Outstanding rent reviews – a cautionary tale

Bello v Ideal View [2009] EWHC 2808 (QB) — a case not yet available on bailii — illustrates the dangers with leaving a rent review outstanding.

Mr Bello bought what appear from the transcript to be residential premises at an auction in July 2005. The had been let on a 50 year lease in May 1969 at an annual rent of £60 to be paid quarterly. The terms of sale excluded the seller’s liability for arrears of rent above £60 per annum. Such an exclusion should make any purchaser’s ear’s prick up because it suggests there may be an outstanding rent review and thus an possible additional liability for rent.

Unfortunately for Mr Bello that was the case. The lease provided for a rent review after the first 25 years of the term in March 1994. No review had taken place.

The freehold was purchased by the Ideal View in 2006, who, after some communication with Mr Bello which produced what the court described as “no constructive response”, invoked the arbitration mechanism built into the rent review clause. The arbitrator’s award, dated 22 August 2997, set the rent due from 25th March 1994 at £1,700 per annum.

The rent review clause was unremarkable and it provided, in the usual way, that the increased rent would be due from the first payment date (in this case the 22nd September 2007) after the determination of the arbitrator:

until such new rent shall have been determined the rent firstly hereinbefore reserved shall continue to be payable and any difference between that and the said new rent during such period as this last proviso operates shall be added to and be payable with the next instalment of rent due after the said new rent has been determined

Very bad news for Mr Bello who did not pay the arrears when they fell due (indeed it appears that he had paid no rent since taking possession of the property — not even the £60 per annum). The freeholders obtained possession in October 2008 and Mr Bello appealed to the High Court.

I don’t believe that nearly legal has dealt with questions about time being of the essence before, so it might be worth explaining the principles as an aside at this point. Contracts will, usually, consist of reciprocal obligations: I do this if you do that. In some cases your obligation will be a condition precedent for mine so that failure to perform your side of the bargain will relieve me of my obligation to perform my side.

When a contract stipulates that something must be done by a particular time, that stipulation may or may not be such a condition precedent. If it is we say that it makes “time of the essence”, if not we say that time is “not of the essence”. Time is usually not of the essence unless a contract states so expressly or it is implied by the nature of the contract. A party aggrieved by the other’s delay may always serve a notice, stipulating a time for the obligation to be carried out, which will (provided the time allowed is reasonable) make time of the essence from then on.

In United Scientific Holdings v Burnley [1978] AC 904 (which contains an excellent summary of the principle and its evolution in both law and equity by Lord Diplock) the House of Lords held that in a rent review clause time is presumed not to be of the essence. A landlord’s delay does not, of itself, relieve a tenant of their obligation to pay the reviewed rent.

In Mr Bello’s case, HHJ Behar, found that the lease did not (either expressly or impliedly) make time of the essence for the rent review. In my view an almost inevitable conclusion taking into account the unremarkable nature of the clause and authority such as Burnley. Mr Bello’s only hope was that, in some way, delay on behalf of the landlord should prevent the rent arrears (or some of them) from being collected.

Mr Bello, who appears to have been the author of his own misfortune on this point, had not participated in the arbitration. That, thought HHJ Behar, prevented Mr Bello from raising arguments as to delay in court. The High Court agreed with the judge and found that Mr Bello was bound to fail for that reason alone.

The judge had also dismissed Mr Bello reliance on the landlord’s delay on substantive grounds, finding that there was no evidence sufficient to raise an estoppel in Mr Bello’s favour. Permission was given to Mr Bello to appeal against this finding and, there having been full argument by council on the point, the High Court rules on the question, as follows:

  • delay, without more, will not prevent a landlord from recovering rent arrears from a late rent review, there has to be evidence of something that would amount to an estoppel or waiver (for example some kind of representation by or conduct on behalf of the landlord on which a tenant had relied)
  • S.19 of the Limitation Act 1980 was of no assistance since the rent was due from 22 September 2007; the landlord’s claims being well within the limitation period.

I am not surprised by the outcome of this case, but it should serve as a warning to those buying old leasehold property to check the status of any rent review. It also illustrates the foolishness of refusing, ostrich-like, to participate in a rent review arbitration.

Posted in Housing law - All and tagged , .

2 Comments

  1. As rent reviews incur an expense on the part of the tenant, it seems to me that they cannot be assigned. A liability can not be assigned,under English law. The landlord would need to serve a late notice of rent review on the holder of the lease at the time the rent review was missed.

    • Rent reviews are a term of the tenancy. As such, assigned with the tenancy. The expense to the tenant doesn’t accrue until the review is exercised.

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