HFI Farnborough Llp & Ors v Park Garage Group Plc [2012] EWHC 3577 (Ch)

[2012] EWHC 3577 (Ch)Case No HC12FO2349
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue The Rolls Building, 7 Rolls Buildings, New Fetter LaneDate 13 December 2012
London EC4A 1NL
Before
His Honour Judge Behrens sitting as a Judge of the High Court
Between
(1) HFI FARNBOROUGH LLPClaimants(2) HFI KNIGHTS HILL LLPClaimant(3) HFI ROMSEY LLPClaimant(4) HFI WIMBOURNE LLPClaimantPARK GARAGE GROUP PLCDefendant
John McGhee QC (instructed by Herbert Smith Freehills LLP) for ClaimantsJoanne Wicks QC (instructed by Clifford Chance LLP) for DefendantHearing Hearing dates: 19 – 23, 27 and 28 November 2012
Judgment Approved by the court for handing down (subject to editorial corrections)
[1]Introduction This is a claim by the Claimant landlords against the Defendant tenant which concerns the validity of break notices served by the Claimants. The Claimants (“HFI”) are the owners of petrol filling stations in Farnborough, Knights Hill, Romsey and Wimborne subject to leases made between HFI’s predecessor in title, Sprint 1108 Limited (“Sprint”) and the Defendant (“Park”).[2]Park is a family business owned by Balraj and Sunil Tandon, incorporated in 1998 and now operating some 58 petrol stations across the UK. The 4 stations in issue in these proceedings are known as Farnborough Hill (sometimes called Orpington), Knights Hill, Romsey and Wimborne.[3]HFI are limited liability partnerships (LLPs) in the Heracles Fund group and their names indicate the particular site in respect of which they hold the freehold interest. Each of the individual LLPs was incorporated on 15 July 2011. On 5 September 2011 they each acquired from Sprint the freehold reversions of the 4 sites in issue. Other HFI entities acquired a further 3 sites.[4]Each of the sites was leased to Park by a lease for 25 years from 24 June 2006, granted to Park by Sprint. The leases were granted on various dates in 2006 and 2007 but are all in substantially the same terms. The leases contained a break clause permitting the landlord to terminate the lease on three months notice. However in each case there was a separate overage agreement which placed restrictions on the power to exercise the break clause and made provision for overage payments to Park in the event of a sale of the property by the landlord.[5]There were difficulties in registering the overage agreements at the Land Registry. In the result there were further negotiations which ultimately led to the overage agreements being replaced by similar (but not identical) terms contained in 4 Deeds of Variation each dated 11 July 2008. It is these Deeds of Variation which contain the clauses in issue between the parties.[6]It will, of course be necessary to set out the relevant terms in the leases, the overage agreements and the Deeds of Variation in detail later in this judgment. For present purposes it is sufficient to summarise the issues.[7]Under Clause 8.2 of the Leases as varied HFI was not entitled to invoke the break clauses …“unless the value of the Premises on the date the Break Clause is exercised exceeds the Price”.[8]The figure given in each of the Leases as varied as the “Price” was the price for which Sprint had purchased the freehold of the relevant Site with vacant possession.[9]Under Clause 8.3 if HFI has exercised the Break Clause: it shall upon completing a sale of the Premises pay overage (“Overage”) to the Tenant within seven days of such disposal being completed such overage to be calculated as follows:- Overage = [(New Price – Price) – the Sale Costs] x 25%[10]On 13 April 2012 HFI served break notices pursuant to the Leases as varied expiring on 16 July 2012. In each case the notice was accompanied by a letter from a valuer, purporting to confirm that “the value of the Premises” exceeded the Price referred to in the lease as varied but which gave no details of the values relied on or the basis of the valuation.[11]On 17 April 2012 Park’s former solicitors responded to the break notices saying “As you may be aware the intention behind the amendments contained in the deeds of variation were [sic] that the landlord would only serve the break notices where it intends to sell the properties. An overage payment is due to our client within 7 days of completion of the proposed sale….Please confirm that the break notices have been served pursuant to a proposed sale of the freeholds, what the agreed sale price is of each of the properties and, accordingly, what you anticipate the overage payments due to our clients will be.”[12]HFI took issue with the suggestion that there was any requirement for them to be selling the properties in order to operate the break option and confirmed that there was no proposed sale of the freehold interests. HFI subsequently revealed that they had on 13 April 2012 entered into an agreement to lease the sites, to Petrogas Group UK Ltd (“Petrogas”). The Petrogas agreement is conditional upon vacant possession being obtained from Park and, in respect of the sites in issue in these proceedings, is subject to a long-stop date of 13 January 2013 after which the agreement may be terminated by Petrogas or HFI.[13]In the result there are a number of issues between the parties:[1]Whether HFI is entitled to exercise the Break Clause if there is not agreed sale of the Premises with vacant possession at the date of the sale. This is an issue of construction to be determined in accordance with well settled principles of construction.