Campbell v Daejan Properties Limited

 

The Message

The Court cannot re-write badly drafted Leases.

The Case

The Court of Appeal has considered how obvious an error has to be in a lease for the courts to be able to correct it by construing the Lease in a different way.

Mrs Campbell is the tenant under a long lease of a maisonette on the top 2 floors of a 5 storey house at 2 Upper Wimpole Street, London, W.1. Like many houses in this area, the lower floors are used for medical purposes. The lease was originally granted in 1958 for 65 years but a new lease was entered into in 1999 to extend the term to 164 years.

The lease was originally drafted in an odd way when it came to the tenant contributing to costs and outgoings and no changes were made in 1999 when the new longer lease was entered into. The dispute only arose after the landlord, Daejan, carried out major works of repair in 2005/6.

Under the lease, the tenant is liable to contribute to various costs and expenses in different proportions. The maisonette comprises 29.2% of the total floor area of the house and 26% of its rateable value but the lease provides for the tenant to pay 40% of the insurance and 42.1% of the central heating costs and 31.25% of the rates. Most critically, the tenant is liable to pay 40% of the costs of external repairs.

The case turned upon whether the contribution of 40% to external repairs related to those to the whole house or just to the main roof above the maisonette and its outer walls? As drafted, the lease provided for the tenant to only pay 40% of the costs incurred by the landlord in repairing the exterior of the premises, not the whole house. Daejan argued this was illogical and a clear mistake and, at first instance, the Judge agreed with them. He held that Mrs Campbell was liable for 40% of the costs of all external works to the house and this included the walls to the lower floors as well as the roofs to the various extensions.

However, the Court of Appeal took a different view. It held that the governing principle is that parties mean what they say and the courts should resist the temptation to re-draft or improve upon the terms agreed. It is only if there is an obvious error that the courts can construe a lease contrary to its express meaning. This was not a rectification case where the Court could look at background documents to seek to establish what was intended.

Although the Court agreed that the lease was badly drafted, it held there was no obvious pattern in the various service charge provisions which made it clear that the tenant was to pay 40% of all external costs to the whole house. In fact, 40% would be excessive based on its size and rateable value. It accepted the tenant was liable under the lease to pay 40% of the total insurance but noted the landlord had reduced this to 33.3%.

The Court, whilst accepting it was unusual, did not think it absurd that the tenant would only pay for costs to the part of the exterior directly relating to the maisonette or that this would leave the landlord unable to recover 100% of repairs to the whole of the house. In fact, the Court made clear there was no presumption that a lease should enable the landlord to recover 100% of its expenditure.

Importantly, the Court noted that, firstly when works had previously been undertaken in 1992, Mrs Campbell had only paid 40% of the costs relating directly to her premises and, secondly, the landlord had not sought any changes when the new lease was entered into in 1999.

Although the wording of the lease was clearly capable of improvement, and the different contributions somewhat inexplicable, the Court did not find it so commercially absurd that it needed to substitute the word “house” for “premises”. It noted that there were many different references to “premises” and “house” within the lease and care had been taken as to which was to apply in relation to each provision.