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Late Rent Reviews In Commercial Leases

Late Rent Reviews In Commercial Leases

In both Scottish and English law, there is case law to support the general rule that time is not of the essence in rent review clauses in commercial leases, unless it is clear from the terms of the lease that the parties intended it to be. In the recent case of AWG Group Limited v HCP II Properties 101 GP Limited, the Outer House of the Court of Session considered whether a landlord who had delayed implementing a rent review had waived the right to do so.

The Facts

AWG Group Limited (“AWG”) occupied 8 floors of an office building on Ocean Drive, Leith, Edinburgh under separate leases. The term of each lease was 20 years with provision for a rent review every 5 years. The rent was reviewed in 2009 and the next review was due on 27 February 2014.  Clause 5.8 of the leases provided that no demand for, or acceptance of, rent from the landlord at a rate other than that to which it may be entitled following a rent review, would be deemed to be a waiver of the landlord’s right to review the rent.

HCP II Properties 101 GP Limited (“HCP”) acquired the landlord’s interest in the leases in March 2016. In 2013 and 2014, the previous proprietor Irish Life Assurance Plc (“Irish Life”) issued rent invoices at the rate of rent set in 2009 which included a caveat that they were “without prejudice to review on 26/02/2014”. Invoices were issued at the existing rate of rent in 2015 and January 2016, but the caveat was removed. Furthermore, when Irish Life sold the property to HCP, the sales brochure stated that the next rent review would be on 27 February 2019. HCP subsequently gave notice that it required the rent to be reviewed with effect from 27 February 2014.

AWG sought a declaration from the Court that the landlord was not entitled to review the rent in 2014, on the basis that the removal of the caveat on the rent invoices and the terms of the sales brochure gave rise to an inference that HCP had abandoned the right to do so.

The Decision

The judgment was delivered by Lord Doherty. AWG referred to two previous Scottish cases, in which the Court determined that landlords who had accepted payment of the rent at the existing rate after the date of review had waived the right to the rent review.  However Lord Doherty distinguished those cases on the basis that the leases in question did not contain a “saving provision” that the landlord would not be deemed to have waived the right to the rent review if it accepted payment of the rent at the existing rate.

The Court noted that the essence of waiver is the abandonment of a right. Waiver may be inferred from facts or circumstances, but will not be readily implied. In general, a right is not waived merely because a party delays exercising it. To succeed, AWG required to establish that the conduct of the landlord was inconsistent with the intention to insist on the rent review.

Unfortunately for AWG, Lord Doherty concluded that neither the removal of the caveat on the rent invoices nor the terms of the sales brochure warranted an inference that the landlord had abandoned its right to the review. It was unnecessary to include a caveat on the rent invoices. A reasonable tenant would have been aware of the provision at clause 5.8 of the leases, and would have appreciated that the leases did not stipulate that time was of the essence. The sales brochure was not a communication addressed to the tenant, and it was clear that the content was for guidance and promotional purposes only.

Comment

The case confirms the position that, where the lease does not provide that time is of the essence for the rent review, the landlord may still implement the review after the date specified in the lease, unless the tenant can establish that the landlord has permanently abandoned the right to do so. In this case, the landlord initiated the review process over a year after the rent review date. The judgement is also a reminder of the importance of including a “saving provision” in leases to the effect that the acceptance of rent at the existing rate after the rent review date will not constitute waiver of the right to the rent review.

The full judgement can be read here

Laura Hay
Associate

Burness admin