Tournament Parking Ltd v The Wellington Company Ltd HC Auckland Civ 2009-485-2508
[2010] NZHC 1096
•30 June 2010
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2009-485-2508
UNDER Section 72 of the District Courts Act 1947
BETWEEN TOURNAMENT PARKING LIMITED Appellant
ANDTHE WELLINGTON COMPANY LIMITED
Respondent
Hearing: 19 May 2010
Counsel: B H Dickey for Appellant
P W Michalik for Respondent
Judgment: 30 June 2010
JUDGMENT OF MILLER J
[1] A rent review clause in a lease of commercial premises provided that:
… the said rental shall be reviewed during the term hereby created every three years by the Lessor the first such reviewed rental to commence from the 19th day of April 1981 and such reviewed rental shall be increased in accordance with the average increase (if any) in ground rental for each period of three years in respect of commercial properties in the central Wellington area in the general vicinity … .
[2] The lessor reviewed the rent in 1990 then apparently slept on its rights for many years. In 2008 it purported to review the rent not only for the triennial period beginning 19 April 2008 but also for the corresponding periods beginning in 2005,
2002, 1999, 1996, and 1993.
[3] The District Court held that a review must be triggered within the three-year period to which that review applied. Time was of the essence, so the lessor could not
TOURNAMENT PARKING LIMITED V THE WELLINGTON COMPANY LIMITED HC WN CIV 2009-
485-2508 30 June 2010
retrospectively review the rent for earlier periods. From that judgment the lessor appeals, saying that in the absence of an estoppel or a lessee’s notice making time of the essence there exists no temporal limit upon its right of review.
The narrative
[4] The property comprises the land beneath an airbridge connecting the Lombard Parking Building in central Wellington to an adjoining building, Manners Plaza. The airbridge has two levels. One, for pedestrians, connects level E of the parking building to level 3 of Manners Plaza. The other, for vehicles, is one floor above.
[5] The parking building and the land beneath the airbridge were long owned by the Wellington City Council. By a lease dated 19 October 1979 the Council leased the airspace to The New Zealand Motor Corporation Limited, which owned Manners Plaza. The lessee built the airbridge. The term of the lease was 80 years. The initial rent was $3,500 per annum. In 1990, after the last review, it was set at $10,500 per annum.
[6] I have set out the rent review clause above. It incorporated a ratchet. The lease included no other stipulation as to time, no additional process, and no provision for agreement or arbitration.
[7] The lessee’s interest was assigned on 6 June 2002 to the respondent, The Wellington Company Limited (TWC). Tournament Parking Limited bought the parking building and the land from the Council in February 2004, and became the lessor under the airbridge lease.
[8] In September 2004 Tournament obtained a rental valuation of $23,537 per annum as at 19 April 2002 (19 April being the date on which the rent fell due for review), and $30,903 per annum as at 19 April 2005. This valuation, which was prepared by DTZ New Zealand, valuers, was not disclosed to TWC, nor did Tournament advise that it was planning a review. Tournament’s manager, Mr Brown, said that he was aware of the rent review clause but did not trigger it until
2008 because he was preoccupied by other matters and knew the lessee was solvent. Implausible as that explanation may seem, it is not in dispute, and no estoppel or waiver is pleaded.
[9] On 16 June 2008 Tournament wrote to TWC advising that it was reviewing the rent as at 19 April 2008. The letter stated:
Pursuant to part 1 of the Deed of Lease for the “Manners Plaza” Bridge the rental shall be reviewed every three years by the Lessor.
The rental is due for review as at 19 April 2008.
We have asked DTZ New Zealand Limited to undertake an assessment of the rental based on the terms of the lease. DTZ have completed their assessment and provided a rental of $52,200 + GST per annum.
Please amend your automatic payment to $4893.75 from 1 July 2008 and pay the attached invoice for the period 19 April 2008 to 1 July 2008.
[10] The new rent of $52,200 per annum was based on an updated DTZ valuation dated 13 June 2008. It is common ground that the figure was wrong in three respects. The valuer, Mr Stewart, adopted incorrect methodology; he did not calculate the current rent by starting with the 1990 figure and calculating the increase for each succeeding period. He also made a substantial calculation error by annually compounding each annual increase, which he calculated on a straight line basis at
9.5% per annum over the term of the lease. That resulted in an overstatement of almost $20,000 in the annual rent. And in notifying TWC of the new figure Tournament itself made a mistake; Mr Stewart had assessed the rent at $50,200, but Tournament demanded $52,200.
