Coors Holdings Ltd. v Dow Properties Ltd.

A rent-review clause ordinarily requires valuation of the whole demised premises, including buildings existing at the review date. That presumption may be displaced without an express formula if the lease gives a clear indication of a contrary intention. The words the site comprised in the demised premises meant land excluding buildings. Specific, non-standard wording prevailed over inconsistent provisions likely derived from standard rent-review precedents. The valuation was not of bare or vacant land. It was of the premises as they existed, with the rental value attributable to the building disregarded. The tenant’s payment for construction was relevant context but was not, by itself, determinative.

Coors was the original tenant under a 90-year lease of a public house. The rent was reviewable every ten years by reference to open market rental value. The lease defined that value by reference to the rental value at which the site comprised in the demised premises might be let. The tenant had been obliged to fund construction of the building under an agreement for lease.

Dow, the purchaser of the reversion, challenged the construction adopted by the High Court. The Deputy Judge held that the building was to be disregarded and declared that valuation proceeded on the assumption that the site was vacant and the building had not been erected. The central issue was whether the clause required valuation of the land alone, and if so whether the valuation assumed a bare vacant site.

Lord Justice Lloyd gave the leading judgment. Mr Justice Stanley Burnton and Lord Justice Chadwick agreed.

1. Starting point. The proper starting point was the lease itself, together with the ordinary presumption that a rent review values the whole demised premises, including buildings existing at the review date. The agreement for lease formed part of the relevant factual matrix because it was known to the original parties. The tenant’s payment for construction was relevant context, but it was not enough by itself to determine the construction.
2. Displacing the presumption. The approach in Braid v Walsall Metropolitan Borough Council (1999) 78 P&CR 94 was applied. A lease need not contain words expressly stating that buildings are to be excluded, but it must give a clear indication of a contrary intention.
3. Construction of the lease. The phrase the site comprised in the demised premises could not sensibly mean merely the location of the premises. It meant the land excluding the buildings. Although other provisions created tensions, including the disregards, repairing obligations, specialist valuation provision, user covenants and rent-suspension clause, the specific non-standard wording at the centre of the rent-review definition carried greater weight. The lease contained internal inconsistencies which could not be resolved into a wholly coherent construction.
4. Valuation assumption. The valuer was not to value a bare or vacant site on the assumption that the building had never been erected. The task was to value the demised premises as they existed, while disregarding the part of the rental value attributable to the building.
5. Disposition. The High Court’s declaration went too far in requiring the assumption that the site was vacant and the building had not been erected. The appeal was dismissed, but the declaration was varied in terms to be discussed. The respondent’s notice did not require determination.

• Court of Appeal (Civil Division) — dismissed Dow Properties Ltd’s appeal, subject to varying the declaration.
• High Court of Justice, Chancery Division — the Deputy Judge construed the rent-review clause as excluding the building and made a declaration on the basis that the site was vacant, in [2006] EWHC 1862 (Ch).