English and Welsh Courts - Miscellaneous

IN THE LEEDS COUNTY COURT
CHANCERY BUSINESS

		The Court House Oxford Row Leeds LS1 3BG
		26 November 2010

Judge Behrens :


 


1 Introduction

1. This case concerns the operation of rent review provisions contained in a lease dated 29 September 1980 ("the Lease") of land, having an area of around 877 square yards, adjacent to Station Road and Masbrough Street in Rotherham ("the Land").

2. The parties to the Lease were Rotherham Borough Council ("the Council") as landlord and the Defendant as tenant. On 21^st December 2000 the Council assigned its reversion to the Claimants.

3. Prior to the date of grant of the Lease the Defendant had, at its own expense, erected commercial buildings ("the Buildings") which are situated partially on the Land and partially on adjoining land. The Buildings were erected pursuant to a written agreement for lease dated 25 October 1979 and made between the Council and Rotherham Reboring Services Limited ("RRS"). This agreement ("the Agreement") envisaged that RRS would be erecting the Buildings and taking the grant of a lease. In the event the work was done, and the Lease was taken, by the Defendant (both companies being owned and controlled by the same individuals).

4. It will be necessary to refer to the Agreement and the Lease in more detail later in this judgment. For present purposes it is sufficient to note that the Lease is for a term of 99 years. The initial rent was agreed to be £450 p.a. It is common ground between the parties that that rent represented a ground rent only – that is to say a rent for the land and not a rent for the land and buildings. The Lease provided for rent reviews after 15 years and every 10 years thereafter. At the first review the rent was reviewed to £2,150. It is also common ground that that sum represented a ground rent.

5. The second review was due with effect from 29^th September 2005, that is to say a date after the assignment to the Claimants. The Claimants consider that, on its true construction the Lease provides for a commercial rather than a ground rent from the review date. They rely on the definition of demised premises in the Lease and the terms of the review clause which provide that the reviewed rent will be "the current open market rental value of the demised premises". The Defendant contends that this is not the proper construction. It relies on the provision in the rent review clause requiring a disregard of any increase in the rental value arising by virtue of any lessees' improvements. It contends that the construction of the Buildings carried out immediately before the grant of the Lease was such an improvement and thus any rent attributable to the Buildings is to be disregarded.

6. There is a secondary (and relatively unimportant) construction issue as to the date when the second rent review takes effect. The Claimants contend it takes effect on the 25^th anniversary of the term – that is to say on 29^th September 2005. The Defendant contends that it does not take effect until it is actually determined in accordance with the Lease. As it has not yet been determined the Defendant thus gets the advantage of at least 5 years at the first reviewed rent.

7. If the Defendant is wrong on the main construction issue the Defendant contends that the Lease should be rectified so as to provide that the rent payable under the Lease is always a ground rent. The Claimants contend that the evidence is inadequate to justify an order for rectification as between the Defendant and the Council, and that even if there was sufficient evidence the Court should not rectify against the Claimants who are third parties not involved with the grant of the Lease. The position is complicated in that part of the freehold reversion land was registered and part was not.

8. A substantial amount of money is involved in this dispute. It is said that the difference between the market rent and the ground rent is of the order of £16,000 p.a at the moment. The Lease does not terminate until 2080 and similar problems will occur at the next 6 rent reviews.

   2 Witnesses

9. The only witness called on behalf of the Claimants was the First Claimant, Mr Baljit Singh Sahota. Four witnesses were called on behalf of the Defendant. Two of the witnesses – Mr Ronald Hinchliffe and his nephew Mr Trevor Hinchliffe are Directors of the Defendant; Mr Andrew Russell was a surveyor/valuer employed by the Council between 1968 and 2008 and he was involved with the negotiations in 1979 when the agreement for the lease was being negotiated, and in 1996 when the rent was being reviewed. The final witness was Mr Richard Foster, a former employee of the Defendant.

10. All of the oral evidence was relatively short. Indeed the whole of the evidence was completed in just over half a day. I have no hesitation in deciding that all of the witnesses were honest doing their best to assist me. As many of the events took place more than 30 years ago it is not in the least surprising that memories of detailed events are hazy.

