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The recent case of Spencer v The Secretary of State for Defence shows what can happen when the parties make what they think is going to be a minor change to a document, but which does in fact have far wider reaching consequences.
The case concerned an agricultural tenancy. The landlord offered the tenant an extra acre of land, which was to form part of the tenancy. This was recorded by the parties executing a Memorandum to the original lease. However neither the landlord nor the tenant realised that the legal effect of the Memorandum was to "surrender and regrant" the original lease. That meant that the addition of the extra land resulted in a surrender of the old tenancy and a new one being granted in its place - something that neither party had intended.
This then caused difficulties on rent review, with both parties disputing the revised rent, and disagreeing over the effect of the unwitting surrender and regrant. At the time the Memorandum was signed, both parties believed that they were just adding a parcel of land to the original tenancy, and they expected the rent review to take account of the additional land.
The court found that (whatever the landlord and tenant thought), the reasonable observer would realise that the legal effect of the Memorandum was a regrant of the tenancy, but that the agreement reflected in the Memorandum was that the rent would be £16,733 from 29 September 1998, and then £27,700 from 29 September 1999 to the present, as determined by the rent review arbitration.
This case illustrates the importance of taking advice on the impact of even the smallest alterations to an agreement to avoid uncertainty in the meaning of the contract, that can ultimately lead to expensive and protracted litigation.
In order to avoid a surrender and regrant, when adding extra land to a tenancy or increasing the length of the term, the transaction should be documented by a supplemental lease. This avoids a surrender and regrant and should help to reduce the risk of problems arising.
Lauren King, Associate in Property Litigation Group at Field Fisher Waterhouse LLP.