Index-linked rent review clause scrutinised by the Court of Appeal

In a case before the Court of Appeal, a tenant argued that an index-linked rent review clause contained in a reversionary lease of offices in Bromley was ambiguous.

Concurring with the first instance judge, in the case of Trillium (Prime) Property GP Ltd v Elmfield Road Ltd, the Court of Appeal held that there was no ambiguity; it was simply the case that the contract term had worked out badly for one party but that did not make it unclear.

The rent review clause under scrutiny used a rental figure taken from the start of the tenant's reversionary lease in 2010. This sum was, however, index-linked to an RPI figure from 2005. The tenant argued that if the RPI figure was taken from 2005, the rent payable in 2005 (under the tenant’s original lease which demanded lower payments) should have been used for the purposes of the review. As a consequence of this, he argued that the current rent figure – obviously a higher sum – should not be used.

If the indexation were applied to the initial rent payable under the lease, the resulting rent for the rent review period beginning on 25 March 2015 would have been £1,595,235. That is the figure argued by the landlord. If, on the other hand, the indexation were applied to the rent which was payable immediately before the reversionary lease took effect, the resulting rent for that review period would have been £1,282,835. That is the figure argued by the tenant. The first instance judge found in favour of the landlord.

In dismissing the appeal, the Court of Appeal said that “the fact that a contract term was an imprudent one for a party to have agreed or that it has worked out badly or even disastrously is no warrant for departing from the clear language of the contract, especially when that contract has been professionally drafted. Whether a claim in rectification would succeed is a different matter. But that was not a claim before the court.