    3 The Facts

    3.1 Background

11. Mr Ronald Hinchliffe started Rotherham Reboring Services as a partnership with Richard Maycock in the mid 1950's. At or about that time they purchased 131 Masbrough Street to locate the business. They also acquired some of the adjoining premises for future expansion.

12. In the 1960's the Council compulsorily acquired and demolished adjoining premises leaving a cleared site. According to Ronald Hinchliffe the Council gave him a categorical assurance that he would be able to buy back the land.

13. Ronald Hinchliffe recollects that in the mid 1970's he attended a meeting at which it was said that the Council wanted the land redeveloped. The Council wanted him to put a substantial building on the property following which he would be offered a long lease for which he would pay a ground rent.

14. There were delays whilst planning permission was obtained. During that time RRS was incorporated.

    3.2 Negotiations for the Agreement.

15. Very few documents remain from the negotiations. Ronald Hinchliffe instructed solicitors but their file has been destroyed. Equally the Council file has been destroyed. Ronald Hinchliffe has however retained a small amount of correspondence:

1. On 14^th May 1979 the Deputy Director (Valuation) wrote on behalf of the Council to Ronald Hinchliffe. In the letter he confirms that "approval has been given to you taking a ground lease of the above site". The letter makes further reference to the ground rent not being payable until the building is completed satisfactorily.

2. On 16^th May 1979 the Director of Legal and Administrative Services wrote a letter to Ronald Hinchliffe's solicitors. The letter referred to the policy of the Council being to draw up a formal Agreement for a Lease to enter the land for development purposes. The letter enclosed Heads of Terms drawn up by Mr Russell. The Heads of Terms are in fact inconsistent with the letter of 16^th May in that the proposal there was for the Buildings to be constructed during the course of the tenancy. The Heads of Terms proposed rent reviews every 20 years.

3. On 2^nd October 1979 the Director of Legal and Administrative Services wrote a further letter to Ronald Hinchliffe's solicitors. The letter commented on a number of matters in the draft Agreement. In the second paragraph he said:

   With regard to Clause 2(14) of the Agreement and Clause 2(12) of the Lease, he is of the opinion that, although this is a Ground Lease and the buildings will eventually revert to the Council, it is up to your clients to insure comprehensively all of the premises on their own and not jointly with the Council whilst the buildings are under construction and occupied by your clients.

   In the fourth paragraph he refers to the proposal for 20 year rent reviews and proposes a period of 10 years between rent reviews. He remarks on the length of time since the term was agreed and referred to in the Heads of Terms.

16. Mr Barker relies on this correspondence to show a continuing intention on the part of the Council throughout the negotiations to grant "a ground lease". Thus there was an intention by the Council that the rent should be a ground rent throughout the term and not just till the first rent review.

17. In his evidence Ronald Hinchliffe confirmed that this was his understanding of what was being negotiated. As he was paying for the Buildings he would never have agreed to pay rent in respect of them. He believed that that was the position.

18. Mr Russell was a relatively junior employee of the Council in 1979. His decisions needed to be authorised by more senior employees. However he confirmed that the Council's policy in respect of development land was, as he understood it, for the developer to be granted a long lease and to be charged a ground rent throughout the term. He said that there were a number of examples where this had happened. In his view it would not have been right for the developer to pay for the Buildings and then to be charged rent in respect of them.

    3.3 The Agreement

19. As already noted the Agreement for Lease is dated 25^th October 1979. It is made between the Council and RRS. Under clause 1 RRS was granted a 9 month licence to enter the land. The land is shown on the plan and comprises land between Station Road and Masbrough Street. It is plain from the plan that no part of the land comprises No 131 (which, of course, was already under the control of Ronald Hinchliffe). Under the Agreement RRS was to hold the land as tenants at will of the Council until the lease was granted. Under clause 2(3) RRS was obliged to erect on the plot permanent buildings for use in connection with RRS's business in accordance with plans deposited and approved by the Council. Under Clause 5 of the Agreement if the buildings were completed to the reasonable satisfaction of the Council the Council were obliged to grant to RRS a lease for a term of 99 years in the form set out in schedule.

