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Landlord and tenant update
In 1997, two speeches of Lord Hoffmann signalled a radical shift in the way in which the Courts interpret contracts. Read together, Hoffmann's speeches in Mannai v. Eagle Star and ICS v. West Bromwich amount to a fundamental restatement of the principles of contractual interpretation, freed from what he described as the "old intellectual baggage" of legal interpretation. The speech in ICS v. West Bromwich includes the following passage, setting out Hoffmann's five principles of construction:
I do not think that the fundamental change which has overtaken this branch of the law, particularly as a result of the speeches of Lord Wilberforce in Prenn v. Simmonds  1 W.L.R. 1381, 1384-1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen  1 W.L.R. 989, is always sufficiently appreciated. The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of "legal" interpretation has been discarded. The principles may be summarised as follows:
Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
The background was famously referred to by Lord Wilberforce as the "matrix of fact", but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd.  2 W.L.R. 945).
The "rule" that words should be given their "natural and ordinary meaning" reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in The Antaios Compania Neviera S.A. v. Salen Rederierna A.B. 19851 A.C. 191, 201.
To hammer home the point, Hoffmann went on to say:
If detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.
So what has this got to do with repairing obligations? Consider Hoffmann's comment at principle (4): "The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words".
Now, put yourself in the position of the Court of Appeal in Daejan Properties Limited v. Gordon Bloom  EGCS 85. The relevant covenant obliged the tenant to contribute
… a reasonable proportion attributable to the demised premises in common with the owners or occupiers of any adjoining or contiguous premises of the charges for rebuilding, repairing and cleansing all walls, fence walls, fences, drains and other conveniences belonging … to the said premises hereby demised or such adjoining or contiguous premises and which shall be used or be capable of being used by the lessee in common with the owners or occupiers of such adjoining or contiguous premises, such proportion to be paid on demand.
The demised premises included a basement used as a garage. Water was leaking into the garage due to defects within the asphalt membrane which had been laid to provide waterproof protection to the basement garage. The asphalt membrane did not form part of the demise. The landlord claimed a proportion of the costs of the necessary works from the tenant. The tenant denied liability on the grounds that the concrete slab, structural steel and asphalt membrane were not "other conveniences".
The Court of Appeal upheld the first instance finding that the tenant was liable to contribute. In reaching this decision the Court of Appeal rejected the argument that the term "conveniences" meant something that was useful but not necessary, and that the waterproofing membrane was necessary and so fell outside the terms of the tenant's obligation to contribute.
Importantly, the Court did not accept the tenant's contention that reliance should be placed on the speech of Lord Wilberforce in Liverpool City Council v. Irwin  AC 239, where he referred to stairs, lifts and chutes and said that "these are not just facilities or conveniences provided at discretion; they are essentials of the tenancy". Referring to Lord Hoffmann's speech in ICS v West Bromwich the Court of Appeal held that "conveniences" was not a term of art and, in the context, could mean things that were essential as well as those that were merely useful.
The recent decision in Hallisey v. Petmoor Developments Limited  EGCCS 124 serves to reinforce the view that the Courts are tending towards a purposive interpretation of documents – seeking to ascertain from the factual scenario the intention of the parties, however poorly or inelegantly expressed in the document itself.
Hallisey turn on a landlord's covenant to maintain and keep in good repair and condition:
… the main structure of the Building including the principal internal structures and the exterior walls and the foundations and the roof of the Building with its main water tanks main drains gutters and rainwater pipes together with lifts and other electrical and mechanical services (other than those included within the demise or in the demise of any other flat in the Building).
Water and damp penetrated the claimant tenant's flat. The undisputed cause was a defect in the roof terrace above the flat. The roof terrace was made up of a horizontal concrete slab, the underside of which was plastered to form the ceiling of the claimant tenant's flat. Above and on top of the concrete slab was a layer of polystyrene block insulation over a polythene membrane. On top of this was a sand and cement screed and on top of that a layer of asphalt. Finally, there was a further thin sand and cement screed onto which were laid ceramic tiles forming the floor of the roof terrace. The undisputed cause of the incursion of water and damp was the asphalt layer which, being too thin, had cracked in several places.
The landlord contended that while the horizontal concrete slab formed part of the "main structure" the layers above did not and so the defect did not fall within the landlord's covenant to repair.