[2]If, as HFI contend, the answer is “yes” Park contend that the Leases should be rectified on the ground of mutual mistake so that the relevant part of clause 8.2 reads: … unless there is an agreed salethe value of the PremisesProperty with vacant possession on the date the Break Clause is exercised at a New Price that exceeds the Price …[3]Whether the value of the Premises at 13th April 2012 exceeded “the Price”. This gives rise to two issues. First there is a question of construction as to what is meant by “the value of the Premises”. Park contends that the expression means: the freehold value of the relevant Site with vacant possession and without the benefit of any petroleum or other licence required to operate a service station from the Site and without the benefit of any petrol supply contract. HFI does not accept this. It contends that the expression is to be interpreted as the freehold value of the site a) subject to and with the benefit of the lease to Park b) subject to and with the benefit of the petroleum licence and any petrol supply contracts in fact in force at that date and c) subject to and with the benefit of any other agreement for the disposition or grant of an interest in the site Second there is a valuation issue. There is a difference between the expert valuers as to whether the value did in fact exceed the price.[4]There is a further construction or rectification issue on the definition of “Sale Costs” in clause 8.3 of the leases. In each of the original overage agreements the definition of “Sale Costs” included the words “reasonable and proper”. These were omitted in the definition in clause 8.3 as varied. Park contends this should be implied as a matter of construction or was as a result of a mutual mistake and seeks rectification of the definition so that it reads:
“the reasonable and proper legal costs and estate agent’s commission in respect of the sale and any other costs incurred in increasing the value of the Premises including (but not limited to) the costs involved in preparing, submitting and obtaining planning permission and any other statutory consents.”
[5]Finally there are issues as to the amount of damages to which HFI is entitled if it is established that Park was bound to give up possession on 16th July 2012. There is a dispute between the valuers as to the correct level of mesne profits. HFI in addition contends that it may lose the benefit of the valuable agreement it has made with Petrogas. The parties have agreed that this element of the claim is to be adjourned until after 12th January 2013 as it will not be possible to know if the agreement with Petrogas has been lost until after that date.[14]It is right that I should record – at the outset – with gratitude the very considerable assistance I have received from all concerned in this case. The arguments have been clear and of the highest quality. It has also been extremely helpful to have so much of the material electronically. As will be obvious I have drawn extensively from the electronic materials in the preparation of this judgment thereby reducing significantly the time necessary for its preparation. 2. The Agreements/ Leases[15]It is common ground that a different test applies and that evidence of pre-contractual negotiations is inadmissible when considering questions of construction but admissible on questions of rectification.[16]On the other hand previous contracts between the parties are admissible on construction issues. In the circumstances I shall consider the documents and arguments relevant to the construction issues before considering the rectification issues. 2.1 Agreements for Lease[17]On 11 August 2006 Sprint entered into an agreement for lease with Park to grant Park leases of seven separate petrol filling stations including those at Farnborough, Romsey and Wimborne.[1]A draft of the form of lease was annexed to the agreement. This provided for a term of 25 years from 24 June 2006 but included in Clause 8 an unqualified right on the part of the landlord to determine the term at any time on 3 months’ notice.[2]Clause 21 of the agreement for lease provided that completion was conditional upon the parties entering into an overage agreement in the form annexed thereto.[3]Clause 5.3.1 of the agreement for lease provided that completion was also conditional on Sprint completing its purchase of each property from Azure Property LLP (“Azure”)[4]The properties were at that time the subject of leases to Somerfield Stores Limited (“Somerfield”) and the sale agreement provided that Azure would, on or before completion, procure the surrender of these leases. Subject to a lease to a third party of part of the Rotherham property, the sales were therefore with vacant possession.[18]On the same date Somerfield and Park entered into a business sale agreement whereby Somerfield agreed to sell its petrol filling and ancillary retail business and associated goodwill carried on from the properties to Park for a nominal sum.[19]Thus, as Mr McGhee points out there were four interrelated transactions:(1) the surrender by Somerfield of its leases to Azure;(2) the sale of the properties by Azure to Sprint;(3) the grant of leases by Sprint to Park; and(4) the sale by Somerfield to Park of its business and goodwill associated with the properties. 2.2 The Leases and the Overage Agreements[20]Completion of the transactions took place on different dates. Farnborough completed on 20 September 2006, Romsey on 6 September 2006 and Wimborne on 13 December 2006.[21]Clause 8 of each lease (the Break Clause) is in the following form: “The Landlord shall be entitled at any time during the Term to serve a written notice (“the Notice”) on the Tenant giving not less than three months’ notice to terminate this lease whereupon at the expiry of the Notice this Lease shall be determined but without affecting any rights or remedies the Landlord may have against the Tenant in respect of any previous breach of the provisions of this Lease”.[22]Each Overage Agreement contained recitals referring to the Break Clause and to the price paid by Sprint for the property (“the Price”). It provided so far as material as follows:
