Rectification of lease — Claim by plaintiff lessors that the omission of rent review provisions from a lease was accidental and that defendant lessees knew before execution that plaintiffs believed that such a clause was included — Lease created a term of 20 years at £3,500 per annum with no
This was an
action brought by the lessors, Central & Metropolitan Estates Ltd, for the
rectification of a lease dated May 28 1980 creating a term of 20 years at a
rent of £3,500 per annum. The defendant lessees were Compusave Ltd and the
second and third defendants, Lawrence Peter Brennan and Patricia Marie Brennan,
were joined as sureties. The premises comprised in the lease were part of the
basement of the block of flats known as Vicarage Court, Vicarage Gate,
Kensington Church Street, London W8.
Alan Steinfeld
(instructed by Parker, Thomas & Grabiner) appeared on behalf of the
plaintiffs; Miss Barbara Slomnicka (instructed by Douglas-Mann & Co)
represented the defendants.
Giving
judgment, MR GERALD GODFREY QC said: This is an action for rectification of a
lease dated May 28 1980 and made between (1) Central & Metropolitan Estates
Ltd (the plaintiff), (2) Compusave Ltd (the first defendant) and (3) Lawrence
Peter Brennan and Patricia Marie Brennan (the second and third defendants) so
as to include in the lease a rent review provision. The premises comprised in
the lease are part of the basement of a block of flats, Vicarage Court,
Vicarage Gate, Kensington Church Street, London W8. The plaintiff is described
in the lease as ‘the lessor’, the first defendant as ‘the tenant’ and the
second and third defendants as ‘the surety’. I shall refer to the plaintiff as
‘Central & Metropolitan’, to the first defendant as ‘Compusave’ and to the
second and third defendants respectively as ‘Mr Brennan’ and ‘Mrs Brennan’.
The lease
creates a term of 20 years at a rent of £3,500 per annum. It does not contain a
rent review provision. The case for Central & Metropolitan is that the
omission of a rent review provision was an accident of which the defendants
were aware and that the lease ought to be rectified to incorporate one. The
case for Compusave is that the defendants were aware of the absence of a
rent review provision but that they believed that this was due not to a mistake
but to a decision on the part of Central & Metropolitan not to include one,
so that this is not such a case as to entitle Central & Metropolitan to
rectification. It is conceded by Central & Metropolitan that if I accept
the oral evidence of the defendants’ witnesses on this aspect of the matter,
then this action is bound to fail.
The history of
the matter is as follows. Central & Metropolitan is a property company; it
has two directors, Mr A R Shaw [FSVA] and Mr S A Parnes [FRICS]. These two are
the senior partners in the firm of the estate agents, Druce & Co. When
Central & Metropolitan acquired the property, Vicarage Court, one Mr Lemmy
was in occupation of the part of the basement with which this action is
concerned under a three-year lease, due to expire on March 31 1980. The rent
reserved was £2,750. This lease permitted Mr Lemmy to use the premises only for
the storage and restoration of antique furniture. The planning position was unclear.
It was the
intention of Central & Metropolitan to relet elsewhere the premises
occupied by Mr Lemmy when his lease expired on March 31 1980. Accordingly,
Central & Metropolitan determined to put the premises on the market and to
that end instructed Druce & Co. The director of Central & Metropolitan
who dealt with the matter was Mr Parnes; and he entrusted it to Mr L R Simmonds
of Druce & Co. Neither of them had any very clear ideas about the premises
or what Central & Metropolitan could do with them. Mr Simmonds prepared
some particulars relating to the premises which he and Mr Parnes both knew and
deliberately intended to be vague. The particulars were headed ‘basement
accommodation to let’ and were more particularly described in the following
terms: ‘The available accommodation comprises part of the lower ground floor
arranged to form five rooms of varying sizes affording a total net floor area
of 960 square feet approx.’ No
indication was given in the particulars of the use to which the landlord, or
the planning authority, would or might permit the premises to be put. The lease
offered was described in the following terms: ‘A new lease is offered for a
term by arrangement’; no indication was given as to the length of the term, but
the rent was described as follows: ‘The commencing rental is to be £3,500 per
annum exclusive of rates and service charge.’
