St Martins Property Investments Ltd v Cable & Wireless UK Plc (2007)
On its proper construction, a rent review clause in a lease of a computer data centre required that the open market rent of the building was to be assessed on the assumption that the demised premises comprised high class commercial offices.
The claimant landlord (S) brought a Part 8 claim relating to the true construction of a rent review clause in a lease of premises. The lease of premises comprising a computer data centre situated within a business park had been entered into between S and the lessee, who had assigned it to the defendant (C). The lease provided that after each rent review date the rent should be the rent agreed or, in the absence of such agreement, the rent should be the higher of the current rent or the open market rent. A clause defined the open market rent, which was to be assessed on the assumption that "the demised premises comprise High Class Professional or Commercial Offices with a net internal area of 124,019 square feet...". Following a variation of the lease, the open market rent was to be determined on the basis that the demised premises were either such offices or a computer centre, and the new rent was to be either 90 per cent of the open market rent for high class offices or, if greater, the open market rent for a computer centre. S contended that, on a proper construction of the assumption in the clause that defined the open market rent, what had to be valued was a hypothetical building containing high class professional or commercial offices. C contended that the valuation should be based on actual buildings on the site but on the assumption that they were to be used as high class professional or commercial offices and converted as necessary for that use.
As there was difficulty in ascertaining the open market rent for the computer centre, because of the absence of comparable buildings, the parties must have contemplated that the open market rent had to be assessed on the assumption that the demised premises comprised high class professional or commercial offices. C's "actual premises approach" would open up an enormous amount of debate as to what alterations would be required to the computer centre to meet the prescribed assumption of high class offices. The actual premises approach did not make commercial sense and could not have been what the parties had in mind. S's "hypothetical premises approach" was the correct one, and what the parties had in mind was a standard going rate for other buildings within the business park that were high class offices. The subsequent variation of the lease did not alter the meaning of the high class offices assumption. Accordingly, the valuation of the premises for the purposes of the rent review should be by reference to the going rate for hypothetical premises comprising high class professional or commercial offices situated within the business park.
Judgment for claimant