    3.4 The Buildings.

20. As already noted the Defendant and RRS were separate companies under the control of Ronald Hinchliffe. In fact the works of construction were carried out by the Defendant and not by RRS. According to Ronald Hinchliffe the works cost approximately £50,000 some of which was borrowed from the bank.

21. The Buildings constructed by the Defendant were built partly on the land to be comprised in the Lease and partly on the site of No 131 which was already under Ronald Hinchliffe's control. As the plans for the land were approved by the Council it is to be inferred that the Council agreed to this. A plan at page 139(1) shows the outline of the Buildings and coloured brown the extent to which they have been built on the site of No 131.

    3.5 The Lease

22. The Lease is dated 29^th September 1980. As already noted it is made between the Council and the Defendant (defined as "the Lessees"). It contains two recitals. The first recital refers to the obligation to grant the lease in the Agreement of 25^th October 1979. The second recital acknowledges that the Lessees have performed all their obligations under the Agreement to the satisfaction of the Council.

23. As already noted the Lease is for a term of 99 years from 29^th September 1980. It provides for a yearly rent of £450 per annum subject to the review set out in clause 3(2).

24. The demised premises are defined in clause 1 as follows:

    ALL THAT plot of land containing an area of 877 square yards or thereabouts (formerly stated be 925 square yards in the Agreement) situate adjoining Station Road and Masbrough Street Rotherham in the County of South Yorkshire and more particularly delineated on Plan Number E825 annexed hereto and thereon edged red together with the buildings erected thereon …

25. The plan referred to is identical to the plan in the Agreement save that the area demised is stated to be 877 square yards.

26. It is thus clear, and conceded by Mr Barker on behalf of the Defendant, that the Buildings erected by the Lessees were (insofar as they were situated on the land subject to the Lease) expressly included within the definition of the demised premises.

27. The rent review clause is, as already noted clause 3(2). It is in the following terms:

    The rent hereinbefore reserved shall be subject to review at the expiration of the 15^th year from the commencement of the said term and at the expiration of each and every ten years thereafter the revised rent being agreed by the Council and the Lessee on the basis of the current open market rental value of the demised premises but disregarding any increase in the current market rental value of the demised premises arising by virtue of

    (a) any Lessees improvements fixtures or fittings at the demised premises and

    (b) any goodwill attributable to any business carried on by the Lessees at the demised premises.

    And that in the event of the Council and the Lessee failing to agree the amount of the revised rent then the matter shall be referred to an Arbitrator … whose decision shall be accepted as final by both parties but in no circumstances shall the revised rent be reduced below the sum of £450.

28. It is not necessary to refer to any other of the terms of the Lease save perhaps to note that it contains covenants by the Lessees and that the covenant in clause 2(12) requires insurance in the sole name of the Lessees as envisaged in the letter of 2^nd October 1979 referred to above.

    3.6 The title of the Council and of the Defendant

    No 131 Masbrough Street

29. As already noted the Council have never had any title to No 131. In so far as part of the Buildings has been constructed on No 131 the Council had no interest in them.

    SYK 30932 – 135 – 141 Masbrough Street

30. On 29^th March 1976 the Council became the registered proprietor of this land which is shown on the plan at page 139(1) edged yellow. The Lease of 29^th September 1980 was duly noted in the charges register. Note 1 correctly asserts that the Lease includes other land.

31. It is common ground that the Council had title to the other land (shown blue on the plan at 139(1)). It is equally common ground that that other land was unregistered at the time of the disposal to the Claimants in 2000.

    SYK 121674

32. The leasehold title of the Defendant was duly registered on 4^th December 1980. The Property Register indicates (partially incorrectly) that the lessor's title is registered. As noted above it was registered in respect of 133 – 141 Masbrough Street but not in respect of 3 to 15 Station Road.

    3.7 The first rent review.

33. Between July 1996 and March 1997 there were negotiations between Mr Russell, by then a Senior Valuer employed by the Council, and Trevor Hinchliffe in respect of the rent review due on 29^th September 1995.