“1. The Parties hereby agree that Sprint will not invoke the Break Clause in the Lease unless the value of the Property exceeds the Price of that Property (“the New Price”) 2. If Sprint becomes entitled to exercise the Break Clause in respect of the Property it shall upon selling the Property pay overage (“Overage”) to Park within seven days of such sale being completed such overage to be calculated as follows:- Overage = (New Price – Price) – the Sale Costs x 25% Where “Sale Costs” shall mean the reasonable and proper legal costs and estate agent’s commission in respect of the sale and any other costs incurred in increasing the value of the Property including (but not limited to) the costs involved in obtaining planning permission and any other statutory consents to develop the Property. … 5. This Agreement shall apply to and be binding on Spring Limited and its successors in title but shall be personal to Park and lapse and cease to have effect upon Park assigning the Lease. 6. The Parties hereby agree that they will each apply to the Land Registry to register a note of this Agreement on their respective freehold and leasehold titles.”
Overage = (New Price – Price) – the Sale Costs x 25% Where “Sale Costs” shall mean the reasonable and proper legal costs and estate agent’s commission in respect of the sale and any other costs incurred in increasing the value of the Property including (but not limited to) the costs involved in obtaining planning permission and any other statutory consents to develop the Property. …[23]“The Price” was defined as £1,088,000 for Farnborough, £922,000 for Romsey and £1,061,000 for Wimborne. 2.3 Knights Hill[24]In March 2007 a similar arrangement was reached in respect of Knights Hill. The differences arose because the property was both owned and occupied by Somerfield rather than being owned by Azure and let to Somerfield. On 19 March 2007 Sprint and Park entered into an agreement for lease providing for the parties to enter into both a lease and overage agreement in the same form as those entered into in respect of the other properties. The transaction completed on 20 April 2007 when Sprint and Park entered into a Lease and Overage Agreement in the same form as those for the other properties. “The Price” was defined in the Overage Agreement as £950,000. 2.4 The Deeds of Variation[25]It is common ground that there were difficulties in registering a note of the Overage Agreements at or at least at some of the relevant Land Registries. It was argued that Park’s interest was an interest in the proceeds of sale of the property rather than an interest in land. In any event it was decided that the solution to the problem was to incorporate the terms of the Overage Agreements into the Leases by way of Deeds of Variation.[26]It is also common ground that there were extensive negotiations between the parties themselves and their respective solicitors in relation to the terms of the Deeds of Variation. As already noted these negotiations are inadmissible on questions of construction.[27]Four separate but materially identical Deeds of Variation were duly executed on 11 July 2008.[28]By clause 2 the parties agreed to terminate the Overage Agreement. By clause 3 they agreed to renumber the Break Clause as clause 8.1 and to add the following clauses:
“8.2 The Landlord will not invoke the break clause referred to in clause 8.1 above (“the Break Clause”) unless the value of the Premises on the date the Break Clause is exercised exceeds the Price (as defined below) 8.3 If the Landlord has exercised the Break Clause (but not otherwise) then (subject to clauses 8.4 and 8.6 below) it shall upon completing a sale of the Premises pay overage (“Overage”) to the Tenant within seven days of such disposal being completed such overage to be calculated as follows:- Overage = [(New Price – Price) – the Sale Costs] x 25% Where “Price” shall mean £… [The figure being the same figure as in the Overage Agreements] “New Price” shall mean the sale price of the Premises “Sale Costs” shall mean the legal costs and estate agent’s commission in respect of the sale and any other costs incurred in increasing the value of the Premises including (but not limited to) the costs involved in preparing, submitting and obtaining planning permission and any other statutory consents 8.4 For the avoidance of doubt: 8.4.1 No Overage shall be payable upon a sale of the Premises (or any part thereof) if the Break Clause has not been exercised 8.4.2 Overage shall only be payable once in respect of the whole or any part of the Premises but a payment of Overage in respect of part of the Premises shall only release that part of the Premises from the provisions of this clause and the remainder of the Premises shall continue to be subject to Overage under this Lease … 8.6 The provisions of clauses 8.2-8.5 inclusive of this Lease shall apply to and be binding on the Landlord and its successors in title but shall be personal to Park Garage Group PLC and shall lapse and cease to have effect upon Park Garage Group PLC assigning this Lease”
. Overage = [(New Price – Price) – the Sale Costs] x 25% Where 2.5 Drafting Differences

Where

