Case: Ickendel Limited (Applicant) v Bewley's Café Grafton Street Limited (Respondent)
The question of upwards only rent reviews has recently come to light again in the form of a High Court decision of Justice Peter Charleton, delivered on 25 March 2013, in the case of Ickendel Limited v Bewley's Café Grafton Street Limited. While S. 132 of the Land & Conveyancing Law Reform Act 2009 applies to Leases granted on or after 28 February 2010, there has been continued debate about upwards only rent reviews in Leases granted prior to the coming into effect of S. 132. While the government promised to legislate to retrospectively ban such clauses the Attorney General subsequently advised that it is highly likely that such legislation would be unconstitutional.
The Bewleys case concerned the interpretation of rent review provisions in a 35 year lease that was entered into in 1987. The judgement given by Justice Charleton would appear to be given on the facts of the case before him and on his interpretation of the rent review provisions in that lease.
Bewleys, the current tenant under the lease, argued that the rent first fixed in 1987 was to be the base line rent below which level the rent on subsequent review could not drop. Ickendel, the current landlord, on the other hand, argued that the rent review was to be conducted on an upwards only basis so that the rent on review could never be less than the rent payable immediately preceding the relevant review date (i.e. the rent on review in 2012 would not drop below that set on review in 2007) being the usual commercial agreement reached in commercial leases of that vintage.
The lease provided that the tenant would pay to the landlord for the first 5 years of the Term "yearly rent of £168,000 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 during the preceding period or (B) such revised rent as may from time to time be ascertained in accordance with the provisions in that behalf contained in clause 6 hereof".
Clause 6 of the Lease provided that the reviewed rent was to be the "full open market yearly rent for the interior building let as a 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)...".
Justice Charleton discussed the principles of interpretation by which he is bound and, in particular, in his judgement he set out that:
- the meaning of an agreement is to be gleaned from the plain words of the agreement;
- there can be no rewriting of what the parties have agreed no matter how sympathetic one may be to the circumstances of either party; and
- the task of the court is to determine what the intention of the parties was having regard to the language used and the circumstances in existence when the lease was granted in 1987 and not the current circumstances.
In light of the above, Justice Charleton ruled that he was "not entitled to take into account that in the intervening five years since the last rent review, 2007 to 2012, rentals for retail and restaurant premises even in the best areas have dropped markedly nor am I entitled to substitute my own view of what would be a fair arrangement between the parties".
He therefore turned to look at the wording of the rent review clause and in particular the word "preceding". He said that "preceding" means "that which goes before and often means what goes immediately before". However, in the context of the Lease he held that if the word "preceding" was to be "unambiguously used to mean an event that was proximately before, a qualification should be put on the use of the word to ensure that there is no misunderstanding". As there were no such words of qualification, coupled with:
- the failure to expressly state that the preceding rent was fixed at the original rent; and
- the fact that there was no express clause in the lease providing that the rent would never decrease on review;
in his opinion, there was sufficient argument on both sides of the interpretation to enable him to look beyond the wording used in the lease and look to the intent of the parties at the time that the lease was entered into.
Justice Charleton ruled that the proper interpretation of the "preceding period" is that this phase relates to the initial rent reserved under the Lease (i.e. the £168,000) and not the rent in the period immediately preceding the 2012 review date. He arrived at this conclusion by having regard to the fact that the lease requires that the rent is reviewed on the basis of the "full open market yearly rent "coupled with the lack of an express clause in the Lease stating that the rent will not decrease on review.
This case is currently being cited in the media and indeed social media as a "landmark decision"; however, given the recentness of the decision (and possibility that it could yet be appealed) and that it would appear that the decision was made with regard to particular wording in a particular lease, it should not as of yet, in our view, be taken as authority that upwards only leases are now to be treated as being open market leases.
Indeed Justice Charleton's decision is difficult to reconcile on a number of grounds. If the words used in the lease are to be given their plain meaning surely the use of the word “preceding” could not be given any other meaning than referring to a time proximate to when the rent review is taking place and not to a period 25 years ago. Furthermore, the other rent review provisions in the lease which are discussed during the course of Justice Charleton's judgement only contemplate the rent increasing on review and not decreasing. Also, if this case is to be taken as authority and in effect the traditional understanding of “upwards only rent reviews” in pre 28 February 2010 leases is abandoned and by way of interpretation replaced by “threshold” clauses, this does not appear to sit comfortably with the advices given by the Attorney General to the Government which led the Minister for Finance Michael Noonan to announce in the 2012 Budget that the Government would not be introducing retrospective legislation abolishing upwards only rent reviews in existing leases. The advice from the Attorney General to Government was that any such retrospective legislation was at risk of constitutional challenge and the likelihood of success was high.
While each case it decided on its own facts, it should be borne in mind that the wording of the rent review case in the Bewley's lease is not dissimilar from the "standard" rent review clause used in leases throughout the country in the last 30 years to give effect to commercially agreed "upwards only" rent reviews. It is therefore thought likely that this decision will be appealed as it is likely to cause great uncertainty in the commercial property market and again trouble those contemplating investment in Irish commercial property.