34. It is not necessary to set out the correspondence in any detail. During the negotiations Trevor Hinchliffe offered to purchase the freehold reversion. The negotiations for the acquisition of the reversion failed to reach agreement. Mr Russell valued the reversion at £25,000. Trevor Hinchliffe was only prepared to offer £20,000.

35. The negotiations for the rent review were successful. Mr Russell had asked of a rent of £2,250 p.a but the parties had eventually agreed a figure of £2,150. Mr Russell had no authority to conclude the agreement. In March 1997 he submitted a memorandum to his superiors. That memorandum explained that the proposed rent was £2,150 per annum calculated at 8.5% of the capital value of £25,000. It also made the point that the new rent was payable with effect from 29 September 1995. Mr Russell's memorandum was duly approved and the reviewed rent of £2,150 p.a was duly put into effect.

36. It is plain from the memorandum that the rent was based on the capital value of the land and not the Buildings. In evidence Mr Russell confirmed that that was the position both in this case and other similar cases. He reiterated his view that this was a ground lease.

37. Trevor Hinchliffe has no detailed recollection of the negotiations or of reading the Lease. He however believed that this was a lease with a ground rent as a result of conversations with his uncle Ronald Hinchliffe. In his witness statement he says that this was the basis of the negotiations for the rent review.

    3.8 The purchase of the reversion

38. Sometime in early 2000 the Council offered for sale a portfolio of 15 "freehold ground rents" The offer document made it clear that the closing date for offers was 4^th August 2000 and that the leases could be inspected by appointment. One of the leases offered was the freehold reversion for the Lease. The plan in the offer document indicated that No 131 Masbrough Street was included in what the Council were selling.

39. Baljit Sahota was interested in the portfolio. After receiving details of the 15 properties he made an appointment to visit the Council with his cousin Tej Sahota to inspect the leases.

40. Baljit Sahota told me that he spent a whole day in inspecting the leases and in viewing the properties. He formed the view (on the advice of his cousin) that there were a number of properties where mistakes had been made by the Council and that there were a number of opportunities to increase the income from the rents.

41. His cousin advised him that the Lease was not a ground lease. His cousin advised him that he was entitled to a full market rent when the rent was reviewed in 2005. As a result the Claimants offered the Council £351,000 for the portfolio. Their offer was conditionally accepted in August 2001.

42. The Claimants instructed solicitors and took advice on the terms of the Lease. In a letter dated 5^th December 2000 the solicitors advised that in their reasoned opinion the Claimants would be entitled to a full market rent on the date of the next review. In the letter the solicitors offered to take Counsel's opinion.

43. By that time the problems relating to the Council's title to No 131 had emerged. The solicitors had advised Baljit Sahota of possible problems on 2^nd November 2000. On 30^th November 2000 the Council made it clear that they could not provide any statutory declaration in respect of No 131.

44. When he gave evidence Baljit Sahota was asked about the negotiations; he accepted of course, that he was aware that a possible mistake had been made in respect of the Lease. He knew that it was being offered as a ground lease. He also believed that in fact the Claimants could recover a commercial rent. He believed that the mistake was the Council's mistake and did not want to alert the Council. He accordingly made no enquiries of either the Claimants or the Council in respect of the rent review clause in the Lease.

45. As a result of the problems over No 131 the price was reduced to £301,000. Contracts were unconditionally exchanged on 19^th December 2000 and completed on 21^st December 2000. After completion it was discovered that the Council's title to 4 more of the properties was defective with the result that they were removed from the Transfer and the price was further reduced to £284,000. The Claimants' title is now registered under title numbers SYK 30932 and SYK 441886.

46. In 2004 the Claimants commenced the rent review procedure under which they have maintained that they are entitled to a market rent for the period from 29^th September 2005

    4 The construction issues

    4.1 The basis of the valuation

47. As already noted Mr Barker accepts that the Buildings are included within the definition of the demised premises. He accordingly accepts that the current open market rent of the demised premises would include a rent for the Buildings. He, however, contends that the rent for the Buildings falls to be disregarded as "lessees' improvements" within subclause (a) of the disregard.

