Update: landlord and tenant

Since the last update there has been three cases that relate to rent reviews.

Rent reviews

In Asda Stores v Salya Investments [2007] All ER (D) 112 (Oct) Asda obtained planning permission to build a superstore, petrol station and car park on a plot of land. Asda was subsequently granted a lease of the plot. The lease contained provision for five yearly rent reviews, as well as for intermediate reviews. The provisions stated that, if additional buildings were constructed over and above those for which planning permission had been obtained, additional rent would be payable.

Shortly after the grant of the lease, Asda built the buildings for which planning permission had been obtained. After 15 years Asda extended the superstore with the consent of the landlord. The landlord then sought to take the extension into account for rent review purposes. Asda objected and sought a declaration that the extension represented an improvement that fell to be disregarded for review purposes.

The court held that, on a true construction of the lease, the extension was to be taken into account on a rent review. It said that there was no good commercial reason to distinguish between a freestanding building and an extension to the original building.

In St Martins Property Investments v Cable & Wireless UK [2007] EWHC 582 (Ch) a specialist computer centre was built pursuant to an agreement that provided that the landlord would build the centre and other buildings. The lease of the centre subsequently granted provided for five yearly rent reviews. Originally, the lease provided that, at review, it was to be assumed that 'the demised premises comprised high class professional or commercial offices'. Following the execution of a deed of variation, one of two valuation bases was to be assumed at review, whichever produced the higher rent, namely, either that the premises comprised high class professional or commercial offices, in which case 90 per cent of the rental value was to be taken, or that they were a computer centre.

It was agreed that commercial office use produced the higher rental. However, a dispute arose as to whether the review assumptions required a hypothetical high class office building to be taken or whether they required the actual building to be taken but assumed modified for high class office use. The court said that a hypothetical building was to be assumed. The assumption went to what the demised premises were deemed to comprise, not to the use to which they were deemed to be put.

Secretary of State for Communities and Local Government v Standard Securities [2007] EWHC 1808 (Ch) concerned a 42-year lease of a commercial property contained provisions for the upwards only review of the rent every seven years. The rent was to be the market rental value agreed by the parties no later than two months before the review date or, failing agreement, determined by an independent surveyor on the written request of the landlord before the review date. The review provisions went on to state that, if by the review date no agreement on the rent had been reached and no written request for the appointment of an independent surveyor had been made, then the current rent would to be sum payable to the next review date.

The rent fell for review on 25 March 2006. However, by that date, no rent had been agreed and the landlord had not made a written request for the appointment of an independent surveyor. No such written request was in fact made until June 2006. The tenant contended that, in the circumstances, the rent payable after 25 March 2006 for the next seven years was that which had been payable immediately before that date. The court agreed.

It said that there was a general presumption that time was not of the essence in rent review clauses but that presumption was rebuttable by clear contradication in the wording of the lease, as had been said in United Scientific Holdings v Burnley BC [1978] AC 904. The court was of the view that the provision in the review clause as the effect of a failure to make a written request in time was a clear, unambiguous indication that rebutted the presumption.

Quiet enjoyment

In Hunte v E Bottomley & Sons [2007] EWCA Civ 1168 a tenant took a lease of café premises on a large industrial estate. The estate had an internal roadway the use of which the landlord regulated. There were two entrances to the estate, one to the north and one to the south. The café was situated on the first floor of a building located just to the south of the middle of the estate. The lease gave the tenant a right of way, both vehicular and pedestrian, over the internal roadway. The landlord wanted to sell off certain disused buildings in the south of the estate for development. Pursuant to this, it first blocked the south entrance to the estate and erected signs directing traffic to the north entrance. It then erected a wall completely blocking the roadway and separating the north side of the estate from the south.

As a consequence, there was for a time no access, either vehicular or pedestrian, to the café. Subsequently, pedestrian access was allowed to resume through a passageway through a building next to the wall. The tenant brought an action against the landlord of the estate. The court was of the view that the landlord's defence to the action was hopeless. Under the terms of the lease it could regulate the flow of traffic on the roadway but could not simply block it. There had been a clear breach of the covenant for quiet enjoyment.