The word ‘commencing’ would, I think, indicate to anybody reading the
particulars that if the term of the lease was to be a long one, then the tenant
could expect the lease to contain provision for a review of the rent every so
many years. Of course, it does not follow as night follows day that a
commencing rental will be different from that payable at the end of the term;
in the case of a short lease it will almost certainly be the same. If the new
lease offered in these particulars ‘for a term by arrangement’ turned out,
after negotiation, to be a lease for, say, only three or five years, then
nobody would expect the final rental to be different from the commencing
rental.
These
particulars were, in effect, testing the water; the intention was not to state
the landlord’s terms for letting the premises but rather to attract interest in
the premises and to see what offers might be forthcoming for them.
The premises
attracted the interest of Mrs Brennan. She was an executive director of
Throughway Sales & Engineering Ltd (‘TSE’), a small company looking for
premises in the area for office and storage purposes (more particularly, the
storage of computer peripheral supplies and ancillary offices). On Wednesday
October 24 1979, Mrs Brennan, with her co-director Mr R E Horin, looked over
the premises with Mr Simmonds. Mrs Brennan was somewhat daunted by what she
described as the ‘appalling’ condition of the premises; but she nevertheless
remained interested in them and on October 26 1979 wrote to Druce & Co, for
the attention of Mr Simmonds, to tell him so. It appears that she had not been
given any further information about the premises than was available from the
particulars to which I have referred: for she wrote, ‘we should therefore be
grateful if you would now let us have the necessary details to enable us to
consider the matter further, including the size and extent of the premises, the
rateable value, means of access, restrictions on use, services provided, type
and term of lease available etc’. Shortly after this Mrs Brennan viewed the
premises again; and on November 3 1979 she wrote to Mr Simmonds on behalf of
TSE telling him that they were interested in agreeing terms for a lease of the
premises. Mrs Brennan wrote that subject to clarification of the rates payable,
if any, and the service charge payable, if any, and subject to agreement on a
number of points about the physical state of the premises and to a point on
costs, TSE would be prepared to pay an initial rent of £3,000 per annum,
provided that the lease was for a minimum of seven years; that rent reviews
were no more frequent than each three years; and that TSE could, subject to
licence, part sublet. It seems to me quite plain that, at this stage, Mrs
Brennan was after a lease of the premises for a term of a length long enough to
justify the insertion in the lease of a rent review provision, and that she
must have understood the reference in the particulars to a ‘commencing rental’
in the sense I have already indicated.
On November 5
1979, before receiving Mrs Brennan’s letter of November 3 1979, Mr Simmonds
spoke to Mrs Brennan on the telephone; he noted that she had sent him a letter
expressing interest in the premises (that is the letter of November 3 1979) and
he also noted that he told her ‘we are prepared to grant a 20-year lease
subject to five-yearly rent reviews’. On November 6 1979 Mr Simmonds, after
receiving the letter of November 3 1979, made another note to similar effect.
On November 8 1979 Mr Simmonds noted a telephone conversation he had had with
Mrs Brennan; he
stated that I would be replying to their letter.’
Mr Simmonds in
due course did this by a letter dated November 9 1979, stating in particular,
in answer to Mrs Brennan’s points about the term of the lease and the rent
reviews, that the lease was to be for a period of 20 years subject to
five-yearly rent reviews at a commencing rental of £3,500 per annum exclusive.
Mr Simmonds added that he looked forward to hearing from Mrs Brennan with a
written offer for the premises. On November 15 1979 Mr Simmonds again spoke to
Mrs Brennan on the telephone; he recorded that she had told him that she had
just received the letter of November 9 1979 and would be writing to Mr Simmonds
within the next few days with a formal offer.
On November 27
1979 Mrs Brennan did so. She wrote thanking Mr Simmonds for his letter of
November 9 and continued: ‘Subject to contract we agree to take the 20-year
lease on the basement area of Vicarage Court at an initial rental of £3,500
exclusive of rates.’ Mrs Brennan gave
the names of referees for TSE and continued: ‘Before contracts can be exchanged
we need your assurance that this area has the necessary planning consents of
the local authority for our use. In view of the doubts over the rates payable I
have written to the rating and planning departments of the local authority. I
shall let you know the outcome of these inquiries.’
