Rent review: dark art or rainy sky?

Abstract

Purpose

The purpose of this paper is to consider the impact on rent review clauses of a recent UK Supreme Court ruling on the interpretation and application of contractual provisions. Although the ruling in Arnold v. Britton (2015) UKSC 36 concerned service charge provisions, the court’s approach has significant implications for rent reviews where a fixed or indexed increase is intended.

Design/methodology/approach

Review of the Supreme Court’s approach and findings in a case concerning clauses that provided for fixed percentage increases in long leases.

Findings

It is no part of the court’s function, through the process of contractual interpretation, to rescue a party from a bad bargain.

Research limitations/implications

Supreme Court ruling in Arnold v. Britton was considered in the context of recent rulings on rent review clauses.

Practical implications

When drafting for a fixed or stepped increase at rent review, parties must ensure that any formulae or other provisions governing calculation produce results that are fair and in line with the parties’ actual intentions. The court will not use the process of contractual interpretation to rescue a party from a bad bargain, and will not intervene to override clear wording. Although the court has power to decide in favour of commercial common sense where a clause is ambiguous or unclear, there is a limit to the “red ink” that the court can apply, and no room for remedial interpretation where a clause is clear.

Social implications

Where contract provisions are clear it is not open to the court to intervene, by means of contractual interpretation, to protect or to rescue a party who has been disadvantaged, however seriously, if the clause is clear. Where such cases arise in a contract covered by English law, or in similar common law jurisdictions, any protection must be found in statute.

Originality/value

Practitioner’s review and comments on recent Supreme Court authority.

Citation

Dowden, M.J. (2016), "Rent review: dark art or rainy sky?", Journal of Property Investment & Finance, Vol. 34 No. 2, pp. 186-190. https://doi.org/10.1108/JPIF-12-2015-0085