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There have been numerous cases over the last few years concerning the interpretation of contracts. The emphasis that the court takes now is on the ordinary and natural meaning of the wording of clauses, rather than giving more weight to what would seem more commercially sensible. The recent case of Elmfield Road Ltd v Trillium reflects this approach.
In the Elmfield case, the tenant argued that there was a mistake in the rent review clause in their lease, and that the court should adopt the more commercial interpretation of the clause to rectify this. The ‘mistake’ meant that the reviewed rent would be £300,000 higher than the interpretation that the tenant put forward.
The landlord and tenant had agreed a reduction in rent for a previous lease, so the rent payable for the last 5 years was £965,000. At the same time, the parties entered into a new lease with a term starting 5 years in the future, on the expiry of the previous lease. The new lease provided for the rent to be reviewed in line with the Retail Price Index on the fifth anniversary of the lease start date.
The argument was over whether the reduced rent of £965,000 should be the basis for the rent review, or the new rent of £1.2 million. The literal interpretation meant £1.2 million would be used, but the tenant argued that there had been a mistake in the drafting and the more commercially sensible interpretation meant the rent of £965,000 should be used. The Court of Appeal rejected the tenant’s claim, reasoning that the court could not be expected to rectify the parties’ failure to think about the consequences of what was agreed. The formula for the rent review was clear and unambiguous.
This case shows how important it is to make sure rent review clauses reflect exactly what the parties think they have agreed, and how a simple ‘error’ can result in a marked difference in the rent increase. The court will not act as a safety net for tenants for unfavourable terms.
At Myerson our property team has extensive experience in acting for all parties in connection with landlord and tenant issues and would be delighted to provide further advice in this area should you require it. Please call our Commercial Property team on 0161 941 4000 or email us at firstname.lastname@example.org.