[29]As Mr McGhee points out, the effect of the Deeds of Variation was broadly to incorporate the provisions of the Overage Agreements into the leases themselves. There are however a number of detailed differences in drafting which he has analysed in paragraph 24 of his skeleton argument:(1) both the overage agreement and the deed of variation provide that the break clause cannot be exercised unless the value of the premises exceeds the Price; the deed of variation alone identifies that this is the value of the premises “on the date the Break Clause is exercised”.(2) the overage agreement provides that if Sprint “becomes entitled to exercise the Break Clause” it shall upon selling the property pay overage whereas the deed of variation provides that if it “has exercised the Break Clause (but not otherwise)” it shall upon selling pay overage;(3) the overage agreement identifies the material event as “upon selling” the property; the deed of variation provides that it is “upon completing a sale” of the property;(4) the formula as set out in the deed of variation is almost identical to that set out in the overage agreement but further square brackets have been added in the deed of variation to make it clear that 25% is taken not just of the Sale Costs but also of the difference between the New Price and the Price;(5) in the overage agreement “New Price” means the value of the property; in the deed of variation this is altered to “the sale price of the Premises”;(6) the definition of “Sale Costs” in the overage agreement differs from that in the deed of variation in three respects: (a) the overage agreement limits legal costs and estate agent’s commission to “reasonable and proper” costs; that limitation is omitted from the deed of variation; (b) the overage agreement includes the cost of obtaining planning permission and other statutory consents; the deed of variation extends that to the costs of “preparing, submitting” such permission and consents; (c) the overage agreement limits the costs relating to such permission and consents to costs “to develop the Property”; this qualification is omitted from the deed of variation;(7) clause8.4.1 of the deed of variation (providing that no overage is payable upon a sale if the break clause has not been exercised) and clause8.4.2 (providing that overage is payable only once in respect of the whole or any part of the property and that on sales of part only that part is released from further payment of the overage) have no equivalent in the overage agreement. 2.6 Authorities[30]Both Counsel drew my attention to the well-known principles set out in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912F-913G; Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38; [2009] 1 AC 1101 at [14]-[15] and [21]-[25] and Rainy Sky SA v Kookmin Bank [2011] UKSC 50, [2011] 1 WLR 2900 at [21]-[30]. Ms Wicks submitted that they led to the following principles:(1) the ultimate aim of interpreting a contractual provision is to determine what the parties meant by the language used, which involves ascertaining what a reasonable person would have understood the parties to have meant;(2) the reasonable person is one who has all the background knowledge which would reasonably be available to the parties in the situation they were at the time of the contract;(3) where a term of a contract is open to more than one interpretation, it is generally appropriate to adopt the interpretation which is most consistent with business common sense;(4) poorly drafted contracts do not attract a different approach, but the poorer the quality of the drafting, the less willing the Court should be to be driven to semantic niceties to attribute to the parties an improbable or unbusinesslike intention; and(5) where it is apparent that something has gone wrong with the language of the contract, the fact that the Court might have to express the parties’ meaning in language quite different from that used by them is no reason for not giving effect to what they appear to have meant.[31]Mr McGhee drew my attention to paragraphs 20 to 22 of the judgment of Arden LJ in Scottish Widows v BGC International [2012] EWCA Civ 607 which dealt specifically with the approach where it is said that something must have gone wrong with the language. [20] … This case potentially falls within a category of cases that has emerged more clearly since the landmark decision of the House of Lords in ICS, that is, the category of "something must have gone wrong with the language" cases. In general, the meaning of a document is what the parties using the words which they used against the relevant background could reasonably be expected to mean. The judge reminded himself of what Lord Hoffmann stated in the fifth of his now well-known principles of interpretation set out in that case. That reads: "The 'rule' that words should be given their 'natural and ordinary meaning' reflects the commonsense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1984] 3 All ER 229 at 233, [1985] AC 191 at 201 '. . . if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.'" [21] Accordingly, there are circumstances in which the court may, if it finds from the face of the document interpreted with the admissible background, that the parties have mistakenly included, or omitted, words in a document, interpret the document so that it has the meaning which, according to the document read with the admissible background, the parties clearly intended. As the subsequent case of Chartbrook makes clear, however, there are limitations. In particular: i) It must be clear from the document interpreted with the admissible background that the parties have made a mistake and what that mistake is; ii) It must be clear, from the rest of the agreement interpreted with the admissible background what the parties intended to agree, iii) The mistake must be one of language or syntax. [22] It follows that it is not enough that the parties have mistakenly failed to provide for a particular circumstance. For the court to correct that error would be to rewrite the parties' contract and to step beyond the permissible limits of interpretation.[32]Ms Wicks drew my attention to the judgment of Carnwath LJ in KPMG v Network Rail Infrastructure Ltd [2007] EWCA Civ 363; [2008] 1 P & CR 11. at 199-202 in relation to the relevance of pre-existing contracts between the parties as an aid to construction. The case involved the construction of a tenant’s break clause in a lease. Prior to the execution of the lease the parties had entered into an agreement for a lease which had a draft lease attached to it. The lease followed in general the terms of the draft lease but some words were omitted in the clause dealing with the break clause. That led to an argument that there were five opportunities to break the lease rather than three. At first instance the argument failed on construction but succeeded as a result of rectification. The Court of Appeal came to the opposite conclusion on each point and thus the appeal was dismissed.[33]Carnwath LJ dealt with the relevance of the prior agreement in paragraphs 35 to 43 of his judgment. In paragraph 36 he cited part of Rix LJ’s judgment in HIH v New Hampshire [2001] 2 LL R 161:
