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Construction

This page contains two cases dealing with various construction points:
  • Date from which rent increase is take effect.
  • Operation of rent review clause by the tenant.
See also the pages on "time of the essence" and "presumption of reality" - see contents on left.

Date from which increase to take effect

Riverside Housing Association Ltd v White
[2007] UKHL 20.

Introduction

It is much more common to find rent review disputes in a commercial context. This claim related to an assured tenancy granted by a housing association. The agreement allowed the landlord to increase the rent in June each year. Notwithstanding the provisions of the agreements the landlord decided to increase the rent in April each year. The tenants claimed that four annual notices of rent increases were invalid and that the rent payable should be that which was payable in 1999. The case concerned one tenancy agreement but there were many other tenants who could be affected by the outcome. A decision in favour of the tenants would have been a disaster for this, and no doubt many other social landlords, who rely on the rent received for most of their income. The Housing Corporation intervened in the case in support of the landlord.

The tenancy agreement

The key provisions of the tenancy agreement stated as follows:
    "Riverside may increase the rent by giving the tenant four (4) weeks notice in writing as set out in accordance with the provisions of this Agreement...

    The rent payable will be increased annually with effect from the first Monday of June each year. (This is known as the 'Rent Variation Date')"
The arguments

The claim was for possession based on arrears for rent. The tenants however claimed that the alleged arrears of rent were not lawfully due because the landlord had not duly implemented the contractual procedures for rent increases in that the rent variation date in each of the notices from 2001 onwards did not conform with the contractual rent variation date. The landlord's main argument was that time was not of the essence. The second argument was that on a proper construction of the tenancy agreement the landlord could recover the rent on a later date than the first Monday in June so long as the requisite notice was given.

Decision

The landlords first argument was rejected. The presumption that time is not of the essence only applies to the machinery for fixing a rent on a rent review. It does not apply to the date from which the increase is to take effect. Lord Neuberger (who gave the only speech on behalf of the whole house) at paras 24 and 25:
    "... on the assumption that the tenancy agreement does identify the first Monday in June as the date on which payment of the reviewed rent must start, it seems to me that Riverside's argument that time is not of the essence of that date is misconceived. If the tenancy agreement does indeed provide, as a matter of construction, that the only date on which the rent can be increased is the first Monday in June of each year, then it appears to me to be quite impermissible to contend that, simply because of the principle that equity does not normally regard time limits as being essential, one can, indeed one must, interpret the rent review provisions so as to enable Riverside to review the rent on some different date. In this connection, the case upon which Mr Andrew Arden QC, who appeared for Riverside, relied, United Scientific Holdings Limited v Burnley Borough Council [1978] AC 904 is simply inapplicable. Although the decision in the United Scientific Holdings case did involve a development, in what some regarded as a controversial way, of the equitable principle that time limits should not normally be regarded as being of the essence, neither the decision nor the reasoning give any support to the proposition that the court can rewrite a tenancy agreement, which provides for an increase in rent from a specified date, so as to enable the rent to be increased from a different date. As Sir Peter Gibson put it in paragraph 40 in his judgment in the Court of Appeal:
      'All that [clause 2 (7)] has done is to identify the rent variation date. It contains no obligation on Riverside to do something by a particular time and there is therefore no failure against which equity would relieve on the basis that the time provision was non-essential.'."
So far so good. However, Lord Neuberger went on to hold that as a matter of construction of the relevant clauses of the tenancy agreement the landlord was not precluded from implementing the rent increase at a date later than the first Monday in June. In what some may consider to be a rather strained interpretation of the relevant clauses, Lord Neuberger held that Riverside could only increase the rent once a year but that it could exercise the right to do so on any date from and including the first Monday in June, provided it gave 28 days' prior notice. See para 26; and para 35 where he stated:
    "On a fair reading, I consider that the combined effect of the centrally relevant clauses 2(6) and 2(7) amounts to this. Riverside is entitled to increase the rent once a year on 28 days notice, which notice can take effect any time on or after the first Monday in June. In this connection, it seems to me that clause 2(6) imposes one condition, namely that Riverside must give the tenant four weeks notice before the reviewed rent becomes payable, and that clause 2(7) imposes another condition, in that it provides that the reviewed rent cannot become payable earlier than the first Monday in June. It is true that the words 'with effect from' could be taken as meaning 'with immediate effect from' but they can mean 'on or at any time after' As usual, it all depends on context. If I were to say to a friend that I would be arriving for dinner 'with effect from' 8 o'clock, the natural meaning would be not that I would be arriving at 8 pm precisely, but that I would be arriving at or some time after 8 pm (albeit that, because I was coming for dinner, there would presumably be an implied term that I would be arriving before, say, 9.30 pm at the latest)."
Comment

There are three particular points to note:
  • The statement, that time is presumed not to be of the essence is irrelevant to the date from which the reviewed rent is actually paid, is applicable to commercial as well as residential tenancies.
  • In reaching his conclusion on the construction of the particular clauses in this case, Lord Neuberger highlighted a number of differences between the commercial and residential context (see paragraphs 28 to 33). Thus, no assistance can be derived from this part of the decision in interpreting rent review clauses in commercial leases.
  • Lord Neuberger has a rather odd way of telling his friends that he will be late for dinner.

Operation by tenant?

Hemingway Realty Limited v The Clothworkers Company
[2005] EWHC 299 (Ch)

A lease with a complicated rent review clause, which had an element providing for an open market value of the premises; ie not upwards only. The tenant wanted to operate the rent review clause because there was evidence that it might lead to a reduction in the rent. It argued that where there the lease provides for an open market rent there is a presumption that either the landlord or the tenant cannot operate the rent review clause.

Held: The argument was rejected. Upon its proper construction the lease clearly provided that only the landlord could initiate the rent review process. Patten J at para 34:
    [T]here is no presumption that a rent review clause (even one incorporating an open review) ought to be exercisable by both parties to the lease. Everything depends upon the form of review which the parties have chosen to incorporate. This can vary from a right to review exercisable by the landlord alone to a review which is mandatory on each of the review dates. The choice between these alternatives depends upon what the parties have agreed. There are no presumptions either way.


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