[11] TWC queried the new rent. It requested the underlying analysis, which Tournament refused, insisting that TWC had no role to play because the lease provided that the lessor alone would review the rent.
[12] Tournament then gave notice on 22 August 2008 that the rent had also been reviewed for the 1993, 1996, and 1999 periods. A separate notice was given for each period. The annual rent specified was respectively $10,500, $13,654, and $17,927, and Tournament demanded that TWC pay the difference between those figures and the rent previously paid. It did not issue another notice for the current (2008) period
although it corrected its own error in the amount claimed under the 16 June notice, advising by letter of 28 August that the correct figure was $50,200.
[13] Although Tournament has never resiled from its claim that it may review the rent for all previous periods since 1990, it did not in the end pursue its claim to an increase for periods other than 2002-2005 and 2005-2008. It is common ground that the rent for those periods must be set after sequentially calculating the rent for previous periods, beginning in 1993, but the parties now agree that those calculations did not in practice result in any material increase in rent until 2002. So as a practical matter the litigation is concerned with only two previous periods.
[14] For its part, TWC contended that the correct rent in 2008 was $15,275 per annum. It began paying at that rate from 1 September 2008. It has never accepted that the rent could be reviewed for any earlier period.
[15] Tournament purported to terminate the lease for non-payment of additional rent payable under the notices, although it elected to terminate only for non-payment since it acquired the lease on 27 February 2004. TWC sought relief against forfeiture. That led to the District Court judgment, which was delivered on 13
November 2009.
The District Court decision
[16] The Judge held that the rent could be reviewed once during each three-year period after 19 April 1981. It was not possible to calculate the rent for any given period until the rent for the preceding period had been fixed. Because the reviewed rent depended on the rent for the preceding period, the lease required that any rent review be carried out no later than the date when the next right to review arose, meaning that the review for the period 2005-2008 could not be carried out after 19
April 2008. Contrary to the usual presumption in rent review cases, time was of the essence.
[17] The Judge noted that Tournament had begun by reviewing the 2008 rent before reviewing the rent for earlier periods. He held:
[36] It makes no sense to recognise the continued existence of a right to review rent for a period prior to that for which a right to review has already been exercised – because the rental figure applying during the earlier period is an integral element of the calculation of the reviewed rental for the later period. The structure of this review clause shows that the parties intended that the right of review for each 3 year period must be exercised during the time provided for doing so in the lease, i.e. during the current 3 year period and before a new right arises for the next subsequent period and certainly before the exercise of that later right.
[18] The parties also asked the Judge to fix the rent for the 2008-2011 period. He heard the evidence of Mr Stewart and Mr Washington, TWC’s valuer. Mr Stewart had adjusted his figure to eliminate methodological and calculation errors; he now proposed a rent of $30,844 at 19 April 2008. That figure assumed the rent was also increased in 2002 and 2005. The Judge preferred Mr Washington’s evidence, holding that the rent at that date was $15,275 per annum. The disparity between the two valuers was substantially attributable to Mr Washington’s assumption that Tournament could not increase the rent for any previous period.
The issues
[19] The issues are:
a) was the 16 June notice a rent review for purposes of the lease?
b)in what circumstances is time deemed to be of the essence of a rent review?
c) does the lease in this case insist that rent reviews be held, if at all, in the triennial period to which the revised rent applies?
[20] The notice of appeal also took issue with the Judge’s assessment of the rent for the 2008-2011 period. Before me, however, Mr Dickey accepted that it was open to the Judge to accept the evidence of Mr Washington. I did not understand the concession to extend to Mr Washington’s assumption that Tournament could not increase the rent for previous periods. For reasons outlined later in my judgment, that assumption must be revisited. I understood counsel to agree that in that event, a
different and higher rent (Mr Michalik calculated it as $23,231.18 at 2008) can be derived from Mr Washington’s evidence.
The notice of 16 June 2008
[21] Until the hearing in this Court, Tournament insisted that its notices of 16 June and 22 August were valid. Its attempt to forfeit the lease depended on them.
