In Westvilla Properties Ltd v Dow Properties Ltd, Westvilla agreed to sell its freehold interest in a property to Dow, subject to the grant by Dow on completion of a 999-year leaseback at a peppercorn rent of the upper floors. The sale was also subject to an occupational lease of the ground floor in favour of Cheltenham & Gloucester Building Society (C&G).
C&G covenanted in its lease to pay 36% of the cost of building services. The proposed leaseback to Westvilla was unusual in that Westvilla as tenant covenanted to provide the services to the building, and Dow as landlord agreed to pay a service charge to Westvilla.
Unfortunately however, the percentage of service charge payable by Dow was left blank in the agreed form lease which was attached to the sale contract. The draft lease also failed to include any plans showing the extent of the demise to be included in the leaseback. However, the property had been placed in an auction. It was not sold under the hammer but by a sale contract signed afterwards. The demise plans were attached to the draft contract that was included in the auction pack, although the buyer had not in fact looked at the auction pack before signing the contract so had not seen them.
When Dow realised what the unusual service charge arrangements were, it tried to get out of the contract. It argued that, because of the uncompleted service charge percentage and the missing plans, the contract was too uncertain to be enforceable.
The High Court ruled that where parties have entered into what they believe to be a binding agreement, then the court is reluctant to hold that their agreement is void for uncertainty, and will only do so as a last resort.
In order to correct a mistake in a contract, two conditions must be satisfied: first, there must be a clear mistake on the face of the document, and secondly it must be clear what correction ought to be made to cure the mistake. 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.
In relation to the missing plans, the court ruled that, on its own, the wording in the lease was not sufficiently precise to identify the demised premises. However, the court ruled that evidence of the plans in the auction pack could be admitted in order to interpret the contract. The buyer knew that a pack of legal documents was available at the auction. Any reasonable person, knowing what the buyer knew, would have known that in all probability the plans were to be found in the auction pack.
The court then went on to consider the issue of the missing service charge percentage. The buyer had identified a number of possibilities for the percentage:
The court ruled that the first option made no sense - it would mean that Dow would collect the 36% from C&G, add another 28% and then pass that on to Westvilla. That would be an arbitrary figure and could not be what the parties had intended.
The court also rejected the suggestion that the missing percentage should be 100%, holding that this would be "eccentric and absurd". It was commercially unviable and, again, could not be what the parties had intended.
The court held that 36% was the most logical amount. It allowed the normal service charge position to prevail, i.e. Westvilla would pay the service charge in respect of the upper floors demised to it, and Dow as freeholder would be left with no residual liability. Dow would collect the service charge payable by C&G and pass it through to Westvilla.
On that basis, the contract was not void for uncertainty. The court therefore ordered specific performance by Dow.
Things to consider
The court did say that it thought that the circumstances in which the court could complete a blank in a document would be limited, and that the facts of this case were unusual.
This is the second instance recently where we have seen the court forcing a buyer to complete a contract (see also North Eastern Properties Ltd v Coleman (1) and Quinn (2)). Specific performance is an equitable remedy which was previously rarely awarded against a buyer, on the ground that the seller would usually be adequately compensated by a claim for damages instead.