When does vacant possession not mean vacant possession?

In the second of our rectification cases, Bradbury Investments Ltd v Hicklane Properties Ltd, a tenant had a right of pre-emption over the freehold reversion. The landlord proposed to sell the building and the tenant exercised its pre-emption right. However, the parties could not agree on the price.

The price payable by the tenant was the "Open Market Value" of the freehold, which was defined as "the best price at which the sale of the freehold interest in the Premises…..would have been completed unconditionally for cash consideration by private treaty at the date of the Landlord's Offer Notice with vacant possession on completion of the sale…". The landlord contended that the freehold should be valued "with vacant possession", as stated in the valuation clause, and that the lease should be ignored. This produced a value of £2.9 million. The tenant argued that the freehold should be valued subject to the lease (value £250,000).

The tenant sought rectification of the valuation provisions in the lease, arguing that they did not correctly record what had been agreed between the parties. At first instance, the judge found that the parties had both thought that what was to be valued was the freehold subject to the lease. He ordered the definition of Open Market Value to be amended to take out the words "with vacant possession on completion of the sale" and to add additional wording to make it clear that the valuation was to take into account the continued existence of the lease. The landlord appealed.

In order for a rectification claim to succeed, it must be shown that the parties shared a common intention on the matter in question. The landlord contended that it was insufficient to show that the words "with vacant possession" did not accord with the common intention of the parties. Each party's evidence of intention on the way the valuation formula would work had been different. The landlord therefore argued that the tenant had to go further and prove positively the existence of the parties' agreement or common intention on a formula for ascertaining the price.

The Court of Appeal disagreed. The issue before the judge was whether the words "with vacant possession" reflected what was agreed and intended by the parties to the lease. It was not pleaded that any other part of the valuation clause failed to correctly record their agreement. The fact that the parties explained their perception of the price to be paid in different language did not prevent the judge from finding that they had a common intention that the freehold interest was to be valued on the basis that it was subject to the lease. As for the remaining detail of the valuation, it was not an issue between the parties, and so it was unnecessary for the judge to make a fuller finding about their prior intentions on a valuation formula. The Court of Appeal held that the judge's conclusion made commercial sense.

This analysis was written by Sarah Allen, associate in Wragge & Co's Real Estate group.

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