Lease containing covenant by landlord to build offices “in accordance with specification contained in letter annexed hereto” – No letter attached to lease or in existence – Tenant seeking to enforce covenant – Whether covenant enforceable or void for uncertainty – County court holding covenant enforceable – Appeal allowed
By a lease of May 1992, the defendant landlord granted a 12-year term, subsequently increased to 25 years, of premises known as The Yard, Low Meadow Farm, Windsor Road, Gerrards Cross, to the claimant tenant for the purpose of its fleet transport business. The lease reserved a rent of £25,000 pa, subject to rent reviews every three years. The user of the premises was limited to that of a haulage contractor, unless altered with the landlord’s consent.
By clause 3(2) of the lease, the landlord covenanted “To erect in the position shown edged blue on the plan herewith a permanent office building in accordance with the specification contained in the letter… signed by the parties… annexed hereto”. The plan attached to the lease showed a rectangular area, edged blue, on open ground immediately adjacent to a large, hangar-like structure used as workshops, and the forecourt area in front of it. The area was designated “New Offices”. However, no signed letter, or indeed any letter, of specification was annexed to the lease, and none in fact existed.
Rather than requiring implementation of the covenant, the claimant erected a two-storey Portakabin on the premises, which it occupied as offices in place of a single Portakabin that the landlord had removed at its request.
The local planning authority subsequently served a planning enforcement notice for the removal of the two-storey Portakabin. The claimant gave notice to the landlord requiring it to comply with the covenant in clause 3(2). The county court held that the covenant was not void for uncertainty and that the landlord was in breach of it. The landlord appealed, contending that the covenant was void on the grounds that: (i) to seek to enforce it would be to write the parties’ bargain for them; (ii) relying upon G Scammell & Nephew Ltd v Ouston [1941] AC 251, the letter could have contained a variety of provisions binding upon the parties, which the court was not in a position to determine; and (iii) it was not open to the court to cure the defect in the parties’ agreement.
Held: The appeal was allowed.
The distinction between an agreement to agree in the future and an existing agreement, albeit in terms that were incomplete and uncertain, went to the heart of the matter. The parties had failed to elaborate upon basic terms they had agreed that could have enabled the court to elicit, with sufficient certainty, what bargain they had in fact made or intended. The parties had intended to define their obligation by reference to a further document, which would have required agreement between them on a “give-and-take” basis. That agreement would have had to take into account the requirements of the claimant, as the tenant, and the fact that the building was to be constructed at the expense of the defendant, as the landlord. The latter might have wished to contain the capital cost or, alternatively, to invest in an expensive project with an eye to the increase in the capital value and its increased entitlement to rent upon any future rent reviews. It would not be right to infer that the landlord was to decide upon the specification of the building to be provided, and it was not feasible for the court to “fill in the gap” or write the parties’ bargain for them: G Scammell & Nephew Ltd v Ouston applied.
Timothy Dutton (instructed by Stevens & Bolton, of Guildford) appeared for the claimant; Michael King (instructed by Gordons, of Marlow) appeared for the defendant.
Thomas Elliott, barrister
