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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bellow Properties Ltd v Master Fellows & Scholars Of College Of Holy & Undivided Trinity Within Town & University Of Cambridge (Trinity College) [2001] EWCA Civ 1386 (31 July 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/1386.html Cite as: [2002] 1 P & CR DG6, [2001] EWCA Civ 1386

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(MR JUSTICE RATTEE)

		Royal Courts of Justice Strand London WC2 Tuesday, 31 July 2001

1. LORD JUSTICE JUDGE: I shall ask Sir Martin Nourse to give the first judgment.
2. SIR MARTIN NOURSE: This appeal raises a question of construction on a rent review provision in a commercial lease. In the court below Mr Justice Rattee described it, correctly, as a short point. On the view I take of it, the question can be dealt with even more briefly than it was dealt with by the judge.
3. The landlord is the defendant, Trinity College Cambridge, as successors to Leeds City Council ("the Council"). The tenant is the claimant, Bellow Properties Ltd. By clause 1 of a lease dated 16th June, 1970 a plot of land on the Council's Cross Green Light Industrial Estate in the City of Leeds containing about 6,730 square yards was demised by the Council to the claimant for a term of 85 years from that date at a yearly rent of £1,650.
4. The first part of clause 2 of the lease is in the following terms:

"The Lessees shall in default of agreement between the parties pay (1) during the period between the sixteenth day of June 1998 and the fifteenth day of June 2026 a yearly ground rent which shall be determined in accordance with the following formula (that is to say) such rent shall be the yearly ground rent (but not less than One Thousand and Six Hundred and Fifty Pounds) at which the demised premises alone excluding any buildings or other erections at any time thereon might reasonably be let without the payment of any premium in the open market on the sixteenth day of June 1998 at a ground rent with vacant possession and as a cleared site on the same terms (except as to the amount of the rent) and subject to the same incidents in all respects including a covenant to erect a building in accordance with the plans which have heretofore been approved by the Corporation as are contained in this present Lease..."

5. That is the provision out of which the question has arisen, the difficulty being caused by the reference to "a covenant to erect a building in accordance with the plans which have heretofore been approved by the Corporation". It is common ground that plans had been approved by the Council before the lease was executed and it appears from an underlease of the demised premises granted by the tenant on the same date that buildings had already been erected or were in course of erection thereon.
6. A number of other provisions in the lease were relied on in argument, but it is only necessary to refer to three of them. First, clause 4 contains two provisos, of which the second, so far as material, is in the following terms:

" (2) THAT the layout of the demised premises and the plans and elevations of any buildings to be erected thereon and the materials of which the same may be constructed and the drainage thereof shall be subject to the approval of the Corporation which approval shall not be unreasonably withheld.... and no building shall be commenced until planning permission shall have been received and the layout-plans and elevations thereof shall have been approved by the Corporation and the boundaries of the demised premises shall have been set out by the Corporation."

7. Secondly, clause 5(3) contains a covenant by the tenant:

"TO use the demised premises for the erection thereon of permanent buildings at the cost of the Lessees such buildings to conform to the building lines laid down by the Corporation and the plans elevations and layout approved by them under Clause 3 (2) hereof and to be constructed with materials and drainage approved as aforesaid."

8. It is common ground that the reference in clause 5(3) to clause 3(2) was intended to be a reference to clause 4(2). Thirdly, clause 5(4) contains a covenant by the tenant to commence the construction "of the said buildings" within nine months of the date of the lease and to complete the same within two years of such date.
9. Shortly stated, the rival contentions of the parties as to the true construction of the critical words "including a covenant to erect a building in accordance with the plans which have heretofore been approved by the Corporation" are as follows. The tenant contends that the words ought to be read literally, with the result that the hypothetical lease is to be deemed to contain a covenant to erect the very building for which plans had been approved before the lease was entered into. The landlord, on the other hand, contends that the words are simply an imprecise reference to the tenant's obligations in clause 5(3) and (4) to erect such building as is approved after the commencement of the lease in accordance with clause 4(2). The explanation for these respective stances, the accuracy of which will be a question of valuation to be decided in due course, is the tenant's belief that a covenant to erect a building in accordance with the plans approved in 1970 would have a depressive effect on the value of the demised premises to the hypothetical tenant, thus reducing the amount of the new rent.
10. Mr Justice Rattee preferred the contention of the tenant. In reference to clause 2 of the lease he said:

"It seems to me that the intention of the parties is very clearly expressed in it. It may be not wholly aptly expressed, in the sense that there is not an entirely happy fit between the reference to the hypothetical lease including all the same incidents as are included in the existing lease on the one hand and to its including a covenant to build in accordance with the plans which had already been approved on the other hand, but the effect of the inclusion of the express words `including a covenant to erect a building in accordance with the plans which have heretofore been approved by the Corporation' seem to me to make inescapable the conclusion that the parties did indeed intend what they said, namely, that the hypothetical tenancy to be assumed on rent review should be one which included a covenant to erect a building in accordance with plans which had been approved prior to the date of the 1970 lease."