“83. In principle, it would seem to me that it is always admissible to look at a prior contract as part of the matrix or surrounding circumstances of a later contract. I do not see how the parol evidence rule can exclude prior contracts, as distinct from mere negotiations. The difficulty of course is that, where the later contract is intended to supersede the prior contract, it may in the generality of cases simply be useless to try to construe the later contract by reference to the earlier one. Ex hypothesi, the later contract replaces the earlier one and it is likely to be impossible to say that the parties have not wished to alter the terms of their earlier bargain. The earlier contract is unlikely therefore to be of much, if any, assistance. Where the later contract is identical, its construction can stand on its own feet, and in any event its construction should be undertaken primarily by reference to its own overall terms. Where the later contract differs from the earlier contract, prima facie the difference is a deliberate decision to depart from the earlier wording, which again provides no assistance. Therefore a cautious and sceptical approach to finding any assistance in the earlier contract seems to me to be a sound principle. What I doubt, however, is that such a principle can be elevated into a conclusive rule of law.”
[34]In paragraph 43 he concluded: In my view, the 1974 agreement, including the form and content of the draft lease attached to it, was an important part of the background and is a permissible aid in the construction of the lease in its final form.[35]In paragraphs 44 – 50 he considered in detail the principles needed for correction of mistakes as part of the process of construction. After formulating the principle in terms which are to my mind materially indistinguishable from Arden LJ’s formulation in Scottish Widows he went on to cite a passage from the judgment of Sir Martin Nourse in Holding & Barnes “I arrive at this conclusion by seeking to ascertain the common intention of the parties from the words they have used in the Barking lease in the light of the material provisions of the other six leases. This is the classical process of construction […] It enables the court to correct an obvious clerical error in a document that it may conform with the obvious intention of the parties. Although in a loose sense the document is rectified, indeed the process is sometimes referred to as common law rectification, it is not rectification in the correct sense. It remains an exercise in construction.” (para 47)[36]He concluded the discussion (in paragraph 50): The relevance of this point in the present case is that, having decided that the 1974 draft lease is a legitimate aid to construction, it is wrong to compartmentalise the process of interpretation. Both in the judgment, and in the arguments before us, there was a tendency to deal separately with correction of mistakes and construing the paragraph “as it stands”, as though they were distinct exercises. In my view, they are simply aspects of the single task of interpreting the agreement in its context, in order to get as close as possible to the meaning which the parties intended.[37]It is not necessary to repeat Carnwath LJ’s analysis of the actual construction issue in that case. It is, however, to be noted that he relied and commented on the decision of the House of Lords in The Starsin [2004] 1 AC 715 where their Lordship supplied the missing words in a bill of lading from a standard form. In paragraph 64 he said: Thirdly, and perhaps more contentiously, I think it would be wrong to apply too literally Lord Bingham’s reference to the need for clarity both as to the omission of words and “what those relevant words were”. As Lord Millett said, it is sufficient if the court is able to ascertain “the gist” of what has been omitted. I would go further. Once the court has identified an obvious omission, and has found in admissible background materials an obvious precedent for filling it, it should not be fatal that there may be more than one possible version of the replacement, or more than one explanation of the change. Thus, in The Starsin, even if the various versions of the standard clause had contained some material variations of detail in the relevant passage, I do not think that the court would have been forced for that reason alone to adopt the construction proposed by the claimants. Of course such variations may be sufficient to throw doubt on the precedent as providing an explanation for the error. But, if not, the court is simply faced with the ordinary task of choosing between the competing interpretations, using the ordinary techniques of construction. 2.7 Submissions Ms Wicks[38]Ms Wicks summarised her submission on construction in the following proposition: When the words of the Deeds of Variation are read in their proper context, having regard to all background information which is reasonably available to the parties, and having regard to ordinary business common sense, an objective observer would conclude that the break clause was not to be invoked unless there was an agreed sale at a price exceeding the price at which Sprint acquired the relevant property.