Ickendel Ltd v Bewleys Café Grafton Street Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Charleton
• Judgment Date: 25 March 2013
• Neutral Citation: [2013] IEHC 293
• Court: High Court
• Docket Number: Record No: 694SP/2012
• Date: 25 March 2013

Ickendel Ltd v Bewleys Café Grafton Street Ltd

In the matter of a lease dated 22 September, 1987 made between Royal Insurance plc of the first part, Bewley's Cafés Limited of the second part and Campbell Catering Limited of the third part

And in the matter of an action

Between

Ickendel Limited

Applicant

And

Bewley's Café Grafton Street Limited

Respondent

[2013] IEHC 293

Record No: 694SP/2012

The High Court

Landlord and tenant - Leasehold - Rent review - Market value - Construction - Ambiguity - Economic circumstances

Facts: The respondent held a 35 year lease, which commenced on the 22nd September 1987, from the applicant of premises on Grafton Street, Dublin. As per a term of the lease, there was to be a rent review every 5 years, which had seen an constant increase from €213,000 in 1987 to €1,463,964 in 2007. It was the applicant”s claim that it was entitled to at least that latter figure as of the 2012 rent review, due to a clause in the lease expressly providing that the rent could not decrease on review. The respondent in turn argued that the clause should be construed as meaning the rent can never go below the 1987 rent level, but can decrease from one rent review to another depending on the value of the lease when compared with the open market.

Held by Charleton J that in determining the proper construction of a lease, words should be given their plain meaning where possible, with an ambiguous section being considered in the context of the entire document as well as the preceding circumstances that led to its creation. In circumstances where the words used could reasonably be construed in more than one way, then consideration as to how the agreement is to sensibly operate may advise one construction over another. However, it was not a function of the court to rewrite the terms of the agreement contrary to what was agreed between the parties.

Applying these principles to the present case, it was noted that it was not for the court to take into account the effects of the economic recession on the value of retail and restaurant premises, nor to decide what would be a fair agreement between the parties. The court had to simply determine what had been agreed between the parties in terms of the rent review clause. On consideration of the clause, the entire lease, and the circumstances preceding the agreement, it was held that the clause appeared to have been drafted by parties who expected nothing but an increase in rent at each 5 year juncture. The lease was commenced at a time of great economic recession and it seemed the applicant and respondent did not expect another to follow within the duration of the lease hence the ambiguity of the rent review clause. The clause referred to the need to increase rent from a ‘preceding period’ but it was not clear if this meant the original five year period, or the period immediately preceding the relevant rent review. As such, there was scope to interpret the clause in the differing ways suggested by the applicant and respondent.

In interpreting the clause, it was held that the references to a rent review were made in the context of ‘the first revised rent’ being at least the value of the ‘preceding period’. This was held to mean that the first time the rent was reviewed, the rent had to increase from the original value set in the agreement. As there were no other clear indications of subsequent rent reviews, it was held that as long as the rent never fell below the baseline rent set in the lease, it could increase or decrease depending on its market value at each rent review.

ERIN EXECUTOR & TRUSTEE CO LTD v FARMER UNREP BARRON 11.11.1987 1987/6/1632

ANALOG DEVICES BV v ZURICH INSURANCE CO 2005 1 IR 274 2005 2 ILRM 131 2005/2/242 2005 IESC 12

INVESTORS COMPENSATION SCHEME LTD v WEST BROMWICH BUILDING SOCIETY 1998 1 WLR 896 1998 1 AER 98 1998 1 BCLC 493

CO-OPERATIVE WHOLESALE SOCIETY v NATIONAL WESTMINSTER BANK PLC 1995 1 EGLR 97

AMAX INTERNATIONAL LTD v CUSTODIAN HOLDINGS LTD 1986 2 EGLR 111

MARLAN HOMES LTD v WALSH & ORS UNREP SUPREME MURRAY O'DONNELL MCKECHNIE 30.3.2012 2012 IESC 23

CHARTER REINSURANCE CO LTD (IN LIQUIDATION) v FAGAN 1997 AC 313 1996 2 WLR 726 1996 3 AER 46

KIDNEY & MCNAMEE v CHARLTON 2009 MN 1

2 2 1.0 This is a construction summons in respect of a lease. Bewley's is the tenant and Ickendel is the landlord. The leased hereditament is prosaically described in the legal documents as a four story over basement premises. In fact, it is the inviting establishment on Grafton Street that is known to generations of Dubliners as Bewley's Oriental Cafe. The provisions as to rent review are claimed by the tenant Bewley's to be ambiguous. It is argued that the Court should resolve the ambiguity to enable a lower rent to be set by the arbitrator charged with reviewing the rent.