11. The judge also rejected an alternative argument advanced by the landlord, to the effect that, if the language of clause 2 was too clear, so that the hypothetical lease must include an obligation on the tenant to erect a building in accordance with the plans approved in 1970, nevertheless the other provisions of the lease, in particular clauses 4(2) and 5(3), must also be incorporated. The result of that would be, so the argument ran, that it was still open to the tenant to seek approval for plans for a more modern design to which the landlord would not be entitled unreasonably to refuse its consent. However, the judge thought that the alternative argument was unreal on the ground that, if the language of clause 2 was clear, it could not be unreasonable for the landlord to withhold its consent to the erection of a wholly different building.
12. The judge refused the landlord permission to appeal. In seeking permission from this court the landlord initially restricted its application to its alternative argument, for which permission was granted by Lord Justice Mummery on consideration of the documents on 9th August 2000. During the argument before us and with some encouragement from the court, Mr Rodger, for the landlord, sought and was granted permission to raise its primary argument as well.
13. It is necessary to give close consideration to the wording of clause 2 of the lease. It prescribes a formula for determining the yearly ground rent to be paid between 16th June 1998 and 15th June 2026. Stripped of inessentials and with the critical words omitted, the formula provides that the new rent shall be the yearly ground rent (but not less than £1,650) at which the plot of land might reasonably be let without the payment of any premium in the open market at a ground rent with vacant possession and as a cleared site "on the same terms (except as to the amount of the rent) and subject to the same incidents in all respect as are contained in this present Lease". Thus without the critical words the hypothetical lease would include all the provisions of the lease itself except as to the amount of the rent. In particular it would include clauses 4(2) and 5(3) and (4). It would not include a covenant to erect a building in accordance with the plans approved in 1970 because no such covenant is included in the lease itself.
14. What then is the effect of the critical words? The argument of Mr Morshead, for the tenant, necessarily imposes on the hypothetical tenant an obligation which is not one of "the same terms" or "the same incidents" as are contained in the lease itself. It is inept to describe it as being included in those terms and incidents. Mr Morshead seeks to overcome that difficulty by suggesting that the critical words should be read as if they had been prefaced by "but". However, quite apart from the general difficulty of supplying an exceptive conjunctive, here there is the particular objection that just such a use is made earlier in clause 2, sc. "but not less than one thousand six hundred and fifty pounds". That makes it very difficult to read the critical words as if they had been similarly prefaced.
15. There are other objections to the tenant's construction, some of them linguistic and others based on commercial common sense. So to read the critical words is to make a further exception to the terms and incidents of the lease itself, notwithstanding that it is expressly provided that the only exception shall be as to the amount of the rent. Moreover, the tenant's construction involves an unexplained and uneasy superimposition of a covenant to erect a building in accordance with the plans approved in 1970 on the detailed provisions of clauses 4(2) and 5(3). Does it mean that those provisions are to be ignored or are they to survive in some way and, if so, to what extent? As for commercial common sense, it seems very odd that a formula for a rent review which is to take place 28 years after the lease has been entered into should be deemed to incorporate a covenant to erect a building which was acceptable at the date of the lease and not one which would be acceptable at the date of the review.
16. All these objections are avoided by the landlord's construction, which itself faces the single, but formidable, objection that it departs from the literal meaning of the critical words. But is it, on reflection, unrealistic to suggest that they are simply an imprecise reference to the obligations in clause 5(3) and (4)? I do not think that it is. It was suggested in argument that "heretofore" might have been a slip for "theretofore". While I would not put it quite in that way, I do think that it may be possible to read "heretofore" as meaning "beforehand", especially when clause 5(3) provides that the buildings to be erected shall conform with plans previously approved by the Council. Moreover, if it was intended that the plans approved in 1970 should be of such crucial significance in relation to the rent review provision, it is difficult to know why clauses 4(2) and 5(3) should have been drawn as they were and without any reference to those plans.
17. Although the question is a difficult one on which my mind has fluctuated both during the argument and afterwards, in the end I have come to a clear view that the landlord's construction is to be preferred to the tenant's. That makes it unnecessary to express a concluded opinion as to the merits of the landlord's alternative argument, about which I will say no more than that, as at present advised, I see great difficulty in differing from the view of Mr Justice Rattee.
18. I would allow the appeal and, in place of the declaration made by the judge, I would make a declaration to the effect that the critical words in clause 2 of the lease should be construed and take effect as if they referred to a covenant to erect a building in accordance with clause 5(3) and (4) thereof.
19. LORD JUSTICE MUMMERY: I agree. As we are differing from the judge, I shall add a few words of my own on the approach to construction.
20. In Basingstoke BC v Host Group Limited [1988] 1 WLR 348 at 353 D-E Nicholls LJ said that, in answering a question of construction of a rent review clause in a lease,

