Landlord and tenant — Rent review provisions in lease — Construction —- Rectification — Whether evidence supported common or unilateral mistake — Declaration in favour of lessors
premises in industrial estate — Term of 30 years from 1981 with provisions for
rent review at five-year intervals — Summons by plaintiff lessors seeking a
declaration as to the true construction of part of the rent review provisions —
Counterclaim by defendant lessees seeking rectification of lease in the event
of a construction favourable to plaintiffs — Defendants, whose business was
that of express road carriers of freight, required a larger area of yard space
for loading and unloading than that normally provided for units in the estate —
The total site area demised to the defendants was 2.26 acres, of which the open
yard space was 1.75 acres; this was in fact
defendants’ size
dispute between the parties was as to the construction of a definition in the
review provisions of a ‘Standard Warehouse Building’, the hypothetical building
by reference to which the rent was to be determined at the review — The
intention was to use this definition as supplying a ‘comparable’ instead of
relying on an actual comparable building which could be destroyed or altered —
The definition, however, was in somewhat general terms and gave no specific
guidance as to the size of the yard area surrounding the building — Plaintiffs
contended that the hypothetical building for rent review purposes should be
assumed to enjoy a yard area of 1.75 acres, ie the size of the area provided by
the actual lease — Defendants argued that the area should be assumed to be half
an acre only, based on a ‘standard covered site ratio’, which appeared to be
the half acre likely to be found in the case of a standard warehouse — The
judge decided the construction point in the plaintiffs’ favour; the yard area
to be taken into account would be 1.75 acres
the judge’s ruling on the construction point the defendants counterclaimed for
rectification of the lease, based alternatively on common mistake or unilateral
mistake — There was no argument on the law applicable and the judge held that
there was no convincing evidence of either common or unilateral mistake — The
idea that the hypothetical building to be used for rent review was to be valued
as standing on a hypothetical yard area of a mere half acre was not in the
contemplation of either party — In the circumstances it was unnecessary to
reach a decision on the validity of a further point raised by the plaintiffs in
their defence to the defendants’ counterclaim, namely, that a claim for
rectification would not lie against the plaintiffs as they were not themselves
a party to the original lease — Declaration accordingly in the plaintiffs’
favour
No cases are
referred to in this report.
In this
originating summons the plaintiffs, Lansdown Estates Group Ltd, sought a
determination by the court of the true construction of part of the rent review
provisions in a lease of which the defendants, TNT Roadfreight (UK) Ltd, were
the lessees. The premises concerned were Unit 35 on the Milton Trading Estate
at Abingdon, Oxon, and the lease was for 30 years from March 25 1981. The
defendants sought relief by way of a counterclaim for rectification if the
court should decide the construction point in favour of the plaintiffs.
Kim Lewison
(instructed by Herbert Smith) appeared on behalf of the plaintiffs; Jonathan
Brock (instructed by Joynson-Hicks) represented the defendants.
Giving
judgment, MR MICHAEL WHEELER QC said: This case concerns the lease of Unit 35
on the Milton Trading Estate at Abingdon. The lease is dated January 25 1982
and was made between Lansdown Estates (Milton) Ltd (the predecessor in title of
the plaintiff herein, Lansdown Estates Group Ltd) as lessor, and Inter County
Express (Holdings) Ltd (the then name of the defendant, TNT Roadfreight (UK)
Ltd), as lessee. The premises thereby demised were described in the First
Schedule to the lease together with the rights of easement set out in the
Second Schedule. The term of the lease was 30 years from March 25 1981 and the
rent ultimately agreed was £68,000 pa for the first five years, subject to rent
review at the expiration of each five-year period in accordance with the
provisions set out in the Fourth Schedule.
Before turning
to the rent review provisions in detail, it will be convenient to say a word
about the Milton Estate in general. For this purpose I cannot do better than
quote from an affidavit sworn by the managing director of the plaintiff, Mr I M
Laing, in August 1987, which was subsequently ordered to stand as the statement
of claim. He says:
The Estate is a major warehouse and
industrial property with more than 70 separate buildings with a combined draw
area in excess of 2 million sq ft. Approximately 40 per cent of that space has
been constructed as new developments over the past 15 years. Each new
industrial unit or warehouse was provided with a yard for loading and
unloading. The standard area of such a yard varies with the size of building.
In the case of a warehouse building with a similar gross internal area to Unit
35, the yard area would be approximately half an acre. The neighbouring
premises at Unit 36 are a similar size and have a yard area of less than half
an acre.
