Rent Review: when is time of the essence?

Insights - 02/01/2018

In the recent case of Proxima GR Properties Ltd –v- Michael Spence, the Court was asked to assess whether the landlord was barred from implementing an extant rent review. The question arose because the tenant had sent a letter to the landlord with the intention of making “time of the essence”.

What does “time is of the essence” mean?

Where time is of the essence in relation to the exercise of a right,  failure to exercise that right within the time limit means that the right is lost.

If time has not expressly been made of the essence of the agreement, it may be implied by the actions of the parties, including, in some circumstances, by one party serving notice on the other requiring performance of the obligation by a particular time.  This is what the tenant attempted to do in this case.

The general presumption is that, time is not of the essence in rent review clauses, unless there are sufficient indications to the contrary.  Therefore, it is not uncommon for landlords to delay in the implementation of rent reviews and time is rarely of the essence.

If time is made of the essence and the review is not exercised in time, the consequences for the landlord could be significant.

Background

This case turned on the interepreation of the rent review clause, which provided that the review could be commenced as follows:-

“on the application by the Lessor made at any time after the expiration of the 20th, 41st, 62nd, 83rd or 104th year of the said term (as the case may be)”. 

It was common ground that the first rent review should have taken place on 1 December 2005.  But this did not happen. In fact, nothing happened until January 2010 when the tenant wrote to the landlord inviting it to implement the review and seeking to make time of the essence for doing so. In his letter, the tenant said:

“I am therefore giving you notice that time is now of the essence in respect of the rent review, and that I now require this to be completed and that I should be informed in writing accordingly by not later than 4pm on 1 March 2010.”

There was no response from the landlord.

Eventually, on 3 March 2016, more than 10 years after the rent review was due and 6 years after the tenant had purported to make time of the essence, the landlord appointed a surveyor to review the rent. It was not until 29 September 2016 that the new rent was determined. The tenant claimed that this was time barred on account of his letter in January 2010.

The Appeal Decision

In the first instance, the Court sided with the tenant, with the result that the landlord was debarred them from implementing the review.

The landlord appealed on the basis that the lease did not provide a deadline for the landlord to initiate a rent review. Moreover, it was argued that the clause expressly allowed the appointment of a surveryor “at any time after the expiration of the 20th… year of the said term”.

This time, the Court symthsied with the landlord and overruled the decision of the lower court. It went on to say that the lower Court should have had regard to the Handbook of Rent Review and, in particular, the following passage was quoted:

“… it is axiomatic that, in order for a party to be able to serve notice making time of the essence, there must be a time limit (express or implied) for the step in question… If the rent review clause merely entitles the landlord to initiate a rent review at any stage (without stipulating when the initiation must take place), then a notice purporting to make time of the essence will simply be of no effect, there being no time limit to which such a notice could attach.”

Comments

The decision will provide some comfort to landlords who are late in implementing a rent review, but it would be prudent to check whether there is a time limit.

It is easy to sympathise with the tenant here. The landlord’s delay meant that the extant rent review loomed in the background for over 10 years. During this time, the tenant would have been unaware of its precise rental liability, thus making it difficult to budget.

Ultimately, however, the tenant here lost something that he never had in the first place (i.e. the ability to make time of the essence).  So, the result is not too catastrophic, but he will have incurred a significant amount of time and cost in getting to this point.

Adam Waters is a Litigation Executive in the Dispute Resolution Team at Morrisons specialising in landlord and tenant advisory services and disputes. Should you have any questions, please contact him by phone on 01737 854539 or by e-mail: [email protected]

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