MacRoberts Real Estate e-update 03/03/10

A LONG-OUTSTANDING RENT REVIEW CAN STILL PACK A PUNCH

Please Note: This e-update is referring to a decision of a court in England and does not alter the current law applying in Scotland as established by the cases of  Banks v Mecca Bookmakers (Scotland) Ltd and Waydale Ltd v MRM Engineering.

There has been a timely reminder in the recent case of Bello v Ideal View that delay in instigating a rent review, even a very long delay, is not necessarily a bar to a successful recovery by the landlord of a backdated uplift of rent.

This particular case relates to a 50-year ground lease with one rent review at year 25 (exercisable in 1994). However, the elements of the rent review provisions that were relied on will apply equally to short term leases.

The facts
Mr Bello acquired the tenant's interest under the lease in 2005 at auction. It is not clear whether Mr Bello was aware that the 1994 rent review was outstanding, but had he carried out all appropriate due diligence it would have revealed that there was no evidence that the rent review had been carried out.

Ideal View bought the landlord's interest in the lease in 2006 and instigated the rent review procedure. Mr Bello was informed but offered "no constructive response". The rent was increased from £60 per annum to £1,700 per annum in 2007 and the landlord claimed payment of the backdated uplift in rent from 1994. Mr Bello failed to pay the arrears, the Landlord commenced forfeiture proceedings, possession was granted and Mr Bello appealed to the High Court.

The decision
Mr Bello was not successful in his appeal, being considered the author of his own misfortune for having failed to defend his position when the rent review was finally implemented.

However, the judge's opinion has provided some helpful guidance on delays in implementing rent review. In this case the delay was about 14 years. The authorities are clear that even where the delay in implementing a rent review is unreasonable to the point of causing prejudice or hardship to the tenant, the delay, however lengthy, does not destroy the contractual right. That is, if the rent review provisions do not put a time limit on implementing a rent review (as most don't), then delay is no bar to implementing the rent review. The only exception is if a landlord acts in some way that amounts to evidence that he has waived his right to review the rent and the tenant then acts in reliance on this.

Commentary
There are three things to learn from this case:

• when acquiring a tenant's interest in property always carry out appropriate due diligence to
  limit liabilities and, in particular, check the status of past rent reviews
• when acquiring a landlord's interest in property, always carry out appropriate due diligence
  to, amongst other things, assess whether rents have been maximised. Generally a landlord
  will not lose the right to implement a rent review even after a considerable number of years
  have passed. However, when there has been a delay, it is worth considering whether the right
  to implement old rent reviews could have been lost by the seller having acted in a way
  consistent with waiving the right to a review.
• even if you think a rent review is late and so invalid, an ostrich-like approach will not benefit you, so seek advice at the earliest possible stage.

For further information, please contact Gillian Campbell or Peter Rice on 0131 229 5046.

© MacRoberts 2010

To register for MacRoberts e-updates on a variety of legal topics, please click here.