There is no
doubt that, at this stage, the whole matter was still in the stage of
negotiation. Quite apart from the words ‘subject to contract’ contained in Mrs
Brennan’s letter of November 27 1979, a number of important points, in
particular questions relating to the rates payable and the permitted use of the
premises for planning purposes, were unsettled. Nevertheless, the parties were
moving towards agreement. In particular, it seems to me that on any fair reading
of the correspondence, ie Mr Simmonds’ letter of November 9 1979 (stating that
the lease was to be for a period of 20 years subject to five-yearly rent
reviews with a commencing rental of £3,500 per annum exclusive) coupled with
Mrs Brennan’s reply of November 27 1979 (agreeing to take what she called ‘the
20-year lease’ at an initial annual rental of £3,500 exclusive) the parties had
come to agreement that, if the transaction went through at all, it would go
through on the basis of a 20-year lease subject to five-yearly rent reviews. In
the context of this agreement, for such it was expressed to be, on the part of
Mrs Brennan to take a 20-year lease at an ‘initial’ annual rental of £3,500 in
answer to a letter referring to a ‘commencing’ rental of £3,500 subject to
five-yearly rent reviews, there is to my mind really no room for any doubt that
in her letter of November 27 1979 Mrs Brennan must have been using the word
‘initial’ to refer to the period of rent before the first review. I cannot
accept that she intended her letter of November 27 1979 to be read as an offer
(even subject to contract) of a rent of £3,500 per annum for the whole term of
20 years. I find that, whatever other matters remained outstanding, it was the
common intention of Mr Simmonds and Mrs Brennan on November 27 1979 that,
subject to contract, ie if any lease were to be granted at all, it would be a
lease for 20 years with five-yearly rent reviews.
Again on
November 27 1979, Mrs Brennan wrote to the local planning authority, and to the
local rating authority, confirming that TSE had made ‘an offer to rent’ the
premises. I cannot believe that at this stage Mrs Brennan was merely expressing
an interest in taking the premises; Mrs Brennan had indeed made an offer
(subject to contract) the basic terms of which can be ascertained by reading
together the two letters of November 9 1979 and November 27 1979 to which I
have referred.
On January 15
1980 Mr Simmonds wrote to Parker, Thomas & Grabiner, solicitors,
instructing them in the matter. Mr Simmonds addressed his letter to one Lenga
(misspelt in the letter as ‘Langer’) of that firm. Mr Simmonds referred to
TSE’s offer in the following terms: ‘Their acceptable offer is to lease the
premises for a term of 20 years subject to upward-only rent reviews every 5
years at a commencing rental of £3,500 per annum exclusive.’ (No one at any stage before or since has
suggested that any rent review was to be upwards only; and I disregard this
slip.) It is clear that Mr Simmonds,
when he instructed Mr Lenga, believed that TSE were offering to take the
premises for 20 years, subject to rent reviews every five years, and at a
commencing rental of £3,500 per annum exclusive. In the light of Mrs Brennan’s
letter of November 27 1979, that belief, as it seems to me, was entirely
justified and indeed was correct.
Mr Lenga
decided to prepare a lease for the purposes of this transaction following the
old lease granted to Mr Lemmy. Mr Simmonds, after consultation with Mr Parnes,
agreed to this and went so far as to tell Mr Lenga, in a letter dated January
23 1980, that the new lease should be in ‘exactly the same terms’ as Mr Lemmy’s
lease. That, it will be recalled, was a three-year lease which, as one would
expect, did not contain any rent review provision. However, it is quite obvious
that Mr Simmonds, in using the expression ‘on exactly the same terms’, was not
referring to provisions relating to the length of the term or to the rent,
reviewed or otherwise.
On February 5
1980, Mrs Brennan again wrote to Mr Simmonds. She expressed concern at what she
described as ‘the unnecessary delays’ in proceeding to a speedy conclusion of
the sale (sic) of the basement premises at Vicarage Court. She continued (so
far as is material): ‘On November 27 1979 we wrote accepting the lease subject
to the various terms contained therein . . . We looked forward to a speedy
exchange of contracts . . . it is now some 2 months later and we have not seen
a copy of the plans or, more importantly, exchanged contracts.’ All of this seems to me consistent only with
an acceptance on the part of Mrs Brennan that agreement on at any rate the
basic terms of the transaction, such as the length of the lease, the rent, and
whether or not there were to be rent reviews and, if so, at what intervals, had
already been reached. Mrs Brennan went on to deliver an ultimatum. Her letter
listed a number of items and concluded that ‘failing receipt of all such items
by the stated date [February 10 1980] the offer in our letter of November 27
1979 is suspended’. Again, this ultimatum seems to me consistent only with an
acceptance of the fact that agreement, at least on the basic terms to which I
have referred, had (subject to contract) been reached between the parties.
