Deajan Properties Ltd v Campbell

MR JUSTICE ROTH: This is a dispute concerning the true construction of the lease of a maisonette known as third and fourth floor maisonette, 2 Upper Wimpole Street, London W1G 6LD, and I shall refer to it as “the maisonette”. The lessor, referred to as “the landlord” and the lessee (“the tenant”), have been ably represented by Mr Cowen and Mr Murch respectively.

The maisonette is part of a converted Georgian townhouse of six floors. The floors are not of uniform size. In particular, it is now agreed that by the time this lease was entered into, the basement and ground floor levels had been extended backwards beyond the rear elevation of the building such that there was additional roof space at the lower level.

The house is in mixed use. Some of the basement, most of the ground floor and the first floor are used as consulting rooms for medical professionals. The second floor is a self-contained flat used for residential purposes and the third and fourth floors comprise the maisonette that is the subject of the lease involved in this case.

The claimant is the landlord and the defendant is the tenant of the maisonette. The current lease of the maisonette is dated 8 July 1999 but that lease (“the 1999 lease”) is expressly on the same terms as the previous lease and was obtained by the tenant by way of extension pursuant to the Leasehold Reform, Housing and Urban Development Act 1993. It made only certain changes which are immaterial to this dispute to the previous lease so it is to the terms of the previous lease which, for convenience, I will refer to simply as “the lease” that I shall turn.

The lease is dated 7 November 1958. It is for a term of 65 years as from 29 September 1958. At the outset, the maisonette is defined as “the premises” but the premises also include a staircase leading from the second floor landing up to the maisonette on the third and fourth floors. The lease also contains a definition of the flat immediately below on the second floor as “the flat”. The lessee’s covenants are in clause 2. Clause 2(8) provides that the lessee shall:

“At all times during the said term to pay and contribute a rateable or due proportion of the expense of making repairing maintaining painting supporting rebuilding and cleansing of all sewers drains pipes watercourses water pipes cisterns gutters party walls party structures easements and appurtenances belonging to or used or capable of being used by the Lessees in common with the Lessor or the tenants or occupiers of the flat and the rest of the house such proportion in the case of any difference to be settled by a single arbitrator ...”

Clause 2(20) obliges the lessee:

“To pay to the Lessor every year on demand the sum equal to two fifths of every annual premium paid by the Lessor for a comprehensive insurance of the house to the full value thereof.”

Clause 2(21) similarly imposes an obligation:

“To pay to the Lessor every year on demand a sum equal to eight-nineteenths of the annual cost of centrally heating the house and of providing hot water such cost to be made up of the cost of fuel and the cost of maintenance and repairs to the central heating system and the hot water system.”

There is then the provision which is central to the present dispute in sub-clause 2(25):

“To pay to the Lessor on demand two-fifths of the expense at all times and from time to time incurred by the Lessor in performing the covenant contained in Clause 3(3) hereof.”

Clause 3(3) is therefore one of the lessor’s covenants. I shall read first clause 3(2):

“To keep the house insured against comprehensive risks to the full value thereof in some insurance office of repute and to pay all premiums when the same shall become due ...”

Clause 3(3), which is the subject of the present dispute, states:

“To keep the roof and outside walls of the premises [and I emphasise the words ‘the premises’] in good repair and condition and to paint the exterior of the premises [again, I emphasise ‘the premises’] once in every seven years and except in cases of emergency, the Lessor shall before carrying out any work under this sub-clause obtain not less than two competitive estimates from substantial and reputable firms of contractors and shall submit them to the Lessees for approval and the Lessees shall be deemed to approve the cheaper or cheapest of the said estimates unless the Lessees shall within one calendar month of the receipt of the said estimates produce and forward to the Lessor an estimate from a substantial and reputable firm of contractors cheaper than the cheaper or cheapest estimate obtained by the Lessor and in such case the Lessor shall accept the estimate procured by the Lessees.”

Accordingly, on its literal meaning, clause 3(3) relates only to the maisonette and the tenant’s obligation in clause 2(25) is then to pay 40 per cent of the landlord’s costs of keeping the roof and outside walls of the maisonette in good repair and repainting the exterior of the maisonette once every seven years.

For the landlord, Mr Cowen contends that this is a clear mistake and that clause 3(3) must be intended to refer to the house. He submits that it is such a demonstrable mistake that, as a matter of construction, the court can and should interpret it to mean “house” although manifestly that is a clear departure from the language of the covenant that refers expressly to “the premises”. For the tenant, Mr Murch submits that this is not interpretation but a re-writing of the clause which is not, in his submission, an obvious or clear mistake. He emphasises that the landlord is not claiming rectification, for which the landlord would have had to adduce positive evidence of the intention of the parties.

The principles to be applied by the court in such a case are well settled and were very sensibly agreed between the parties. They received authoritative expression in the opinion of Lord Hoffmann in the House of Lords in the case of Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, an opinion with which the other members of the judicial committee agreed.