Towards the end of 1979 the Defendant
became interested in taking a lease of property on the Estate. The Defendant
had a need for a particular type of accommodation. Because the Defendant’s
business was that of express road distribution of freight, the Defendant
required a far larger area of yard space for the loading, unloading and parking
of heavy goods vehicles than would normally have been provided.
If the Plaintiff had developed the
property in its usual way, it would have constructed on the property about
twice the amount of warehousing as was in fact constructed.
It is clear that the lessee’s need for a
large area of yard space was a special factor which seems to have been accepted
at an early stage in the negotiation and not to have been the subject of any
detailed discussion thereafter. What did occupy the parties, however, was the type
of warehouse to be constructed for the lessee on Unit 35. It is quite clear
that this warehouse in fact became two buildings, a warehouse with attached
office buildings (which is Unit 35), and a smaller, separate workshop (Unit
35A) which required to have a number of special features (such as, for example,
a minimum roof height and an abnormal number of loading doors and ancillary
accommodation) which the normal plot on the estate would not have. In other
words, to use a not uncommon expression, it was to be very much a ‘one-off’
construction. Mr Laing told me in evidence that the special building which the
lessee wanted would itself cost 40% more than a standard building on the same
area. Mr Pritchard, the defendant’s property consultant, also said in
cross-examination that the cost of the warehouse and workshop (‘the building’)
could have been more than 40% over the normal.
The dimensions
of the plot area and buildings were not specified in the lease, but it is
accepted that the total site area demised was 2.26 acres, of which 23% was
covered by the two buildings, leaving 1.75 acres of open-yard space. This was
more than three times the yard area which would normally have been demised with
a conventional warehouse of a size similar to the combined area of the two
buildings on plots 35 and 35A.
I now turn to
the rent review provisions, which I set out in some detail. The Fourth Schedule
contains the following definitions in para 1:
(a) ‘Review date’ shall mean the date at the
expiration of each five years of the term hereby granted.
(b)
— and this is the most important of the
definitions —
. . . ‘A Standard Warehouse Building’
shall mean a building of a reasonable shape having an internal gross area equal
to that of the buildings on the demise and enjoying the same easements rights
and facilities (including those comprised in the remainder of the demised
premises) as the buildings included in the demised premises but constructed in
a proper and workmanlike manner with good quality materials in accordance with
the description and specification annexed hereto (and not the description and
specification of the demised premises).
(c)(i) ‘Standard Warehouse rent’ shall mean the
yearly rent for which a Standard Warehouse Building could reasonably be
expected to be let with vacant possession on the relevant Review date in the
open market for a term equal to the unexpired residue at the relevant Review
date of the term hereby granted . . .
(ii) ‘Open market rent’ shall mean the rent for
which the demised premises could reasonably be expected to be let with vacant
possession on the relevant review [sic] in the open market for a term equal to
the unexpired residue on the relevant review date of the term hereby granted .
. .
The Fourth Schedule goes on:
2. From and
after each Review date the rent first hereinbefore reserved shall be whichever
is the highest of
(i) the yearly rent operative immediately before
that Review date
(ii) 140% of the Standard Warehouse rent on that
Review date and
(iii) the Open Market rent on that review date
(hereinafter referred to as ‘the new rent’).
3. If the
Lessor and the Lessee shall be able to agree on the amount of the new rent such
agreement shall be embodied in a document to be endorsed on this Deed and
signed by both parties.
Then the Fourth Schedule goes on to make
detailed provisions in default of agreement for the new rent to be fixed by an
independent surveyor. My understanding is that in the present case an
independent surveyor has arrived at two figures, depending upon what is held to
be the true construction of the Fourth Schedule.
I need not
read more of that schedule, but I should say a word about the ‘description and
specification’ referred to in the definition of ‘A Standard Warehouse Building’
and annexed to the lease. As I have already mentioned, the warehouse
constructed on Unit 35 had a number of unusual features, and the question arose
at a comparatively late stage in the negotiations as to the type of building
which was to be used as a comparable for rent review purposes. It was Mr Laing,
I think, who pointed out that the actual building might in the meantime have
been destroyed or altered, and what was ultimately agreed was that a
description and specification should be prepared which could be used as a
comparable and this was in fact done, although it was not, I believe, actually
ready until a day or two after the actual signing of the lease. It was a common
form draft used in connection with buildings on the Milton Estate and would
call for no comment were it not for four lines on the final page under the
general heading ‘C. External Areas’, which read as follows:
Paved areas
Yard areas are designed to provide ample
manoeuvring space for commercial vehicles and car parking spaces for warehouse
and office employees. External areas are generally finished in bitumen or
asphalt macadam or concrete, with a reinforced concrete hardstanding outside
loading doors.
