Spencer & Anor v Secretary of State for Defence

An express contractual provision continuing the terms of an agricultural tenancy may preserve the retrospective effect of an ongoing statutory rent review, notwithstanding an implied surrender and re-grant of the tenancy. The court must construe the agreement actually made, objectively and in its surrounding circumstances. Where its express language is clear, there is no need to imply a term. The court cannot rewrite the agreement to relieve a party from consequences that were unforeseen or resulted from an operative mistake. A rent review initiated under the original tenancy therefore remained effective where the parties expressly continued the tenancy’s terms, subject only to agreed variations.

The tenants farmed land held under an annual agricultural tenancy. While a statutory rent review under the Agricultural Holdings Act 1986 was in progress, the parties executed a memorandum adding approximately 1.3 acres and increasing the passing rent from £16,250 to £16,333 per annum. The memorandum did not expressly address the pending review.

The arbitrator later awarded a revised rent of £27,700 per annum retrospectively from 29 September 1999. The Salisbury County Court held that the memorandum fixed the rent at £16,333 after its date. Vos J allowed the landlord’s appeal and held that the revised rent continued to apply. The central issue in the Court of Appeal was whether the implied surrender and re-grant arising from the memorandum ended the effect of the pending rent review.

The appeal was dismissed. Lord Justice Mummery gave the leading judgment. Lord Justice Etherton and Sir Stephen Sedley agreed.

1. The construction of the memorandum was an objective exercise. The court had to determine the meaning a reasonable person would give to the agreement in its surrounding circumstances. It was unnecessary to consider implication of terms if the express language, properly construed, resolved the issue.
2. The memorandum expressly provided that, in all other respects, the terms, conditions and covenants of the principal agreement remained in force unchanged. The parties knew that the rent reserved under that agreement was subject to retrospective revision through the statutory process under the Agricultural Holdings Act 1986.
3. Although the memorandum automatically effected a surrender of the original tenancy and a re-grant of a new tenancy, that property-law consequence did not extinguish the parties’ express agreement continuing the existing contractual state of affairs. The continuing provisions included the ongoing rent review and its ultimate retrospective effect.
4. The revised rent was therefore payable both before and after the memorandum. It did not continue by operation of law, but because the express continuation provision preserved the relevant contractual arrangements. There was no sound legal or factual basis for reverting to £16,333 after 28 February 2000.
5. The court had no power, on the grounds of operative mistake, unforeseen consequences or unfairness, to relieve the parties from the agreement they had made. Vos J was right to set aside the Recorder’s order and declare that the rent from and after 28 February 2000 was £27,700 per annum.

• Court of Appeal (Civil Division): Dismissed the tenants’ appeal and upheld Vos J’s declaration that the rent from and after 28 February 2000 was £27,700 per annum.
• High Court (Chancery Division): Vos J allowed the Secretary of State’s appeal from the Recorder’s order and held that the revised rent continued after the memorandum.
• Salisbury County Court: Mr Recorder Patterson held that the rent after 28 February 2000 was £16,333 per annum.