Hemingway Realty Ltd v Clothworkers' Company

A rent review clause is construed principally from the language used in the lease. Commercial assumptions about the purpose of rent review may assist in resolving ambiguity, but cannot override clear wording.

There is no general presumption that an open rent review must be mandatory or exercisable by both parties. The parties may confer an exclusive right to initiate review on the landlord. If a reviewed rent becomes the rent reserved under the lease, it continues for the remainder of the term unless the lease provides otherwise; failure to initiate a later review does not automatically restore an earlier rent.

The claimant tenant sought declarations concerning rent review provisions in a deed varying a long commercial lease. The clause described the landlord as having the right to review the yearly rent on specified dates, but the review was open rather than upwards-only.

The landlords had initiated reviews in 1982 and 1989, producing a rent of £375,000 per annum. They declined to initiate the 2003 review because it might reduce the rent. The tenant argued that the review machinery was mandatory or exercisable by either party, alternatively that the rent reverted to the 1982 level if no review occurred. The central questions were the effect of the definition of the appropriate percentage and whether the landlord alone could initiate review.

1. The claim was dismissed. Declarations were made in favour of the defendants, with the form of order and costs reserved for further argument.
2. The reviewed rent did not revert automatically to the 1982 rent if no later review occurred. Under the deed, once a review was completed, the revised rent became the yearly rent reserved for the remainder of the term, subject to any later review. Clause 5(3)(v) operated within an initiated review process. It allowed the tenant to continue paying the existing rent pending determination and did not reduce the rent by implication where no review was commenced.
3. The commercial purpose of rent review clauses may help resolve ambiguity, but it cannot displace clear contractual language. Basingstoke and Deane Borough Council v Host Group Ltd [1988] 1 WLR 348 concerned the assumptions governing the valuation of premises on review. It did not establish that every review must occur or that review machinery must be available to both parties.
4. The words giving the lessor the right to review had a plain meaning. The related reference to the landlord’s exercise of that right, and the provision for expert nomination at either party’s instigation, reinforced that construction. The absence of an upwards-only formula and the inclusion of the 1982 review date did not justify converting the landlord’s exclusive right into a mandatory or mutual power.
5. United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, Royal Bank of Scotland v Jennings [1997] 1 EGLR 101, and the New Zealand authorities showed that rent review clauses may validly range from landlord-controlled reviews to mandatory reviews. The distinction depended on the agreement as a whole. The court adopted the reasoning supporting that distinction and held that the defendants were entitled not to initiate the 2003 review.