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Presumption of reality

Beegas Nominees Ltd v Decco Ltd
[2003] EWHC 1891 (Ch); [2003] 43 EG 138

As a general rule the court will construe a rent review clause by relying upon the presumption of reality. In 1988 the Court of Appeal set out the position in relation to the hypothetical lease that may need to be valued for rent review purposes (Basingstoke and Deane Borough Council v Host Group Ltd [1988] 1 WLR 348). In particular Nicholls LJ said this:
    "Of course rent review clauses may, and often do, require a valuer to make his valuation on a basis which departs in one or more respects from the subsisting terms of the actual existing lease. But if and insofar as a rent review clause does not so require, either expressly or by necessary implication, it seems to me that in general, and subject to a special context indicating otherwise in a particular case, the parties are to be taken as having intended that the notional letting postulated by their rent review clause is to be a letting on the same terms (other than as quantum of rent) as those still subsisting between the parties in the actual existing lease. The parties are to be taken as having so intended, because that would accord with, and give effect to, the general intention underlying the incorporation by them of a rent review clause into their lease."
However, if it is clear from the lease that the valuer is required to make an assumption of facts that is not true then he should do so. The rent review clause in this case required the valuer to ignore the actual location of the premises and to assume they were elsewhere.


Canary Wharf Investments (Three) v Telegraph Group Ltd
[2003] EWHC 1575 (Ch)

And in this case Neuberger J held that on a fair and sensible reading of the lease "the term of the hypothetical lease, to be assumed for rent review purposes, is to be a term of 25 years from the relevant rent review date, and not 25 years from the date from which the actual lease runs." He went on:
    "I do not consider that the presumption [of reality] can be successfully invoked by the landlord in this case to justify a contrary conclusion. In my view, so to hold would involve elevating the presumption to a mechanistic rule, rather than a presumption".

Chancebutton Limited v Compass Services UK & Ireland Limited
[2004] EWHC 1293 (Ch)

An example of a case where the court applied the presumption of reality when considering a rent review clause. The hypothetical letting at the review was to be for a term equal to the term originally granted under this lease. However, the rent review clause was not clear as to the date of commencement of the hypothetical term. The judge held that the hypothetical term ran from the commencement date of the lease. That was the natural meaning of the words under consideration. Had the parties intended a hypothetical term commencing on the relevant review date, as argued by the tenant, they would have said so. The tenants construction involved a departure from reality.


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