Rent review — Retail unit — Lease requiring conversion works by tenant — Rent review clause setting out matters to be assumed and disregarded — Whether works to be disregarded in valuing premises — Whether rectification appropriate — Claim dismissed
The first two defendants were part of a retail fashion group. They agreed to take a lease from the claimants of two adjoining retail units, which were to be combined into a single store. The lease was dated November 1996 and was for a term expiring in December 2010, at an initial rent of £385,000 pa with reviews in December 2001 and 2006. The lease obliged the tenant to carry out the conversion works, including the removal of staircases to the first floor and basement and the installation of a new staircase.
The rent review clause provided for review on various assumptions, including, in (vi), that a staircase, of a type suitable for high-quality retail premises and for normal use by customers, would serve the basement and the first floor. Matters to be disregarded included “the Works save insofar as these include the staircases referred to in assumption (vi) above”.
During a rent review, a dispute arose as to the correct approach to be adopted by the arbitrator. The claimants maintained that the premises should be valued as a single unit configured to best advantage, with the replacement staircase. The defendants argued that the premises should be valued as they stood as at the date of the lease, namely as two separate units, including the staircases that then existed but adding a notional new one as described in assumption (vi).
The claimants brought proceedings for a declaration that their interpretation was correct, or, alternatively, for rectification of the lease to reflect the valuation method for which they contended. They accepted that the “matters to be disregarded”, read in isolation, would require a valuation of the premises as originally demised but with an added staircase in one unit, giving no access to the other. However, they argued that the context, and the other provisions of the lease, made it clear that the parties presupposed a single unit with a new staircase and without the old ones.
Held: The claim was dismissed.
Although a lease had to be interpreted in accordance with business common sense, that did not mean that the court could rewrite the words that the parties had used in order to make the contract conform to that business common sense. The final wording might not be sensible from a business point of view, but that was a common feature of numerous agreements reached as a result of compromise, expressed in a form of wording that neither side would originally have chosen. The clause in question might not be commercially realistic, but it was clear; read literally, it led to the result for which the defendants contended. It was neither ambiguous nor incapable of implementation. There were no rival constructions between which the court could make a commercially sensible choice. The clause did not require or permit the valuer to assume either that the premises had become one entity or that the pre-existing staircases had been removed. The declaration sought would be refused.
The claim for rectification was also without merit. There was no evidence of a mistake having been made in what was a carefully negotiated lease drafted by experienced professionals.
Kenneth Munro (instructed by Pemberton Greenish) appeared for the claimants; Nicholas Dowding QC (instructed by Beachcroft Wansbroughs) appeared for the defendants.
Sally Dobson, barrister
