The role of the courts in rent review clauses

27th August 2015

When considering whether time is of the essence in relation to rent review clauses, it is worth noting the approach taken by the courts when considering and interpreting rent review clauses in the wider sense, beyond matters of timing.

One of the leading judgments concerning how the courts will construe rent review clauses is that by Nicholls LJ in Basingstoke and Deane Borough Council v The Host Group Ltd [1987] 2 EGLR 147, in which he stated:

“What the court is seeking to identify and declare is the intention of the parties to the lease expressed in that clause. Thus, like all points of construction, the meaning of this rent review clause depends upon the particular language used interpreted having regard to the context provided by the whole document and the matrix of the material surrounding circumstances. While recognising, therefore, that the particular language used will always be of paramount importance, it is proper and only sensible, when construing a rent review clause, to have in mind what normally is the commercial purpose of such a clause.”

This approach was approved by the High Court in British Airways plc v Heathrow Airport Ltd and another [1992] 1 EGLR 141. In his judgment, Mummery J explained how the court approaches rent review clauses:

  1. The paramount principle is the one stated by Nicholls LJ in Basingstoke and Deane.
  2. The purpose of a rent review provision is to ensure that the rent payable during the term of a long lease reflects changes in the value of money and of the property let.
  3. The court is concerned with the construction of the clause and questions of law, and it should avoid “trespassing on the territory of the expert valuer”.
  4. The court should not confuse reality and hypothesis. The only relevant hypotheses are those expressly or impliedly agreed by the parties in the rent review clause.
  5. The property to be let under the hypothetical letting is real. However, it is a question of construction whether any buildings on the land are to be taken into account when determining the rent. The rent review provisions may direct that, for valuation purposes, certain aspects of the building are to be disregarded or that certain assumptions should be made about it.
  6. It may be necessary to imply an assumption, or a disregard, about the actual state of the property into a rent review clause, in order to give it commercial efficacy.

You may also be interested in: Rent reviews – Is timing everything?

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