By consent, that is a description which
is perfectly appropriate for a common form standard warehouse. The question is
what part, if any, it should play in the present dispute.
The basic
dispute between the parties is as to the true construction of the definition of
a ‘Standard Warehouse Building’ as set out in para 1(b) of the Fourth Schedule,
which defines the hypothetical building by reference to which the new rent is
to be arrived at on each rent review.
The plaintiff
contends that this hypothetical building is to be assumed to enjoy a
surrounding area, prepared to a standard suitable for the purpose of loading,
unloading and parking vehicles, of 1.75 acres, that is to say, the actual yard
area provided for in the actual lease itself.
The defendant,
on the other hand, contends that the hypothetical building is to be assumed to
enjoy a surrounding open area, prepared as aforesaid, of only half an acre.
This the defendant refers to as ‘a standard covered site ratio’, though it does
not appear to be a term which anyone on the plaintiff’s side has ever used. The
defendant puts this ratio at between 45 and 50%, that is to say, 45 to 50% of
such area as a whole.
If I am in
favour of the defendant’s construction of para 1(b) of the Fourth Schedule,
that, says the defendant, is the end of the matter, and I agree. If I am,
however, in favour of the plaintiff on the question of construction, the
defendant by way of counterclaim then seeks rectification of para 1(b) as
follows (and I quote from para 9(ii) of the counterclaim):
Rectification of the lease by the
insertion in paragraph 1(b) of the fourth schedule thereof, after the words ‘.
. . as the buildings included in the demised premises . . .’ of the words
‘including a standard open yard area equating to a covered site ratio of
between 45 and 50 per cent’.
This claim for
rectification is based alternatively on (a) common mistake or (b) unilateral
mistake by the defendant known to the plaintiff. In its defence to counterclaim
the plaintiff additionally raises the point that the plaintiff was not a party
to the lease and consequently that no claim for rectification lies against it.
Mr Lewison for
the plaintiff and Mr Brock for the defendant have each put in very helpful
skeleton arguments, which I have read more than once but do not think it
necessary to set out in any detail in this judgment. From the definition of ‘A
Standard Warehouse Building’ in the Fourth Schedule, it seems reasonable to
conclude, as Mr Lewison argues, that a Standard Warehouse Building has a number
of characteristics, and he lists eight. (1) It is a building (that is to say,
it is not two buildings); (2) the building is of a reasonable shape; (3) the
building has the same internal gross area as the buildings on the demised
premises; (4) the building enjoys the same easements as the buildings
comprising the demised premises; (5) the building enjoys the same rates as the
buildings comprising the demised premises; (6) the building enjoys the same
facilities as the buildings comprising the demised premises, including
facilities comprising the remainder of the demised premises; (7) the building
is constructed in a proper and workmanlike manner with good-quality materials
in accordance with the description and specification annexed to the lease; (8)
the building is not constructed in accordance with the description and
specification of the demised premises. Leaving the sixth of these eight points aside
for the moment, all these elements are, I think, concerned to identify a
building or a building type and not a combination of a
building plus surrounding land demised with it. Looking again at (6) I pick out
what seem to me to be the salient words of the definition: ‘a building . . .
enjoying the same . . . facilities . . . including those comprised in the
remainder of the demised premises‘. In that context, the expression ‘the
remainder of the demised premises’ must, in my judgment, mean the demised premises
less the actual buildings, that is to say, the actual yard.
In answer to
this, Mr Brock points to a passage in the description and specification at ‘C.
External Areas’, which I have already read. The plaintiff’s construction of the
Fourth Schedule, says Mr Brock, gives no meaning to para C. I agree, but I
cannot regard the four lines of C as in any way conclusive to show that the
description and specification (and still less the Fourth Schedule alone)
proceeded on the basis that the paved area would simply be the half-acre which
would be likely to be found in a standard warehouse. I agree that the wording
used might be appropriate to a standard yard for a standard warehouse, but the
language is wholly inappropriate to the very special yard which existed in fact
on plot 35, and I also bear in mind the probability that the description and
specification was basically a common form formula used generally on the Milton
Estate.
