A recent decision of the Court of Session in AWG Group Limited v. HCP Properties 101 GP Limited has altered the position in Scotland in relation to delayed rent reviews. Douglas Lamb summarises the important judgment below.
The property comprised a nine storey office block in Edinburgh, of which Floors 1-8 were let to the AWG Group under separate leases. Each lease provided for the rent to be reviewed every five years throughout the period of the lease. The leases also contained a clause to the effect that no demand for or acceptance of rent by the landlord shall be deemed to be a waiver of the right of the landlord to require a review of the rent (Clause 5.8).
The relevant rent review date was 27 February 2014. However, the landlord continued to issue rental invoices at the existing rent and the tenant paid accordingly. This continued until April 2016 when the building was sold and the new landlord gave written notice to the tenant that it was reviewing the rent as at 27 February 2014.
The tenant sought a court order that the landlord was not entitled to seek a rent review as at 27 February 2014 because the landlord had waived its right to seek such a review.
The tenant submitted that the landlord had waived the right to review the rent for two reasons:
- From the beginning of 2015, the landlord had changed the wording on its rental invoices. Previously, the invoices had stated “without prejudice to review on 27/02/14”. The fact that this caveat had been removed was significant and implied that the landlord was abandoning the right to review; and
- A sales brochure from mid-2015 referred to the next review date as being in 2019 and contained no mention of the 2014 review. The tenant took this as further evidence that the landlord had waived the right to carry out the 2014 review.
Although the tenant admitted that each of these factors separately probably did not amount to abandonment, it argued that, taken together, they were sufficient to infer abandonment.
In response to the tenant, the landlord argued that the reason for the change of wording on the rental invoices could simply have been because it had come to the realisation that the caveat was not required given the terms of clause 5.8 of the leases. In relation to the sales brochure, this was simply for promotional purposes and was not intended to be founded upon by anyone. It was not correct for the tenant to infer from either the invoices or the brochure or indeed both of them cumulatively, that the landlord had abandoned its right to seek a 2014 rent review.
In reaching its decision, the court considered previous case law on waiver. The two main Scottish cases in this area were Banks v. Mecca Bookmakers (Scotland) Ltd and Waydale Ltd v. MRM Engineering. These cases established the position that where time is not of the essence in a rent review provision, there is a danger that a landlord will be considered to have abandoned its right to review the rent if it does not take steps to do so and continues to accept rent at the existing rate. The case law provides no guidance as to how long can lapse and it seems that this will depend on the individual facts and circumstances of each case.
Marking an important change in the law, Lord Doherty distinguished Banks and Waydale. He held that the conduct of the landlord did not provide a basis for the tenant to infer abandonment of the right to a 2014 review. He went on to say that because of the terms of clause 5.8 of the lease, there had been no need for the invoices to include the caveat and also that a right is not waived merely because a party delays or postpones exercising it.
In conclusion, the AWG Group case is an important one which changes the law in Scotland in relation to delays in implementing rent reviews. Whereas previously, the passage of time was sufficient to prove abandonment, now, in a case where implied waiver is alleged, the party claiming waiver must also show that he has conducted his affairs on the basis that the right has been abandoned.
This is a positive development for landlords who will now have an opportunity to revisit rent reviews where perhaps recessionary climates had previously prevented them from doing so.
- Douglas Lamb is a Partner at law firm MacRoberts