Landlord obliged to sell due to badly worded lease

A landlord has been obliged to sell a commercial property because of the terms contained in a “badly drafted” lease agreement.

The case involved a property that was let under a 10-year lease beginning in 2011. The company that granted the lease later sold the property to a new landlord.

The lease granted the tenant an option to purchase the freehold of the property at a defined purchase price of £1.5m. The option was exercisable for a period of five years from the date of the agreement on condition that a 5% deposit was paid.

In July 2015, the tenant sent a letter to the landlord to exercise the option at the originally agreed price of £1.5m and paid a 5% deposit of £75,000 plus VAT.

The landlord argued that the tenant had failed to pay the correct deposit, which would be 5% of the current market value, not of the £1.5m stated on the original agreement.

The issue to be decided was whether the original agreement had set a fixed price of £1.5m or whether that price reverted to market value after three years. Both parties agreed that the original agreement was badly worded and unclear.

The court found in favour of the tenant. It held that although the wording was often vague, it was clear that a reasonable person would consider that the agreement meant that the required deposit was 5% of the original price stated.

Please contact Janice Young if you would like more information about the issues raised in this article or any aspect of leases and commercial property law.