Summary
Summary LAWS10177 Commercial Leases Rent Review
- Module
- LAWS10177
- Institution
- The University Of Edinburgh (ED)
LAWS10177 Commercial Leases Rent Review
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Rent Review- Seminar 3 Week 3 Purpose of the clause- deals with the problem posed by a tenant who wants to lease the
property for a long period of time and a landlord who would not be willing to give the
property on a fixed rent for the long period of time without considering for inflation and
market changes, but is willing to secure a long term tenant- MFI Properties v BICC Group
Pension Trust Ltd
Rent can be reviewed by reference to a particular index of prices or reference to market
activity
Drafting the clause- leasehold interest in the property has market rent i.e. the duration and
terms of the lease. The clause thus requires parties to assume that the property is being let
in the open market on a particular date (review date) on a lease for a specified duration and
thus agree on a rent which a hypothetical tenant would pay for that particular lease.
Third parties can determine the rent upon disagreement of a review of the rent between the
parties to the lease
The clause must indicate how and when the review is to be implemented- in reagrds to
interepretation attention must be paid e.g. if the party misses the date of the review are the
rights still effective?
The draftsman is to include what the parties are to ascertain and how it is to be done
There should no uncertainties in the clause- it should consider for eg the following:
o Review date
o Review mechanism
o If the review date has passed with the landlord not instigating the review, does he
lose the right to review?
o Are there any formal procedures e.g. serving notices of review on the tenant and
what are the consequences of failing to adhere to these formal procedures
2 mechanisms of review:
o Formal- e.g. the serving of notices and other procedural requirements
o Informal- rent to be agreed or in the absence of that a third party will determine the
rent- this is a preferred method as it is fairer than the former as a tenant or the
landlord would not lose their rights at the review date if they fail to take a particular
procedural step
HL case- time is of the essence- United Scientific Holdings Ltd v Burnley Borough Council and
Cheapside Land Development Co Ltd v Messels Service Co. time is not of the essence in rent
review, unless it has been expressly stipulated in the lease. The dictum of United holds that
“as the substance of review clauses is to provide machinery for ascertaining the market rent
from time to time, at intervals agreed in the interests of both parties, rather than to confer a
benefit on the landlord, it seems to me that stipulations as to time ought not to be strictly
enforced unless there is something to indicate the contrary in the clause”. Since the United
case there has been confusion in Scotland, which was later clarified in Visionhire Ltd v Britel
Fund Trs Ltd- here the lease was subject to rent reviews at intervals of 5 years- if the 2
parties didn’t agree to a review before the 5 year review date the matter would be handled
by an arbiter/ expert valuer. No fixed time limit to make an application of review to the
Royal Institute of Chartered Surveyors, even after the expiry of the 5 year rent period. The
landlord notified the tenant of the review but not of the nomination of an expert surveyor.
, This entitled the tenant to serve a notice to the landlord proposing a reviewed rent. The
clause also stated that upon the tenant serving such a notice of reviewed rent, the landlord
can make an application to the royal institute within 3 months of the service of the tenant’s
notice. The landlord failed to comply. It was found that the power given to tenants to serve a
notice of rent on the landlord was kind of an ultimatum procedure which the partied had
agreed to. The case confirms the decision of Yates Petr. The court noted (L. Hope)-
o Time is not of essence in the case of stipulations unless the parties expressly
stipulate that time should be adhered to in the strictest fashion, nature of the lease
shows that time is of essence- he observed “the point which emerges from Gloag is
that while stipulations as to time which are expressed in terms which show that
strict compliance is required will be enforced accordingly, there is room for
consideration of the nature of the contract in order to deicde whether time is of
essence.
Courts have now found that there is a presumption that time is not of essence and it can be
rebutted, but the presumption is strong.
In United it was also stated that if there are other clauses in the lease like the break clause
etc. that stipulate time is of the essence, then it can be inferred from this that time is of
essence in relation to other clauses like rent review. However in recent cases like
Metrolands Investments v J H Dewhurst it was found that the interrelation between the rent
review and the break clauses was not sufficient to rebut the presumption that time was not
of essence.
Hypothetical letting:
This is an assumption of letting found in the rent review clause
On the review date it is presumed that the property is on the open market and the rent
is reviewed in the sense of a fictitious letting at the time of the rent review date.
As a general rule the circumstances of the hypothetical letting should bear as close as
possible a resemblance to the circumstances of the actual letting
Assumptions:
It should be made clear in the rent review clause that the hypothetical letting is assumed
along with other factors like ancillary rights e.g. parking spaces etc., other rights, other
documents the parties may have relied on etc. as this has an effect on the rent review.
It can also be assumed in a rent review clause that the premises are being let with vacant
possession.
Cases:
Ravenseft Properties Ltd v Park- A demise forming part of supermarket premises (the other
part being owned by T) was to be valued for rent review purposes as including the buildings
erected as at the time of the review. T, the owners of two shops, took a 99-year lease of the
adjoining two shops for the purposes of constructing a supermarket on the sites of all four
shop premises. The lease provided for 21-yearly rent reviews and stipulated that the amount
of the revised rent was to be determined, "...having regard to the level of rents then prevailing
in the open market." At the first review T argued that the revised rent was to be determined
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