Cyril Lawrence Spencer (1) and David Leslie Spencer (2) v Secretary of State for Defence  [2012] EWHC (Ch)

This case is a useful reminder for landlords and tenants of 1986 Act agricultural tenancies that they may have a mechanism to increase or decrease the rent, even without an express rent review clause.

Section 12 of the Agricultural Holdings Act 1986, provides that either party to an agricultural  lease may apply for a rent to be reviewed (in an upwards or downward direction) once every 3 years.

In this case,  the tenants were expecting a rental decrease, and made an application.  However whilst the application was proceeding before the arbitrator, the landlord and the tenants agreed that an extra area of land should be added to the demise, and also to increase the rent slightly. The parties entered into a memorandum which confirmed that  the additional land “would be added to the premises” the rent would be increased from £16,250 to £16,333.

Neither the landlord or tenant realised that the memorandum had the effect of surrendering the original lease and granting a new one with a larger demise.  The arbitrator determined that the new rent ought to be £27,700.  In determining the interpretation of the memorandum the question for the court was what would a reasonable person take the contract to mean?   The court held that the reasonable person is deemed to have all background knowledge and therefore, the memo should be construed as meaning the rent under the new tenancy would be “£16,333 or such other sum that may be determined by the arbitrator in the rent review”.