The House was asked whether a failure by a lessor to keep strictly to the timetable laid down in a rent review clause in a lease necessarily deprived the lessor of the benefit of the rent review.
Held: A stipulation as to time in an option clause will normally be of the essence. The grantor needs to know with certainty the moment when his power of disposition of his property has come to an end.
As to break clauses: ‘there is a practical business reason for treating time as of the essence of such a clause, which is similar to that applicable to an option to acquire property. The exercise of this option by the tenant will have the effect of depriving the landlord of his existing source of income from his property and the evident purpose of the stipulation as to notice is to leave him free thereafter to enter into a contract with a new tenant for a tenancy commencing at the date of the surrender provided for in the break clause.’
As to when time can be made of the essence for the performance of a contract: ‘In equity, and now in the fused system, performance had or has, in the absence of time being made of the essence, to be within a reasonable time. What is reasonable time is a question of fact to be determined in the light of all the circumstances. After the lapse of a reasonable time for performance the promisee could and can give notice fixing a time for performance. This must itself be reasonable, notwithstanding that ex hypothesi a reasonable time for performance has already elapsed in the view of the promisee. The notice operates as evidence that the promisee considers that a reasonable time for performance has elapsed by the date of the notice and as evidence of the date by which the promisee now considers it reasonable for the contractual obligation to be performed. The promisor is put on notice of these matters. It is only in this sense that time is made of the essence of a contract in which it was previously non-essential. The promisee is really saying, ‘Unless you perform by such-and-such a date, I shall treat your failure as a repudiation of the contract.’ The court may still find that the notice stipulating a date for performance was given prematurely, and/or that the date fixed for performance was unreasonably soon in all the circumstances. The fact that the parties have been in negotiation will be a weighty factor in the court’s determination. ‘
Lord Diplock: ‘The mediaeval concept of rent as a service rendered by the tenant to the landlord has been displaced by the modern concept of a payment which a tenant is bound by his contract to pay to the landlord for the use of his land.’ and as to the operation of a rent review clause: ‘Until the market rent has been ascertained the landlords can only recover rent at the rate of andpound;117,340 per annum . . It is only when the market rent has been determined and turns out to be higher than andpound;117,340 that the landowner can recover on the rent day following such determination the balance that has been accruing since April 8 1975.’
Lord Simon of Glaisdale said: ‘In my view, rent today means the contractual money payment made by a tenant to his landlord in consideration for the use of the latter’s land.’
Lord Salmon said: ‘[A rent review clause] is for the benefit of the tenant because without such a clause he would never get the long lease which he requires; and under modern conditions, it would be grossly unfair that he should. It is for the benefit of the landlord because it ensures that for the duration of the lease he will receive a fair rent instead of a rent far below the market value of the property which he demises. Accordingly the landlord and the tenant by agreement in their lease provide that at stated intervals during the term, the rent should be brought up to what is then the fair market rent. The revision clause itself lays down the administrative procedure or machinery by which the fair market rent shall be ascertained.’
Lord Diplock, Lord Fraser, Lord Simon of Glaisdale
[1978] AC 904, [1977] 2 All ER 62, [1977] 2 WLR 806
England and Wales
Citing:
Cited – Finch v Underwood CA 1876
The landlord had covenanted with the tenant, on receipt of notice from the latter, to renew the lease ‘in case the covenants and agreements on the tenants’ part shall have been duly observed and performed’. Notice was duly given but the landlord . .
Cited – United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd Ltd; United Dominions Trust (Commercial) Ltd v Eagle Aviation Ltd CA 1968
An aircraft manufacturer was obliged under contract to buy back an aircraft from a hire purchase company on three conditions. (1) when the hire purchase company foreclosed on the purchasers, (2) where the manufacturer had been given notice of the . .
Approved – CH Bailey Ltd v Memorial Enterprises Ltd CA 1974
The court considered the construction of a rent review clause in a lease. Lord Denning MR said: ‘So I think these rent review clauses are to be construed according to their natural meaning. The clause in the present case says that the increased . .
