The question of upwards only rent reviews has come to the fore again with the decision of Mr. Justice Peter Charlton in the case of Ickendel Limited v Bewleys Café Grafton Street Limited. This case concerned the interpretation of a rent review clause in a lease made between Ickendel and Bewleys Café on the 22nd of September 1987 in respect of Bewleys Oriental Café on Grafton Street, Dublin.
Mr. Justice Charlton’s decision was grounded on his construction of the rent review clause itself, a truncated version of which he set out in his judgment, an extract from which is set out below.
The Lease provided for the payment of an initial rent of £168,000 per annum from the 6th of August 1987 to the 31st of December 1991 and thereafter:-
“during each of the successive periods of five years of which the first shall begin on 1 January 1992 a rent (hereinafter called “the first revised rent”) equal to the greater of (A) the rent payable under during the preceding period or (B) such a revised rent as may from time to time be ascertained in accordance with the provisions in that behalf contained in clause 6 hereof (whichever shall be the greater)”.
Clause 6 provided that the revised rent was to be
“full open market yearly rent for the interior building let as whole without fine or premium… on the basis of a letting with vacant possession thereof to a willing lessee for a term equal to that granted by the within written lease and subject to the provisions therein set forth (other than as to the amount of the initial rent thereby reserved)…”.
Mr. Justice Charlton’s decision turned on his interpretation of the phrase “preceding period”. He found that the “preceding period” should be construed as referring to that period commencing on the 6th of August 1987 and ending on the 31st of December 1991, not only in respect of the first rent review, but also in respect of all subsequent reviews. The rent payable during this period was £168,000 and he characterised this amount as the “base line” below which the revised rent could not be set by an arbitrator.
The learned Judge did admit that the rent review clause was ambiguous and open to interpretation however in coming to his decision he placed great weight on the fact that an open market rent of the premises is what was contemplated by the clear wording of the lease. In addition he found that nowhere in the lease was it expressly stated that the revised rent could not be less than the previous passing rent save for the “base line” rent of €168,000.
While most commercial leases do clearly state that the revised rent shall not be less than the previous passing rent, in which case there is no ambiguity in relation to the upwards nature of all rent reviews, since this decision we have come across two commercial leases in practice, one granted in the 1990s and the other only three years ago, in which the rent review clause was very similar to that of the Bewley’s lease. There may therefore be a number of these leases out there.
Mr. Justice Charlton’s decision has attracted criticism from a number of sources and it is likely that this judgment will be appealed to the Supreme Court not least because of the uncertainty which this decision has introduced with regard to the interpretation of upwards only rent review clauses. Having said that, pending a successful appeal, this judgment sets out the law in relation to the interpretation of rent review clauses which use the wording of that contained in the Bewleys lease.
Notwithstanding the foregoing we do not believe that the decision creates any new law or precedent upon which tenants may rely generally; save where the rent review clause mirrors or substantially mirrors that of the Bewley lease. Each lease will be interpreted on its own facts albeit this decision suggests that certain members of the judiciary may be open to giving the benefit of the doubt to an under pressure tenant should a similar case arise in the future.
This is a consideration all landlords should be mindful of when negotiating with their tenants at rent review time.
Hogan Dowling McNamara Solicitors are conveniently located at Castletroy House, Dublin Road, Limerick with plenty of off street parking.
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