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Tenant Caught in Costly Legal Wrangle by Lack of Professional Advice

houseIn a case which bitterly underlines the good sense of seeking legal advice before entering into even apparently simple property transactions, a ‘naïve’ tenant who signed a lease on the basis of a fundamental error of law had to resort to costly litigation to sort out the resulting mess.

The tenant had wished to lease a property which he intended to convert into a children’s nursery as well as a home for himself and his family. In order to achieve that objective the lease had to permit sub-letting, alteration of the premises and its use for any purpose.

He and the property’s freehold owner had signed a written agreement that a lease would be entered into on terms that were designed to achieve the tenant’s purpose. That agreement was not legally enforceable because not all the terms had at that stage been agreed and it contemplated that a final lease would in due course be signed.

A standard form of business lease passed between the parties. However, manuscript amendments to its terms, made in red ink by the tenant, were not binding upon the landlord as he had signed it prior to the making of the alterations. The lease which was ultimately signed, whilst making reference to unspecified additional terms, did not mention what they were. As a result, the terms that did not appear in the lease as lodged with the Land Registry were unenforceable.

The tenant’s conversion plans fell flat after he failed to obtain planning consent for them. He had difficulty paying the rent and the landlord launched possession proceedings, alleging unauthorised sub-letting of the property and other breaches of the lease as registered. The landlord ultimately re-let the property to a third party.

However, at the county court, the tenant was granted an order rectifying the lease so that it incorporated the terms of the earlier written agreement. That was on the basis that both parties to the lease had acted in the fundamentally mistaken belief that their agreement had been binding and that the lease they executed would be subject to the agreed amendments.

The landlord challenged that decision at the Court of Appeal, arguing that it was inappropriate to rectify the lease in circumstances where there was no outward expression of accord between the parties. It was submitted that, when the tenant signed the lease, he was fully aware that the terms he desired were not incorporated in the document he was executing.

Dismissing the appeal, however, the Court found that the parties had made a mutual mistake as to the legal effect of the documents they signed. Both had wrongly believed that the agreement and the lease would take effect in conjunction with one another and that the amendments that they had agreed upon would be binding.

Whilst acknowledging that parties cannot obtain an order for rectification merely by showing that they have changed their minds, the Court found that there was sufficient evidence of common mistake to justify the amendments desired by the tenant being incorporated into the lease by rectification.