Starmark Enterprises Ltd v CPL Distribution Ltd

A timetable in a rent review clause is presumed not to make time of the essence. That presumption is displaced where the lease clearly stipulates the substantive consequence of failing to serve a notice within the specified period.

A provision deeming the tenant to have agreed the landlord’s proposed rent ordinarily creates a conclusive state of affairs once the period expires. The doctrine that time is not of the essence cannot suspend that consequence, since this would alter the parties’ substantive rights and rewrite their contract. A later Court of Appeal decision which had wrongly distinguished an earlier binding decision on this point could be declined in favour of the earlier ratio.

The landlord served a rent review notice proposing an annual rent of £84,800. The lease permitted the tenant to serve a counter-notice within one month and provided that, on failure to do so, the tenant would be deemed to have agreed the proposed rent. The tenant served its counter-notice after the month had expired.

Neuberger J held on 6 June 2000 that the counter-notice was valid. He considered himself bound by the majority decision in Mecca Leisure Ltd v Renown Investments (Holdings) Ltd, which permitted a late counter-notice notwithstanding a similar deeming provision.

The landlord appealed. The central issues were whether the deeming provision made the contractual time limit final and whether the Court of Appeal could decline to follow Mecca Leisure because it had wrongly distinguished the earlier Court of Appeal decision in AWADA.

1. Appeal allowed unanimously. Kay LJ, Arden LJ and Peter Gibson LJ held that the tenant’s counter-notice was void because it had been served after the contractual period expired. The judge’s order was set aside.

2. The principle in United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 is that a timetable in a rent review clause is presumed not to make time of the essence unless the express words, the interaction of the lease provisions or the surrounding circumstances provide a clear contra-indication. That principle does not authorise the court to disregard a contractual provision which changes the parties’ substantive rights upon expiry of the stipulated period.

3. The present deeming provision clearly stipulated the consequence of failing to serve a timely counter-notice: the tenant was to be treated as having agreed the rent stated in the landlord’s notice. Its natural meaning created a conclusive state of affairs and a substantive right to payment. Treating it merely as administrative machinery would rewrite the contract.

4. The wider rent review scheme confirmed that construction. It expressly permitted an agreed extension at a later stage, referred to rent increased by actual or deemed agreement, and required payment of rent fixed by agreement, arbitration or the deeming provision. Those features showed that the parties used the timetable as a means of finally determining the increased rent.

5. The majority in Mecca Leisure Ltd v Renown Investments (Holdings) Ltd (1984) 49 P & CR 12 had wrongly distinguished Trustees of Henry Smith’s Charity v AWADA Trading and Promotion Services Ltd (1984) 47 P & CR 607. Its emphasis on attaining a fair rent introduced an unjustified predisposition against final time limits and gave insufficient effect to the parties’ substantive bargain. The Court therefore declined to follow Mecca Leisure and applied the earlier ratio in AWADA.

6. Declarations were granted that the late counter-notice was void and that the annual rent from 1 August 1999 until expiry of the lease was deemed to have been agreed at £84,800. The landlord received its costs and repayment with interest. Permission to appeal to the House of Lords was refused.

1. Court of Appeal: The appeal was allowed unanimously. Neuberger J’s order was set aside, and declarations were granted that the late counter-notice was void and that the rent was deemed agreed at £84,800 per annum.
2. High Court, Chancery Division: On 6 June 2000 Neuberger J held that the tenant’s counter-notice was valid. He found no material distinction from Mecca Leisure Ltd v Renown Investments (Holdings) Ltd and decided for the tenant.