Constructing Commercial Contracts; Allyson Colby and Christopher Hancock Wragge & Co Associates, Review Recent Cases Which Illustrate the Difficulties Facing Those Drawing Up Commercial Property Contracts

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Byline: Allyson Colby and Christopher Hancock

The traditional view about commercial property contracts is that we concentrate on what the contract says, rather than on what the parties might have intended to say.

This is because most contracts, such as leases, conveyances and transfers, affect a string of buyers.

The written contract is passed from hand to hand. The discussions and correspondence that pre-dated the contract become lost in the mists of time, so the document must speak for itself.

But attitudes are changing.

Judges are adopting a much more purposive approach to contractual interpretation and some recent decisions have suggested that principles of construction are becoming something of a moveable feast when disputes come to court.

Perhaps one of the most famous examples of the shift in the approach to interpretation was the decision in Residential Apartments Limited v Billson where, to do social justice, the House of Lords interpreted the Law of Property Act 1925 much more widely than had previously been thought permissible, to enable a tenant to ask the courts for help in a situation where the legislation appeared to favour the landlord. That was in 1991.

In Mannai v Eagle Star, in 1997, Lord Hoffmann decided that an incorrect notice to terminate a lease could be excused so as to give effect to a break clause because 'the meaning which a document would convey to a reasonable man is not the same as the meaning of its words' and anyone reading the notice would have known what it meant.

In Investors Compensation Scheme v West Bromwich Building Society, in 1998, the court explained that, in broad terms, the approach was now to apply 'common sense principles by which any serious utterance would be interpreted in ordinary life'.

Both decisions have been widely quoted in subsequent decisions.

Two such cases have come before the courts in recent months.

The litigation in Welsh v Greenwich London Borough Council hinged on the meaning of the repairing obligations in a very short and simple agreement between a social housing provider and its tenant. The Council undertook 'to maintain the dwelling in good condition and repair' but the flat suffered from damp and condensation because there was no proper insulation.

This caused severe black spot and mould and Mrs Welsh issued proceedings against the Council for the damage to her belongings, the amount of which was agreed at pounds 9,000.

The Court of Appeal agreed that the council was in breach of its repairing obligations.

It said that the obligation to maintain the dwelling in 'good condition' marked a separate concept, and a significant addition to the word 'repair' and the dwelling was clearly not in the condition in which it should have been. …