[39]She made it clear that what is required is a sale of the premises and that is what parties meant when they chose to use the words “value of the premises” in clause 8.2.[40]Ms Wicks suggested a number of matters which comprised the background information available to the parties as at the date of the Deeds of Variation. At the forefront of these was the fact of the Overage Agreements. She recognised, of course, that there were changes made from the Overage Agreements. She submitted that the court had to answer the question whether the parties, by making the changes that they in fact made to the drafting, intended to rip the Overage Agreements up altogether and start afresh or whether, construed as a whole, the circumstances under which the break clause is to be exercised remained the same.[41]She suggested a list of other background information available to the reasonable person reading the Deeds of Variation:[1]that the leases were granted as part of a composite transaction involving the surrender of leases by Somerfield to Azure, Sprint's purchase of the freehold from Azure, Sprint's grant of leases to Park and the entry into overage arrangements, and Park's acquisition of the businesses from Somerfield.[2]That there are four linked leases and overage agreements. The leases were all long leases of 25 years.[3]That the Deeds of Variation were entered into some time after the original leases were granted after Sprint and Park had encountered difficulty with the registration of the Overage Agreements and that the Deeds of Variation can be registered on the title.[4]That typical clauses in leases where valuation is required, for example rent review clauses, set out the approach to ascertaining value on a valuation, for example by the use of the term "open market value" or "market value" to indicate the need for such a valuation, and the typical assumptions that the valuer is required to make in the course of that valuation and those things which the valuer is required to disregard, for example, the effect of goodwill or improvements on value.[5]That valuations of petrol stations are generally carried out by reference to the profit reasonably obtainable by an averagely competent operator. Ms Wicks submitted that this is a particularly subjective area of valuation where small differences in variables can have a large impact on the ultimate value by a valuer.[42]Against that background Ms Wicks drew my attention to the fact that by clause 8.6 of the leases as varied, the break clause at clause8.1 applies to all tenants of the relevant property, but the restriction on the break clause at clause8.2 and the overage provisions at clause8.3 are both personal to Park. Thus she submitted that the restriction on the break clause was for the benefit and protection of Park as part of the bargain for the Overage.[43]She submitted that there was no commercial reason whatsoever for Park to have bargained for a restriction on the landlord’s right to break its long leases by reference simply to the value of the landlord’s interest. Park derives no benefit from the upwards movement of the value of the landlord’s interest, which will be affected by a number of factors unrelated to the tenant’s business needs or aspirations. Moreover, that value may fluctuate on paper without those fluctuations ever having a consequence in the real world.[44]As petrol stations are often valued by the profits method the more profitable the business conducted on the site, the greater the value of the landlord’s interest. Allowing the landlord to break a lease because the value of its interest has increased has the consequence that the more successful the tenant’s business the more likely it is that the landlord has the ability to break the lease.[45]If the “value of the Premises” is ascertained by a valuation rather than a sale, there may be a long delay after termination of the lease before any sale which is capable of generating overage occurs. That would mean that the tenant would be capable of benefitting from an uplift in the value of the premises attributable to events occurring long after it had left the site and to which it has not contributed. Ms Wicks submitted that it is unlikely to have been contemplated by the parties that the tenant should, for example, have 25% of an uplift in value attributable to a new road being constructed next to the petrol station some years after the tenant had left; or to improvements carried out by a subsequent tenant.[46]On the other hand, if “value of the Premises” is read as “the price of the Premises”, she submitted that clauses 8.2 and 8.3 make commercial sense. The objective observer will appreciate that a landlord might wish to sell a site with vacant possession, just as Sprint had purchased the site with vacant possession. In order to do so it would need to break the tenant’s lease. On such a sale the tenant would become entitled to overage under clause 8.3. The overage would compensate the tenant for the loss of its lease and the costs associated with a petrol tie. The period of time between the break and the payment of overage would be short: the tenant obtaining its compensation for moving soon after suffering the costs of moving. Equally, the landlord is not obliged to compensate the tenant by way of overage for increases in value which have nothing to do with the site as occupied by the tenant or the business conducted by the tenant at that site. On the contrary the overage payment is directly correlated with the break, because it is by virtue of the tenant giving vacant possession that the landlord has been enabled to realise the enhanced value of the site through a sale. It would be quite understandable to a reasonable person why a tenant in the position of Park would have wished to bargain for such rights.