Interpretation of rent review clause where parties did not foresee a decline in market rents

In Scottish Widows Fund and Life Assurance Society v BGC International (formerly Cantor Fitzgerald International) [2012] EWCA Civ 607, the Court of Appeal considered the interpretation of a rent review clause where the parties had not envisaged a decline in the open market rental value.

The Court of Appeal has been asked to interpret a complex rent review clause in which the parties failed to make provision for the possibility of a “double dip” in market rental values. The court held that the language used in the rent review provisions was clear and unambiguous: it was coherent and workable in its immediate context and took precedence over the parties’ common intention expressed in a supplemental agreement.

The court applied the well-established principles in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38 to the rent review clause in this case. However, the decision also highlights some general drafting issues (Scottish Widows Fund and Life Assurance Society v BGC International (formerly Cantor Fitzgerald International) [2012] EWCA Civ 607.):

The incentives used to encourage a sub-tenant to take on over-rented premises may be complicated and involve bespoke drafting issues. The possibility of downwards movement in market rental values should not be overlooked when drafting complex rent review provisions.

Care should be taken over using a supplemental agreement where it contains an important provision evidencing the intention of the parties: this may not be admissible evidence for interpreting the principal document.

It is important to consider the effect of inserting the words “without prejudice to” or “subject to” at the beginning of a clause: does it correctly reflect which provision is intended to have precedence over the other?

Please contact zoe@streetsolicitors.co.uk if you require any further information.

The Legal Aid, Sentencing and Punishment of Offenders Act 2012 has received Royal Assent.

On 1 May 2012, the Legal Aid, Sentencing and Punishment of Offenders Act 2012 received Royal Assent. Section 144 creates a new offence of squatting in a residential building and will come into force on a date to be appointed.

The new offence will be committed where a person does all of the following:

Is in a residential building as a trespasser, having entered it as a trespasser.

Knows or ought to know that he or she is a trespasser.

Is living in the building or intends to live there for any period.

It is irrelevant whether the person entered the building as a trespasser before or after the commencement of section 144.

However, the offence will not be committed by anyone holding over after the end of a lease or licence (even if they leave and re-enter the building). It does not apply to commercial properties.