In that case, there was a dispute between a property developer and a house builder regarding the interpretation of a contract for the development and sale of a series of new build properties on a site that had been acquired for development. The issue was the correct interpretation of a pricing provision that determined how a balancing payment which became due for each residential unit was to be calculated.

The trial judge and the majority of the Court of Appeal upheld a literal meaning of the clause. The House of Lords reversed that decision. In his opinion, Lord Hoffmann considered the approach be adopted. He said at paragraph 14, omitting the authorities cited:

“There is no dispute that the principles on which a contract ... should be interpreted are those summarised by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. They are well known and need not be repeated. It is agreed that the question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean. The House emphasised that ‘We do easily accept that people have made linguistic mistakes particularly in formal documents’ … but said that, in some cases, the context and background drove the court to the conclusion that ‘something must have gone wrong with the language’. In such a case, the law did not require a court to attribute to the parties an intention which a reasonable person would not have understood them to have had.”

Then at paragraphs 22 to 25, he said this:

“In East v Pantiles (Plant Hire) [1981] 263 EG 61, Brightman LJ stated the conditions for what he called ‘correction of mistakes by construction’:

‘Two conditions must be satisfied. First, there must be a clear mistake on the face of the instrument. Secondly, it must be clear what correction ought to be made in order to cure the mistake. If those conditions are satisfied, then the correction is made as a matter of construction’.”

I interpose that in the continuation of that quoted passage, Brightman LJ contrasted that with the principles which apply for rectification. Lord Hoffman continued:

“Subject to two qualifications, both of which are explained by Carnwath LJ in his admirable judgment in KPMG LLP v Network Rail Infrastructure Ltd[2007] Bus LR 1336, I would accept this statement, which is in my opinion no more than an expression of the common sense view that we do not readily accept that people have made mistakes in formal documents. The first qualification is that ‘correction of mistakes by construction’ is not a separate branch of the law, a summary version of an action for rectification. As Carnwath LJ said:

‘Both in the judgment, and in the arguments before us, there was a tendency to deal separately with correction of mistakes and construing the paragraph ‘as it stands’, as though they were distinct exercises. In my view, they are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended.’

The second qualification concerns the words ‘on the face of the instrument’. I agree with Carnwath LJ that in deciding whether there is a clear mistake, the court is not confined to reading the document without regard to its background or context. As the exercise is part of the single task of interpretation, the background and context must always be taken into consideration.

What is clear from these cases is that there is not, so to speak, a limit to the amount of red ink or verbal rearrangement or correction which the court is allowed. All that is required is that it should be clear that something has gone wrong with the language and that it should be clear what a reasonable person would have understood the parties to have meant.”

Some ten years earlier, the Court of Appeal had briefly indicated a somewhat similar approach when addressing the problem in the construction of a lease. In Billson v Tristrem [2000] L&TR 220, Rattee J said at [64]:

“In my judgment the function of the court in trying to construe the provision of the lease is to ascertain from the terms of the lease as a whole the intentions of the parties evinced by the terms of the lease, regardless of whether or not the parties have used inept words in which to describe their intentions.”

In that case, the lease used what was described as an inept definition of common parts that, if it were applied literally, would have meant that the tenant of a self-contained basement flat would have had no obligation to pay a proportionate share of the landlord’s costs of maintaining the common parts of the rest of the building. The Court of Appeal held that this could not have been the parties’ intention. The court was prepared to assume that the leases of the other flats in the building were in a similar form and held that the intention was clearly that each tenant should pay a proportionate share of the landlord’s costs of maintaining the common parts of the whole building. However, it is fair to say, as Mr Murch pointed out with emphasis, that in that case, the construction was somewhat easier as it was supported by another party of the landlord’s covenant.

Accordingly, turning to the present case, as this is a formal lease I hesitate before finding that the parties could have made a clear mistake. However, if, applying the appropriate measure of caution, the court is satisfied that it is clear that in clause 3(3) the parties meant to say “the house” and not “the premises”, the court should not be deterred from construing the clause in that way although it involves substituting one term for another.

For the tenant, it is said that the reference to “roof” in the singular is a powerful indicator that indeed the clause meant to refer to the maisonette and that if it was directed at the whole building, it would have said “roofs” in the plural since the ground floor and possibly also the basement have additional roof elements. That is of little assistance. This is not a lease which suggests that it is drafted with such linguistic precision and I consider that “roof” can encompass “roofs”.