3 3 1.1 The time frame explains why this dispute ended up in court. Through their predecessors, the parties entered into this lease on the 22 ^nd September, 1987. The term was for 35 years. There is a rent review every five years. The first of these was on the 1 ^st January, 1992. Thereafter there have been reviews in 1997, 2002 and 2007; but for the one in 2012 this issue about upwards-only or downwards-possibly revision of the rent was first raised. That is not surprising. From 2007 to 2012 there has been marked deflation in the rental and housing purchase sector. Using round figures, the initial rent in 1987 for the building was €213,000. The last rent fixed was at the height of the property price inflation that undermined the Irish economy. That 2007 review fixed a rent of €1,463,964. At least that figure is now claimed for the 2012 rent review by the landlord. This is on the basis that the lease expressly provides that the rent cannot decrease on review.

4 4 1.2 That sum would not now be obtained for these premises on the open market. There has been a marked decrease in the rents obtainable for retail premises and food outlets. Counsel informed me during this hearing that for premises in Grafton Street where a new tenant was found after a tenant had surrendered a premises, the decrease from that time to the present was 52%. I do not know if that is typical and I am not fixing the rent. Results worse than that, however, are typical of the decline in purchase prices of property over the last six years: hence the argument in this case. Ickendel, as landlord, claims that the structure of the rent review clause is that it is ratcheted up step by step for each review. The landlord accepts that, should there be deflation, the rent fixed on one rent review to the next would not be increased. Bewley's, as tenant, construes the clause in question in the context of the entire lease as being a threshold clause; whereby the first rent fixed in 1987 is the base line below which a rent cannot go, but with each rent fixed subsequently reflecting the open market whether upwards or downwards.

Construction of a lease

2 2 2.0 There is no dispute as to the proper approach to how a lease should be construed. The law can therefore be set out briefly. Meaning is to be gleaned from the plain words of an agreement; where there is no doubt as to the meaning of a clause, then it should be given that meaning; what a section of a document means is to be seen in the context of the entire agreement set against the background of the factual matrix that generated it; where there is no ambiguity then it is unnecessary to consider the need to confer business efficacy on the agreement; but where the words used may reasonably bear more than one meaning then consideration as to how the agreement is to sensibly operate may allow one construction over another. There are many cases which support those propositions. Reference is often made to the decision of Barron J. in Erin Executors and Trustee Co Ltd v. Farmer [1987] IEHC 18 (Unreported, High Court, Barron J., 11 ^th November, 1987) and to the Supreme Court's decision in Analog Devices BV v. Zurich Insurance Company [2005] 1 IR 274 where from para. 13 Geoghegan J. approves the analysis of Lord Hoffman in I.C.S. v. West Bromwich BS [1998] 1 W.L.R. at p. 896 from p. 912. These decisions assist in the construction of contracts generally. There are no special rules for the construction of a rent review clause; Co-operative Wholesale Society v. National Westminster Bank plc [1995] E.G.L.R. 97 at paras. G-H. Nor does the contra preferentum rule apply in circumstances where the parties have negotiated a lease at arms length with each having the chance to make amendments and suggestions, often with the benefit of legal advice; Amax International Ltd v. Custodian Holdings Ltd [1986] E.G.L.R. 111. It might be otherwise where a lease is presented on a take or leave it basis, as with a standard document produced by a housing society or a local authority. That is not the situation here. In construing this lease, I have to bear in mind that the Supreme Court have made it clear that no rewriting of what the parties have agreed could possibly be permitted either in the guise of sympathy for any party stuck in a financial quagmire or pursuant to any notion of the courts construing public policy in aid of a result. In Marlan Homes v. Walsh and Wedick [2012] IESC 23 (Unreported, Supreme Court, 30 ^th March, 2012) McKechnie J. observed in paras. 48-52:

48 The central issue which first must be determined is whether or not the appellants are in breach of their contractual arrangements with Marlan Homes: if they are not, the remaining issues do not arise.

49 This issue, which is one of interpretation falls to be decided by reference to the appropriate principles which are not in dispute and which were put concisely by Keane J. in Kramer v. Arnold [1997] 3 I.R. 43 at p. 55, where the learned judge held:

"In this...