Land – Development – Rent charge – Appellant transferring freehold interests of residential properties to respondents – Appellant seeking declarations that entitled to maintain structure and exterior of building to good state of repair and require each freehold owner to pay rent/service charge – Judge refusing declarations – Appellant appealing – Whether judge erring in law – Appeal dismissed
The appellant company sought a declaration that it was entitled to maintain the structure and exterior of two listed buildings which formed part of the former Mostyn House School which had been developed into apartments demised on long leases to 45 leasehold owners and to require 40 freehold owners, who had acquired properties forming part of the same development, to contribute rateably to the cost of that maintenance, by means of a rent charge contained in the transfers to the freehold owners or their predecessors in title.
The former school comprised two listed school buildings, a Grade II listed chapel, and a listed cricket pavilion, Jarrah House. In July 2013, a developer obtained planning permission to develop the site. The planning permission was granted subject to the execution of a section 106 agreement with the local authority which was entered into between the local authority, the original owners of the school, the developer and the then mortgagee. It provided, amongst other things, that certain repair works be carried out to the listed building, which was in a serious state of disrepair, in tandem with the housing development.
The appellant was incorporated in January 2014, the same day as the second respondent, which was controlled by the freeholder owners and the third respondent, which was controlled by the leaseholders. The relevant leases in relation to the apartments were granted by the developer for terms of 240 years, at a premium, between October 2014 and January 2016.
The High Court dismissed the claim: [2021] EWHC 3786 (Ch). The appellant appealed.
Held: The appeal was dismissed.
(1) When construing the transfers, the court’s task was to ascertain the objective meaning of the language which the parties had chosen to express their agreement. The court had to consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. The factual background known to the parties at or before the date of the contract, excluding evidence of the prior negotiations, was potentially relevant to the task of interpreting the contract: ABC Electrification Ltd v Network Rail Infrastructure Ltd [2020] EWCA Civ 1645 considered.
Interpretation was a unitary exercise; where there were rival meanings, the court could give weight to the implications of rival constructions by reaching a view as to which construction was more consistent with business common sense. But, in striking a balance between the indications given by the language and the implications of competing constructions, the court had to consider the quality of drafting of the clause. It also had to be alive to the possibility that one side might have agreed to something which with hindsight did not serve his interest, and that a provision might be a negotiated compromise or that the negotiators were not able to agree more precise terms.
That unitary exercise involved an iterative process. The exercise of interpreting a provision involved identifying what the parties meant by the words used through the eyes of a reasonable reader; commercial common sense was only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, when the contract was made; one could only take into account facts or circumstances which existed at that time, and which were known or reasonably available to both parties; and the purpose of interpretation was to identify what the parties had agreed and not what the court thought that they should have agreed.
(2) In the present case, the judge had erred in taking into account the terms of draft leases, not yet granted nor registered at the Land Registry at the date of the transfer, as an aid of construction. The judge had relied upon the perceived contemporaneity of the sale of the freehold properties with the grant of the leases in order to make good the lack of evidence as to whether draft model leases were reasonably available before the first transfer was executed. However, the judge’s conclusion in relation to contemporaneity was contrary to his findings about the dates of execution of the transfers and the first grants of the leases.
In the case of a public document, such as the transfers, it was necessary to adopt a restricted approach. A third party might have needed to rely upon the terms of the first transfer to be registered and would not have had access to the leases. It was not open to the judge to take account of the terms of the leases when construing the transfers: Cherry Tree Investments Ltd v Landmain [2012] 2 EGLR 141 considered.
(3) However, the judge did not rely exclusively upon the terms of the leases as a means of interpreting the transfers. His conclusions were based upon wider considerations of the terms of the transfers as a whole, as a reasonable reader, in the light of the admissible background of the section 106 agreement and the fact that there were three management companies with identical articles of association, and the knowledge which would have been available to the parties before the first transfer was executed.
It also had to be borne in mind that the transfers were sophisticated documents drawn up by lawyers and, for the most part, appeared to have been well drawn. Although there might be circumstances in which the appellant would be obliged to step in to ensure compliance with the section 106 agreement as a “belt and braces” measure, on their proper construction, the transfers created a carefully calibrated hierarchy of responsibilities and liabilities; each provision of the rent charge had to be read in the wider context of the transfer as a whole.
It was only if the primary responsibilities had not been met that the appellant would have any duties or responsibilities. Accordingly, it could not be entitled to the declaration sought and the judge was right to reject the appellant’s construction of the transfers.
Simon Allison and Rebecca Sage (instructed by Ozon Solicitors, of Altrincham) appeared for the appellant; Lina Mattsson (instructed by Kleyman and Co) appeared for the first respondents; The second and third respondents did not appear and were not represented.
Eileen O’Grady, barrister
Click here to read a transcript of Mostyn House Estate Management Co Ltd v Youde and others