On February 7
1980, Mr Simmonds wrote to Mrs Brennan stating, among other things, that a copy
of the lease was being sent by Parker, Thomas & Grabiner within the next
few days; and on February 8 1980 the solicitors duly sent to Mrs Brennan a
draft contract and lease in duplicate under cover of a letter which read (so
far as is material) as follows: ‘We understand from Druce & Co . . . that
you are acting for TSE . . . who have agreed subject to contract to take a new
lease of the [premises] from our clients . . . for a 20-year term at a
commencing rental of £3,500 per annum.’
The draft
contract and the draft lease had been prepared by Mr Lenga. Clause 2(a) of the
contract provided that the term of the lease to be granted should be for 20
years from the quarter day immediately preceding the granting of planning
permission by the local authority as thereinafter mentioned. Clause 2(b)
provided: ‘The rent to be reserved by the lease shall be £3,500 per annum for
the first 5 years of the term and thereafter as provided in the lease payable
quarterly in advance on the usual quarter days in every year.’
So far, so
good: but (and it is this which has given rise to the central issue in the
case) the draft lease contained no rent review provision. It provided for a
term of 20 years, and provided in the reddendum as follows: ‘Yielding and
paying therefor unto the landlord yearly during the said term hereby granted
and so in proportion for any less time than a year the rent of £3,500 . . .’.
The effect of
a lease in this form, without any rent review provision, would of course be to
provide for a rent of £3,500 throughout the whole of the term of 20 years
thereby granted. That, in my judgment, would clearly be inconsistent with the
agreement which appears on the face of the correspondence to which I have
referred to have been arrived at between the parties, and inconsistent with the
provisions of clause 2(b) of the contract for the lease. I appreciate that it
is, as a matter of language, possible to construe clause 2(b) read with the
draft lease as intending to provide for a reserved rent of £3,500 per annum for
the first five years of the term and for a rent of the same sum (£3,500) per
annum for the rest of the term; indeed that is the only possible construction
if the provisions of clause 2(b), and the provisions of the draft lease, are
taken literally. But it would, in my judgment, be absurd to ascribe to the
parties any such intention. Having regard to the genesis and aim of the
transaction, and in the light of the correspondence between the parties, I have
no hesitation whatever in concluding that the words in clause 2(b) of the draft
contract ‘and thereafter as provided in the lease’ must be read as referring to
the reservation of a rent, whether by means of a rent review provision or
otherwise, for the last 15 years of the term different from that reserved for
the first five years of the term. Since the draft lease contains nothing
whatever to differentiate the rent reserved for the first five years of the
term from the rent
something has obviously gone wrong with the draft lease.
What has gone
wrong is, in my judgment, also obvious. It is that the draftsman of the draft
lease has, by inadvertence, failed to insert in it the rent review provision in
my judgment patently heralded by the words ‘and thereafter as provided in the
lease’ contained in clause 2(b) of the draft contract.
I must refer
also to clause 7 of the draft contract, which provided for a confirmation on
the part of the tenant and the surety that ‘there are and have been no
representations made by or on behalf of the lessor on the faith of which the
tenant is entering into this agreement except the lessor’s solicitors’ reply as
to any written inquiries raised by the tenant’s solicitors and to the extent to
which such representations are herein expressly set out and the tenant further
warrants that the tenant is entering into this agreement solely as a result of
its inspection of the property and the basis of the terms of this agreement’. I
reject the suggestion that this clause damages or destroys the plaintiff’s case
(if any) for rectification.
