Leasehold enfranchisement – Collective enfranchisement – Intermediate leasehold interest – Appellant lessees appealing against decision of First-tier Tribunal concerning value of leases to be acquired by respondents by way of collective enfranchisement – Valuation turning on construction of intermediate leases – Whether licence to underlet containing obvious mistake – Whether appropriate to imply contractual term – Appeal dismissed
The appellants held leases of flats at 45-47 South Street, London W1. The head lessee (GWEP) had originally granted the appellants overriding leases of three flats (the OL1 leases). The OL1 leases contained a number of alienation provisions concerning assigning, sub-letting, parting with possession etc. In 2010 the first respondent, as nominee purchaser for the purposes of a collective enfranchisement claim, served a notice under section 13 of the Leasehold Reform, Housing and Urban Development Act 1993 to acquire the OL1 leases (the 2010 notice). It failed to register the notice. The appellants then granted new leases to each other out of the superior leasehold interests in the flats for a term of 111 years (the OL2 leases). Since the OL2 leases were not caught by the 2010 notice, the appellants were able to claim extended leases. The first respondent was unsuccessful in seeking to amend the 2010 notice to take in the OL2 leases: see Regent Wealth Ltd v Wiggins [2014] EWCA Civ 1078; [2014] 3 EGLR 157; [2014] 3 EGILR 75.
The OL1 leases contained a fully qualified covenant restricting assignment and forbade the grant of a sublease for a term exceeding 20 years. The OL2 leases were for terms exceeding 20 years and were not in accordance with the alienation provisions in the OL1 leases. Permission was needed, and obtained, from GWEP (being the lessor to the OL1 leases) for licences to sub-let which were granted on 11 April 2011, the same date as the OL2 leases themselves. Under para 3.3 of the licences, a prospective undertenant was bound by an absolute covenant against alienation which ran contrary to the alienation provisions.
The appellants argued that the licences contained a mistake. For purposes of the collective enfranchisement, the OL2 leases would be valued at £2,136,500 less if the lessees were bound by the absolute prohibition. If the mistake was corrected, their value would be increased.
The first respondent was successful in the First-tier Tribunal (FTT) which found that there was a mistake in the OL2 leases which should all have contained an absolute covenant against assignment. The appellants appealed contending that there had been an obvious mistake which could be corrected; alternatively, a term should be implied into the licences by reading the words “without the landlord’s consent, not to be unreasonably withheld” into para 3.3 to turn it into a fully qualified covenant.
Held: The appeal was dismissed.
(1) Obvious drafting mistakes could be corrected as a matter of construction. Two conditions had to be satisfied: first there had to be a clear mistake on the face of the instrument; secondly it had to be clear what correction ought to be made in order to cure the mistake. If those conditions were satisfied, the correction was made as a matter of construction: East v Pantiles (Plant Hire) Ltd [1982] EGLR 111 applied.
In the present case, the mistake had to be obvious, and it had to be obvious what the correction, or at least the gist of the correction, should be. The tribunal was unpersuaded that either of those conditions could be met. The clause made perfect sense as it stood. Its inconsistency with the alienation clause in the OL2 leases did not necessarily mean that it was a mistake, because the licence and OL2 leases were between different parties. Even if a grammatically correct clause that failed to make commercial sense could be corrected in that way, it was not necessarily the case that the clause made no commercial sense. Whether or not the clause made sense depended on what the parties wanted to achieve. Their subjective intentions were irrelevant and the tribunal had to consider what parties in the same position might have intended. The question was whether there was an obvious mistake in para 3.3 of the licence. Overall it was unlikely that a party in GWEP’s position would be particularly generous and, in these unusual circumstances, orchestrated by expert and ingenious lawyers, it could not be certain that it was about to lose its interest in the building.
(2) Events that took place relatively soon after the service of the section 13 notices suggested that one reason why the OL2 leases were granted was to deter the respondent from proceeding with the collective enfranchisement. The reason for the inconsistency between the alienation provisions in the OL2 leases and the licences was not known. But in the light of what was known about the transaction that took place on 11 April 2011 and the events soon afterwards, para 3.3 of the licences was not an obvious mistake. It was in any event unclear what to do about the mistake if there was one. Whilst it was possible for the court to add words to correct a mistake, their gist had to be obvious, and that was not the case here. Accordingly, there was no obvious mistake in the words of the licence and, even that was wrong, it would not be obvious how to correct it. Still less was it possible to see any mistakes in the words of the OL2 leases. The alienation provisions in OL2 matched those in OL1 and it was not possible to see why that would not be exactly what the parties wanted, even if GWEP was imposing something far more restrictive. The wording of the licence stood as it was.
(3) A term would be implied into a contract where it was necessary to give business efficacy to a contract (the “officious bystander” test); or where it was so obvious that it went without saying. The two tests were alternatives but would normally generate the same conclusion, and it was not suggested that they would not do so in this case. The licence made comprehensive provision for alienation and there was no reason to imply anything further. The tests for implication were clear. It was not necessary to imply a term into the licence to make it work. The officious bystander who asked whether GWEP would be content for the tenant under the OL2 lease to grant a 15-year lease in accordance with the terms of OL2 would be told to read para 3.3. There was no scope for the implication of a term in the licences: Aberdeen City Council v Stewart Milne Group Ltd [2011] UKSC 56; [2011] PLSCS 291 and Marks and Spencer Plc v BNP Paribas Securities Services Trust Co (Jersey) Ltd [2015] UKSC 72; [2016] EGLR 8 followed.
Jonathan Gaunt QC and Anthony Radevsky (instructed by Cripps Pemberton Greenish) appeared for the appellants; Stephen Jourdan QC and Thomas Jefferies (instructed by Withers LLP) appeared for the respondents.
Eileen O’Grady, barrister
Click here to read a transcript of Regent Wealth Ltd and others v Wiggins and another