For the same reason, I was not impressed by the landlord’s submission that as the demise of the premises does not include the exterior walls, the reference to “the outside walls of the premises” in the repairing covenant in clause 3(3) makes little sense on the basis that there was no such wall of the premises and only a wall appurtenant to the premises. Nor do I derive any assistance from the fact that the current landlord and tenant derive their rights from the 1999 lease and that no corrections to clause 3(3) were there made; and the same applies to a 1976 Deed of Variation which made changes consequential on the installation of a self-contained central heating system in the maisonette. The only relevance of such later developments could be forensically in suggesting that a mistake cannot be so clear after all since, if it was, then the landlord and tenant would have taken the opportunity to correct it in 1976 or 1999. But the position seems to me equally explicable on the basis that attention had not been directed to this point at the time. Thus, when the court suggested that there must be a mistake in clause 2(2) of the lease in the cross-reference to other parts of the lease, both parties agreed that that indeed must be a mistake, although this had not been corrected on either of those two subsequent occasions.

I consider that the following factors are particularly relevant. First, as regards the landlord’s obligation to insure the house at clause 3(2), the tenant’s share is specified at 40 per cent at clause 2(20). Similarly, as regards heating the house and the provision of hot water, the share as at 1958 was specified at eight-nineteenths, which amounts to 42.1 per cent.

Those factors suggest that if the tenant were indeed required to pay only 40 per cent of the costs of repairing and painting the exterior walls of the maisonette and nothing at all for the lower three floors or the basement, that would be proportionately a far lower contribution than the parties considered appropriate for the contributions clearly specified as applicable to expenses attributable to the house as a whole such as insurance and heating. I do not think that point is in any way weakened by the fact that the maisonette accounts for only 29.2 per cent of the floor area and, at least as at 1958, 26 per cent of the rateable value of the whole house.

Secondly, the main roof of the building is clearly that over the maisonette. It makes no sense that if the tenant has to pay only 40 per cent of the cost of maintaining and painting the exterior walls of the maisonette (that is the second and third floors of the building) and nothing at all for repair or painting of the other floors, nonetheless, it would have the burden of paying 40 per cent of repairs to the main roof.

Thirdly, if the tenant’s construction is correct, the tenant would not have the benefit of a covenant from the landlord to keep the building as a whole in good repair. I consider that would be a serious deficiency in a lease and to the manifest disadvantage of the tenant since disrepair of parts of the lower floors would clearly affect the amenity and potentially even the structural integrity of the maisonette. The fact that the demise in the lease includes the right of support to the premises is not an effective answer to this.

Fourthly, it is inconceivable that the landlord, having a long lease, would not provide for the costs of painting and repairs which it had to carry out to be covered by the aggregate contribution from the tenants. Mr Murch realistically accepted that that must be the case but on the tenant’s construction here, it is unclear where the balance of 60 per cent of the costs of the repair of the roof and the exterior walls of the maisonette would come from.

Mr Murch suggested that the other tenants, especially the professional tenants on the lower floors, could have an obligation in their leases to pay 100 per cent of the repair and painting of the discrete parts of the house leased to them and, in addition, to pay 60 per cent of the costs of repair of repair and painting the exterior of the second and third floors and the main roof. Although Mr Murch urged that the court should not speculate on what might be contained in the other leases which were not in evidence, that would be an utterly bizarre and unorthodox form of covenant, all the more so when one bears in mind that the ground floor is in dual occupation under two leases.

I note that in the Billson case, as I indicated, the Court of Appeal was prepared to proceed on a reasonable assumption on what was likely to be in the other leases, although they apparently were not in evidence before the court, and I feel it is entirely appropriate to dismiss as utterly implausible the suggestion that such a form of covenant would be contained in the other leases here.

Fifthly, there is the question of the estimates for repair work required by clause 3(3) which the landlord must provide for repairs within the scope of the covenant before it can charge for that work. The premises are defined to include not just the maisonette on the third and fourth floors but also the stairs leading up to them from the second floor of which the staircase abuts part of the external wall.

If the tenant were correct, then when structural repair was required to the second floor including the wall on the staircase side, a separate estimate for that part of the external wall which abuts the staircase would be required so that it could be provided to the tenant of the maisonette. Mr Murch submitted that this is not really such a practical problem as the landlord could obtain estimates for the whole work and then ask the builder or quantity surveyor to itemise this part of the wall separately.

However, under the clause, the tenant could serve a counter-estimate, obviously only for that part of that structural wall abutting the staircase comprising the premises, and that estimate may be cheaper. Under the clause, the landlord would then be obliged to accept the tenant’s estimate for that part of the wall even if the other builder’s quotation for the work to the whole of the wall was cheaper. This demonstrates the air of unreliability which is created by the tenant’s construction.

Mr Murch emphasised that the court needs to be clear not only that the lease contains a mistake but as to what the correction that has to be made to cure that mistake should be, referring to the second limb of the test set out by Brightman LJ and quoted by Lord Hoffmann in the passage which I have read. I agree, and taking all the above factors together, I am entirely satisfied that “something must have gone wrong with the language” in clause 3(3) and that any reasonable person would have understood that the parties must have intended when stating “the premises” to refer to the house. That is, therefore, the proper construction of this provision and I shall make a declaration accordingly.