The casebooks are full of decisions concerning what was the intention of the parties, when they entered into a contract.  What may seem quite clear at the time the parties are negotiating the contract, can become less clear after the passage of time, when the actual requirements of the parties take a different turn, or when they fail to implement the terms of an agreement.

The recent High Court case of British Telecommunications Ltd v Rail Safety and Standards Board Ltd [2011] All ER (D) 290, illustrates the importance of making it absolutely clear when the parties intend that consent be granted.  In this case it was held that the superior landlord had given "superior landlord's consent" in principle, in spite of the fact that licences had not been completed.

Consent of the superior landlord

British Telecommunications Limited occupied property at 120 Holborn, London and had entered into an agreement for lease to underlet two floors of this property to Rail Safety Standards Board Ltd (RSSB). RSSB also proposed to carry out certain alterations.  The consent of the superior landlord, Prudential Assurance Company Limited, was required in respect of the underleases and works.

"Superior Landlord's Consent" was defined in the agreement for lease as: "…the consent of the Superior Landlord to the grant of the Leases by way of the Licence to Underlet and to the Tenant's Works by way of the Licence for Alterations".

If "Superior Landlord's Consent" was not obtained by 5 October 2007, then either party could determine the agreement by serving notice on the other. Any such notice would be void, if, prior to its service, superior landlord's consent had been granted.  In addition, if BT had received Prudential's consent to the grant of the leases, by way of the licence to underlet, RSSB could elect to proceed without the consent to works.

By 20 November 2007 a licence to underlet had been fully executed by BT, RSSB and Prudential.  BT and Prudential had also executed a licence for alterations, but RSSB's signature was still required for this licence to be completed.  RSSB had approved the form of licence for alterations and BT 's solicitors sent an additional email to RSSB confirming that BT and Prudential were "in a position to complete the Licence for Alterations."

RSSB then served a notice to terminate the agreement with immediate effect. RSSB claimed that Superior Landlord's Consent had not been obtained, as the relevant licences had not been entered into.

In response to RSSB's notice to terminate the agreement, BT served notice to complete on 19 December 2007.  When RSSB then failed to complete, BT treated the agreement as at an end.  BT argued that Prudential had consented in principle and that was sufficient.

The intention of the parties

A number of authorities on the topic of interpretation of contracts and what the reasonable person would understand to have been the parties' intentions were considered.  It was determined that the meaning of "Superior Landlord's Consent" was the obtaining of the actual consent from Prudential, which had taken place.  Although the Licence to Underlet and the Licence for Alterations were to follow, the fact that they were not completed did not alter the position that Prudential's consent had been granted in principle.

Consent deemed to be given

This case highlights that, during the process for an application for consent, a formal licence is not necessarily required before it will be deemed that consent has been given.  If a landlord requires such formality before being held to have granted consent, a landlord should be careful not to inadvertently grant consent in any communications leading up to a formal licence.

Once again, the importance of ensuring clarity of intentions in all communications is demonstrated.  If it is not intended that consent is given until, for example, all relevant parties sign a formal licence, the prior agreement and any correspondence leading up to the licence, should be marked as "subject to formal licence" or wording to that effect and should clearly set out what the parties intend as the trigger date.

The High Court reaffirmed the Court's role as one of giving the plain meaning to the words of any contract, to evaluate what the intentions of the parties were at the time of entering into such contracts.  The wording of the contract in this case left open the possibility of multiple interpretations as to the rights of the parties to walk away from the agreement.  The Court extracted the meaning that the reasonable person might give to the wording, in the context of the background to the transaction.