Bellow Properties Ltd v Master Fellows and Scholars of the College of the Holy and Undivided Trinity within the Town and University of Cambridge (Trinity College)

A rent review clause must be construed by identifying the parties’ intention from the language of the clause, read in the context of the lease and its commercial purpose. A notional lease stated to be on the same terms and subject to the same incidents as the existing lease will generally incorporate the existing covenants, rather than impose an additional obligation which was not contained in the original lease. Awkward wording may be read as an imprecise reference to an existing covenant where that construction better fits the lease as a whole and avoids commercially unrealistic consequences.

The tenant held an 85-year lease of an industrial site granted in 1970. The rent review provision required the rent to be assessed by reference to a hypothetical letting of the premises on the same terms and subject to the same incidents as the existing lease, including a covenant to erect a building in accordance with plans approved by the landlord.

The tenant contended that the hypothetical lease had to require construction of the building shown in plans approved before the 1970 lease. The landlord argued that the wording referred imprecisely to the existing covenants requiring construction in accordance with plans approved under the lease. Mr Justice Rattee accepted the tenant’s construction. The landlord appealed.

1. Appeal allowed. The critical words in the rent review clause were construed as referring to the tenant’s covenants in clauses 5(3) and 5(4), rather than requiring construction of a building in accordance with the specific plans approved in 1970.

2. The clause required the hypothetical lease to be on the same terms and subject to the same incidents as the existing lease, except as to rent. Without the critical words, that wording incorporated clauses 4(2), 5(3) and 5(4), but did not impose a separate covenant tied to the 1970 plans.

3. The tenant’s construction would introduce an additional term not contained in the lease and would create uncertainty about the relationship between that term and the detailed approval provisions. It would also produce the commercially improbable result that rent reviews in 1998 and 2026 were assessed by reference to plans prepared around 1970.

4. Per Sir Martin Nourse, the landlord’s construction was linguistically imperfect but commercially and structurally preferable. Per Mummery LJ, the ordinary approach to construing rent review clauses, identified in Basingstoke BC v Host Group Limited [1988] 1 WLR 348, supported that conclusion. Lord Justice Judge agreed with both judgments and considered the tenant’s construction contradicted by commercial sense.

5. The declaration below was replaced. The appeal was allowed with agreed costs of £8,540, with costs below to be agreed or assessed. The issue of new rent review machinery was adjourned.

• Court of Appeal (Civil Division): Appeal from the Chancery Division allowed. The declaration made by Mr Justice Rattee was replaced by a declaration adopting the landlord’s construction.