[22] In this Court it changed tack when its submissions were filed. If the 16 June notice was a rent review, Mr Dickey accepted that Tournament could not subsequently review the rent for previous periods:
... the appellant accepts that a logical conclusion flowing from the dependence of the reviewed rent on the previous existing rent is that once a review is performed, it precludes any previous rights that have not to that point been performed from being exercised. In other words, if the 2005 right remains outstanding, then the exercise of the 2008 right precludes the later exercise of the 2005 right because the 2008 review requires the increase from 2005 to 2008 to be added to the 2005 rental. That is what is meant in the previous paragraph by the statement that “the only necessary conclusion flowing from the dependence of the reviewed rent on the existing rental is that rent reviews can only be done sequentially”. There is no reason why, time not being of the essence, a lessor cannot exercise sequential rights of review. In this case, that could be done by conducting the 2002 rent review and fixing the 2002 figure, then fixing the 2005 figure based on the 2002 figure, and finally fixing the 2008 figure based on the 2005 figure.
[23] In his written submissions Mr Dickey argued that where a notice has been given in error, the lessor must be entitled to ‘re-perform’ the review. Put another way, the right to review subsists until it is correctly performed, otherwise a simple calculation error could nullify the right. Nor did the calculation error in the 16 June notice nullify the previous reviews which were “incorporated within it”.
[24] In oral argument, however, Mr Dickey accepted that reviews for previous periods were not incorporated in the 16 June notice. Although the rent had been calculated by reference to a notional rent for previous periods, the notice did not set the rent for any period other than the current one. He acknowledged that the notice did purport to be a rent review, but it was simply ineffective. He variously described the notice as a nullity and not valid, for its methodological and calculation errors. It triggered no obligation to pay. The 22 August notices, which were given
sequentially, were effective, however, and Tournament now accepts that a further notice must be given for the 2008 period.
[25] Mr Michalik understandably emphasised that the judgment under appeal proceeded on a very different footing. At no point before the oral argument before me did Tournament concede that the 16 June notice was ineffective. It is too late, he contended, for Tournament to change course now. It still has not withdrawn the notice and substituted another.
[26] I do not accept that the 16 June notice failed to review the rent for purposes of the lease. It is a matter of construction whether a notice was intended to review the rent.[1] It is beyond question that this notice was so intended; indeed, Tournament now concedes that. The lease simply requires that the lessor review the rent. It imposes no procedural requirements. The notice did not lack certainty; it demanded a new rent from the lessee for a defined period.
[1] Mobil Oil New Zealand Ltd v Mandeno [1995] 3 NZLR 114.
[27] It is true that the rent demanded was not correctly calculated by reference to average increases in ground rental for the period ended on 18 April 2008. However, the lease distinguishes between the lessor’s discretionary decision to trigger a rent review and the rent that results; that is set by reference to a standard, the average increase in ground rent for properties in the vicinity. An error in the calculation results in the lessee acquiring a cause of action for breach of contract, under which the Court may fix the rent. That in substance is what happened in the District Court. The error does not undo the lessor’s exercise of its discretion, rendering the notice ineffective. If it were otherwise, every review would be of no effect should the lessee persuade a Court that the rent nominated in the lessor’s notice was wrong in
any degree.[2]
[2] Trace Investments Ltd v Prince’s Wharf Property Fund Ltd HC Auckland CL13/02, 5 July 2002.
[28] However, I accept Mr Dickey’s submission that the lessor might withdraw the notice and substitute another (putting aside for the moment the question whether it must do so within the period affected by the increase). By reviewing the rent the lessor exercises a right conferred by the lease. The lease envisages that the rent will
be increased once for each triennial period, since the new rent applies for the entire period. But the parties did not agree the new rent; on the contrary, TWC refused to pay it. Naturally no estoppel is said to arise. And the lease contains no procedure precluding a fresh notice should an earlier one fail to comply with the lease or contain an error. It follows that the concession that the 16 June notice was premature does not in itself preclude rent reviews for earlier periods; the 16 June notice can be withdrawn and, to the extent that they are not out of time, fresh notices given in the correct chronological sequence if that is what the lease requires (as to that, I express no view but am content to rest my decision on counsel’s concession).
[29] The significance of this conclusion for present purposes is that the appeal does not fall at the first hurdle. The notice of appeal puts in issue the question whether time was of the essence of the rent review, and that, contrary to Mr Michalik’s submissions, is the question on which the appeal turns. If its appeal succeeds on the merits, Tournament will have to revisit the existing notices.
