Summary

Where an investor in a shopping centre had pre-emption rights under a lease to increase its share of the shopping centre's net rents if another investor exercised an option, but the other investor decided to cancel its option before the lease was executed, the lease was not to be construed so as to give the first investor an unconditional right to increase its share.

Facts

The claimant (B) made a Part 8 claim for the court to determine the construction of a pre-emption provision in a lease. The defendant investor (P) counterclaimed on the same issues.

B's parent company had been developing a shopping centre. It arranged a chain of leases in order to provide a return to those, including P, who had financed the development. Under an agreement made in 1996, the parent was to grant a lease to P. In turn, P would grant B a "management lease". B would then grant occupational tenancies in the shopping centre. B had options to buy out investors other than P, exercisable in 2005, 2009 and 2011. Under the draft management lease, P was entitled to 15 per cent of the net rents of the shopping centre. Schedule 10 para.2 of the draft management lease provided that if B wished to exercise its options, or if by September 30, 2011 B had not exercised any of its options but another investor (X) had exercised its option, B could serve a notice on P requiring P to notify B whether P wished to increase its percentage from 15 per cent to 30 per cent. X later decided to cancel its option. In 1998, the management lease was executed as drafted and X's option was cancelled. B had not exercised any of its options by September 30, 2011. P considered that it therefore had an unconditional right to the extra 15 per cent.

P argued that (1) since X had decided to cancel its option before the execution of the management lease, Sch.10 para.2 was unintelligible, meaning that the court should adopt the interpretation most consistent with business common sense, namely that the paragraph was to be construed as if X had exercised its option, or as if the reference to X's option was not there; (2) alternatively, the parties' common intention had been that P's rights would not be affected by the cancellation of X's option and that P would become entitled to the extra 15 per cent, meaning that Sch.10 para.2 should be rectified accordingly.

Held

(1) The words were to be given their natural and ordinary meaning, namely that agreed in 1996. The paragraph could not have meant something in 1996 and something else in 1998. The fourth triggering event, after the three triggers on each of B's option dates, only applied if X had exercised its option. It had not. It was important to focus on the first three statements of principle on construction set out in Saad Investments Co Ltd (In Liquidation) v Al-Sanea [2012] EWCA Civ 313: the instant case did not reach the fourth point, which was P's starting point, Al-Sanea and Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 W.L.R. 2900 followed. The first task was to focus on the language used by the parties in the instrument. On the language in para.2, there was only one interpretation. Accordingly, the matter was a straightforward one of looking primarily at the language used by the parties in the relevant factual context. That context was that B had not exercised any of its options and X had not exercised its option. The terms of Sch.10 remained the same in the draft management lease and in the executed management lease. P's rights had not changed before or after the 1998 restructuring. There had been no need to alter Sch.10 given that X's option was not being cancelled until after the management lease had been executed. The cancellation of X's option simply meant that that was a factual situation known to the parties from the moment it was cancelled. The fourth triggering event had fallen away (see paras 79-84 of judgment). (2) On the evidence, the parties' relevant common intentions regarding P's rights to the extra 15 per cent were wholly dependent on the provisions as drafted and executed in Sch.10 of the management lease. It had been no part of their common intention that P would or must obtain the extra 15 per cent. P's rights had been wholly conditional and had not changed before or after 1998 (para.104).

Judgment for claimant