Repair damages

In Lyndendown v Vitamol [2007] EWCA Civ 826 an industrial unit was let on the basis that the tenant would keep the unit in repair and, on the expiration of the lease, would deliver up the unit in repair. The tenant sublet the unit. The sublease contained repair covenants similar to those in the headlease.

The subtenant had also previously covenanted directly with the landlord in a licence to sublet to perform and observe the terms of the headlease. However, in a side letter, the parent company of the tenant had undertaken to the subtenant that its repair obligations would be limited to making the unit wind and watertight and that any repair

obligation over and above that standard, whether contained in the sublease or in the licence to sublet, would be carried out at the expense of the parent company. On expiry of the headlease, the property was in disrepair but the subtenant remained in occupation under the terms of the sublease pursuant to the Landlord and Tenant Act 1954.

The landlord claimed damages for dilapidations from the tenant. The tenant contended that no damages were recoverable by the landlord since, given that the subtenant was in occupation and owed to the landlord similar repair obligations to those that tenant had owed, the landlord had suffered no damage to its reversion as had to be shown by virtue of s18(1) of the Landlord and Tenant Act 1927. The landlord retorted that the side letter had altered the position. The court did not accept this. In the light of expert evidence on the matter the court said that the side letter had not adversely affected the landlord's reversion. The arrangement between the parent company and the subtenant did not affect the landlord's ability to take enforcement action for disrepairs against the subtenant.

Surrender agreements

In Ultimate Leisure v Tindle [2007] All ER (D) 399 (Oct) a purchaser was granted an option to acquire certain land held freehold by a landowner. Part of the land was subject to a business lease held by a subsidiary of the landowner. The option provided for the prior surrender of that lease, for the sale of the land to be free from encumbrances and for the grant of a new lease to the subsidiary immediately after the sale. However, the contracting-out provisions of the Landlord and Tenant Act 1954 had not been complied with prior to the grant of the option. The purchaser sought to exercise the option but the landowner contended that it was not obliged to concluded the sale and could terminate the option agreement. It said that, since the surrender obligation purportedly imposed on the subsidiary was unenforceable by virtue of not having been contracted-out of the provisions of the 1954 Act, it could not comply with the condition of selling free from encumbrances and that completion was conditional upon compliance with that condition. The court did not accept that argument, however. It said that the failure by the landowner to procure the surrender of the lease and to sell free from any encumbrances was, prima facie, a breach of the option but that did not relieve the landowner from its obligation to sell the land to the purchaser.

Business tenancies

In Patel v Chiltern Railway Co [2007] PLSCS the 156 parties were negotiating a business tenancy and agreed that it should be contracted out of the Landlord and Tenant Act 1954. The requisite 'health warning' notice was served by the landlord on the tenant more than seven months before the lease was executed. In view of the time of service of that notice, in excess of 14 days prior to the signing of the lease, the tenant needed only to sign a simple declaration regarding receipt of the notice and acceptance of the consequences of contracting out in order for the contracting-out procedure to be satisfied. However, the tenant signed a statutory declaration which was not precisely in accord with the procedure. Subsequently, the tenant claimed that her tenancy had the protection of the 1954 Act. The court held that the tenancy was contracted out. The statutory declaration went further than was necessary but did cover the simple declaration procedure.

In Trans-World Investments v Dadarwalla [2007] EWCA Civ 480 the business tenancy of a lock-up shop was the subject of a renewal. The parties agreed all issues, save for the rent. At the first instance hearing in the local county court, expert valuation evidence was put forward, as was rental evidence relating to the passing rent of the shop itself, along with comparable evidence as to rents on two adjoining properties one of which was significantly higher than the other. The first instance judge held that, as he had no evidence as to how the passing rent of the shop had been negotiated, he could not take it into account. He further said of the higher of the two pieces of comparable evidence that the rental shown appeared to be 'something of a rogue figure' which he discounted. He determined a relatively low rent close to the figure proposed by the tenant's expert. The landlord appealed the decision and the Court of Appeal held that that first instance judge was wrong on both points. The court said that both pieces of evidence were relevant and should have be considered without the need for the party relying on them to produce positive evidence of the circumstances in which they had been determined. Rather, it was for the party challenging the evidence to show why the rents were not relevant.