By a letter
dated February 15 1980, Mrs Brennan wrote to Parker, Thomas & Grabiner
thanking them for their letter of February 8 and its enclosures, ie the draft
contract and the draft lease. Among other things, Mrs Brennan (referring to
clause 7 of the draft contract) said that TSE did rely on representations made
in correspondence and in particular on the letters there specified (including
the letters dated November 3 1979 from TSE to Druce & Co and November 9
1979 from Druce & Co to TSE, in each of which reference to a rent review
provision had been made). She referred also to the letter of November 27 1979,
which, although it did not refer in terms to a rent review, did refer to ‘an
initial annual rental’ and was of course written in reply to the letter of
November 9 1979 from Druce & Co to TSE. Mrs Brennan complained that the
copies of the draft lease were completely unreadable in parts; but it is not
suggested that that part of the lease which referred to the rent was
unreadable. Mrs Brennan sent a copy of her letter of February 13 1980 to Druce
& Co and also wrote two separate letters of the same date, one referring to
the details of the transaction and the other (addressed to Mr Shaw) concerning
the planning application which had been made by Druce & Co not only on
behalf of TSE but in its name.
There followed
further correspondence between the parties; but it resulted not in TSE taking a
lease of the premises but, on the contrary, withdrawing from the whole
transaction. On March 24 1980 TSE wrote to Mr Simmonds to the effect that it
was no longer interested in taking the premises. The explanation of this is,
essentially, that Mrs Brennan was herself withdrawing from TSE and in those
circumstances TSE no longer had any interest in the premises. Mrs Brennan,
however, remained personally interested in the premises for the purpose of a
new venture which she intended to start with Mr Brennan in the same line of
business as TSE, and on March 27 1980 she telephoned Mr Simmonds to inform him
accordingly. He recorded that he had told her that she had to make a written
offer on ‘the same terms as before’; and he recorded that she was prepared to
guarantee the lease. The point was that, in the case of TSE, where Mrs Brennan
was merely an executive director, she had jibbed at the suggestion that she
should act as a guarantor or surety and indeed at the suggestion that any
guarantor or surety should be needed for an established company such as TSE;
but she understood that for the new venture (for which Compusave was being
formed) such a requirement was reasonable. In his reference to ‘the same terms
as before’ Mr Simmonds had in mind a term of 20 years at a commencing rent of
£3,500 per annum with five-yearly rent reviews: although it does not appear
that he specifically mentioned any of these terms to Mrs Brennan in that
telephone conversation. However, on the same date, March 27 1980, Mrs Brennan
wrote to Mr Simmonds, this time (and for the first time) on behalf of
Compusave, of which Mr Brennan and Mrs Brennan were the directors. After
referring to the premises, Mrs Brennan wrote:
In
confirmation of our recent telephone conversation, I make an offer subject to
contract to lease the premises above on the terms set out in the correspondence
between us when I was a director of TSE Ltd.
I do not see
how, on any fair reading of the correspondence referred to by Mrs Brennan, that
could be read otherwise than as an offer to take a lease of the premises for 20
years at a commencing rent of £3,500 per annum with five-yearly rent reviews.
The letter contained points of detail on the draft agreement and draft lease,
none of them affecting this point.
On April 11
1980, Mrs Brennan wrote to Mr Simmonds a letter withdrawing the offer made
subject to contract in her letter of March 27 1980, and explaining why. The
explanation shows that she had studied the terms of the draft lease
sufficiently, at any rate, to express a doubt as to whether it was in ‘the
standard well-tried commercial form’. Those doubts were certainly justified;
for no ‘well-tried commercial form’ of lease would have provided for a term of
20 years without any rent review provision, as this draft appeared to do, other
than in the most exceptional circumstances; more particularly if granted
pursuant to a contract reserving a rent of £3,500 per annum ‘for the first 5
years of the term and thereafter as provided in the said lease’.
This letter
was treated by Mr Simmonds, rightly or wrongly, as a negotiating ploy. In fact
he seems to have been right, because in the end Mrs Brennan did indicate her
willingness to accept on behalf of Compusave the draft contract and the draft
lease; on May 6 1980 contracts in the form of the draft contract were exchanged
and on May 28 1980 the contract was completed by the grant of the lease to
Compusave.
