Rent review clauses are a common feature in leases. They provide for the rent payable by the tenant to be revised in accordance with principles set out within the lease and often allow landlords to ensure that the rent level can react to inflation and to the market.
Rent review clauses sometimes set a deadline for the landlord to instigate a review such that if the landlord misses this then the right to review the rent is lost. But what happens where a lease does not impose such a time limit and the landlord delays in seeking a review? This was the question at the centre of the recent case of Bello v Ideal View17.
In Bello v Ideal View, the High Court ruled on appeal that in the circumstances of this case a delay of 13 years would not of itself be sufficient to prevent a landlord from seeking to instigate a rent review. The Court relied upon the decision of the Court of Appeal in Ameherst v James Walker Goldsmith and Silksmith Limited18 in reaching this conclusion. The position may be different where the landlord has said or done something that could be construed as a representation that they will not seek to review the rent.
The court also confirmed that where the tenant had been given an opportunity to raise complaints about the landlord’s delay at an earlier arbitration on the rent (which took place in 2007) but failed to do so, then it is not open to the tenant to raise those issues in court to attack the landlord’s position. The judge is bound by the decision of the arbitrator.
Mr Bello bought the remainder of a 50-year lease of a property at auction in 2005, at which point the lease had approximately 14 years left to run. The initial rent was £60 per annum and this had not been reviewed, despite the lease containing a rent review clause under which the rent could be reviewed after the expiry of the first 25 years of the term, that is to say after 24 March 1994.
The terms of sale excluded the seller’s liability for any rent arrears over £60 per annum. Whilst this might be expected to arouse suspicion as to the possible existence of an outstanding rent review, Mr Bello raised no enquiries and purchased the leasehold interest.
In 2006 Ideal View bought the freehold interest in the property. They then tried to open discussions with Mr Bello regarding the review of the rent but Mr Bello did not respond. As a result Ideal View invoked an arbitration procedure under the lease to review the rent. Mr Bello did not take an active part in the arbitration proceedings. On 29 September 2007, the arbitrator fixed the reviewed rent at £1,700 per annum.
Ideal View wrote to Mr Bello informing him of the arbitrator’s determination and requested that he pay the arrears of reviewed rent (i.e. the difference between the £1,700 as set by the arbitrator and the original £60 per annum under the lease, backdated to 24 March 1994, being the end of the initial 25 year period during which the rent was fixed at £60 per annum).
Mr Bello did not reply and so proceedings for forfeiture were commenced in the County Court. Mr Bello defended but an order for forfeiture was made. Mr Bello appealed to the High Court.
Mr Bello argued that the delay by Ideal View in exercising the rent review clause meant that Ideal View was time-barred under section 19 Limitation Act 1980. The High Court agreed with the decision of the County Court that Mr Bello’s complaints about delay on the landlord’s part could and should have been put to the arbitrator, but were not. The High Court confirmed that it was bound by the decision of the arbitrator and that, as such, the appeal should be dismissed.
13 years could, in the absence of the arbitration decision, prevent the landlord from reviewing the rent. It concluded that the mere fact of delay alone would not be sufficient for Mr Bello to succeed (Ameherst v James Walker Goldsmith and Silksmith Limited was applied). If Mr Bello was able to point to other factors, such as a representation on the landlord’s part that it would not instigate the rent review, then the position may be different.
The Court also concluded that there was nothing in the rent review clause that said that the review had to take place within any particular time and that the first instance judge was right that there was nothing in the lease, either expressly or by implication, that made time of the essence.
This case should serve as a warning to anyone purchasing a leasehold interest where there is uncertainty as to whether historic rent reviews have been implemented. Enquiries should be made and in the event of any doubt a purchaser should consider seeking an indemnity from the vendor in respect of the risk of rent reviews relating to the period prior to the sale.