Irrational clause caused huge rent increases

The Court of Appeal has ruled that an ‘irrational’ clause in a lease that led to exponential growth in rent increases was an error and should be corrected.

The case involved Monsolar IQ Ltd and Woden Park Ltd.

Monsolar agreed a 25.5-year lease to create a solar farm on land owned by Woden.

The lease laid out that the rent should be calculated by reference to the Retail Prices Index (RPI) in such a way that the annual increase in rent was the aggregated increase over all previous years of the term.

This would lead to exponential increases, rather than the increase being relative to the previous year only.

Monsolar took legal action to correct what it described as an obvious error.

The High Court agreed and ruled that the lease should be amended.

The Court of Appeal has upheld that decision. It said it was clear that the lease was as plain a case of drafting
error as one could find.

The formula’s effect, literally construed, was that the rent was increased each year by an amount that reflected not the change in RPI for the previous year but the cumulative change in RPI since the start of the term, all of which, apart from that attributable to the latest 12 months, had already been taken into account.

The results of applying the formula in the lease literally could aptly be described as arbitrary and irrational, equally as commercially nonsensical.

Please contact us for more information about the issues raised in this article or any aspect of commercial property law.