Time of the essence: the law
[30] Counsel analysed the authorities dealing with when the timing of a rent review is treated as being of the essence. It is necessary, in light of their submissions, to begin by examining the nature of the right and what the cases mean by time being of the essence in this context.
The nature of a rent review
[31] A rent review is not characterised in law as the exercise of an option, nor does it add any new term to a lease. It is but the exercise of a right for which the parties bargained at the outset.[3] Rent review clauses benefit both parties by providing for the rent to be brought up to market from time to time. If the rent must be fixed at the beginning for the entire term, lessors would be unlikely to enter long- term leases, or they would insist on an initial rent that substantially exceeded current
[3] United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904 (HL) at 923 and 930 per Lord Diplock.
market rates in an attempt to manage the risk of inflation over the term.[4] (I do not lose sight of Mr Michalik’s submission that this lease may not have begun with a market rent, but the analysis remains valid, since the rent is to be adjusted by reference to market movements.)
[4] United Scientific at 948 per Lord Simon, 959 per Lord Fraser.
[32] However, the exercise of the right of review on any given occasion benefits the lessor, in the typical case where the lessor need not exercise the right, or has some discretion about when to do so, or has the benefit of a ratchet clause under which the rent may not fall.
[33] The lessee gains a benefit for which it did not bargain when through some oversight the lessor fails to review the rent. For that reason, a presumption that time is not of the essence of a rent review clause applies in favour of the lessor even if a review can only result in the rent rising.[5] The presumption is ordinarily efficient, at least in the case where delay imposes no additional costs on the lessee, in the sense that contract law serves economic efficiency by holding the parties to their bargain, reducing the risks inherent in exchanging promises about future performance.[6]
[5] United Scientific at 938 per Viscount Dilhorne.
[6] Richard A. Posner Economic Analysis of Law (7th ed, United States Wolters Kluwer Law & Baines, 2007) at 94.
[34] However, such benefit does not accrue to the lessee through some breach of contract or opportunistic behaviour on its part. Responsibility for delay lies with the lessor, whose right of review it is and who can best ensure that reviews are not overlooked. Further, it is not correct that the lessee can only benefit from a delay in
reviewing the rent.[7] If the lessor is to review the rent at all, the lessee usually
[7] Contrast United Scientific at 930 per Lord Diplock.
benefits from it being done punctually. A late rent review may affect the tenant’s cashflow and its ability to recoup the additional rent from its own subtenants or customers.
[35] Failure to review the rent could not, apart from some express stipulation, allow either party to cancel the lease. In the ordinary case it is not an obligation but a right of the lessor. When the cases speak of time being of the essence in this context, they mean not that delay beyond the period fixed by the lease allows the
innocent party to cancel but that the lessor’s right to review the rent for the affected period is lost.
The presumption that time is not of the essence in rent reviews
[36] Mr Dickey invoked the presumption that time limits in a rent review clause are not of the essence. He acknowledged that the presumption may be displaced on the true construction of the lease or time may be made of the essence by notice. In the absence of such notice, there is no time limit. The lessor is exercising a contractual right and delay, however lengthy, does not destroy the right. Estoppel or waiver may arise, but not from the mere passage of time. Further, the presumption that time is not of the essence is not easily displaced. For these propositions he cited United Scientific Holdings v Burnley Borough Council and Amherst v James Walker
Goldsmith & Silversmith Ltd.[8] In this case, he submitted, TWC never made time of
[8] Amherst v James Walker Goldsmith & Silversmith Ltd [1983] Ch 305 (Ch).
the essence.
[37] In United Scientific, the House of Lords considered whether stipulations as to time in two rent review clauses were of the essence. The Court of Appeal had held that they were, relying on the commercial context and the legal nature of a rent review clause. Delivering the first speech, Lord Diplock reviewed the authorities at law and in equity and held that there was no relevant difference between a rent review clause and any other contract imposing reciprocally binding obligations, in which time was not of the essence unless delay beyond the time stipulated in the contract was “so prolonged as to deprive the obligor of substantially the whole
benefit that it was intended he should obtain by accepting the obligation”.[9] His
[9] At 930.
