Rail for London Limited & Anor v The Mayor & Burgesses of the London Borough of Hackney

A contractual rent provision tied to an underlease may require an implied alternative mechanism if that underlease is later determined. Construction of the express wording comes first. The court must then apply the strict test for implying terms: the term must be reasonable and equitable, necessary for commercial or practical coherence, obvious, capable of clear expression, and consistent with the express contract.

Detailed drafting does not prevent implication if the parties overlooked the consequences of a future event. The court may use the admissible factual matrix and the transaction’s commercial purpose, but must not rewrite clear wording. Estoppel by convention additionally requires a shared assumption, responsibility, reliance, subsequent mutual dealing, and sufficient detriment.

Rail for London Limited and TTL Properties Limited sought a declaration that no basic rent was payable to the London Borough of Hackney under Lease C after the surrender of Lease D in 2003. Hackney counterclaimed for a declaration that basic rent remained payable, calculated by applying Lease D’s machinery to occupational rental income.

The court considered the construction of Lease C, whether an alternative rent mechanism should be implied, and whether the claimants were estopped by convention from relying on the strict wording of Lease C. The court resolved the claim on implication and made factual findings on estoppel on the counterfactual assumption that the implied-term issue had been decided differently.

1. Construction. Lease C had to be read as part of the suite of agreements, against the admissible background. Its definition of “Basic Rent” was clear and referred to basic rent received under Lease D. The court held that construction alone could not create the alternative mechanism sought by Hackney. A court should not use commercial common sense to create ambiguity where the words are clear, nor engage in rectification under the guise of construction.
2. Implied term. Construction and implication were sequential and distinct. Without an alternative mechanism, Lease C lacked commercial and practical coherence within the transaction. The evident purpose was to preserve Hackney’s share of occupational rental income while allowing the claimants to own and manage the property. It was obvious that determination of Lease D should not materially alter the basis or calculation of basic rent. The implied term was capable of clear expression by applying Lease D’s calculation machinery, with necessary modifications, to sums received through the claimants’ reversionary interests. It was not inconsistent with Lease C, which did not provide that rent was payable only while Lease D subsisted.
3. The term was reasonable and equitable. The court therefore implied the alternative wording set out at paragraph 91. The claimants’ case was dismissed and Hackney obtained the declaration sought to that extent.
4. Estoppel by convention. Although unnecessary to the result, the court found that between 2004 and 2019 the parties shared and acted on an assumption that rent remained payable. Hackney relied on that assumption. The court found a sufficient detriment in the lost opportunity to investigate and pursue a valuable claim against its former solicitors before limitation expired. If the legal elements were available, it would have been unjust and unconscionable for the claimants to resile from the convention.