Lord Templeman:

This appeal concerns an unusual rent review clause in an unusually worded lease. The question is whether the rent payable in respect of the demised premises should be based on the letting value of the site only or on the letting value of the site and the buildings thereon.

The lease was dated 16 August 1957 and recited that the landlord was the registered proprietor of "lot No. 573, s. 62, in the town of Kuala Lumpur, in the District of Kuala Lumpur, in area 0 acres 2 roods 27.9 poles (hereinafter referred to as the `said land')". The recital which was no doubt adopted from the terms of the Certificate of Title did not refer to any building in the definition of "the said land". The lease then demised "the said land together with the buildings erected thereon and known as Star Theatre ... for a term of thirty years from 1 July 1957 at a monthly rental as stated hereinafter, ... subject to the stipulations, modifications, terms and conditions hereinafter contained". Clause 1 of the lease provided for "the rent of the said land". By well established principles that rent would issue out of the land including any buildings from time to time on the land and would prima facie be referable to the value of the land plus buildings. By Clauses 1(i), (ii) and (iii) the rent was fixed at RM400 per month for the first ten years, RM500 per month for the next five years, RM700 per month for the next five years, and then:

(iv) From the beginning of the 21st year to the end of the 25th year such sum exceeding RM700 as shall be agreed to by the parties hereto or failing agreement as shall be fixed by an arbitrator;

(v) From the beginning of the 26th year to the end of the 30th year such sum exceeding the rent fixed for the preceding period of five years as shall be agreed to by the parties hereto or failing agreement as shall be fixed by an arbitrator.

At the end of twenty years the parties were unable to agree the rent and the dispute was accordingly referred to an arbitrator who stated a case to the Court asking: -

Whether on an interpretation of Clause 1(iv) of the said Memorandum of Lease the correct base for assessment of the fair rental payable therein should be the value of the land only or whether it should relate to the land and buildings erected thereon.

In the High Court of Malaya at Kuala Lumpur Harun Hashim J held that the rent "must be assessed with reference to the land only". The Federal Court of Malaysia (Raja Azlan Shah, Ag. L.P. Malaysia, Lee Hun Hoe CJ (Borneo) and Mohd. Azmi FJ) allowed the landlord's appeal and held that the rent should relate to the land together with the buildings erected thereon. The tenants appeal with leave of the Federal Court to His Majesty the Yang di-Pertuan Agong.

Down to the end of Clause 1 of the lease there are grounds for diverging from the general rule that the rent of the land must be valued as at the end of the twentieth year of the term with the buildings then erected. On behalf of the tenants Mr. Wood has powerfully and persuasively argued that reading the lease as a whole, there is a sustained distinction between the land on the one hand and the buildings on the other hand and that it can be inferred from the lease that the rent of the land was intended to ignore the buildings.

The tenants' covenants included in Clause 3(b) a convenant to keep in repair "the cinema at present known as Star Theatre and erected by the Lessee at his own cost and expense on the said land". The parties could not have intended, submits Mr. Wood, to make the tenants pay a rent for the cinema which the tenants had themselves erected. It is conceded that the rent for the first twenty years must have been a low rent beginning at 1% and not exceeding 2% of the sum of RM320,000 for which the tenants covenanted in Clause 3(e) to insure the cinema. The lease did not reveal whether the tenants were entitled at law to a lease at a low rent because they had erected the building by virtue of some