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Construction of lease terms

Dictionary definitions

Joint London Holdings Ltd v Mount Cook Land Ltd
[2005] EWCA Civ 1171.

In this case the CA had to determine the meaning of the word victualler in a 1950 lease. In the absence of any other evidence the court had regard to dictionaries. Etherton J:
    "I agree entirely with the Judge on the general approach to the interpretation of the expression in clause 1I(7). Notwithstanding that the presence of the word in that clause can be traced back to restrictions' in the standard Estate lease from the 1790s, the question is what meaning the parties to the Lease intended it to bear in 1950. Unless the context indicates otherwise, and bearing in mind that the Lease was not in fact granted by the Estate, the starting point must be the ordinary meaning or meanings of the word in 1950. The only evidence before the Judge as to the ordinary meaning of "victualler" in 1950 was in the standard dictionaries. It is common ground that the relevant dictionary definitions of "victualler", "licensed victualler" and "victuals" have not changed between 1950 and the present time."
He then looked at various dictionary definitions before coming to the conclusion that the word bore a wide meaning of a person who supplies food and drink, and was not restricted to a licensed victualler. This meant that a new Pret a Manger could not be allowed to open a branch at the premises.


Extrinsic evidence

Use of extrinsic evidence to construe break clause

KPMG LLP v Network Rail Infrastructure Limited
[2007] EWCA Civ 363

Summary

This case concerned a dispute as to the construction of a tenant's break clause, and whether or not the court could construe the clause, which appeared to be missing some words, by using an earlier agreement and draft lease. Held: Yes.

Facts

The break clause was contained in a lease dated 11 July 1985 which broadly followed the form of a draft lease attached to an agreement dated 13 December 1974. The lease was ultimately held by KPMG as tenant and Network Rail as landlord. The break clause stated:
    "5. If the Tenants shall be desirous of determining the said term hereby granted at any time after the expiration of the third thirteenth and twenty third years of the said term and of such desire shall give to the Landlords not less than six calendar months' notice in writing (such notice to expire on any quarter day and to be given within a period of six months following the determination of the reviewed rent to be payable from the expiration of the first eleventh and twenty-first years respectively of the said term [*] and thereafter during the year immediately preceding the eleventh and twenty-first years respectively of the said term) then on the expiration of such notice as aforesaid the said term shall cease and determine but without prejudice to the rights and remedies of either party against the other in respect of any antecedent claim or breach of covenant." (Emphasis and asterisk added by the Court of Appeal)
The dispute between the parties was as to the meaning of the words between the brackets.

Tenant's case

The tenant contended that the break clause should be interpreted "as it stands" giving the tenant three opportunities to break dependent on rent review, and two "free standing" opportunities to break.

Landlord's case

The landlord contended that either (i) the clause should be interpreted by inserting words that it argued had been omitted (namely that the break clause should only be exercisable where the rent review would have resulted in an increased rent) and thus giving the tenant only three opportunities on that prior condition having been met; or (ii) the clause should be read as giving the tenant five opportunities to break but that the additional two opportunities should also be dependent on the prior rent review condition.

First instance

The court at first instance upheld the landlord's claim for rectification based on mutual mistake. The tenant appealed.

Decision

Appeal dismissed but the CA found for the landlord on the basis of construction rather than mistake.

Having reviewed the legal basis for rectification on the basis of mutual mistake (and in particular the leading case of Swainland Builder Ltd v Freehold Properties Ltd [2002] 2 EGLR 71) and the evidence before the court at first instance, the Court of Appeal reluctantly concluded that the judge at first instance had erred in finding that the landlord had established "by convincing proof" the facts necessary to support a claim for rectification; it found that the claim should have been rejected. Likewise, the court of appeal held that the landlord's alternative claim for rectification based on common intention should also be rejected.

The court then went on to look at the matter of construction and the relevance or otherwise of background documents. It referred to the principles laid down in Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 that a contract is to be construed in the light of any relevant fact, surrounding the transaction and known to the parties, which a reasonable man would have in mind as shedding light on the parties' meaning of the words used, but excluding evidence of negotiations or of the parties' subjective intentions (admissible in rectification claims). The court bore in mind that the evidential value of prior contracts may be negligible, but held that the judge at first instance had been wrong in dismissing the relevance of the 1974 agreement. The 1974 agreement, including the form and content of the draft lease were, the court concluded, permissible aids to the construction of the lease in its final form.

Part of the process of construction of documents is the power of the court to correct obvious mistakes but in order to establish that a correction should be made, two conditions must be satisfied: (i) there must be a clear mistake on the face of the document and (ii) it must be clear what correction needs to be made to rectify the mistake (East v Pantiles Plant Hire Ltd [1982] 2 EGLR 111, 112). In deciding whether there is a mistake, the court may take into account background evidence in order to interpret the document.

The court was therefore entitled to look at the draft lease attached to the1974 agreement as aid to construction of the break clause in the completed lease. Carnwarth LJ at para 64 and 65:
    "..it is sufficient if the court is able to ascertain "the gist" of what has been omitted. I would go further. Once the court has identified an obvious omission, and has found in admissible background materials an obvious precedent for filling it, it should not be fatal that there may be more than one possible version of the replacement, or more than one explanation of the change. .. Of course such variations may be sufficient to throw doubt on the precedent as providing an explanation for the error. But, if not, the court is simply faced with the ordinary task of choosing between the competing interpretations, using the ordinary techniques of construction.

    In the present case, for the reasons I have given, it is obvious from a reading of the 1985 version on its own that something has gone wrong. Comparison with the 1974 draft leaves no doubt as to the parameters of the error. It lies in the transposition of the second part of the parenthesis. I agree, however, with the judge, that comparison of the two versions, by itself, does not yield a definitive answer. In my view it leaves only two realistic possibilities: either too much was left out, or not enough. Either (a) the relevant words should not have been left out, and the parenthesis was intended to remain as in the 1974 draft; or (b) it was intended to leave out not just the relevant words, but the whole of the second part of the parenthesis, that is, the increased rent condition.
Conclusion

As the second interpretation was not available to the court, the first interpretation was adopted. Thus, by a different route from the lower court, the Court of Appeal found for the landlord and the tenant's appeal was dismissed. The tenant was left with a break clause operable on only three occasions during the term of the lease, and only where the rent review had resulted in an increased rent. Commercially, this leaves the tenant in the position of potentially being unable to break the lease unless market conditions and rental values give the landlord an incentive to initiate the rent review.



Mistakes

Littman v Aspen Oil (Broking) Ltd
[2005] EWCA Civ 1579.

The decision of the High Court, whereby the court, as a matter of construction, corrected an error in a lease by substituting the word "tenant" for the word "landlord" in a break clause where it was obvious that that was what was intended has been upheld by the Court of Appeal. The lease would therefore be construed as if the words in the case of a notice given by the landlord read as in the case of a notice given by the tenant.


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