In July 1980
Central & Metropolitan discovered that the lease did not include any rent
review provision. Its solicitors took the point up with Mrs Brennan by a letter
dated July 31 1980, and on August 4 1980 Mrs Brennan, on behalf of Compusave,
replied in the following terms:
Your letter
of July 31 came as a shock to us. We were aware of all the terms of the lease
and cannot understand why any variation of any of those terms should now be
sort [sic]. In particular we understood that the rent was fixed for a full
term, and we relied on this provision in subsequent discussions with auditors and
bankers over finance. Throughout our dealings with you over the lease, you
repeatedly refused our request to changes to the draft lease (which at no time
included reference to a rent review) on the grounds of your superior knowledge
and of your standard form of lease. We are appalled by the terms of your letter
and by the suggestion of such a unilateral variation of the lease.
(I must record
in parenthesis that what I may label the ‘auditors and bankers’ point was not
taken in the pleadings nor pursued in evidence.)
And so the
battle lines were drawn, Central & Metropolitan contending that the
agreement between the parties contemplated a lease containing a rent review
provision providing for five-yearly rent reviews and Compusave contending that
the lease as drawn represented the final and only agreement between the parties
so that, accordingly, the rent of £3,500 was the rent reserved for the whole of
the term of 20 years.
I have in the
course of this judgment expressed my views as to the result of the correspondence
between the parties to which I have referred. I heard much oral evidence in
addition, but in my judgment none of it served in the end to alter the outline
of the picture presented by the correspondence.
On the side of
Central & Metropolitan, I heard evidence from four witnesses: Mr Parnes,
his assistant (Mr Garnell), Mr Simmonds and Mr Lenga. All this evidence (which
I accept) confirmed that, as in my judgment appeared anyway from the
correspondence, what had gone wrong here was that Mr Lenga had omitted to
include a rent review provision providing for five-yearly rent reviews in the
draft lease originally sent to Mrs Brennan on behalf of TSE; and that,
remarkable though I find it, not one of these four ever noticed the omission
until July 1980. What is, however, central to the case is not the state of mind
of those who had the conduct of this transaction on the part of Central &
Metropolitan: it is what was the state of mind of those who had the conduct of
this transaction on behalf of Compusave. So far as Central & Metropolitan
were concerned, all their dealings, whether by themselves or their estate
agents or solicitors, were with Mrs Brennan. However, it emerged in the course
of the oral evidence that Mr Brennan had played an important part in the matter
although behind the scenes. Mrs Brennan has qualified as a barrister but has
never practised; Mr Brennan is a management consultant. The letters written on
behalf of Compusave were produced by them jointly, though they appear at times
to have meant different things by words and phrases contained in the letters so
jointly prepared. They are both intelligent people. Each of them gave evidence,
so I was able to observe their demeanour in the witness box. I am sorry to say
that I was unable to form a favourable view of either of them. As witnesses
they were very different. Mrs Brennan, in giving her evidence, I found hesitant
and uncertain. Mr Brennan, in giving his, I found garrulous and glib.
They did have this in common: that each of them insisted that there was no
mistake in the lease and accordingly nothing omitted from it which it would
have been appropriate for them to bring to the attention of Central &
Metropolitan. Each of them gave evidence that they believed the requirement of
a rent review provision, if it ever was a requirement, had by February 13 1980
at the latest (when the draft agreement and draft lease were sent to Mrs
Brennan on behalf of TSE) been dropped. Mrs Brennan ascribed this to a
deliberate commercial judgment formed by Central & Metropolitan (without
any prompting from its prospective tenant) as a result of its own appreciation
of the poor physical state of the premises. Mr Brennan said he thought that
this judgment was formed on the basis of the difficulties over planning which
had undoubtedly occurred. I find these explanations of why Mr Brennan and Mrs
Brennan thought the requirement of a rent review provision had been dropped
inherently improbable. But I accept (and it is not now suggested otherwise)
that, unlike the plaintiff, Mr and Mrs Brennan were indeed aware on May 28 1980
that the lease contained no rent review provision. If there was any mistake at
all at this date, it was unilateral and not common; the plaintiff’s mistake but
not the defendants’. When a party to a deed insists that it accurately reflects
his intention at the time he executed it, it is a strong thing to do to hold
against him that, contrary to what he says, he was aware not only that the deed
did not contain the provision sought to be inserted by rectification but also
that he knew the other party believed that it did contain that provision. With
this in mind, I address myself to the central question: have Central &
Metropolitan satisfied me, on the evidence, that when Mrs Brennan executed the
lease on May 28 1980 on behalf of Compusave she must have been aware that
Central & Metropolitan believed it to contain a rent review provision which
it did not in fact contain?
