Deajan Properties Ltd v Campbell

Where contractual language contains a clear mistake, the court may correct it as part of ordinary contextual interpretation if it is also clear what correction a reasonable person would have understood the parties to intend. The court is not confined to the document’s bare wording and may make substantial verbal alterations, although formal instruments require appropriate caution. In a lease, the construction should be tested against the document as a whole, including related covenants, proportions of contribution, practical coherence and the parties’ commercial purposes. A reference to “the premises” was therefore construed as referring to the whole building where the literal construction left substantial repair obligations and cost allocation commercially incoherent.

The landlord sought a declaration concerning the construction of a repairing covenant in a long lease of a maisonette within a converted townhouse. The covenant required the landlord to repair the roof and outside walls of “the premises”, while a related tenant covenant required payment of 40 per cent of the landlord’s costs.

The tenant contended that “the premises” meant only the maisonette and its access staircase. The landlord argued that the wording contained a clear mistake and should refer to “the house”. The central issue was whether that correction could be made by construction, without rectification proceedings.

1. Construction by correction of mistake. Applying Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38, the court held that correcting mistaken language is part of the single task of interpreting the agreement in its context. The court must be satisfied both that something has gone wrong with the language and that it is clear what correction a reasonable person would have understood the parties to intend. The court is not limited by the amount of verbal rearrangement required, but should exercise caution with a formal lease.
2. The literal construction was inconsistent with the lease viewed as a whole. The 40 per cent contribution was broadly consistent with the tenant’s specified shares of insurance and heating costs for the house. It was commercially implausible that the tenant would contribute to the main roof but nothing to repairs of the lower floors, and that the landlord would lack a covenant protecting the building as a whole. The suggested obligations in the other leases were also implausible.
3. The literal construction created practical difficulty in applying the competitive-estimate mechanism to external walls adjoining the staircase forming part of the demise. That difficulty reinforced the conclusion that the wording was unreliable.
4. Taking these matters together, the court was entirely satisfied that “the premises” in clause 3(3) was a mistake for “the house”. A declaration was made accordingly.