The tenant sought, on appeal, to argue that the wording of its rent review clause was ambiguous such that the calculation for its rent review could not be taken literally.  The court disagreed.

On 25 March 1985, Trillium Prime Property GP LTD (“T”) took a lease of premises for a term of 25 years with a rent review occurring every 5 years.  For the period 29 September 2005 – 24 March 2010, a reduction in rent was agreed in the sum of £965,000.

In December 2005, the parties entered into a reversionary lease to commence on 25 March 2010 (“the Subsequent Lease”).

Under the Subsequent Lease, the rent was to be reviewed by multiplying the Initial Rent by the RPI index figure for the month preceding the relevant Review Date and dividing the result by the Base Figure.

The Initial Rent was defined as the highest of 3 figures, one of which was £1.2 million.  The Base Figure was 193.1, being the RPI index figure at the date when the reduced rent became payable in September 2005.

In July 2010, the parties signed a memorandum which stated that the Initial Rent was to be £1.2 million from 25 March 2010. This resulted in a revised rent payable of £1,595,235.65 per annum.

T argued that there was ambiguity in the language of the rent review clause.  It stated that since the Base Figure was by reference to the figure as at September 2005, the index linked amount of rent payable at that date should also have been used in the calculation.  That figure was the lower rent of £965,000.

The court disagreed.  It stated that the parties entered into the Subsequent Lease knowing that the Initial Rent would be at least £1.2 million, based on the memorandum.  It found that there was no ambiguity in the drafting of the rent review clause and there was no cause to depart from the clear language of the contract.

Key points

This is another case that turns on its own facts but it highlights the following:

  • parties must be clear upon the basis on which the reviewed rent should be calculated.  Issues often arise with indexation clauses and, in this case, the period of time from when the rent was payable;
  • if interpretation looks to be unclear, consider a rectification claim.  Whilst not forming an opinion, the court suggested that rectification was potentially an option available to the tenant;
  • if a party enters into a commercially “bad bargain”, the court will look at the language used in the contract to determine whether a reasonable person would have understood what the parties meant, as opposed to seeking to try and “save” a party from that bad bargain.