Lordship accordingly held that:[10]
[10] At 930
… in the absence of any contra-indications in the expressed words of the lease or in the inter relation of the rent review clause itself and other clauses or in the surrounding circumstances the presumption is that the timetable specified in the rent review clause for completion of the various steps for determining the rent payable in respect of the period following the review date is not of the essence of the contract.
Lord Diplock’s speech has been subjected to unusually sharp criticism for other reasons, but this passage is generally considered correct.[11]
[11] G R Mailman Associates Pty Ltd v Wormald (Australia) Pty Ltd (1991) 24 NSWLR 80 (CA) at 99, 100 per Meagher J; G W Hinde et al Hinde McMorland and Sim Land Law in New Zealand (loose leaf ed. Lexis Nexis) at 11.108.
[38] In Amherst v James Walker Goldsmith and Silversmith Ltd, the Court of Appeal examined a lease that provided for a rent review to be initiated by the landlord serving notice by a given date. Time was expressly of the essence of subsequent steps in the process, but not of the initial notice. The landlord overlooked the initial date but sought an extension of time shortly afterwards. Too late, responded the tenant. Proceedings were not commenced until the House of Lords delivered their judgment in United Scientific, some three years later.
[39] The Court of Appeal held that the right to review the rent subsisted until abrogated by mutual agreement or the contract was discharged by breach or the tenant was substantially deprived of the whole benefit that it was intended he should have. Apart from those circumstances, only by an estoppel would the landlord be precluded from relying upon the rent review clause. Oliver LJ, delivering the leading judgment, held that the question is “whether, as a matter of construction of the contract, compliance with the time stipulation is so essential to the contract that any failure to comply with it entitles the other party, without more, to treat the
contract as repudiated.”[12]
[12] At 315.
[40] United Scientific Holdings and Amherst were followed in New Zealand in Wing Crawford Holdings v Lion Corporation Ltd.[13] The rent review clause stipulated that the rent shall be reviewed at 30 month intervals, with the new rent to be agreed upon and determined by arbitration if necessary. Chilwell J cited Amherst for the proposition that “delay plus hardship to the tenant will not disentitle the landlord from exercising his contractual right to have the rent reviewed unless the circumstances amount to an estoppel.”[14] Under the lease in that case, either party might initiate the rent review procedure or give notice requiring the rent to be
[13] Wing Crawford Holdings Ltd v Lion Corporation Ltd [1989] 1 NZLR 562.
[14] At 570
reviewed within a reasonable time.[15] Chilwell J recorded that damages were not in issue.
[15] At 572.
[41] In Masfen v de France Gault J also followed Amherst.[16] The lease in that case provided that rent would be fixed every two years upon notice in writing given by the lessor to the lessee one month before the previous period expired. The notice was some 14 months late. Gault J held that the lessor was entitled to do so because time was not of the essence.
[16] Masfen v de France (1989) 1 NZ ConvC 190,179 (HC).
[42] In Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd, the Court of Appeal considered a sublease which provided for three-yearly rent reviews.[17] One fell on 1 October 1988. The sublessor had the right “at any time” between the date three months earlier than the review date and the following review date (three years later) to fix the rent, but the reviewed rent could be backdated only six months from notice of the review. The question was whether notice must be
[17] Frater Williams & Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1995) ANZ ConvR 247
given before the term of the sublease expired on 28 February 1989, the sublessee thereafter remaining in occupation as a monthly tenant. The notice was given in March.
[43] The Court held as a matter of construction that notice could be given at any time, and there was no reason to limit the right to any given period. Gault J observed that as a matter of principle he found it difficult to distinguish Amherst, but the other members of the Court did not refer to that case, and in the judgment of Fisher J, with which McKay J agreed generally, can be discerned reservations about the English authorities.
When the presumption is displaced and time is treated as of the essence
[44] The presumption is displaced if the contract expressly provides that time is of the essence or if the parties intended that it should be so, their intention being
gleaned from the language of the lease and the commercial context.[18]
[18] United Scientific at 930 per Lord Diplock.
Notwithstanding the emphatic language used in Amherst, no particular weight is attached to the presumption. If as a matter of construction the lease clearly evinces an intention that a time limit was to be final, the Court will treat it as such.[19]
[19] See the passage cited from United Scientific Holdings at [37] above; G D Mailman at 89 per Gleeson CJ.
