Correcting a Contract Clause Mistake

In a recent judgment the Court issued a decision which could positively impact the bargaining position of parties, and in particular tenants, seeking to correct an error in the drafting of clauses in a contract going forward.

In the case of Monsolar IQ Ltd v Woden Park Ltd the Court of Appeal held that it had the power to alter by construction a rent review clause containing a clear drafting error. The case concerned a rent review provision that, when read literally would have increased the rent by the cumulative Retail Price Index since the start of the lease rather than, as was intended, the RPI change from the previous year. The result would have been an increase from an initial rent of £15,000 per annum to over £76m by the 25^th year of the lease!

Whilst the Court clarified that it will not alter an unambiguous contractual term merely due to it being unduly favourable to one party, or that it is unreasonable or provides for one party to pay too high a price, this case confirmed that the Court can, however, correct the literal meaning of a clause by construction if it is clear both that a mistake has been made and as to what the provision was intended to state.

Why is this case significant?

Where a tenant is looking to correct an error in a lease, they would require the landlord’s agreement to a deed of variation. Previously, the bargaining position was such that a landlord could potentially hold a tenant to ransom and seek a high price for their agreement to correct the error. However, following this judgment, tenants now have greater comfort in knowing that, should a landlord refuse to agree to correct such a blatant error in an RPI rent review clause, the tenant will have the fall back position of being able to seek a correction through the Court.

Whilst this case specifically related to an PRI rent Review clause within a lease, the principle that the Court has the power to correct a blatant error in the wording of a provision could be applied to a variety of contractual arrangements.

Having said that, preventing a mistake from being written into a contract in the first place would clearly be preferable for all parties concerned. This case therefore acts as a useful reminder of the importance of being careful when including mathematical formulae within a lease for calculating payments and costs.

For more information, or if you require any advice in relation to this topic or any other matters relating to commercial leases, please feel free to contact us.