48. By way of introduction both Counsel referred me to the well-known observations of Lord Hoffmann in ICS v West Bromwich Building Society [1998] 1 WLR 896 at 912:

    (1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.

    (2) The background was famously referred to by Lord Wilberforce as the "matrix of fact," but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.

    (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.

    (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd. [1997] AC 749.

    (5) The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] A.C. 191, 201:

    "if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense."

49. Mr Barker also referred me to the general principles set out by Michael Briggs QC at first instance in Coors v Dow Properties [2006] EWHC 1862 (Ch) where he said in paragraphs 17 and 18:

    17. On this issue as to the construction of a business lease, I bear in mind the following guidance from the authorities:

    (1) the lease is to be construed against the relevant factual background to the extent known to the parties when it was agreed (in this case in August 1978) and that is apparent from Ipswich Town Football Club Co Ltd v Ipswich Borough Council [1988] 2 EGLR 146;

    (2) prima facie a rental value for the purposes of a rent review is the value of the demised premises at the review date, see Ravenseft Properties Ltd v Park [1988] 2 EGLR 164, [1988] 50 EG 52. In this case proviso 2 in clause 1 of the lease makes that express;

    (3) prima facie the rental value of premises for the purposes of a rent review clause in a lease is the value of the whole of the demised premises, ie including any buildings on the land, see Braid v Walsall Metropolitan Borough Council (1998) 78 P & CR 94, [1998] EGCS 41;

    (4) But that is only a starting assumption from which the parties to a lease are at liberty to depart. Whether they have done so or not in any particular case will depend, like any other question of construction, on the language they have used set against the relevant factual background. The fact that the lessee has built the relevant buildings at its own expense, although highly relevant, is unlikely to be determinative on its own if there is nothing at all in the terms of the lease pointing away from the normal assumption, see: Goh Eng Wah v Yap Phooi Yin [1988] 2 EGLR 148, a decision of the Privy Council."

    18. But the combination of that fact together with language in the lease pointing away from the normal assumption may be compelling even if the language on its own might have been insufficiently clear to justify such a departure.

50. Coors was a case with some similarity to the present case in that it involved the construction of a rent review clause where works had been done prior to the lease. However the terms of the rent review clause were different in that the clause referred to the rental value of the site comprised in the demised premises. Thus the actual decision is of little assistance. In fact the judge found for the tenant and his decision was upheld on appeal.

51. The case relied on most heavily by Mr Barker is the decision of Scott J in Hambros Bank v Superdrug Ltd [1985 1 EGLR 99. ("Hambros") In that case the rent review clause provided that there should be disregarded any effect on rent of any improvements carried out by the tenant or by the landlord at the tenant's expense. The tenant went into possession before commencement of the term, and carried out substantial alterations. These involved the removal of a lift hoist and surrounding walls, with consequent enlargement of the ground-floor and basement areas, and the extension of the ground-floor shop window. The Landlord argued that these improvements did not fall to be disregarded in assessing the revised rent, since they had not been carried out by the tenant in his capacity as "tenant" within the meaning of the rent review clause. Scott J (as he then was) held, that the works did indeed fall to be disregarded. There were a number of reasons for his decision.

52. First he approached the matter on the literal construction of the lease. He held that on a literal construction the works fell to be disregarded. He said this:

    First, I will consider how the matter stands on a literal reading of the lease without recourse to any factual matrix to assist construction. The original tenants were the defendants. The defendants are named in the lease, Superdrug Stores Ltd. The defendants are not called "Superdrug Stores Ltd" throughout the lease; they are defined as "the tenant". "The tenant", therefore, becomes the expression which when used in the lease means Superdrug Stores Ltd. True it is that the expression "the tenant" includes, under clause 4(9), the successors and assigns of Superdrug Stores Ltd. But Superdrug Stores Ltd has no successors or assigns as yet and the primary meaning of "the tenant" remains Superdrug Stores Ltd.

