How the courts can interpret provisions in Commercial Leases

In a recent case the Court of Appeal adopted a commercial approach to the interpretation of a notices provision in a lease ( T Grimes v Trustees of the Essex Farmers & Union Hunt 19 May 2017)

Facts
An agricultural tenancy agreement provided that any notice may be served on a party to the agreement “at the address given in the Particulars [in the agreement] or such other address as has previously been notified in writing”.
Despite the fact  that the tenant had given written notice to the landlord that he had changed his address,   6 years later, the landlord served a notice to quit at the tenant’s original address given in the Particulars.  Quite naturally, the tenant claimed that he had not received notice because it was served at the wrong address.

The question for the court to decide was whether the landlord had validly served its notice to quit and, therefore, whether the agreement had validly terminated.

Decision and analysis
Contrary to what many people might consider to be “common sense”, the judge at first instance held that the notice had been validly served. The original address was still a valid address for service, because the agreement allowed for the notice to be served at the original address given in the Particulars, even though the landlord had 6 years earlier received a notice of the tenant’s change of address. The judge considered that the literal meaning of the words was clear (never mind common sense).

The Court of Appeal disagreed and held that the notice had been invalidly served and, therefore, the agreement had not been validly terminated. This is the common sense outcome.

The Court adopted principles of construction from the well-known Supreme Court decision in Arnold v Britton [2015]. Basically the rule can be broken down as follows:-

"When interpreting a written contract, the court is
 

  • Concerned to identify the intention of the parties by reference to what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean.
  • The meaning of actual words used has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions."

And more recently in Wood v Capita Insurance Services Ltd [2017], the Supreme Court said "The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement….”

 

What this means is that the court have not taken the literal approach. It would be surprising if the landlord could serve a notice on a tenant’s old address after he had been notified of the new one. As a matter of commercial common sense, the parties must have intended that the new address, once duly notified, should supersede the original address given in the Particulars. If that was not so, an unscrupulous landlord who knew that the tenant had moved, could take advantage and continue to send notices to the old address years after the tenant had moved on and long after any normal arrangements for the forwarding of mail would have expired.

 

So and to recap, the court found, as a matter of ordinary language, that there was a presumption that service would be either at the original address or at such other notified address, but not both. That presumption could only be overturned if the facts presented showed that the presumption was wrong. The most important point was that the wording had to be considered in the context of the agreement as a whole and it was not "a literalist exercise focused solely on a parsing of the wording of the particular clause".

Mean what you say!

Whilst the Court’s sensible approach to interpretation is refreshing and to be applauded , the moral of the story is that when drafting leases great care needs to be taken in translating broad heads of terms into lease provisions. Court proceedings can and do come up with conclusions to such issues that the parties may not have intended.

Should you have any queries or if you are considering taking on or granting a lease and need advice with regard to heads of terms please contact Carlo Sereni (Head of Commercial Property) on 01743 285861 or by email to: carlos@terry-jones.co.uk

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