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Palo Alto Limited, Peter Weiss and David Hedges v Alnor Estates Limited [2018] UKUT 0231 (TCC)

The Upper Tribunal has approved the First-Tier Tribunal’s decision to rectify leases which a landlord, Alnor Estates, had inadvertently granted for a term of 2000 years.

The four leases related to storage units and were short two page documents not professionally prepared.  This case was brought in relation to one of the leases but was agreed to be a test case for the other three.

The leases as originally drafted by the landlord were said to be for a period of one year with an option to renew for another year.  The tenant, Palo Alto, amended the term of the leases to provide that the renewed agreement was to include  “… the option to renew such tenancy for a term of one year at the end thereof”.  This was accepted by the landlord who believed this meant that the tenant could renew twice rather than once.  It had not appreciated that by operation of the Law of Property Act 1922, a perpetually renewable lease is automatically converted into a 2,000-year lease. 

The tenant appeared to understand the position better.  Its application to register the leases as 2000 year leases prompted the landlord’s objection and the referral to the First-Tier Tribunal to consider the tenant’ registration and the landlord’s application for rectification.

The First Tier Tribunal found that the leases should be rectified on the ground of unilateral mistake.  There was a mistake on the part of the landlord and the tenant knew of this mistake.  It found that it was inequitable for the tenant to resist rectification, not least because of the effect on the landlord.  In reaching its decision it stated that there was no need for it to find sharp practice on the part of the tenant, or make any finding of dishonesty

The tenant appealed on a number of grounds but the matter was passed to the Upper Tribunal only to consider whether a finding of dishonesty is essential when awarding rectification based on unilateral mistake.

The Upper Tribunal reviewed the authorities again and, whilst finding them not easy to reconcile, concluded that dishonesty is not a requirement of the cause of action. The appeal was dismissed.

Key points

  • Perpetually renewable leases make little commercial sense, can stifle development and affect value.  In most cases they are entered inadvertently.  The Courts may lean against finding a perpetually renewable lease where the wording allows it to but in many cases, as in this one, the finding was unavoidable.  The aggrieved party is then reliant on being able to prove that the lease should be rectified.  The court or tribunal might not come to the aid of all those seeking such an order as it all turns on the facts.
  • Whilst the Upper Tribunal found that it was not necessary to make a finding of dishonesty before ordering rectification based on a mistake it stated that even if it was incorrect in this respect the appeal should be dismissed as it was of the view that dishonesty had been established here.