In arriving at
the conclusion to which I have come, I have taken into account what I have
found to be the unsatisfactory nature of the evidence of Mr Brennan and Mrs
Brennan, the correspondence to which I have referred, and what explanation of
the facts is inherently most probable, as I conceive I am entitled to do:
compare Mortimore v Shortall (1842) 2 Dr & War 363. Against
the assertions of Mr and Mrs Brennan that they believed the lease to be in
accordance with the agreement they had reached with Central & Metropolitan
(which they say they thought was an agreement for a lease of 20 years at a rent
of £3,500 per annum for the whole term) Central & Metropolitan was unable
to offer any direct evidence of its own as to the defendants’ state of mind.
But this is not surprising. In any case in which the plaintiff seeks
rectification of a document and the defendant denies that he was aware of a
mistake made by the plaintiff but had suppressed that fact, the plaintiff is
rarely going to be able to dispute this by direct evidence. I must attach
considerable weight to the assertion of Mr and Mrs Brennan that the lease
accorded with their understanding of Central & Metropolitan’s intentions;
but I am entitled, and I think bound, to attach at least the same weight to
what seems to me the tenor of all the documentary evidence and the inherent probabilities
of the case. Even then, I would hesitate to come down in favour of the
plaintiff in a case of this sort if, at the end of the day, I thought the
evidence to be pretty evenly balanced. But in the present case I am convinced,
after weighing in the scales, on the one side, the assertions of Mr and Mrs
Brennan that they thought that the lease accorded with Central &
Metropolitan’s intentions in not containing a rent review provision against, on
the other side, what seem to me to be the clear indications given by the
documentary evidence and the inherent probabilities of the case, that, whatever
they say now, Mr and Mrs Brennan must have realised on May 28 1980 that Central
& Metropolitan intended the lease to contain a rent review provision and
that its failure to do so must be ascribed to Central & Metropolitan’s
unilateral mistake. In these circumstances it would be against conscience to
allow Compusave, which on this analysis must be taken to have suppressed the
fact that it had recognised the presence of a mistake, to take advantage of it.
Central &
Metropolitan contends that accordingly the lease ought to be rectified by
inserting therein an additional clause providing for the rent payable under the
lease to be adjusted to a fair and reasonable rental at the expiry of every
fifth year of the term. But, in my judgment, the court has no jurisdiction to
go that far. Whenever the court is asked to rectify an instrument, it is
essential that the extent of the rectification (though not necessarily the
exact words) should be clearly ascertained and defined by evidence
contemporaneous with or anterior to the instrument: see Bradford (Earl)
v Romney (Earl) (1862) 30 Beav 431. In my judgment, the lease here ought
to be rectified, not as claimed by Central & Metropolitan, but by the
insertion in the reddendum, after the figure of £3,500, of the following words:
‘for the first 5 years of the said term (such rent to be reviewed at the
expiration of such period and of each subsequent period of 5 years)’. To insert
anything more would be, in my opinion, not to rectify the instrument but to
mend the bargain made by the parties; and that is not the function of a court
of equity. It would of course be absurd to ascribe to the parties an intention
to agree upon a rent review provision which is void for uncertainty; but this
rent review provision is in my judgment free from that vice. It predicates a
review to a ‘fair and reasonable’ rent. If an officious bystander, listening to
the parties trying to agree a review of the rent in accordance with this
provision, had suggested that their bargain was that the rent should be
reviewed to a ‘fair and reasonable’ rent, I have no doubt that they would have
suppressed him with a testy ‘Oh, of course.’
The implication is both necessary and obvious. If the parties are unable
to agree for themselves what the ‘fair and reasonable’ rent from any review
date is to be, the amount of the rent will have to be fixed by the court. And
the court would direct an inquiry what rent it would be fair and reasonable for
the landlord and the tenant to agree under the lease (regard being had to all
the circumstances relevant to any negotiations between the parties for a new
rent from the review date): compare the approach of the Court of Appeal in Thomas
Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505* and
of the majority of the House of Lords in the recent case of Sudbrook Trading
Estate Ltd v Eggleton (as yet unreported)** to the problems, similar
in some ways to ours, which arose in those cases.