    So, if the contents of the lease are read literally, the provision in the rent-review clause requires to be disregarded any effect on rent of any improvement carried out by Superdrug Stores Ltd. The removal of the lift hoist and the surrounding walls, the increase of the ground-floor area and the extra length given to the shop front represent improvements which, it is common ground, were carried out by Superdrug Stores Ltd. So far as the literal meaning of the lease is concerned, therefore, in my judgment, the plaintiffs' case fails.

53. Mr Barker submits that a precisely similar argument can be applied to the Defendant here.

54. Scott J then considered the factual matrix in the case and referred to the correspondence. He made the point that the shopfitting works were done for Superdrug's own purposes with a view to becoming tenants under the lease and with no other view whatsoever. At the relevant time all the terms had been agreed. He concluded that the factual matrix suggests that both parties thought that the defendants would be doing the shopfitting works as tenants under the prospective lease.

55. He then distinguished two cases before returning to the facts of the case. He concluded his judgment thus:

    I return briefly then to those facts. Kenfield Properties Ltd agreed, albeit, perhaps, subject to contract, to grant to the defendants a lease containing the rent-review provision I have read and allowed the defendants into possession in advance of the final grant of the lease to enable the defendants to carry out shopfitting works in anticipation of their use of the premises after the grant of the lease. The lease was then granted. The proposition that the landlord can then turn round and say "Now I am entitled to take advantage of all the improvements you have done before we actually got around to executing the lease because those improvements do not fall to be disregarded on the rent review" is one which I find quite unacceptable. It is near to being, in my view, an unconscionable attempt by a landlord to take advantage of a situation which it has itself encouraged by consenting to its tenant going into possession and commencing the shopfitting works in advance of the lease.

56. Mr Barker relies on those comments as apposite to this case. He makes the point that the Defendant was let into possession pursuant to the Agreement of 1979, that the Defendant carried out the building works pursuant to the obligation in the Agreement with a view to becoming tenants under the Lease and for no other purpose. He submits a similar result should follow in this case.

57. Scott J's observations were followed by HH Judge Paul Baker QC in Scottish & Newcastle Breweries v Sir Richard Sutton [1985] 2 EGLR 130, where he said at p 137:

    For myself I am perfectly happy to follow the approach of the learned judge in that case and apply them to this case. The way I would put it is: are the improvements referable to the grant of a tenancy under consideration, or are they referable to some former interest of the tenant as in the Wonderland case?

58. Mr Barker also referred me to Panther Shop Investments Limited v Keith Pople Ltd [1987] 1 EGLR 131, where the works had been carried out under a previous lease which had come to an end and been replaced by a new lease. The works were held not to have been tenant's improvements for the purposes of the new lease. Mr Barker submits that that case is distinguishable from this case where the works are referable to the Lease.

59. In addition to the authorities referred to Mr Barker placed considerable reliance on the fact that part of the building was on No 131 and thus not within the Lease. He said it would put an impossible burden on a valuer to have to value the rent attributable to part of a building. This then was a further indication that no rent was to be attributable to the building itself.

60. Mr Groom sought to distinguish the Hambros line of authorities. He made the point that in this case there was the construction of an entire building rather than the carrying out of improvements to an existing structure. He made the point that the decision in Hambros depended on the definition of the tenant in the lease. He pointed out that in this case the Buildings were expressly defined as part of the demised premises. If the Council had wanted to exclude rent for the Buildings on the rent review it could and should have done so in clearer terms.

61. I prefer the submissions of Mr Barker. In my view the construction of the Buildings on the derelict land plainly constituted an improvement to that land. The improvement was in this case carried out by the Lessees as is acknowledged in recital 2 to the Lease. The improvement was plainly referable to the Lease even though it was carried out pursuant to obligations in the Agreement. As already noted the Council were contractually bound to grant the Lease. Furthermore the Lease was expressly granted in consideration of the expense of the Lessees in the erection of the Buildings.

62. In my view this case is indistinguishable from the decision of Scott J in Hambros. The decision is binding on me and I would, in any event follow it. This is accordingly one of those cases where the starting assumption referred to by Michael Briggs QC is displaced by the terms of the rent review clause in its factual matrix.

