Time of the essence in serving rent review counternotices
If a tenant receives a rent review notice from a landlord stipulating the new rent that is to be paid following a rent review date, and the lease provides that he may serve a counter notice rejecting that figure within a certain period, what happens if the tenant serves the notice late?
Whether or not strict compliance with a timetable is required depends upon the terms of the lease. The decision in United Scientific Holdings -v- Burnley Borough Council (1977) established that time limits will be strictly applied (ie of the essence) in a rent review clause if this is what the lease states. Time may also be held to be of the essence where the lease contains a break clause tied in with the rent review. The general presumption that time is of the essence may also be displaced by circumstances within the lease known as contraindications. An example of such a contraindication was set out in the decision in Henry Smiths Charity Trustees -v- AWADA Trading and Promotions Services Limited [1984] 1EGLR. Here, a provision which deemed the rent set out in a tenant's counter-notice to be the rent payable from the review date unless the landlord applied for the appointment of a surveyor within certain time limits, had the effect of making time of the essence for the period within which the landlord had to make the application.
This case was challenged in Mecca Leisure -v- Renown Investments (1984) 49 P&CR 12. Where the Court of Appeal held when a tenant failed to serve a counter-notice within a specified period this was not fatal to the tenant's position as time was not of the essence for serving the counter notice. The court took the view that the Henry Smith case laid down no general principles.
How the Henry Smith case and the Mecca Leisure cases fit together was a question recently put before Mr Justice Neuberger in the case of Starmark Enterprises Limited -v- CPS Distribution Limited. The rent review clause entitled the landlord to serve a rent notice specifying the amount of rent payable. If the tenant failed to serve a counternotice within one month of receipt of the rent notice, the tenant would be "deemed to have agreed to pay the increased rent specified in that notice". The tenant served a counternotice over a month late and the landlord claimed this was too late and the new rent was that stated in the landlord's notice.
Mr Justice Neuberger followed the Mecca Leisure decision, holding that the tenant's counternotice could be served late. He was concerned about the differing opinions in this area and suggested that the House of Lords should have the opportunity of clarifying the situation.
Whilst tenants who forget to respond to rent review notices served by landlords may relax slightly following this decision, it would not be wise to be too complacent. This matter will surely reach the House of Lords one day. In general do not ignore any kind of notice sent by a landlord prior to a review.
For further information please contact Caroline Potter at cmp@cms-cmck.com or on 020 7367 2721.
