Drafting Error in Retail Prices Index (RPI) Rent Review Clause Corrected

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Drafting Error in Retail Prices Index (RPI) Rent Review Clause Corrected

16 July 2021

Commercial Property Solicitor, David Redgate looks at the implications of a recent property  lease dispute which concerned an RPI (retail prices index) rent review clause contained in a solar farm lease.

In this case, Monsolar IQ v Ltd Woden Park Ltd [2021] EWCA Civ 961 (29 June 2021) (Baker, Males and Nugee LJJ) the Court of Appeal dismissed a landlord’s appeal against the High Court.  The Court had found that an RPI rent review provisions of a lease which, when read literally, would cause the rent to be increased each year by an amount reflecting the cumulative change in the Retail Prices Index (RPI) since the start of the lease (rather than by an amount reflecting the change in the RPI from the previous year), should be corrected.

Using one set of figures provided by the tenant, the clause provision would mean that an initial annual rent of £15,000 would increase to just over £76m by year 25 of the lease.  Lord Justice Nugee had no doubt that a literal interpretation of the clause produced results which could be described as arbitrary, irrational, commercially nonsensical or absurd. On that basis, the Court of Appeal decided that the rent review clause contained a clear drafting error which it felt able to correct by construction.

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The implications of this judgment are that although a court will not alter an unambiguous contractual term just because it favours one party, is imprudent or unreasonable or because it means that one of the parties has to pay too high a price for the service or product it can correct the literal meaning of a contractual provision if it is clear that this is a drafting mistake.

For further advice on commercial leases or other commercial property issues, please contact David Redgate or another member of our highly experienced Commercial Property team.

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