Cited by:
Cited – Dun and Bradstreet Software Services (England) Ltd; Dun and Bradstreet Software Services Ltd v Provident Mutual Life Assurance Association and General Accident Linked Life Assurance CA 9-Jun-1997
Break clauses had been exercised on behalf of the plaintiffs. The defendant landlords appealed a decision upholding the notices. A penalty rent had been sought.
Held: There had been no sufficient agency established to validate the notice. The . .
Cited – Haugland Tankers As v RMK Marine Gemi Yapim Sanayii Ve Deniz Tasimaciligi Isletmesi As ComC 9-Mar-2005
An option agreement was granted for the sale of a ship hull. The option was excercised but the defendant claimed the commitment fee required was not paid.
Held: The exercise of an option had to be in the precise terms set out in the contract. . .
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 . .
Cited – Diab v Regent Insurance Company Ltd PC 19-Jun-2006
(Belize) The appellant’s premises were destroyed by fire. The insurer respondents refused payment, saying that the claimant had delayed notification, had stored ammunition, and had started the fire himself.
Held: Lord Scott referered to his . .
Applied – South Tottenham Land Securities Ltd v R and A Millett (Shops) Ltd CA 1984
The court considered on what date the increased rent determined by a rent review fell due for payment.
Held: O’Connor LJ refused the appeal: ‘If the parties choose to put into a lease that rent is due on quarter days, then there are good . .
Cited – Scottish and Newcastle Plc v Raguz CA 6-Mar-2007
The claimant was the original tenant under two 99 year underleases granted in 1967, and assigned them to the defendant who then himself assigned them. The eventual assignee had become insolvent. The landlord recovered the rents from the claimant who . .
Cited – Raineri v Miles HL 1980
Damages may be awarded for a delay in completion under an open contract even though time was not of the essence. The failure to complete on the day fixed was a breach. Lord Edmund-Davies said: ‘The fact that time had not been declared to be of the . .
Cited – Gary White, Ellen White v Riverside Housing Association Ltd CA 6-Dec-2005
The Association’s tenants said that a clause in their tenancy agreement would allow for an increase in the rent only once a year, and then only in June and if 28 days notice was given before the first Monday in June.
Held: The notices were . .
Cited – Riverside Housing Association Ltd v White and Another HL 25-Apr-2007
The claimant housing association had raised its rents. The tenants objected that they were unlawful not having complied with the tenancy agreements. They said the clause allowed only one increase in each June of a year, and then only if 28 days . .
Cited – Hussain v Mehlman CC 5-Mar-1992
(County Court) The defendant landlord granted the plaintiff a three year assured shorthold tenancy. He now appealed a finding that he was in breach of an implied covenant to maintain the space heating, and otherwise. The tenant had returned the . .
Cited – Simmers v Innes HL 16-Apr-2008
The House was asked whether an option to purchase certain land had been validly exercised. The farm assets had been transferred into a company in order to generate cash. Mr Simmers was apparently gven a right for five years to purchase the business. . .
Cited – Scottish and Newcastle Plc v Raguz ChD 11-Apr-2006
The defendant had taken assignments of the term of two underleases from the claimant, and then re-assigned them to a limited company with guarantors of the rent, and they in turn re-assigned the leases. The last company became insolvent. The . .
Cited – Scottish and Newcastle Plc v Raguz HL 29-Oct-2008
The lease had been assigned by the claimant to the defendant and on again to a tenant who became insolvent. The landlord had recovered sums said to be due from the claimant who now sought an indemnity from the defendant. The defendant said that the . .
Cited – Mason v Boscawen ChD 18-Dec-2008
The landlord had opted to charge VAT on part of the rent. The tenant fell into arrears and now challenged a notice to quit which included the VAT. The court was asked what constituted ‘rent’ for the purposes of a demand for rent founding a notice to . .
Cited – Reichman and Another v Beveridge CA 13-Dec-2006
The defendants were tenants of the claimant. They vacated the premises and stopped paying the rent. The claimant sought payment of the arrears of rent. The defendants said that the claimants should have taken steps to reduce their damages by seeking . .
Lists of cited by and citing cases may be incomplete.
Landlord and Tenant, Contract
Leading Case
Updated: 09 November 2021; Ref: scu.188166
