Summary

Whether a rent review clause in a commercial lease was a rachet clause or allowed upwards and downwards adjustments to the rent payable.

Facts

Appeal by a tenant against a decision of Judge Roger Cooke in the Chancery Division that a rent review clause in a lease allowed only increases in rent as opposed to increases and decreases. Standard Life, as purchaser of the reversion of a 35 year lease of industrial premises in Basingstoke, was landlord to Unipath, who was the assignee of the term of that lease. The lease contained provision for a five yearly rent review; upon such a review falling due in 1994 the parties were unable to agree on what should be paid and the referral of the matter to arbitration resulted in a conclusion that the rent should be decreased. The landlord contended the rent review provision to be a 'ratchet clause' which did not provide for a decrease in rent. The tenant disagreed and paid only the decreased rate of rent. In 1995 the landlord issued a writ claiming arrears of rent. The tenant defended the claim and sought a declaration that the review clause was not upward only and that only the lower rent was payable. No issue of fact arose; the case turned on the construction of the lease. The judge gave judgment for the landlord. The tenant appealed.

Held

(Per Aldous LJ and Stuart-Smith LJ) (1) The landlord was requiring review of the 'lease rent'; i.e the rent reserved by the lease. By substitution following previous rent reviews, the rent reserved by the lease at the time that the landlord called for this review was the actual rent payable at that time. It was therefore this rent, not the initial rent paid when the lease was first granted in 1974, which was being reviewed. (2) The use of the words 'further increased' were not consistent with a downward review of that rent. Those words were clear and meant 'increased again'. In effect they showed that the clause contemplated incremental increases. The clause was a rachet clause. (3) The rent review could only be triggered by the landlord; this was an indication that the parties did not intend the rent to go up and down. The appeal would be dismissed. (4) (Per Peter Gibson J, dissenting) The tenant's construction gave effect to and reconciled every part of the agreement and was to be preferred. Every reference in the clause to an increase in rent was qualified by words explaining that increase. 'Further increased' could mean 'subsequently increased'. The landlord had invoked the review and must abide by its consequences. He would allow the appeal. Appeal dismissed by a majority.