[45] The preponderance of authority now favours the view that time is of the essence of a rent review where the lease prescribes a procedure and timetable under which one party is deemed to have accepted the other’s proposal if it fails to serve a notice within time. The principle at work is that where the lease spells out the consequences of non-compliance the time limit cannot be considered non-essential.[20]
[20] G R Mailman Associates Pty Ltd v Wormald (Australia) Pty Ltd (1991) 24 NSWLR 80; Mobil OilNew Zealand Ltd v Mandeno [1995] 3 NZLR 114; First Property Growth Partnership LP v Royal& Sun Alliance Property Services Ltd [2002] EWCA Civ 1687, [2003] 1 ALL ER 533; MeccaLeisure Ltd v Renown Investments (Holdings) Ltd (1984) 49 P & CR 12.
For example, Barker J held that time was of the essence in Mobil Oil New Zealand
Ltd v Mandeno.[21] In that case the lessor could give notice at any time, but the rent it nominated would be adopted unless the lessee gave notice of objection within a specified period, and the lessee’s notice was given late.
[21] Mobil Oil New Zealand Ltd v Mandeno [1995] 3 NZLR 114.
[46] I have been referred to only one case in which the lease did not prescribe the consequences of delay yet time was held to be of the essence. In First Property Growth Partnership LP v Royal and Sun Alliance Property Services Ltd, notice of a rent review might be given “at any time not more than 12 months before the expiration of” every fifth year “but not at any other time … .” The lease did not expressly set an end date by which notice of a rent review must be given. Notice having been given, machinery provisions established how the rent was to be set by agreement or, failing that, by an expert. On the lessor’s construction, it might give notice at any time within the five-year period during which the reviewed rent was payable, and there was nothing that the lessee could do, if it wanted certainty of rent, to trigger a review. The Court of Appeal thought it unlikely that the scheme of the lease was intended to put the lessee in a position where it would not know, for some years after the commencement of a new five-year period, whether the lessor would invoke the rent review provisions. In that case, however, the Court was required to
determine only the end date for notice of a rent review; counsel accepted that the time limit, once established, was of the essence, no doubt because of the imperative language of the lease (“but not at any other time”).
[47] The Court will readily imply a term as to time for performance where none emerges from the lease, but it is quite another matter to imply that time is also of the essence. Where time is of the essence the lessor loses its right of review if it is late in any future review, whether by 18 years or one day. A well-advised lessor would probably resist a rent review clause that expressly made time of the essence, for it would lose its right of review no matter how fleeting the delay, how reasonable the
explanation, and how little the resulting prejudice to the lessee.[22]
[22] United Scientific at 947 per Lord Simon.
Notice making time of the essence
[48] Mr Michalik submitted that United Scientific and Amherst can be distinguished because the lessees in those cases were able to trigger a review themselves or give notice making the time of a lessor’s notice of the essence. In New Zealand law, he argued, it is not within the lessee’s power to trigger a review by giving notice making time of the essence unless the lessor is in breach of
contract.[23] By this means he sought to discount the possibility that TWC might have
[23] Steele v Serepisos [2006] NZSC 67, [2007] 1 NZLR 1. I record that I was the trial Judge in that case.
given notice making time of the essence.
[49] This is to read too much into Steele v Serepisos, a case about the sale of land.[24] The Supreme Court held that party A need not give notice making time of the essence where party B was not in default but a contractual condition had proved impossible of fulfilment. Party A might terminate the contract without notice. In his judgment, however, Tipping J confirmed that where a contract is silent about time for performance, New Zealand law implies that performance will happen within a reasonable time.[25] In such a case a party might by notice make time of the essence
[24] Steele v Serepisos [2006] NZSC 67, [2007] 1 NZLR 1.
[25] See also Feltex New Zealand Ltd v Nielsen Property Management Ltd [1974] 2 NZLR 292.
when it considered that a reasonable time had elapsed.[26] (I add that the notice must further give a reasonable time for compliance.) On expiry of the notice, the party who gave it might cancel the contract.
[26] At [40] and [61].
[50] As I have noted above, a rent review clause differs from other contractual provisions in that it normally establishes a right, rather than an obligation, of the lessor. Nonetheless, it is settled law that the lessee may make time of the essence.[27]
[27] G R Mailman at 88 per Gleeson CJ.
