HFI Farnborough Llp & Ors v Park Garage Group Plc

A landlord’s break right, linked to overage provisions, must be construed in the context of the transaction as a whole. Where the commercial arrangement contemplated a sale with vacant possession, a reference to the value of the premises may mean the sale price achieved on that sale rather than an expert valuation. Earlier agreements may form part of the admissible background to a later deed, although the court must ask whether differences in wording were intended to alter the bargain. Rectification for mutual mistake requires a continuing common intention, an outward expression of accord, continuation of that intention at execution, and a document which fails to reflect it. Those requirements may be satisfied objectively, with subjective evidence admissible where it assists in identifying communications crossing the line.

The claimant landlords owned four petrol filling stations let to the defendant under substantially identical long leases. The leases contained landlord break clauses. Separate overage agreements restricted exercise of the break clauses unless the property value exceeded the original purchase price and required overage to be paid following a sale.

Registration difficulties led to four deeds of variation incorporating the overage arrangements into the leases. The landlords served break notices accompanied by valuation letters, but had no agreed sale of the freeholds. They had instead entered into conditional agreements to lease the sites to a third party.

The principal issues were whether the break clauses required an agreed sale with vacant possession or merely a valuation; whether the deeds should be rectified; and whether the definition of sale costs should include the words reasonable and proper.

1. Construction. The court preferred the defendant’s construction. The overage agreements and deeds of variation were poorly drafted, but the relevant provisions were intended to operate as a commercial arrangement protecting the tenant against an early break. The break clause could be exercised only where the sale price on a sale with vacant possession exceeded the defined Price. The provisions concerning the break right and overage were commercially linked. It was unlikely that the parties intended both an expert valuation at the break date and a later sale price for calculating overage.
2. The earlier overage agreements formed part of the admissible background to the deeds of variation. The court considered whether the later wording represented a deliberate departure from the earlier bargain. The changes were generally immaterial or implicit. The principal changes did not demonstrate an intention to replace the sale-based break trigger.
3. Rectification. Alternatively, the deeds were rectifiable. There was a clear continuing agreement that only three specified changes would be made to the overage arrangements. That agreement remained operative when the deeds were executed. If the wording otherwise required a valuation rather than a sale, it failed to reflect the parties’ common intention. The words reasonable and proper, omitted from the definition of Sale Costs, were also restored by rectification.
4. The court declined to determine the meaning of valuation because the issue did not arise on its construction and rectification findings. It nevertheless gave provisional valuation findings for the event of an appeal.
5. HFI’s claim for possession was dismissed. Park’s claim for rectification concerning Sale Costs was allowed.

First-instance decision. No earlier decision or appeal is stated in the judgment.