In KPMG LLP v Network Rail Infrastructure Ltd 2007 [EWCA] Civ 363 the Court of Appeal had to interpret the wording of a break clause contained in the rent review schedule to the lease: “If the Tenants shall be desirous of determining the said term hereby granted at any time after the expiration of the third thirteenth and twenty third years of the said term and of such desire shall give to the Landlords not less than six calendar months' notice in writing (such notice to expire on any quarter day and to be given within a period of six months following the determination of the reviewed rent to be payable from the expiration of the first eleventh and twenty-first years respectively of the said term [*] and thereafter during the year immediately preceding the eleventh and twenty-first years respectively of the said term) then on the expiration of such notice as aforesaid the said term shall cease and determine…”. (asterisk added)
The effect of the break clause up to the point marked by the asterisk was reasonably clear. The tenant had three opportunities to break the lease (at the end of the third, thirteenth and twenty-third years), but only following the determination of the preceding rent review. The dispute concerned the words after the asterisk, which did not make sense.
The lease had been entered into pursuant to an agreement for lease. The draft lease attached to the agreement contained the following additional words at the point marked [*]:
“but in the event only that such reviewed rent exceeds the yearly rent payable during the first year of the said term”.
These words therefore introduced a second condition on the operation of the break: not only must a rent review have been determined, but it must also have resulted in an increase in the rent payable by the tenant.
KPMG argued that these words were deleted during the course of negotiations, and that in addition to the three break options referred to at the beginning of the clause it also had two additional rights to break the lease - during the tenth and twentieth years of the term. It said that, unlike the first three, these breaks were not conditional on a rent review having occurred.
At first instance the judge held that the lease should be rectified on the ground of mutual mistake to include the additional words. The Court of Appeal did not adopt this approach, finding that the grounds for rectification were not made out. Instead, it embarked on the process of construing the relevant clause. The court’s starting point was to consider the structure and grammar of the paragraph as a whole. Considering the role of the brackets within the clause, the court found that, were the clause to be read omitting the words in brackets, it clearly only conferred three opportunities to break the lease. The court then went on to consider the draft lease attached to the agreement for lease. It found in favour of the landlord and held that the clause was to be construed with the addition of the words in the agreement for lease.
Although this case concerned the interpretation of a break clause, it is a useful reminder of the different approaches open to the court when dealing with errors in any document.