(New Zealand Court of Appeal) The Court was asked whether a rent review clause which provided for an open review was inconsistent with the rent review being operable by the lessor alone. The lease did not contain a ratchet clause, or upwards only review clause. The judge had held that to construe the clause as operable only by the landlord was inconsistent with the absence of a ratchet clause. The words in the lease that the landlord ‘may’ give notice requiring the rent to be reviewed had to be read as mandatory.
Held: The court reversed the decision. Hardie Boys J: ‘With respect, we cannot agree with Barker J that the deciding factors in the construction of the document are the wording of the demise clause and the absence of a ratchet clause. In determining the construction to adopt, the Court must look at the document as a whole, rather than give emphasis to any particular part. And it must endeavour to ascertain the intention of the parties by reference to the commercial purpose, and to the practicalities, for the parties obviously intended that what they provided for should work in a sensible and realistic way. Those principles are not easy to apply in this case, for all there is is the sublease. There is no evidence of surrounding circumstances that may have provided some assistance in judging what the parties intended by the words they used. Nor is it suggested that the words used did not correctly record their agreement; there is no application for rectification or for a remedy under the Contractual Mistakes Act 1977. The case turns entirely on the sublease itself, and any inferences that may properly be drawn from it. But these are very limited. It is understandable that the sublessor may have desired rent reviews to be optional. It is equally understandable that the sublessee may have desired them to be obligatory. There are valid reasons for both alternatives. The same may be said of the short period during which the commencing rent is expressed to be payable, and of the unusual term of the lease. There are doubtless several possible explanations for both. Even if, as Barker J held, it is a reasonable inference that the omission of an express ratchet provision from cl 3.06(a) was deliberate, it does not necessarily follow that the parties must have intended that the sublessor was required to give a notice under cl 3.06(a), whether it wished to do so or not. It is quite possible that what they intended was that, while the sublessor would not be required to invoke cl 3.06(a) at each review date, if it elected to do so it would accept the risk that despite its expectations the result would be that the rent was fixed at less than the rent previously applicable. That approach may well accord with commercial reality.’
Judges:
Hardie Boys J
Citations:
[1995] 1 NZLR
Cited by:
Applied – Board of Trustees of the National Provident Fund v Shortland Securities Limited 1996
(New Zealand Court of Appeal) The court considered whether a review in a lease without a ratchet (upwards only) rent review clause could be exercised only at the instigation of the landlord: ‘The fact that as a consequence the parties agreed upon . .
Cited – Hemingway Realty Ltd v Clothworkers’ Company ChD 8-Mar-2005
The lease provided for a rent review under which the rent might either be increased or decreased. The landlord had chosen not to exercise the clause in view of falling rents. The tenant purported to do so. The landlord said that it alone had the . .
Lists of cited by and citing cases may be incomplete.
Landlord and Tenant, Commonwealth
Updated: 09 May 2022; Ref: scu.223573