63. I am less convinced with Mr Barker's secondary argument based on No 131. In my view it would have been possible for a valuer to have apportioned any rent for the Buildings in accordance with the proportion on the demised premises. I do not accordingly regard the fact that the Building was partly on No 131 as of great significance in the construction of the rent review clause.

    4.2 The date of the review.

64. As already noted the relevant part of the clause reads:

    The rent hereinbefore reserved shall be subject to review at the expiration of the 15^th year from the commencement of the said term and at the expiration of each and every ten years thereafter

65. Mr Barker referred me to the decision of the Court of Appeal in CH Bailey v Memorial Enterprises [1974] 1 WLR 728. That was a case with a rent review due in September 1969. The landlords gave notice to increase the rent in September 1970. At first instance it was held that the new rent became payable on quarter day after it was ascertained. The decision was reversed in the Court of Appeal. It was held to be a matter of construction of the rent review clause and that on the particular rent review clause it was plain that the new rent was payable from the review date even though the amount of the rent was not ascertained until much later.

66. Mr Barker submitted that I had to construe this rent review clause. He submits that as there is no provision in this lease that the new rent should be payable retrospectively from 29^th September 2005 it follows that it is only payable when fixed by the Arbitrator.

67. I do not accept that submission. The rent is expressly made subject to review at the end of the 25^th year of the term. In this case the trigger notice was served in 2004, well in advance of the review date. The fact that the new rent is not determined until after the review date seems to me to be irrelevant. The rent is the rent for the period from 29^th September 2005 to 28^th September 2015 and is accordingly payable in accordance with the Lease once ascertained. There is nothing in the Lease which provides that the new rent shall only be payable after the date it has been ascertained and I see no reason to imply such a term.

68. Accordingly I would hold that the new rent is payable for the whole of the period from 29^th September 2005 once it is ascertained.

    5 Rectification

69. In the light of my views on the construction issue the question of rectification does not arise. However as it has been argued and it is possible that this case may go further I shall express my conclusions.

    5.1 As between the Claimants and the Council

70. There was little dispute between Counsel as to the relevant law. It can be taken from paragraphs 33 and 34 the judgment of Peter Gibson LJ in Swainland Builders v Freehold Properties [2002] EWCA Civ 560

    33 The party seeking rectification must show that:

    (1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;

    (2) there was an outward expression of accord;

    (3) the intention continued at the time of the execution of the instrument sought to be rectified;

    (4) by mistake the instrument did not reflect that common intention.

    34 I would add the following points derived from the authorities:

    (1)The standard of proof required if the court is to order rectification is the ordinary standard of the balance of probabilities.

    "But as the alleged common intention ex hypothesi contradicts the written instrument, convincing proof is required in order to counteract the cogent evidence of the parties' intention displayed by the instrument itself": Thomas Bates and Sons Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505 at page 521 per Brightman LJ.

    (2)Whilst it must be shown what was the common intention, the exact form of words in which the common intention is to be expressed is immaterial if in substance and in detail the common intention can be ascertained: Cooperative Insurance Society Ltd v Centremoor Ltd [1983] 2 EGLR 52 at page 54, per Dillon LJ, with whom Kerr and Eveleigh LJJ agreed.

    (3)The fact that a party intends a particular form of words in the mistaken belief that it is achieving his intention does not prevent the court giving effect to the true common intention: see Centremoor at page 55 A-B and Re Butlin's Settlement Trusts [1976] Ch 251 at page 260 per Brightman J.

71. Mr Barker submitted that all of the relevant conditions were satisfied and that he evidence was sufficient to enable the Court to be satisfied on the balance of probabilities that the Lease ought to be rectified. He submitted that it was the common intention that the rent payable under the Lease should be a ground rent, that is to say a rent for the land only. He submitted that there was a sufficient outward expression of that accord in the documents to which I have referred and in the evidence both of Ronald Hinchliffe and Mr Russell and that the Lease did not reflect that intention.

