Summary

The wording of a phrase in a rent review clause meant that the open market rental value to be determined on a rent review was the rental value of the demised premises disregarding the effect on the rent of there being a building on it.

Facts

The appellant landlord (D) appealed against a declaration made in favour of the respondent tenant (C) in respect of the subject matter of a rent review clause in a lease agreement. D's predecessor had entered into an agreement with C that a lease would be granted in respect of an area of land on C's completion of the construction of a public house on part of that land. The building was completed and the lease was granted. The rent review clause in the lease agreement provided that there would be a rent review every 10 years that would bring the rental value of "the site comprised in the demised premises" in line with an open market valuation. A declaration was sought as to whether that clause required the open market rental value to be determined by reference to land and building or land alone. The judge held that the phrase "the site comprised in" meant that, for rent review purposes, only the part of the demised premises that consisted of the site excluding the building should be valued to determine the open market rental value. The judge accordingly made a declaration that in establishing the rental value of the demised premises, the valuation should be carried out under the assumption that the building did not exist. D submitted that the judge had relied entirely upon his interpretation of the phrase "the site comprised in" in coming to his decision and that a clearer indication had been required to displace the normal assumption that the rent on a review was for the whole demised premises.

Held

In construing a rent review clause, the correct starting point was undoubtedly the terms of the lease and the assumption that one would normally expect the rent on review to be for the whole premises. The lease had to give a very clear indication of a contrary intention if it was to negative that general rule, Braid v Walsall MBC (1999) 78 P & CR 94 applied. In the instant case, on the proper construction of the lease, the phrase "the site comprised in" could only be referring to the land without the building. It was true that provisions made elsewhere in the agreement were in conflict with that position but they were likely to have been standard terms that were included without realisation that they might be in need of modification. In any event, the wording of the agreement meant that any interpretation of the clause would lead to certain internal inconsistencies. Although the judge had been correct in his interpretation of the phrase, his declaration had to be varied and the court therefore substituted the declaration that the open market rental value to be determined on the rent review was the rental value of the demised premises disregarding the effect on the rent of there being the building on it that there was, namely the public house.

Judgment accordingly