"...it is axiomatic that what the court is seeking to identify and declare is the intention of the parties to the lease expressed in that clause. Thus, like all points of construction, the meaning of this rent review clause depends on the particular language used interpreted having regard to the context provided by the whole document and the matrix of the material surrounding circumstances. We recognise therefore that the particular language used will always be of paramount importance. Nonetheless it is proper and only sensible, when construing a rent review clause, to have in mind what normally is the commercial purpose of such a clause."

21. He went on to explain that rent review clauses are the means of affording relief to landlords "in respect of increases in property values or falls in the value of money". In general, this aim is achieved by a valuation exercise involving a notional letting of the property on the same terms (other than the amount of rent) as those subsisting between the parties in the actual lease.
22. In my judgment this approach is more supportive of the landlord's construction than of the tenant's construction of clause 2 of the lease. The clause requires the notional lease to be "on the same terms....and subject to the same incidents in all respects....as are contained in the present lease". The effect of clauses 5(3) and 4(2) was to include in the 1970 lease a covenant to use the property for the erection of buildings conforming to plans, elevations and layout approved by the landlord. There was not included in the 1970 lease a term that the plans for the building to be erected were to be the specific plans actually approved by the Corporation before the grant of the lease. The tenant, contends, however, that such a covenant is to be an additional term of the notional lease posited for the purposes of the rent review valuation exercises in 1998 and 2026.
23. The principal difficulty with the tenant's construction is that the almost parenthetical location of the critical words in clause 2 indicates that the covenant to be included in the notional lease is itself the same as one of the terms in the 1970 lease. The effect of the tenant's construction is that the notional lease would include a term which was not in the 1970 lease.
24. In my judgment it is more likely that the reference in clause 2 to "including" in the notional lease a covenant to erect a building in accordance with plans which have been approved heretofore by the Corporation is intended, albeit awkwardly, to confirm that clause 5(3) of the 1970 lease should be included in the notional lease. It is difficult to see what sensible commercial purpose the parties could have intended to achieve by a continuing reference to pre-1970 plans in a notional lease on the rent reviews in 1998 and 2026. Further, the language of clause 2, though imprecise and unsatisfactory, is sufficiently clear in its strong emphasis on a notional lease on the same terms and the same incidents as the 1970 lease, to support the landlord's construction. The tenant's construction requires a new term relating to approved pre-1970 lease plans to be included in the notional lease. That would be inconsistent with the clear requirement that the notional lease should be on the same terms (which would include clause 5(3) of the 1970 lease).
25. LORD JUSTICE JUDGE: I agree with both judgments.
26. It is unfortunate that, for the reasons given in those judgments, the construction of the lease at present under consideration is not quite as straightforward as it should be. Confining myself exclusively to the terms of the lease itself, the construction advanced by the tenant seems to me to be contradicted by the commercial sense of the agreement.
27. In 1970 two rent reviews were planned, to take place in 1998, and, again, in 2026. At these reviews the yearly ground rent was not to be reduced below the level agreed in 1970. The further valuations were to allow for a covenant to erect a building on the site, which the tenant covenanted to build. From the point of view of both the tenant and the landlord, this development of the site would be surprisingly circumscribed by a requirement that the building should be based on plans drawn up in or about 1970. It would mean that while planning for the long term future, the parties to the agreement had immutably fixed the valuation of the site by reference to plans drawn up in 1970. That does not make commercial sense and provides ample support for the conclusions reached by Sir Martin Nourse and Mummery LJ on close analysis of all the relevant provisions in the lease.
Order: Appeal allowed with costs in the sum agreed between the parties: £8,540; appellant's costs below, to be agreed if possible, otherwise there will be a detailed assessment; issue of the new machinery for the rent review adjourned to 1 October, liberty to apply; parties through their counsel to hand in terms of the declaration; if not agreed, liberty to apply.