Lecture notes
LAWS10177 Commercial Leases Seminar 2 Semester 2 Rent
- Module
- LAWS10177
- Institution
- The University Of Edinburgh (ED)
LAWS10177 Commercial Leases Seminar 2 Semester 2 Rent
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Seminar 2 Semester 2Rent:
The rent to be paid throughout the lease must be capable of ascertainment. The agreement
will provide the formula when the subjects of lease are unbuilt at the contract date (para
2.4). The initial rent will therefore be stated in the lease when executed with any review
provisions enabling future rents to be ascertained. The landlord's solicitor should ensure
that the tenant is required to pay the reviewed rent by 'triggering' the operation of any rent
review schedule either in the letting clause or elsewhere in the lease (not the schedule).
Rent is usually stated to be exclusive of value added tax, payable without deduction (save
any required by law) and to be paid without demand.# Rent is usually paid quarterly in
advance on the quarter days at 28 February, May, August and November, with some English
clients opting for their quarter days. The payment date is often the first day of each month.
Usually, rent starts on the date of entry, with any rent-free period being regulated in the
agreement as a personal contract between developer and tenant (para 2.17). The period
covered by the first instalment of rent should be stated where this is not a full rental period.
The landlord's solicitor must ensure (unless the lease is not to be fully repairing and
insuring) that the landlord avoids all financial responsibility for the subjects of lease.
Grouping the various recurring financial payments for which the tenant is liable together in
the letting clause after rent reduces the chance of omission, particularly the failure to bring
a schedule into operation. Indeed, certain of these payments are sometimes stated to be
rent (which enhances the landlord's powers in England), conferring in Scotland the minor
advantage of a widening of the clutches of the landlord's hypothec, which secures one
year's rent over moveable items of the tenant in the subjects of lease.
Turnover Rents
8.74 Turnover rents imply a degree of partnership between landlord and tenant, with the
former obtaining an income based on the turnover of the business being conducted from
the subjects of lease. To that extent, therefore, they may represent a movement back from
the adversarial approach that inhabits many elements of the con-ventional lease, including
rent reviews. However, although some leases are structured in this way, turnover rents
remain relatively unpopular
RETENTION OF RENT[106]
4.39 Retention is a self-help remedy for breach of contract that allows a party to withhold
performance of a contract (including the payment of money) where the other party is in
breach. It arises from the principle of mutuality in contracts, ie that the obligations of the
parties to a contract are reciprocal in nature.
,If a landlord is in breach of contract, therefore, the tenant has the right to withhold the rent
and there is a long line of authority in support of this going back to the 19th century and
earlier. On the other hand, it is an equitable remedy which the court may refuse in special
circumstances.[107]
Retention can be a very useful remedy for a tenant: it may persuade the landlord to put
right the breach without the need for court action, and in any action against the tenant for
recovery of the rent the fact of the landlord's breach will be a relevant defence. [108]
For retention to be competent the breach must be more than trivial, though it need not be
sufficiently serious to justify rescission; [109] nor does the tenant have to show that it would
justify a claim of damages for an amount equal to the amount of rent retained.[110]
In Sutherland v Barry[111] tenants sought to retain rent and other sums due to their landlords
because they had a damages claim against the landlords for fraudulent misrepresentation. It
was held that retention was not valid because the damages claim arose from the law of
delict, not the lease contract.
Contracting out etc
4.40 This common law right of a tenant to retain rent may be contracted out of by an
express stipulation in the lease.[112] A tenant may also be barred from the right to retain the
rent, for example by making no complaint during the currency of the lease and then, after
its expiry, resisting a final rent demand with a claim of retention. [113]
However, during the currency of the lease the tenant will not be barred because of past
payments from withholding rent for a breach that is still continuing. In John Haig & Co Ltd v
Boswall-Preston[114] the landlord was bound under the lease to make repairs to the roof
which were not done. The tenants were held entitled to retain their rent even though they
had earlier made two rental payments without objection.
In residential leases contracting out of the tenant's right of retention could be considered to
be an unfair term under The Unfair Terms in Consumer Contracts Regulations 1999. [115]
Functions of retention
4.41 Although a tenant's right of retention is long-established, some of the authority
(particularly the older cases) can present difficulties and is not always easy to reconcile with
the mutuality principle in contracts. It may help clarify things if we first of all note that
retention can have two separate functions:
'The retention of rent seems to me to be warranted for one of two purposes – (1) to act as a
compulsitor on the lessor in obtaining performance by him of his contractual obligation,
, such as to make the house habitable; or (2) to satisfy pro tanto any counter-claim which the
tenant is maintaining.1
ABATEMENT OF RENT Abatement and retention
4.47 Abatement can easily be confused with retention, since both are competent defences
to an action by a landlord to recover rent withheld by a tenant. However, they derive from
different principles, though the use of terminology in some of the cases does not always
make this clear. Retention in its true sense is a breach of contract remedy and can only be
available to a tenant when the landlord is in breach. Abatement, on the other hand, may be
available whether or not the landlord is in breach: the principle is that the tenant is not at
fault, and yet has been partially deprived of the subjects for which rent is being paid.
In Muir v McIntyres[126] a farm tenant was held entitled to an abatement where a number of
farm buildings were accidentally destroyed by fire:
'[I]t is quite settled in law that an abatement is to be allowed if a tenant loses the beneficial
enjoyment of any part of the subject let to him either through the fault of the landlord or
through some unforeseen calamity which the tenant was not able to prevent.' [127]
Other case law
4.48 In Munro v McGeoghs[128] the landlord was at fault, being in breach of a lease provision
to give possession of certain farm buildings in tenantable condition. However, the basis of
the decision was that the tenant had not got entire possession of the subjects let and was
therefore entitled to an abatement of rent corresponding to the amount of the possession
not delivered.
And in Sharp v Thomson[129] the partial destruction of a lade during a storm effectively meant
that a farm, which had been partly arable and partly pastoral, ceased to be of any value as
an arable farm. The tenant was held to be entitled to a rent abatement proportional to the
lettable value of what had been destroyed. It was also observed 'that to warrant a claim for
an abatement, [the damage] must be considerable, and that the consequent cost of making
good the damage must be substantial.'[130]
The law in relation to abatement was given its most thorough consideration in modern
times in Renfrew District Council v Gray,[131] in which a council house was in such a state of
disrepair that for over a year it was effectively uninhabitable. The tenants were held to be
entitled to an abatement of the rent in full for the relevant period, despite the fact that they
remained in possession: they may not have had anywhere else to go, and could not be
expected to have to pay rent for an uninhabitable house. Also, it was held that abatement
did not need to be claimed in a separate action, or be the subject of a counter-claim, but
could simply be submitted as a defence in an action by the landlord for the rent.
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