Rent reviews - Is timing everything?
The courts have been relatively quiet on the topic of rent reviews of late, however, with the commercial leasehold market picking up post-recession the question of rent reviews may become a hot topic. This may particularly be so where there has not been a rent review for a number of years and the landlord now seeks to revalue the rent based on current market valuation. Therefore, it will be important to know whether time is of the essence for instigating the rent review process. Here is what you need to know.
- The general presumption is that time is not of the essence.
- In United Scientific Holdings v Burnley Borough Council  AC 904, the House of Lords held that there should be no implication that time is of the essence in respect of time limits in a rent review clause unless there are sufficient contra-indications. Such contra-indications include the express wording of the lease (making time of the essence), the surrounding circumstances, and the relationship between the parties.
- Due to the fact that most modern rent review clauses expressly provide that time is not of the essence the case law generally concerns older leases where one party argues that there are sufficient contra-indications in the lease to imply a provision that time is of the essence in relation to a particular time limit. However, one should not fall into a false sense of security based on this presumption because the consequences of missing a rent review date, where time is of the essence, can be great.
- For instance, in Secretary of State for Communities & Local Government v Standard Securities Limited  EWHC 1808 (Ch), the rent review clause stated that unless the rent had been agreed, or the landlord had applied to an independent third party for determination, by the rent review date, the rent for the seven years from the review date would be the same as it had been for the previous seven years. The court found that the clause contained a clear contra-indication to rebut the presumption that time was not of the essence. It was clear from the clause what would happen if the rent was not agreed, or an application made for determination, by the review date.
Delay in commencing the rent review process
- It may be that, for whatever reason, the parties to a lease have not commenced the rent review process. Should the landlord wish to commence rent review proceedings outside of the stipulated rent review period, will a prolonged period of delay negate his ability to do so? Not necessarily.
- In Idealview Ltd v Bello  EWHC 2808, the High Court held that time was not of the essence when the landlord triggered the rent review process 13 years after the review date. It also held that mere delay could not disentitle the landlord from instigating the rent review.
- In this case the lease was entered into in 1969 for a 50 year term with an agreed rent of £60 per annum for the first 25 years upon which there was to be a rent review to agree the rent for the remainder of the term. The 25 years expired in 1994 and no rent review took place until after the property had been sold in 2005. The lease provided that should there be no agreement between the parties then the rent review was to be referred to an arbitrator. The new landlord raised the lack of a rent review with the tenant and the issue was soon referred to an arbitrator. The tenant failed to engage in the arbitration process and the court held that the tenant could and should have raised the matter of delay before the arbitrator who determined the new rent and, having failed to participate in the arbitration, he was bound by the arbitrator's decision, which he had not appealed, and could not mount a collateral attack on it in court.
Can a tenant force the pace?
- In certain circumstances yes. If no time limit is expressed in the lease then the normal contractual rules as to the implication of a time limit will apply which, generally speaking, means that where the performance of an obligation is within the control of the performing party, there is an implication that the obligation must be performed within a reasonable time having regard to all the circumstances. In the commercial context, business efficacy may indicate a more specific limit or govern how long a reasonable period is. Similarly if there is no rent review machinery or if the machinery is deficient in some way, the court may imply machinery so far as is necessary.
- In Barclays Bank plc v Savile Estates Limited  EWCA Civ 589, the Court of Appeal implied a time limit on the grounds of business efficacy. The rent review clause allowed the landlord (but not the tenant) to apply to the RICS for the appointment of an independent surveyor to determine the revised rent if the landlord and the tenant failed to agree the new rent by the review date. There was no time limit for the landlord making that application. The Court of Appeal held that the landlord had to make the application to the RICS within a reasonable time after the review date and the tenant was entitled to serve a notice making time of the essence in relation to that implied time limit.
- Further, in Northern and Midland Holdings Ltd v Magnet Ltd  EWHC 120 (Ch), the lease provided that an expert could be appointed by the landlord at any time after a stated date. The High Court held that there was an implied term that this had to be done within a reasonable time. This reasonable time ran from the date when the tenant had made it clear that it wanted an appointment to be made (not from the stated date). It was then open to the tenant to serve a notice making time of the essence in respect of that implied time limit.