Trillium (Prime) Property GP Ltd v Elmfield Road Ltd

An unambiguous rent review clause must be applied according to its express language, including any defined terms. Commercial purpose and an unfavourable result cannot justify rewriting a professionally drafted contract.

Corrective interpretation requires clarity both that the contractual language has gone wrong and as to what a reasonable person would have understood the parties to mean. The principle does not remedy a failure to consider the consequences of an agreement. Nor can it operate where several plausible corrections exist.

A landlord and tenant disputed the multiplicand required by an index-linked rent review clause in a reversionary office lease. The landlord contended that indexation applied to the defined Initial Rent of £1.2 million. The tenant contended that it applied to the lower rent payable when the contractual Retail Prices Index base figure was fixed.

The High Court accepted the landlord's construction in [2016] EWHC 3122 (Ch). The tenant appealed. The central issues were whether the clause was ambiguous and whether its commercial consequences demonstrated a drafting mistake which the court could correct through interpretation.

1. Appeal dismissed. The clause unambiguously required the defined Initial Rent of £1.2 million to be multiplied by the relevant Retail Prices Index figure and divided by the specified base figure. This produced a reviewed annual rent of £1,595,235.63. The landlord's interpretation was correct.

2. The asserted ambiguity concerned the possible use of the indexation machinery when ascertaining the Initial Rent under an alternative contractual option which had never been used. It did not affect the machinery's application to the rent review in issue. The defined expression “Initial Rent” was clear, and the resulting calculation was straightforward. Effect had to be given to the parties' chosen definition and express identification of the multiplicand.

3. A general account of the purpose of a conventional market rent review clause was of limited assistance. The parties had instead chosen indexation alone. The earlier authority concerned assumptions underlying a hypothetical lease for a market rent review, rather than the construction of an index-linked provision.

4. Under Chartbrook Ltd v Persimmons Homes Ltd [2009] UKHL 38, corrective interpretation requires it to be clear both that the language has gone wrong and what a reasonable person would have understood the parties to mean. Neither requirement was met. Any defect arose from a failure to think through the consequences of the agreement, rather than deficient drafting. Moreover, several possible corrections existed, including changing the multiplicand, changing the base figure, or adapting the machinery used to ascertain the Initial Rent.

5. The commercial background did not establish that the parties had made a drafting mistake. The reduced earlier rent might have induced the tenant to extend its occupation and might not have represented market rental value. The parties also knew that the Initial Rent would be at least £1.2 million. An imprudent term, even one producing a seriously adverse result, does not warrant departure from clear language in a professionally drafted contract.

6. Whether rectification might have been available was a separate question. No rectification claim was before the court. Lewison LJ gave the judgment, with which Leggatt LJ agreed.

1. Court of Appeal (Civil Division): The tenant's appeal was dismissed in [2018] EWCA Civ 1556. The High Court's interpretation of the rent review clause was upheld.
2. High Court, Chancery Division: A deputy High Court judge held for the landlord in [2016] EWHC 3122 (Ch), deciding that indexation applied to the defined Initial Rent.