The literal reading of a formula for rent increases was irrational, arbitrary or illogical. But what were the court’s powers to override an express clause in the lease?
The purpose of the clause was to increase the rent each year by a cost of living rate (the retail price index). However, due to ineffective drafting the simple rate increase was increased to produce an ‘absurd’ effect, making the rent unaffordable.
Generally, the basis on which the English courts interpret contracts focus on clauses which have two possible interpretations. But here the rent clause was clear and unambiguous – the tenant was invoking the principle that a clause can be corrected if it is clear:
- that a mistake has been made, and
- what the provision was intended to say.
The court confirmed the principle from Arnold v Britton that ‘the mere fact that a bargain is not one that a reasonable and properly informed tenant would enter into’ is not enough to enable the court to rewrite the contract.
The court decided that this was ‘about as plain a case of such mistake as one could find’. The court drew a distinction between clauses which are imprudent (ie a bad bargain) and those which are irrational, nonsensical or absurd. This clause fell towards the latter end.
The court agreed that one of the proposed corrections to the lease reflected the nature of the mistake and would be used to correct the error.
What should you do?
This is the not the first case in which a mathematical formula has proven inadequate to represent the parties’ intentions. Tread carefully if you are not (as I am) a maths graduate and always get someone to test your formula repeatedly.
Sources: Monsolar IQ v Ltd Woden Park Ltd [2021] EWCA Civ 961; Arnold v Britton & Ors [2015] UKSC 36. See also Ahuja Investments Limited v Victorygame Limited [2021] EWHC 2382 for another formula that had unexpected consequences.