In United Scientific, Lord Diplock relied on the equitable principle that the party entitled to performance could give to the other notice requiring performance within a reasonable period.[28] In Amherst, Oliver LJ similarly recognised that the lessor’s right of review might be lost if, for instance, the tenant had served a notice “calling upon the landlord to exercise his right within a reasonable time or not at all and such notice is ignored”.[29] In both cases the lessee’s right to make time of the essence was evidently an important consideration, seen as a counterbalance to the presumption.
[28] At 928.
[29] Amherst at 315.
[51] A more recent example is supplied by Barclays Bank Plc v Savile Estates
Ltd, which concerned a lease providing for rent reviews at seven-year intervals.[30]
[30] Barclays Bank Plc v Savile Estates Ltd [2002] EWCA Civ 589, [2003] P2 P & CR 28.
The issue was whether there should be implied into the lease a term imposing a time by which the landlord must take steps to increase the rent. Aldous LJ held that the right must be triggered within a reasonable time; accordingly, it was open to the tenant to make time of the essence. It had done so and the notice had elapsed, so the right of review was lost. The case illustrates that the right to make time of the essence affords the Court flexibility to deal with circumstances as they arise during
the lease, since notice making time of the essence must be reasonable.[31]
[31] United Scientific at 946 per Lord Simon.
[52] Accordingly, a lessee may make time of the essence of a rent review whenever a stipulation as to time that is not already of the essence has been breached or the lease is silent as to time and a reasonable period has elapsed.[32]
[32] Contrast Trustees of Henry Smith’s Charity v AWADA Trading & Promotion Services Ltd (1984) 47 P & CR 607 at 619 per Slade LJ (CA).
Implied term as to time
[53] The Court may also find that the lessor was obliged to review the rent, if at all, within a reasonable time, and although time was never made of the essence, the lessee may obtain damages for the lessor’s delay.
[54] In Wing Crawford Chilwell J doubted whether an obligation to act within a reasonable time could be implied on business efficacy grounds; the lessee could always make time of the essence by notice.[33] He cited Amherst, in which Oliver LJ stated that he knew of “no authority for the proposition that the effect of construing a time stipulation as not being of the essence is to substitute a fresh implied term that the contract shall be performed within a reasonable time … .”[34]
[33] At 572.
[34] At 315.
[55] In neither Amherst nor Wing Crawford was the lease silent as to time; on the contrary, each lease prescribed a time limit and the Court examined the consequences of further delay. In this case there is a prior question; whether a time limit exists in the first place. As already noted, the law implies that performance will happen within a reasonable time where the contract is silent as to time. The corollary is that damages are available for breach whether or not time has been made
of the essence.[35] Indeed, Oliver LJ recognised that in Amherst.[36] Of course the mere
[35] G R Mailman at 89 per Gleeson CJ.
[36] At 315.
non-exercise of a right to review the rent does not ordinarily lead to damages; rather, damages may flow from the lessor’s insistence on exercising the right contrary to its terms.
[56] In the leasing context, an implied term allows the lessee and the Court to respond to the lessor’s inordinate delay, as Fisher J noted in Frater Williams.[37] So too does the right to make time of the essence. But the implied term also assigns to the lessor the risk of its own neglect of its right of review, through the lessee’s damages claim for breach of the implied time stipulation. If the only remedy available to the lessee is a notice making time of the essence, that risk is assigned to
[37] Frater Williams Co Ltd v Australian Guarantee Corporation (NZ) Ltd (1994) 2 NZ ConvC 191,873.
the lessee, yet there is no reason why greater diligence should be expected of the lessee than the lessor.
Estoppel
[57] I note for completeness that the Court may also find that the lessor is estopped. In general terms, that requires some inducement by the lessor coupled with detrimental reliance by the lessee.[38] The present case may be exceptional in that a very long period has elapsed with no reviews, yet there is apparently nothing about the lessor’s conduct that might found an estoppel.
[38] Waltons Stores (Interstate) Ltd v Maher [1987-1988] 164 CLR 387.
Summary
[58] The following principles may be derived from the authorities dealing with time in rent review clauses.
[59] The Court begins by identifying the time limit for the rent review. This is a question of construction of the lease in its surrounding circumstances. The limit may be specified or implicit in the lease. If the lease is silent the Court will imply that where the right of review is exercised it must be done within a reasonable time.
