High Court of Ireland Decisions

Erin Executor and Trustee Co. Ltd. v. Farmer [1987] IEHC 18 (11 November 1987)\

ERIN EXECUTOR AND TRUSTEE COMPANY LIMITED

.V.

THOMAS FARMER

Judgment of Mr. Justice Barron delivered the 11^th day of

November 1987

This Case Stated raises a question of the construction of the rent review provision contained in a lease dated 23rd November, 1971 and made between Glenville Investments Limited of the one part and the Defendant of the other part whereby the premises known as Unit Number 2 on the ground floor of the Dundrum Shopping Centre were leased to the Defendant for a term of 35 years from the 18th November, 1971 at a rent during the first 7 years of the said term of £1,590.00 and thereafter at such rent or such increased rent as thereinafter provided. The Plaintiff is the present owner of the Lessors interest under the lease.

The provision for review of the rent contained in the lease is as follows:

"Provided always and it is hereby agreed that at the expiration of 7 years of the term hereby granted and every 7 years thereafter (the time being computed from the date of commencement of the said term and being hereinafter called "the rent review dates") the Lessor shall have the right to review the yearly rent for the time being payable hereunder on giving to the Lessee not more than 24 nor less than 3 months notice in writing prior to such rent review date of its intention so to do and if the Lessor shall give to the Lessee such notice as aforesaid then from and after each rent review date the yearly rent payable in respect of the demised premises for the 7 years following any rent review date shall be the greater of:

(1) The rent payable immediately prior to the rent review date.

(2) The current fair rack-rent market value which shall be such a yearly amount as shall be agreed between Lessor and the Lessee as representing the open market

rent of the premises as between a willing Lessor and a willing Lessee with vacant possession and in all other respects on the terms and conditions of this lease but without having regard to the effect on letting value of:

(a) The trade or business then carried on thereat,

(b) Any goodwill which shall have attached to the premises by reason of the business carried on thereat,

(c) Any improvements lawfully made by the Lessee (otherwise than in pursuance of any obligation under this lease),

(d) The existence of the provision for the rent review of the rent of the premises.

In accordance with the provisions of that clause the Landlord served notice for a review of the rent payable under the lease as and from the 18th November, 1985. The Lessor submits that properly construed this clause requires the rent to be fixed for a term which equals the then unexpired residue of the term as of the review date. This in the present instance is a term for 21 years. The Lessee submits that the rent should be fixed for a term of 7 years only. The significance of the opposing submissions is that factually the rent to be fixed will increase with the length of the term for which it is to be fixed, such increase being intended to allow for presumed inflation.

The argument on the part of the Lessor is based upon a construction of the words in paragraph 2 of the clause "and in all other respects on the terms and conditions of this lease". It is submitted that once the existence of the rent review clause is to be disregarded, then this expression requires the rent to be fixed for a period equal to the residue of the term. The Lessee contends that since the clause is purporting to fix the rent payable for the 7 years following the review date, the rent should be fixed upon the basis of a term for this period.

A number of English authorities have been cited to me showing how rent review clauses in a variety of forms have been construed by the Courts. There is nothing however in these cases which suggests that clauses of this nature should be construed in any way differently from the manner in which any other document or clause in such document is to be construed. The document is a commercial document and is to be construed in accordance with principles of construction relating to such documents.

The meaning of the clause is governed by the intention of the parties and this in turn is to be ascertained from the words used. Where these leave no doubt as to their meaning, then neither the need to give commercial effect to the transaction nor the assumed purpose of the clause can override such expression of intention provided that this does not result in an absurdity. Where the words used may reasonably bear more than one meaning, then such latter considerations may permit the Court to prefer one rather than the other of such possible meanings. If both of these approaches fail, a term may be implied for the purpose of giving commercial efficacy to the document, but only where both parties clearly intended such term to be included.

D'Arcy, J., was required to deal with a rent review clause in C.I.F. First Holdings Limited .v. Barclays Bank Ireland Limited. In that case the clause under consideration provided inter alia that the revised rent should be a rent for the term then unexpired of the lease disregarding the existence of the provisions of the lease for periodic review of the rent.