*See (1981)
257 EG 381, [1981] 1 EGLR 91
**Now
reported at [1982] 3 WLR 315; 265 EG 215, [1983] 1 EGLR 47.
I have,
earlier in this judgment, described the failure of anyone on Central &
Metropolitan’s side to notice the omission of a rent review provision as
remarkable; and so I think it is. How the three principal actors, Mr Parnes
(the responsible director), Mr Simmonds (the estate agent) and Mr Lenga (the
solicitor) came each of them to be so careless of the interests of Central
& Metropolitan in this way is quite beyond me. But there it is; and the
result is that those responsible for the conduct of the matter on behalf of
Central & Metropolitan have been to a large extent the authors of its misfortune.
In my judgment, I am entitled, remembering that rectification, like other
equitable remedies, is a discretionary remedy, to take this into account; and I
do not propose to exercise my discretion in favour of rectification except on
terms which give Compusave (which, although it took advantage of these
blunders, did not itself make them) an opportunity to throw up the lease. On
any footing, Compusave was willing to pay a rent of £3,500 per annum for these
premises for a term of five years and Central & Metropolitan were prepared
to accept such a rent for such a period. Justice will, in my judgment, be done
if Compusave is given an opportunity to surrender the lease at the expiration
of the fifth year of the term on giving not less than three months’ notice in
writing to Central & Metropolitan of its intention so to do. Accordingly,
Central & Metropolitan will have the lease rectified in its favour only if
it is prepared to submit to the lease being further rectified by the insertion
in it of a break clause on the lines I have proposed. I shall invite counsel
for Central & Metropolitan to sign and counsel for Compusave to approve a
minute of the order required to give effect to this judgment, the case to be
mentioned to me again if they fail to agree.
That leaves
only the question of costs. I will, of course, hear counsel for both sides upon
this question, if they wish to address me; but it might be helpful if I
indicate that, as at present advised, I am of the view that the right order in
all the circumstances would be no order as to costs.
Having
heard counsel for both sides on the issue of costs, the judge said: In giving judgment in this case, I indicated at its conclusion that
I was of the preliminary view that in all the circumstances the right order as
to costs would be: no order. I have now had the benefit of argument on both
sides.
Mr Steinfeld,
while accepting in principle that, where an action for rectification has taken
the course that this one has, no order for costs is not only not uncommon but
justified, has submitted to me that this is an exceptional case. His
submission, as I understood it, is based on the ground that, in concluding as I
have in favour of the plaintiff that this mistake was one of which the
defendants were, contrary to their
evidence directed to that issue, it would be wrong for the court not to make
provision for at least some part of the plaintiff’s costs. I have concluded
that although there is a great deal of force in that submission, in the end the
litigants in a rectification action, who might quite possibly by the time the
matter comes to trial have formed a view as to where the truth of the matter
lies (even if the court ultimately is compelled to find against them), are
entitled to have their say. I do not think that Mr Steinfeld would have felt
able to labour this argument had the case been conducted with the dispatch
which our ancestors seemed capable of achieving but which nowadays seems
impossible; and I do not think the fact that the hearing took several days
longer than it might have done, had the defendants simply chosen to accept that
they were aware of the plaintiff’s mistake, is sufficient to justify me in
altering the preliminary view I had formed.
However,
having said that, I see the argument is not one that ought to be dismissed
summarily, even though the matter is one entirely for the discretion of the
court; and I would listen sympathetically to an application by Mr Steinfeld, if
he thought it necessary to make one (if only out of caution), for special leave
to appeal to the Court of Appeal upon the question of costs. I am satisfied
that my decision upon this matter is correct; but I am, I hope, of sufficient
humility of character to recognise that others may take a different view.
For those
reasons I propose to make no order as to costs, but, if invited by Mr Steinfeld
so to do, to incorporate in the order which I propose to make a provision that
special leave to appeal upon the question of costs will be accorded to the
plaintiff.
Mr Steinfeld
asked his lordship to incorporate such a provision in the order.
