A nice photo of Peascod Street Windsor appeared in a recent Linked-In post (Mark Robinson Senior Chair River Island) in the context of Upward Only Rent Reviews contributing to the decline of the High Street.

Christopher Thomas have just let the top left unit at £166 itzA having rent reviewed one on the right 18 months ago at £145 itzA. As an RICS Accredited Expert I watched swathes of rent review departments disappear in the 90’s recession. Upward or downward would have kept us all there. Quoting the French revolutionary Proudhon 1840 “all property is theft” or is that “all proper tea” Not sure, better put the kettle on !

Market cycles apply the 1954 Landlord & Tenant Act on renewal, which already allows for an upward or downward mechanism. The government is currently considering legislating rent reviews, in addition to lease renewals, to permit the same for new leases.

This leaves a tenant perhaps advantaged in negotiation, against the notion a rent from an owner landlord’s perspective is in the majority case simply attempting to keep pace with inflation. The price of bananas is if you like, the price of bananas being (upward only). Furthermore whereas business rates and utilities costs are very much fixed whilst adjusted to inflation, the landlord who may be accused of being “greedy” sits at the vagaries of one of the few variable costs – rent.

A downward rent at review may have some implications perhaps not yet considered by the politicians. One for example, the ability for upward and downward reviews makes a lease more valuable to a tenant than the landlord – a more valuable lease might have a contrary result in market terms of a higher rental value, reflecting the flexibility the tenant has. Another, easily contemplated although not particularly palatable implication is the fundamental change such legislation might bring to the finance-ability of commercial property.

The notion of introducing statutory upward or downward reviews appears predicated in pursuit of The Convention of Human Rights (1950) obligations arising from the post war Treaty of Rome – the right to example for a fair trial for example, and our Prime Minister is of course a former Human Rights Lawyer.

I have seen efforts to prevent landlord redevelopment of premises by being forced to grant a new lease on the grounds of a tenant’s ongoing “right to assemble” Such notion has not been accepted by the Courts yet though. It seems to stretch the Human Rights intended soon after WWII  aimed at preventing extremist regimes raising their face – so perhaps not quite contemplating commercial property leasing within this mix. A balance of perspective seems to be on the edge of invasion here, where perhaps it was never meant to be at this level.

Over the past decades leases have altered significantly, with many commercial properties let on shorter terms – unless the tenant prefers longer (retail businesses such as restaurants for example). Although on lease renewal many are opting for shorter where The Landlord & Tenant protection under the ’54 Act flexibility exists. Moving on to rent reviews in a day to day practitioner’s role  – although parties may have known what they meant to agree the wording, syntax or lease process can provide ambiguity, so the law centring around rent reviews has already evolved significantly in an attempt to accommodate this.

Generally time is not of the essence to a review date (United Scientific v Burnley BC 1977). There have as you might expect since the ’70’s been Court Cases which have not followed each other’s decisions, such is the complexity of case law and equity. Where time is specified, the general understanding is if a contract states a positive step has to be taken by a certain time the presumption is time is not of the essence note though, if a contract says failure to take a step by a particular date means rent is fixed at a figure stipulated in a landlord notice the landlord is allowed that step to be taken late to enable the rent to be determined at the true figure. You can see the semantics here although ………..

it is now most unusual to see rent review clauses in modern leases with specific timetables for a review – the assumption however should not be made there is not one – each lease needs to be read carefully even if for example, a series of leases in a retail parade with the same landlord. Who knows what the lawyers might have agreed in each instance.

Strategically where even if time is not of the essence the United Scientific case allows for time to be made of the essence in proceedings. Lord Diplock said as follows: “Once time has elapsed that was specified for the performance of an act in a stipulation as to time which was not of the essence of contract , the party entitled to performance could give to the other party notice calling for performance within a specified period; and provided that time was considered by the court to be reasonable, the notice had (has) the effect of making it time of the essence of the contract that performance should take place within that period”

This process provides a degree of certainty especially where clauses are contained in a unilateral manner, i.e. one party has rights which the other does not, resulting in delays, case in point Barclays Bank Plc v Saville Estates Ltd (2002).

The length of the lease term to be assumed in a rent review clause (the hypothetical term) can often vary from the actual term or the pattern of periodic rent reviews. If the hypothetical term is short some tenants might argue there has not been enough time to amortise their capital expenditure for moving costs and fit out – conversely a landlord might argue too long a hypothetical term works against general market practice for certain types of property, so works against the landlord. In many instances the hypothetical term has been ignored by the Courts in favour of the presumption of reality, therefore what appears to be fair.

Similar is true of “headline rent” assumptions ignoring enticements provided by landlords, whereby using the “headline rent” protects against market fluctuations. Few Court cases survive the scrutiny of a Court basing a policy of presumed reality, case in point The Cooperative Wholesale Society v National Westminster Bank Plc (1995).

Retail lease renewals sometimes do sometimes do not take account of an assumed 3 month tenant fit out period by way of deduction against a headline rent or rental comparables – this has only ever been tested in junior courts. HPUT v Boots UK Ltd (2002) for example, ignoring the tenant fit out period (as one was granted to the tenant invariably at the outset of the original lease).

In a 1999 Privy Council Case (commonwealth jurisdiction cases) Jumbo King Ltd v Faithful Properties Ltd  Lord Justice Hofmann summarised elegantly as follows : “The overriding objective in construction (of clauses) is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore in spite of linguistic problems, the meaning is clear, it is the meaning which must prevail”

This can be likened to Southern Foundries Ltd v Stirlaw (1926) where Lord Justice Mackinnon acclaimed – “if an officious bystander were present, what would he say “Oh, of course” – which is based if you like on the same principle as the independent man on The Clapham Omnibus observing reasonable common sense.

As you can see rent reviews whether upward only or not are a specialist area of property valuation – and law. By adding to the mix a government considering the introduction of upward or downward reviews, one may be left wondering if they are trying to find alligators in The Nile – in which case they will need another river entirely of course, there being only crocodile smiles in The Nile. Watch out for their tears too. Whatever happens we are always pleased to help and assist.

Christopher is on the RICS President’s Panel of Accredited Expert Witness Surveyors. He conducts rent reviews and lease renewals on a day to day basis, narrowing gaps where there are gaps to be narrowed during without prejudice negotiations, or as may be necessary arbitration and court proceedings under Civil Procedure Rules.