Retrospective Rent Reviews In Commercial Leases

Simon Waterfield

A question often asked by commercial landlords is whether they are able to retrospectively invoke rent review clauses in their commercial leases. In this blog, we explore the answer.

Retrospective rent reviews – the general presumption

There is a general presumption that time is not of the essence in commercial rent review clauses. In United Scientific Holdings v Burnley Borough Council [1978] AC 904 the House of Lords concluded that time being of the essence should not be implied into commercial rent review clauses unless there are sufficient “contra-indications” suggesting otherwise.

In plain English, this means that a landlord of commercial premises is under no obligation to trigger a review of rent payable under a commercial lease by any given time during the term unless there are sufficient indications to the contrary. Such contra-indications can include (but are not limited to):

  1. The express wording of the lease;
  2. The relationship between the rent review clause and other clauses in the lease; and
  3. Other general circumstances surrounding the rent review and the conduct between the contracting parties.

Each of the above rely upon the general principles of contractual construction and shall now be briefly examined:

  1. Express wording of the lease

Whereas most modern leases expressly provide that time is not to be of the essence, the construction of the rent review clause itself can often catch out the unwary party.

For example, in Starmark Enterprises Limited v CPL Distribution Limited [2001] EWCA Civ 1252, the rent review clause provided that if the tenant’s counter-notice to the landlord’s rent review notice was not served on time, the tenant would be deemed to have accepted the landlord’s terms. Predictably, the tenant’s counter-notice was served late and the Court was asked to consider whether the wording of the clause rebutted the presumption that time was not of the essence.

The Court of Appeal held that it did and that the tenant was bound by the terms set out in the landlord’s notice.

  1. Relationship between the rent review clause and other clauses in the lease

Commonly (although not always), rent review provisions are linked to break clauses so that the tenant can escape the lease if the landlord’s rent increase becomes unaffordable upon review. Since time is generally of the essence for the tenant in exercising its option to break, a link between the break clause and the rent review clause will usually be a sufficient contra-intention to rebut the general presumption in respect of rent reviews.

Again, however, it is a matter of construction of the terms of any given lease and so detailed consideration of the contractual terms governing the parties’ relationship is required. For example, the Court in Samuel Properties v Hayek [1972] 1 WLR 1296 were asked to consider whether a landlord’s right to invoke a rent review provision was time limited when it was exercisable before the contractual right for the tenant to exercise a break option.

The Court held that it was time limited when the two provisions were read together. The terms of the lease were clear – the landlord was required to give “two quarters” notice to review the rent in contemplation of the 7th and 14th year of the term. However, since the tenant only had to give “one quarters” notice expiring at the same time, this clearly rebutted the general presumption.

  1. Other general circumstances

In H Turner & Son Limited v Confederation Life Insurance Co (UK) Limited [2002] EWHC 2949, the Court was asked to consider the effect of a contractual right on the part of the landlord to serve a rent review notice on the tenant out of time.

The High Court held that such a provision made time of the essence in respect of the “normal” rent review notice and, as a result, the landlord was not able to claim the higher rent from the time that they otherwise might have done had the rent review option been exercised properly.

The takeaway

Despite the cases referred to above, the general presumption is not easily rebutted. However, where there are sufficient “contra-intentions” the Court will displace the presumption and the landlord may then be prevented from exercising their option.

As we have said, however, much turns on the construction of the lease and so it is essential that legal advice is sought before seeking to invoke an out of time rent review provision.


Retrospective rent reviews – how can Nelsons help?

For more information regarding rent review clauses or any related subjects, please call a member of our expert Dispute Resolution team, in Derby, Leicester or Nottingham on 0800 024 1976 or contact us via our online form.

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