Burford UK Properties Ltd v Forte Hotels (UK) Ltd (2003)
A proviso to the rent review provisions in a lease did not create an independent obligation rendering the tenant liable for damages in case of breach.
The claimant landlord ('B') appealed against the decision of Simon Berry QC sitting as a deputy judge trying a preliminary issue on the interpretation of the rent review provisions in a lease. The lease had been of a hotel at York. Schedule 3 of the lease had contained provisions for a rent review every 14 years. The reviewed rent had been fixed by reference to net bedroom revenue ('NBR') and para.1(e) of Sch.3 gave directions as to how as a matter of accounting NBR was to be ascertained subject to the proviso that "the tenant shall at all times use its best endeavours to obtain the maximum revenue from the use of bedrooms as sleeping accommodation". The deputy judge held that the proviso did not constitute a covenant by the tenant, breach of which gave rise to a cause of action for damages, but meant only that NBR was to be calculated on the hypothesis, if not the fact, that the tenant had used its best endeavours to obtain the maximum revenue from the use of the bedrooms.
The judge's conclusion on the interpretation of the proviso had been correct in the context of Sch.3 and the lease as a whole. The words "provided that" could introduce a covenant but did not do so here. Although framed as a definition of NBR, para.1(e) was a set of directions for computing NBR and thus it was perfectly natural for the proviso to set out an assumption on which the amount of the receipts was to be ascertained. The use of the word "shall" denoted the mandatory nature of the direction with respect to the computation of gross receipts. The proviso did not create an independent obligation. It was a qualification to the formula by reference to which the NBR was to be calculated. (Per Chadwick LJ dissenting) The proviso was not simply a qualification to the definition of NBR and the tenant would be in breach of obligation if it failed to use its best endeavours to obtain the maximum revenue from the use of bedrooms as sleeping accommodation during a relevant year.
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