Whether a tenant was liable for an unexpected increase in index-linked rent
Trillium (Prime) Property GP Ltd v Elmfield Road Ltd  concerned a commercial reversionary lease of office space. The lease contained a rent review clause, with a mechanism which was index-linked. The case concerned the relevant date to be used for the rent calculation, and whether the Base Figure should be applied to the value of the initial rent at the time the lease was granted or whether it should be the rent figure payable immediately before the reversionary lease took effect.
The difference in rent when calculated using each method was approximately £300,000. The tenant argued that the lease wording was unclear, and that the amount of rent to be used for the rent review calculation was to be the amount payable as at September 2005, which was the lower figure payable from 29 September 2005 as per a Deed of Variation.
The Court of Appeal found in favour of the landlord. In reviewing the lease wording, the Court found no ambiguity; the tenant put forward an argument that the provision overcompensated the landlord for changes in the indexed rate. Essentially, by using the value of the rent payable under the new lease rather than the rent payable at the expiry of the initial lease, but by applying reference to inflation since 2005, the landlord benefited twice.
However, regardless of its commercial effects, the Court found that the wording of the lease was sufficiently clear and professionally drafted. Even though the resulting rent review was costly to the tenant, this was not a reason to depart from a contract that was unambiguous. The tenant was therefore liable for the higher rent.
Advice and action for landlords
Reminiscent of Arnold v Britton, this case reinforces the Court’s view that, even where a decision results in a commercially-unfavourable position for a tenant, if the wording of the lease is clear then there is no reason to depart from it.
Both parties were aware of the professionally-drafted terms at the time of entering into the contract and were subsequently bound by them. Parties are advised to check their rent review provisions carefully before entering into a lease; it may be appropriate to work through some examples in the documentation to make all references clear.
Reminiscent of Arnold v Britton, this case reinforces the Court’s view that if the wording of the lease is clear, there is no reason to depart from it. Both parties were aware of the professionally-drafted terms and were bound by them.