek and Westbourne Building Society Limited were overruled. The cases of Kenilworth Industrial Sites Limited v. E. C. Little and Company Limited and Accuba Limited v. Allied Shoe Repairs Limited were confirmed as to their result but the Court found that the reasoning on which the respective decisions were given was not correct as the Courts in the above cases had distinguished categorically between what were termed option type clauses and machinery type clauses and the House of Lords was now saying that the effect of both types of clauses where similar as regards time stipulations for review and that there was no justification in ordinary circumstances to deem time in either to be of the essence and that henceforth both types of clauses, subject to what has been said before, were not to be deemed as not involving time as being of the essence for their exercise. The House of Lords further held that the rent was payable retrospectively from the rent review date the Tenant having had the use of the money between the review date and date of Judgment and thereafter not being prejudiced in any manner. Lord Diplock stated that it was beyond doubt that parties to a Lease could expressly provide that time was or was not to be of the essence of the contract and it is submitted by the writer that this is the obvious thing to do although it is easy to suggest this in retrospect having had the benefit of reviewing the spate of litigation that has arisen in recent years out of this topic. No doubt the parties to the Leases that gave rise to the said litigation were of the same mind and it is a point that all practitioners should remember when drawing up rent review clauses in the future. Reference was made in the case to Section 25 (7) of the Judicature Act 1873 (Section 28 (7) of the Judicature (Ireland) Act 1877) which states that "stipulations in contracts as to time or otherwise which would not before the passing of this Act have been deemed to be or to have become of the essence of such contracts in a Court of Equity shall receive in all Courts the same construction and effect as they would have heretofore received in equity." Section 25 of the 1873 Act (Section 28 of the Irish Act) further provides that in the event of a conflict between the Rules of Equity and the Rules of Common Law that Equity shall prevail. Until the Judicature Acts the Rules of Common Law and Equity had grown up separately and Equity did not regard stipulations as to time as being of the essence unless expressly provided for while the Common Law did so regard time as being of the essence as a general rule to which a large number of exceptions grew until by 1873 the general rule had developed that stipulations as to the time at which a party was to perform a promise on his part were not regarded as being of the essence so long as the failure to perform the promise punctually did not deprive the other party of substantially the whole benefit that it was intended he would obtain from the contract. However, this general principle did not apply either in law or equity to what may be termed "if contracts" the most relevant example of which to this subject is an option. As Denning M.R. stated in U.D.T. (Commercials) Limited v. Eagle Aircrqft Services Limited (1968) 1 A.E.R. p. 109 the grant of an option is

years the rent was £117,340 per annum and the rent for the second and third seven year periods was to be determined in accordance with Schedule 2 of the Lease which provided inter alia the rent for the second period to be . . the yearly rent shall be £117,340 or a sum equal to the market rent (if duly determined in the manner hereinafter set out) which ever shall be higher". The procedure for determining the market rent as aforesaid had to be initiated by the Landlord serving on the Tenant a Notice to Review specifying what he thought the rent ought to be not more than twelve months nor less than six months before the review date which was 8th April 1975. If no agreement could be reached on the amount of the rent then within two months of service of the notice the Landlord could apply to the President of the Royal Institution of Chartered Surveyors (R.I.C.S.) to appoint a valuer. The Landlord served notice to review on the Tenant within the appropriate time but when negotiations did not result in agreement the Landlord found that over two months had passed since the date of service of the notice and on the Landlord's application to the President of the R.I.C.S. to appoint an arbitrator the President refused to do so without a Court ruling that the application was a valid one and was not void as a result of being applied for outside the time specified in the Lease. The Landlord therefore sought a declaration to this effect which was granted at first instance, reversed on appeal by the Court of Appeal which in turn was overruled by the House of Lords who upheld the original order. Option Theory Abandoned The House of Lords was virtually unanimous in holding in both cases that the question as to whether the time limits prescribed by a rent review clause were to be treated as being of the essence did not depend on whether or not the Clause could be construed as conferring an option on the Landlord. Such a Clause could not in any event be considered as being in the nature of a true option since the effect of its exercise was not to create a new contract or to determine an existing one but was a part of the original contract a part of the consideration for which was the insertion of the rent review clause without which it would be unlikely a Tenant would have been granted a Lease of any sort of reasonable duration. In the absence of anything to the contrary in the wording of the Lease itself (such as express words making time of the essence) or in the inter-relation of the rent review clause itself and other clauses (such as a clause allowing a Tenant to determine the Lease (i.e. a break clause) in certain circumstances which is tied into a rent review clause) or in the surrounging circumstances the presumption was that the time limit specified in a rent review clause for completion of the steps for determining the rent payable in respect of the period following the review date was not of the essence of the contract, and this was so even where the rent review was not automatic and had to be initiated by the Landlord (i.e. option type clause), the only Judge not to agree on this particular point being Viscount Dilhorne who agreed that the appeal in the present case be allowed but on different grounds which I shall examine later. There was nothing in the Leases in the present cases to displace the presumption that strict adherence to the time limits specified in die rent review provisions was not of the essence of the contract. Accordingly the Landlords in both cases were entitled to invoke the rent review provisions notwithstanding that the time limits prescribed

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