Parties entering into “building lease” – Parties executing rent memorandum – Mistake as to correct annual rack-rent – Whether memorandum to be set aside for common mistake – Whether claim statute-barred – Whether landlord to repay overpaid rent – Judge finding for tenant – Appeal dismissed
In the 1960s the defendant council granted a number of leases as part of a policy of encouraging businesses to locate themselves and construct factories at Terminus Road Industrial Estate, Chichester. By a lease of July 1969, the council demised plot 10 of the estate, together with “all buildings to be erected thereon”, to the claimant for a term of 83 years. The lease reserved an annual rent of £1,820 for the first 21 years, varying thereafter in accordance with the rent review provisions set out in the first schedule to the lease. The lease obliged the claimant to construct a factory unit on the plot within two years (phase 1) and to extend the factory with the erection of a workshop or storage accommodation within three years (phase 2). Schedule 1 provided that the parties should enter into rent memoranda in the third and 21st years of the term.
Phase 1 was duly completed within the two years permitted, but phase 2 was not completed until October 1973, outside the three years permitted. Meanwhile, in December 1972 the parties entered into the first of the rent memoranda, which, however, on its face was not clear as to whether the agreed annual rack-rent included both phase 1 and 2. If phase 2 were included, then the additional area represented by the development would be included in every subsequent rent review, resulting in a much higher rent. In April 1991 the parties entered into the second rent memorandum, which included phase 2 and provided for an annual rent of £54,000.
In June 1998 the claimant issued proceedings claiming, inter alia, rectification of the 1991 memorandum to record an annual ground rent of £18,387, on the basis that the parties had entered into the memorandum under a common mistake, namely that phase 2 had been included in the 1972 memorandum, when it had not. £18,387 represented the claimant’s calculation of the ground rent that would have been agreed had phase 2 been deducted from the agreed sum of £54,000.
The judge ordered rescission of the 1991 memorandum on the basis of common mistake and ordered that the council repay to the claimant any rent overpaid as a result. The council appealed, contending that: (i) there was no mistake adequate to justify the order made by the judge; (ii) any relief to which the claimant was otherwise entitled was barred by the Limitation Act 1980; and (iii) they should not be liable to repay to the claimant rent overpaid in consequence of the mistake.
Held: The appeal was dismissed.
1. In the light of the terms of the 1972 memorandum, and in the absence of any evidence to the contrary, it was to be inferred that the parties had intended it properly to reflect the terms of the lease. Those terms provided for a fixed-term ground rent of £1,820 for the first 21 years and the ascertainment of the annual rack-rent of the premises at the expiry of the third year of the term. Given that the valuation was to be of the premises, it would have been contrary to the lease to have the rack-rent ascertained as if phase 2 had been completed. Accordingly, the judge had been correct to conclude that the 1972 valuation did not include phase 2 and that the parties had been labouring under a common mistake. The common mistake, which could not be considered to have been the fault of the claimant or its agent, had resulted in unjust enrichment to the council and, accordingly, the 1991 memorandum was rescinded: Solle v Butcher [1950] KB 671 applied.
2. The claim was not statute-barred under the six-year time-limit prescribed by section 5 of the Limitation Act 1980. The period of limitation did not commence until the claimant had discovered the mistake “or could with reasonable diligence have discovered it”. There was no reason why the continuation of the facts that had given rise to the mistake on the part of the claimant in the first place should not also support a finding of failure to exercise reasonable diligence immediately after the mistake occurred. However, there was no evidence that the claimant had failed to use reasonable diligence.
3. There was no reason why the court, in rescinding the agreement, should impose terms excluding the recovery by the claimant of the overpayments of rent made in the past. The fact that the council were a public authority, and therefore not subject to certain financial and other restrictions, was not a good reason for depriving the claimant of any part of its property.
Kirk Reynolds QC and Timothy Dutton (instructed by Thomas Eggar Church Adams) for the claimant; David Oliver QC and Clifford Darton (instructed by the solicitor to Chichester District Council) appeared for the defendant.
Thomas Elliott, barrister
