Business lease – Break clause in favour of tenant – Interpretation – Rectification – Tenant’s option exercisable within 56 days following determination of reviewed rent – Landlord electing not to initiate rent review – Tenant purporting to exercise option – Landlord disputing right to break in the absence of rent determination – Tenant’s application dismissed
The claimant tenant held commercial premises in London N18 on a 15-year lease, commencing in March 1994, that provided for five-yearly upwards or downwards rent reviews. Clause 5(f) entitled the tenant to serve six months’ notice breaking the term “at any time before a date being 56 days after the final determination of the rent review”, with the proviso that the tenant should pay the reviewed rent from the date upon which it became payable until the date of the break.
The defendant landlord, which alone had the right to initiate the rent review process, did not do so with regard to the first review date (March 1999), as rent levels in general had fallen over the relevant period. In April 1999 the tenant purported to serve a notice under clause 5(f). The landlord considered that the tenant was not entitled to invoke the clause, as no new rent had been determined. The tenant sought a declaration that, on the true construction of the clause, he was so entitled or, in the alternative, rectification of the clause to allow for the giving of such a notice in the events that had occurred. The landlord contended, inter alia, that the right to break could not be divorced from the making of an actual rent determination, as it was intended to counterbalance the landlord’s right to initiate by giving the tenant a way out, and thus a possible bargaining counter in rent negotiations.
Held: The tenant’s application was dismissed.
1. In deciding between two competing interpretations, the court could consider which of the two made better business sense. The favoured interpretation did not have to make perfect business sense, as the agreement necessarily reflected any compromises that had been made. It could not be seriously argued that the words “at any time” entitled the tenant to break the lease on the day following the date of grant. The tenant was accordingly driven to contend that the very occurrence of the review date operated to open a window of opportunity that would remain open until the passing of 56 days from a final rent determination, if any. Although such an interpretation was not devoid of business sense, the court was satisfied that, as a matter of impression, the landlord’s interpretation had the more convincing ring of business common sense.
2. The claim to rectify the lease, so as to incorporate expressly the window contended for by the tenant, was rejected for want of evidence of any operative mistake, mutual or otherwise.
David Hodge QC (instructed by Biddle) appeared for the claimant; Joseph Harper QC (instructed by Speechly Bircham) appeared for the defendant.
Alan Cooklin, barrister