[47]Ms Wicks then made submissions about the Overage Agreements. She submitted that they were not well drafted: anyone with any knowledge of overage provisions would see that there are a number of different circumstances which the agreements do not expressly cater for, such as a sale of part, a disposal other than a sale, a sale of an interest other than the freehold and a sale otherwise than at arm’s length or in good faith.[48]She submitted that by “value of the Property” the parties meant the new price achieved on sale, because that is exactly the phrase which is used to denote “the value of the Property” in clause 1. She submitted that if they had not meant “the New Price” it is unlikely that they would have chosen that phrase.[49]The “value of the Property” appears not only in clause 1, but also in the definition of “Sale Costs”, where it means a value realised by a sale. The New Price appears both in clause 1 and in the formula for the calculation of the Overage. She submitted that the reasonable man would conclude that clauses 1 and 2 are connected.[50]It is highly unlikely that the parties intended both a valuation and a sale. On HFI’s construction there needs to be a valuation as at the date of the exercise of the break clause and this figure is used in the overage calculation notwithstanding a completely different figure may be realised on sale - Ms Wicks described this as a highly uncommercial proposition.[51]She submitted that the parties contemplated a sale with vacant possession. This is because only a sale with vacant possession would require the break clause to be exercised. Moreover, only a sale with vacant possession would give the appropriate New Price to compare with the Price which Sprint had paid for the site with vacant possession.[52]Ms Wicks submitted that the Deeds of Variation were not intended to vary the Break Clause and overage arrangements by making the break clause operable on a valuation rather than a sale and decoupling the fetter on the break clause from the overage entitlement. She gave three reasons:[1]If the parties had contemplated that “the value of the Premises” was to be ascertained by a valuation rather than sale, they would have expressed what interest in the relevant site was to be valued and how that was to be valued.[2]The reasonable person will know that the objective aim of the deeds of variation was to bring the overage arrangements onto the face of the leases, by way of resolution of the registration difficulties. A wholesale change to the fetter on the break clause, from sale to valuation, would not be required to achieve this aim.[3]All of the changes to the wording of the overage provisions from the overage agreements are matters which would have been implicit in the original overage agreements and are included only for the avoidance of doubt. The changes (other than those which simply use the terminology of the lease rather than the overage agreement) are as follows: 1) in clause 8.2, “unless the value of the Property exceeds the Price of that Property” becomes “unless the value of the Premises on the date the Break Clause is exercised exceeds the Price (as defined below)”. It was, however, implicit in clause 1 of the overage agreements that the date for the ascertainment of value/price was the date on which the break clause was invoked: it could not sensibly be any other date. 2) In clause 8.3, “If Sprint becomes entitled to exercise the Break Clause” becomes “If the Landlord has exercised the Break Clause (but not otherwise)”. This is not a change of substance. On Park’s construction of the overage agreement, it was always apparent that overage was only payable where the lease had in fact been broken because of the need to effect a sale with vacant possession. 3) Then in clause 8.3 “…it shall upon selling the Property pay overage” becomes “it shall upon completing a sale of the Premises pay overage…”. Again, this is not a change of any substance. It was always apparent from the overage agreements that overage was not payable until after completion of the relevant sale: indeed the overage agreements said expressly that payment should be “within seven days of such sale being completed”. 4) Square brackets have been added to the formula for the calculation of overage. These make clear that Park is to be paid 25% of the New Price less the Price less the Sale Costs, not the New Price less the Price, less 25% of the costs. 5) The phrase “reasonable and proper” has been deleted from the definition of Sale Costs. The objective observer is likely to conclude that this is an omission by mistake and that such a limitation is, in any event, implied. 6) In the definition of Sale Costs, the phrase “statutory consents to develop the Property” becomes “statutory consents”. Since the list is expressed not to limit the costs which have increased the value of the Premises, the deletion of this specific reference is irrelevant. 7) Clause 8.4 is new, but is expressly said to be “for the avoidance of doubt” and it is submitted that both provisions would have been implied into the overage agreements in any event. 