The judge (Patten J on appeal on a procedural point from the High Court Master) held that the "main structure" ought properly to be construed so as to include not only the bare concrete shell but also whatever additional surfaces were created by the landlord in order to make that shell a complete and effective structure for the purpose of maintaining the physical integrity of the flats within the development. In the judge's view to construe the "main structure" as including both the concrete slab and the asphalt and tiles above was entirely consistent with the inclusion in that structure of the exterior walls, foundations and roofs all of which served the same purpose – i.e. weatherproofing.
The judge illustrated the absurdity which would arise if the asphalt and tiles were not part of the "main structure". If that were so then one would have to assume that the landlord had ceded control and responsibility for the repair and maintenance of part of the exterior fabric to one of the tenants rather than retaining the right to maintain that fabric (and so the value of the landlord's reversionary interest). This would not make sense since the landlord could recover the costs of the works necessary for the maintenance of the weatherproof exterior from the tenants via the service charge, whereas if responsibility had been ceded to a tenant then the landlord might have to go to the trouble and expense of legal action to compel that tenant to carry out the works.
Having focused on the factual scenario, the judge concluded that, despite the shortcomings of the drafting, the purpose of the "main structure" was clear and the layers above the slab served that purpose. The judge therefore entered a summary judgment for the tenant and ordered specific performance of the landlord's covenant to repair.
The potential of ICS v. West Bromwich to allow greater judicial intervention was indicated by the decision of Neuberger J Holding & Barnes PLC v. Hill House Hammond Limited (No 1) (2000) Lawtel. The case concerned a preliminary issue to determine the extent of a landlord's exterior repairing covenant. The problem was that the drafting of the lease had left a gap. The landlord's obligation was to keep "the foundation and roof in good and tenantable repair and to keep the structure and exterior of the building (other than those parts comprised in the property) in good and tenantable repair and condition". The tenant's repairing obligation was responsible for internal repairs. However, the lease was not merely an internal demise and did not deal with the question of responsibility for repairs to the exterior of the property.
The landlord contended that its repairing obligation was restricted to keeping the foundations and roof in good and tenantable repair with no obligation to do other works. The tenant argued that the landlord's covenant was to carry out repairs not covered by the tenant's internal repairing obligation.
Neuberger J upheld the tenant's contention and held that the landlord was responsible for all exterior repairs. He acknowledged that this decision gave the words of the landlord's covenant an unnatural meaning. However, he proceeded on the basis that, where the parties had entered into a lease of a single property with repairing obligations on each side, the court should lean in favour of construing the lease as a complete code of the repairing obligations. Consequently, it was open to the court to fill in the gaps left by the draftsman.
The approach taken by Neuberger J represents a significant departure from the approach typified in Post Office v. Aquarius Properties  1 All ER 1055. In that case the Court of Appeal acknowledged that there might be circumstances in which the parties had left a gap in their obligations so that neither party could be held liable for particular works. Permission to appeal on the construction of the lease has been given in the Holding & Barnes case.
For a "gap filling" case that has already been overturned by the Court of Appeal see Forrester v. UYCF Limited (2000) Lawtel. This case arose from a tenant's application for specific performance of a landlord's obligation to construct an office block on the demised premises. The judge at first instance refused to order specific performance but was satisfied that the landlord was under an obligation to build and so awarded damages in lieu.
The case concerned a landlord's covenant, contained in the lease, to construct an office block "in accordance with the specifications contained in a letter of even date … annexed hereto". No such letter was attached to the lease and the judge found as a fact that no such letter existed. However, he considered that the landlord's covenant was sufficiently certain to be enforceable, since the nature and extent of the building would be dictated by a combination of the needs of the tenant and planning requirements. The Court of Appeal thought otherwise. Thorpe and Potter LLJ held that, although the court would only hold a contractual provision void for uncertainty as a matter of last resort, it was clear that the parties had intended that the new building should be the subject of a written specification agreed between them. It was not feasible for the court to "fill the gap" or write the parties' bargain for them.
A body of case law is gradually emerging in which the courts are applying the principles laid down by Lord Hoffmann in ICS v. West Bromwich. For dyed-in-the-wool adherents to the freedom of contract school, Hoffmann's influence resembles that of Lord Denning; legal historians might also point to Lord Mansfield in the eighteenth century – a leading judge seeming to strain principle and precedent in order to do justice, arguably to the detriment of certainty.