Rent review and "deeming" provisions

Citation

Dowden, M. (2001), "Rent review and "deeming" provisions", Journal of Property Investment & Finance, Vol. 19 No. 6. https://doi.org/10.1108/jpif.2001.11219fab.001

Rent review and "deeming" provisions

Malcolm DowdenNabarro Nathanson

Rent review and "deeming" provisions

On 31 July 2001 the Court of Appeal ruled in Starmark Enterprises Ltd v. CPL Distribution Ltd that time was of the essence where a rent review clause allowed a landlord to serve notice proposing the reviewed rent and required the tenant to serve a counter-notice within a specified time, failing which the figure contained in the landlord's notice would stand. The Court of Appeal ruling in Starmark does not disturb the general rule (laid down by the House of Lords in United Scientific Holdings v. Burnley BC [1977] 2 EGLR 61) that time will not be of the essence for a rent review clause unless there is a sufficient indication to the contrary. It does, however, clear up a conflict between two previous Court of Appeal decisions, Henry Smith's Charity Trustees v. AWADA Trading and Promotion Services Limited (1984) and Mecca Leisure Limited v. Renown Investments (Holdings) Limited (1984), as to the effect of a timetable for service of notice and counter notice to settle a rent review.

In AWADA the majority of the Court of Appeal held that time was of the essence because the lease provided that the figure specified by the landlord would be the reviewed rent unless the tenant challenged the landlord's figure in time. In Mecca the Court held that time was not of the essence in these circumstances because the time limits were merely administrative and did not rebut the underlying presumption. Because the facts in Starmark were virtually indistinguishable from those in Mecca Neuberger J was reluctantly compelled as a judge of first instance to follow that case.

The Court of Appeal found that Mecca had been wrongly decided. To read a deeming provision as a merely administrative procedure is to rewrite the contract by which the parties agreed to be bound. Preferring AWADA, the Court of Appeal confirmed that, where the parties have agreed a timetable for the service of notice and counter notice, failure to serve the counter-notice in time means that the figure stated in the landlord's initial notice will stand. As Lord Justice Kay observed, "I am of the view that the deeming provision in this rent review clause clearly sets out what the parties to the contract intended should be the position once the required period had elapsed".

Starmark is unlikely to have a major effect on the negotiation of new leases: such deeming provisions are rare in modern forms of lease. However, such clauses will still be encountered in older leases and so must be spotted on due diligence. Similarly, they will continue to be incorporated in renewal leases under the 1954 Act. Tenants and their advisers must therefore be alive to the need to comply with the timetables set out in those leases.