Business Property Review: Rectification a solution for deal errors; Andrew Galla, property partner at Wragge & Co, looks at what can be done when mistakes are made in property contracts.
Documents can always be corrected if all parties are in agreement, but what is the position if one of the parties refuses to surrender the commercial advantage obtained from a mistake in a document?
One answer might be rectification. This is a solution available to either party on application to the court.
Although it is not an easy remedy to obtain, it is available where the documentation does not reflect the terms which the parties have agreed. In other words, where neither party intended to depart from the terms of the deal between them, but they both made the same mistake about the effect of the document that they actually signed. Rectification may also be available where only one of the parties was mistaken. However he will have to prove that the other party knew about the mistake and acted unconscionably when he stood aside and did nothing to correct it.
For example, in one case, a landlord was able to obtain an order to rectify a lease that contained a rent review provision that was defective. The rent review dates had been left blank, and the tenant claimed that there had been further negotiations, which resulted in an agreement that there would be a flat rent. And in another, the court allowed a landlord to rectify a lease that stated that the rent was to be inclusive, rather than exclusive of rates, because the tenant knew that the landlord had made a mistake and had acted unconscionably and unfairly when he took advantage of it.
The remedy can also be used to strike out a provision that should never have been included in a document. In Coles v William Hill Organisation Ltd, the court cried "foul" and deleted a break clause from a lease after hearing evidence that the tenant was fully aware that the landlord had made a mistake in including it, but had decided not to draw it to his attention.
Rectification is, however, an equitable remedy that is sparingly used by the courts. It will also be much more difficult to obtain if the legal interest the subject of the complaint has been sold to someone else.
Remember too that the courts will refuse to reopen a contract simply because one of the parties to the agreement has driven a hard bargain.
This is neatly illustrated in Oceanic Village Ltd v Shirayama Shokusan Co Ltd, a very recent dispute over the terms of the lease of a gift shop in the London Aquarium, which opened its doors to visitors in 1997. The lease that the landlord and tenant eventually signed included a covenant for the benefit of the tenant - that the landlord would not permit "any other gift shop to be operated in the building".
The landlord subsequently realised that the covenant was worth millions of pounds to the tenant because it gave the tenant an exclusive position in a very large building. So he asked the court to amend the covenant to allow him to grant leases to gift shops that were not in competition with the London Aquarium - because they did not sell articles of the same type. But the court refused to rectify the lease.
There was no evidence that both parties had been mistaken about the effect of the obligation and, even though the tenant's negotiator could scarcely believe his luck in securing the deal, he had not acted unconscionably and there were no grounds to justify a claim for rectification.
Remember, the courts will not rectify an agreement simply because one party has failed to appreciate the possible or likely effect of a particular provision. Mistakes like this will cost you dear.
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|Publication:||The Birmingham Post (England)|
|Date:||Jul 8, 1999|
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