It was held that such provision required the rent to be fixed for the residue of the term upon the basis that the Lessor could not in the meantime seek a variation of the rent. The Lessor relies upon this decision, whereas the Lessee contends that this case was wrongly decided since the construction placed upon the words used disregarded the fundamental nature of the clause. That case and indeed all the English cases save one and in that case the Lessee construction was accepted - were cases in which there was express provision that the term of the hypothetical lease should be the residue then unexpired of the term of the actual lease.

In the present case, there is no such express provision. The purpose of the clause is to determine the yearly rent payable for the following 7 years. Such rent is either the existing rent or, if it is greater, a rent which is either agreed by the parties or is determined by a valuer acting as an expert. This latter rent is to be the open market rent of the premises as between a willing Lessor and a willing Lessee with vacant possession and in all other respects on the terms and conditions of this lease. This latter provision is essential because the rent cannot properly be evaluated until each knows the exact nature of his rights and obligations under the lease.

It is admittedly not unusual in practice for parties to a lease to agree the rent and then negotiate some of its lesser terms. Nevertheless, the fixing of a rent can only be upon the basis of full knowledge of all the other terms and provisions of the contract. In the present case likewise, the review clause requires these provisions to be ascertained before the rent can be fixed. It does so by the use of the words "in all other respects on the terms and conditions of this lease". In my view these words do not deal with the length of the term but only with the covenants and conditions of the hypothetical lease generally. On the assignment of a leasehold, a deed of assignment is expressed to be a conveyance of the premises comprised in the lease to the assignee to hold the same for the residue unexpired of the term granted by the lease subject to the rent reserved and to the covenants on the part of the Lessee and conditions therein contained. The words "terms and conditions of this lease" in the rent review clause are in my view another way of saying that the Lessee «n under the hypothetical lease is to hold subject to the covenants on the part of the Lessee and conditions contained in the actual lease. Such a construction may appear to ignore the words "and in all other respects," at the beginning of the expression. But if this part of the clause is to be given its literal meaning, then the term of the hypothetical lease should be 35 years, a period for which the Lessor does not contend. The period of the hypothetical term must be established as a matter of construction of the rent review clause as a whole in the context of the entire lease.

The Lessor relies strongly upon the existence of the provision that the rent review clause should be disregarded when arriving at the rent. The fact that the existence of the rent review clause is to be disregarded when arriving at the review rent does not mean that the rent is to be fixed on a non-reviewable basis. The direction in sub-paragraph (d) of the review clause to disregard the review provision contained in the lease cannot be divorced from the direction to disregard the matters set out in sub-paragraphs (a), (b) and (c). Each of these three matters is a matter which might have an effect on the letting value of the premises. In other words the rent to be fixed might have been more or less if regard was to be had to all or any of such matters. It follows that the purpose of clauses (a) to (d) was to regulate the actual amount of the "current fair rack-rent market value" rather than to regulate the basis upon which it was to be evaluated. There is nothing therefore in this part of the clause which requires that the hypothetical term should be of any particular length.

The reddendum provides for the possibility of a revised rent. The rent review clause indicates that the rent may be revised upwards every 7 years. The clause itself provides that when the Lessor brings its provisions into operation, the rent to be fixed is the rent which is to be paid for the 7 years following the review date. In my view this points to the term of the hypothetical lease as being for a term of 7 years. Prima facie, if rent is to be determined for a period of 7 years, then the term of the lease under which it is to be paid should equally be for 7 years.

I am satisfied that the proper construction of the rent review clause requires the rent to be determined upon the basis that the Lessor is granting and the Lessee is taking a lease for a term of 7 years. There is nothing in the rent review clause or the lease to displace the prima facie presumption to which I have referred. The alternative is to construe the words "in all other respects" as a direction that the term of the hypothetical lease is to be for 35 years. I do not accept this. It neither accords with the purpose of the clause which is to ensure that in inflationary times a Lessor obtains an increased rent periodically during the term and that at the same time the Lessee has a long term nor with commercial reality. In the circumstances, it is not necessary to imply a term. However, if it had been, I should have done so. If one of the parties had said to the other when the lease was being executed, "of course, when the revised rent is being determined, it will be upon the basis n each time of a lease for 7 years," I cannot envisage any other reply from such other party than, "of course."

The question raised by the Arbitrator will be answered accordingly. The rent for the relevant 7 year period will be £15,500.00 a year.