All in all,
the conclusion which I have reached on the question of construction of para
1(b) of the Fourth Schedule is that the plaintiff’s argument is to be preferred
and that the yard area which is to be taken into account for the purpose of
rent review is the 1.75 acres for which the plaintiff contends.
I turn now,
therefore, to the arguments for rectification based either on (a) common
mistake or on (b) unilateral mistake by the defendant known to the lessor. On
the question of common mistake the parties agree as to the law, which was
conveniently summarised by Mr Lewison, namely that the party claiming
rectification must prove by convincing evidence — and I stress this —
(1) that the landlord and the lessee had a common intention, that is to say
they were of one mind, in regard to a particular provision of the lease, though
that one-mindedness may not have been made known; (2) that common intention was
manifested by an outward expression of accord; (3) that common intention
continued up to the date of execution of the lease; (4) that the lease as
executed does not accurately represent the true intention of the parties at the
time of its execution; (5) that the lease, if rectified as proposed, would
accurately represent the true agreement of the parties at the time. The burden
of proof is, of course, on the defendant.
There is
agreement, too, between the parties as to the law applicable to unilateral
mistake, and I quote again from Mr Lewison’s skeleton argument. In order to
succeed, the defendant tenant must show, by convincing evidence — and
again I stress those words — (1) that he made a mistake; (2) that the plaintiff
actually knew of the mistake (that is to say, constructive knowledge is not
sufficient); (3) that the mistake is one calculated to benefit the plaintiff;
(4) that it would be unconscionable for the plaintiff to take advantage of the
mistake.
But any
decision, whether based on common mistake or unilateral mistake, must depend on
my evaluation of the evidence, and in particular the oral evidence. The
witnesses, who included solicitors on each side, were of course seeking to
remember events which occurred nearly 10 years ago and, not surprisingly, there
were differences in recollection. I do not propose to embark on a detailed
review of the oral evidence. Instead, I shall merely summarise my conclusions.
As to common
mistake, I do not feel any real doubt that the lease as executed reflected the
intentions of the plaintiff, and in particular Mr Laing, who was concerned with
the relatively early stages of the discussions and particularly with what might
be called points of principle. I am quite certain that he never for one moment
contemplated or intended that for the purpose of rent review the new rent was
to be based on a yard area of only half an acre instead of the actual 1.75
acres. Quite apart from Mr Laing’s evidence, Mr Smith, who was the defendant’s
managing director during the relevant period, twice accepted in
cross-examination that the rent review formula in the Fourth Schedule to the
lease contemplated the valuation of a standard size of warehouse on the actual
site. As he expressed it: ‘You have to put the standard building on our site
and value the whole’.
On the
evidence as a whole, what came over most strongly, in my view, was that what
the negotiations were almost totally directed to
review purposes, and it was for this reason that little or no attention was
paid to the question of the surrounding yard area.
Having
considered the evidence with some care and given, I hope, due weight to the
rival assessments of the evidence, I cannot see any grounds upon which I could
properly support a claim for rectification upon the basis of common mistake. As
to unilateral mistake, I hope that Mr Brock will forgive me if I merely say
that, in my judgment, there is no convincing evidence of unilateral mistake by
the defendant or, if I am wrong as to that, of any knowledge of that mistake by
the plaintiff. On the contrary, I have little doubt that if those who were
discussing rent review on behalf of the plaintiff, in particular Mr Laing, had
even thought that the defendant was assuming that the hypothetical building
which was to be used for rent review was to be valued on the basis that it
stood on a hypothetical yard area of a mere half-acre, they would
unquestionably have brought the point out into the open. In fact the
differences between the parties did not emerge until the first rent review in
1986-87.
In view of the
conclusions which I have reached on the main questions of (a) construction and
(b) rectification, I do not think it necessary to consider the further point
which the plaintiff raised in its defence to the counterclaim, namely that the
claim for rectification would not in any event lie against the plaintiff
because the plaintiff was not an original party to the lease and only became
lessor by a sublease some two years later. Therefore I am prepared to make a
declaration in the terms of para 1 of the originating summons dated August 4
1987:
A declaration that upon the true
construction of paragraph 1(b) of the fourth schedule of the above-mentioned
lease and in the events which have happened one of the facilities enjoyed by a
Standard Warehouse Building as defined in that paragraph is the facility of the
right to use an area equivalent to the area of the property demised by the
above-mentioned lease minus the area of the buildings comprised therein for the
purpose, among others, of loading, unloading and parking vehicles.