[60] Where on any given occasion the lessor delayed beyond the time limit expressed or implied in the lease, the Court next turns to the consequences. The first question is whether the right of review has been lost. To answer it, the Court must decide whether time was of the essence. It begins by construing the lease. Time is presumptively not of the essence of a right of review, but the presumption will be displaced as a matter of construction if the lease clearly evinces an intention that the time limit was to be final.
[61] If time was not of the essence as a matter of construction, the Court next inquires whether the lessee made time of the essence by notice. The lessee might do
so by notice given after a non-essential time limit had elapsed or, where the lease is silent as to time, after a reasonable period. In either case, the notice must have nominated a reasonable time for compliance.
[62] If time was of the essence or was made so by reasonable notice, and the time for compliance has passed, the lessor loses its right of review for the affected period.
[63] If time was not of the essence, the Court next considers whether on the facts the lessor is estopped. If it is not, the lessor may insist on exercising its right of review despite its delay.
[64] In that case, the Court may turn to a second question of consequences; whether the lessee suffered loss or damage through the lessor’s breach of its obligation to act within time when exercising its right of review. The breach is assessed by reference to any period specified in the lease or, where it is silent, a reasonable period.
[65] These principles are subject, of course, to the language of any given lease in its factual setting, and the facts surrounding the exercise or non-exercise of the right of review.
The lease in this case
[66] I turn to the lease in this case. As already noted, it provides that the rent “shall be reviewed during the term ... every three years by the Lessor the first such reviewed rental to commence from the 19th day of April 1981 ... .” The reviewed rent applies to the period for which it is set and forms the basis of the next rent review, which is to be conducted during the next period. Accordingly, the lease does envisage that the review will be carried out every three years, for the period to which the reviewed rent applies.
[67] The lease fixes no time by which the review must be completed. Obviously it does not expressly make time of the essence either. There is no provision to agree or arbitrate the new rent; the lease envisages rather that the lessor will set it by
reference to an agreed standard. There is no timetable under which the parties have agreed that, absent a timely notice, the rent nominated by one side or the other is to apply. The lease says nothing at all about delay.
[68] While I share the Judge’s sympathy for TWC I am unable in these circumstances to agree that time is of the essence as a matter of construction. The most that can be said of this lease is that it assumes a review will have been completed by the time the next review falls due. The review cannot be conducted until the previous period has ended, since the average ground rental for the preceding three years cannot be known until then. The argument that it must be completed before the end of the period for which it is set depends, as the Judge found, on the proposition that the rent applying in that period supplies the base figure for the next review. But that does not establish a time limit for a lessor’s decision to review the rent, still less that time is of its essence. Such a term would be incongruous for the reasons relied on in First Property Growth Partnership; it is most unlikely that the parties contemplated the lessor might wait until the end of the affected three-year period before reviewing the rent. And as the narrative demonstrates, it is quite possible to fix the rent for earlier periods many years later. I have already mentioned that I was referred to only one case in which time has been held of the essence although the lease did not set a timetable for the review and prescribe the consequences of a failure to comply with the timetable, and that case is readily distinguishable.
[69] The better construction is that the lease contemplated that a review would be completed within a reasonable time after 19 April in any year in which it fell due, rather than at any time during the three-year period. It is most unlikely that the parties contemplated the lessor would have the unconstrained right to review the rent at any time during the 80-year term, as Mr Dickey contended. If that were so, the lessee might be faced with reviews many years after the periods to which they applied. By then it would have long lost the ability to recoup the increased costs from its own tenants in Manners Plaza; a loss which would likely be caused by the lessor’s delay.
[70] TWC might have given notice making time of the essence after a reasonable time, without having to wait until the relevant three-year period had elapsed. No such notice was given. However, TWC may nonetheless recover damages for the lessor’s delay.
Decision
[71] The appeal is allowed. The rent payable at 19 April 2008 should be recalculated in accordance with this judgment. If either party wishes me to do so I will remit the case to the District Court for further proceedings consistent with this judgment.
[72] The appellant is entitled to costs on a 2B basis. Counsel must endeavour to agree costs. If they cannot, memoranda may be filed on each side, not later than six weeks after the date of this judgment.
Miller J
Solicitors:
Meredith Connell, Auckland for Appellant
Knight Coldicutt, Wellington for Respondent
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