72. Mr Groom submitted that I could not be satisfied of these matters to the relevant standard. He drew my attention to the fact that the events took place more than 30 years ago, that the Council's file and the Defendant's solicitors file have been destroyed. He pointed out that the Lease was a formal document prepared with professional advice and the court should be slow to accept that the "convincing proof" necessary existed.

73. I prefer the submissions of Mr Barker. I have already indicated that I found all the witnesses to be honest. I see no reason not to accept Mr Russell's evidence that it was Council policy that leases in situations where the developer had paid for the buildings would be leases at ground rents for their duration. The two letters referred to both refer to the lease as a "ground lease"; the Council took the view that it was only entitled to a ground rent in the review of the 1995 rent; in 2000 the Lease was marketed by the Council as a ground lease. Whilst it is true that much of the relevant paperwork has been lost there is absolutely no reason to believe that it would have contradicted the view expressed in the letters that have been found. Equally there is no reason not to accept Ronald Hinchliffe's evidence that he believed that he would be paying a ground rent for the whole of the term of the Lease and that that was what the Lease provided. After all he had paid for the Buildings, why should he now pay rent for them after 15 years. I accept his evidence that he would never knowingly have agreed to do so.

74. It follows that I think that the necessary criteria for rectification are satisfied. I think that the documents referred to manifest the outward intention that this should be a ground lease for its full 99 years. If, contrary to my view, the Lease provided for a commercial rent to be paid after 15 years that was, in my view, a mistake common to both parties.

    5.2 Enforceability against the Claimants

75. The position is complicated as a result of the land being partially registered and partially unregistered.

76. In so far as the Council's land was registered the Transfer made on 20^th December 2000 was made under section 20 of the Land Registration Act 1925 and takes effect subject to overriding interests including the rights of persons in possession under section 70(1)(g) of the Act. In Nurdin & Peacock Plc v D B Ramsden & Co Ltd [1999] 1 EGLR 119 Neuberger J held that a right of a landlord to rectify a lease was an interest capable of being an interest within section 70(1)(g). The position of a tenant is, if anything, stronger because the tenant is in actual possession. That is a decision binding on me. Accordingly the right to rectification binds the Claimants.

77. In so far as the land is unregistered the question is whether the Claimants are bona fide purchasers for value without notice of the right to rectification. I was referred to section 199(1) of the Law of Property Act 1925 and to the decision of Upjohn J in Smith v Jones [1954] 1 WLR 1089. Upjohn J held that

    It would be extending the doctrine of notice and the obligation to make enquiry far too much if the doctrine was intended to cover an equity of rectification. Of course the purchaser is bound by the rights of the tenant in occupation …. He must look at the agreement and he is bound by the agreement…

    But in my judgment, a purchaser is not only entitled but also bound to assume when he is looking at the agreement under which the tenant holds that the agreement correctly states the relationship between the tenant and the landlord; and he is not bound to assume or to ask or make enquiry whether the tenant has any rights to rectification.

78. This decision is also binding on me. Mr Barker sought to distinguish it on the basis of Baljit Sahota's knowledge. However Baljit Sahota had no knowledge of the right of rectification . He thought that the Council had made a mistake in that it did not realise it was entitled to a market rent on the review dates. I have already indicated that I found Baljit Sahota an honest witness. I accept his evidence that his knowledge was limited to the belief that the Council might have made a mistake. I do not think that is sufficient to distinguish Smith v Jones. In those circumstances I think that Mr Groom's submissions are correct and the Claimants are bona fide purchasers without notice and take free of the right to rectification.

79. Thus I arrive at the conclusion that the right is enforceable in respect of the registered land but not in respect of the unregistered land. Mr Barker submitted that this was an unsatisfactory solution. He went on to submit that if any part of the land was registered then the whole of the right to rectify the Lease was enforceable. I cannot accept that submission. It is, in my view, only in respect of the registered land that the right to rectify is enforceable.

80. If, contrary to my view, the Lease had provided for a market rent on review I would have held that the Claimants were entitled to a market rent in respect of those parts of the Buildings which were situated on unregistered land and in the ownership of the Council as at 19^th December 2000. The Arbitrator would have had to apportion the rent to reflect that finding.