8) As to the move of “(“the New Price”)” from the end of clause 1, it is clear that this is simply because the leases lack the recitals to the overage agreements, in which the definition of “Price” is to be found. The draftsman of the deeds of variation has simply gathered up all the definitions relevant to overage in one place, namely clause 8.3. In doing so he has not intended to change the meaning of “the value of the Premises” in clause 8.2. Mr McGhee[53]Mr McGhee submitted that the Deed of Variation contemplates two entirely separate events: the service of the break notice and the sale of the premises. Clause 8.3 contemplates the prior service of a break notice by the words: “if the Landlord has exercised the Break Clause”; overage is payable on the later event of the landlord “completing a sale” of the premises. Overage is payable based on “the sale price of the Premises” and not on “the value of the Premises”; the value of the Premises is the value “on the date the Break Clause is exercised” whereas the sale price is the price in fact achieved on a subsequent sale of the premises.[54]He relied heavily on clauses8.4.1 and 8.4.2. He submitted that clause 8.4.1 confirms that it is not a condition for a sale that the break clause has been exercised; there is accordingly no necessary connection between these two separate events. Furthermore clauses 8.4.1 and8.4.2 contemplate the sales of different parts of the property (and thus the payments of sums by way of overage) at different times. Yet there is no provision enabling the landlord to determine the lease as to part only of the property demised thereby. Accordingly the parties must have contemplated(a) the service of a break clause in respect of the whole of the property(b) a sale of part and (b) at a later time a further sale or sales of the remaining part of the premises. It follows that the exercise of the break clause under clause 8.2 need not be accompanied by a sale of the whole. This is consistent only with the Claimants’ construction and inconsistent with the Defendant’s construction.[55]He stressed that the Overage Agreements were formal documents entered into between sophisticated parties advised by solicitors. He submitted that it is significant that the parties did address expressly the question of what conditions there should be to the exercise of the break clause and provided that the value of the property should exceed the Price. They did not state that there must have been a contract for sale of the premises entered into at that stage.[56]He pointed out that the clause did not deal with the question of what was to happen if the contract did not complete. In that event it is clear from clause 8.3 that no overage is payable. However the Overage Agreements do not make clear what is to happen to the Break Clause in such an event. Does it remain effective? If so what sum is payable on a subsequent sale?[57]He referred me to paragraphs 21 to 23 of Rainy Sky. He submitted that this was a case where the parties had used “unambiguous language” and thus the court must apply it. In such a case it is not open to the court “to prefer the construction consistent with business common sense”.[58]He submitted that HFI’s construction was in accordance with common sense. In particular it permitted Sprint to realise a development opportunity itself. If Park is correct, this would not be possible as Sprint could only obtain vacant possession if it sold the property. Sprint would also be unable to sell to a developer whose contract was conditional on obtaining planning permission. Furthermore any contract for sale would have to provide for delayed completion of three months.[59]He pointed out that the amount of the Overage payments might well not compensate Park for any loss it suffered as a result of early determination of the lease. On Park’s construction Sprint was entitled to exercise the Break Clause if the sale price was only £1 more than the Price. This would result in no Overage at all being payable. On the other hand he accepted that if the New Price was high the Overage might substantially exceed any such loss.[60]He reminded me that the court will only correct a mistake as a matter of construction where it is clear what the mistake in question is and clear how it is to be corrected. These are high hurdles which he submitted were not overcome in this case.[61]He did not accept that “value” meant “price” in clause 1 of the Overage Agreements. The Overage Agreements make a careful distinction between the exercise of the break clause in clause 1 and the payment of overage in clause 2. The words “the New Price” were defined to mean “the value of the Property” and not vice versa. The purpose of the phrase “New Price” was to form part of a formula in which what mattered was the difference between the value of the Premises and the “Price”. In those circumstances there was, he submitted, nothing odd about the parties using “New Price” as shorthand for the sum in question.[62]Even if on its true construction clause 1 of the Overage Agreements referred to price not value, HFI does not accept that the Deeds of Variation were not intended to alter the effect of the Overage Agreements. A detailed examination of the many differences between the Overage Agreements and the Deeds of Variation leads to the conclusion the Deeds of Variation were carefully considered documents and accordingly no inference can be drawn that they were not intended to alter the provisions of the Overage Agreements.[63]Whilst a large part of the purpose of the Deeds of Variation was to bring the provisions of the Overage Agreements into the Leases it does not follow that that was their sole purpose. 2.8 Discussion and Conclusion.[64]I have set out in some detail the very clear and careful arguments from both Ms Wicks and Mr McGhee on the construction issue because, as I indicated in the course of argument, I have not found the solution straightforward.[65]In general I prefer the arguments of Ms Wicks to those of Mr McGhee. Thus:[1]I agree with Ms Wicks that neither the Overage Agreements nor the Deeds of Variation are well drafted documents.[2]I agree with Ms Wicks that clause 8.2 of the Deeds of Variation was a clause primarily for the protection of Park and was designed to be a fetter on Sprint’s otherwise unfettered right to exercise the Break Clause. I also agree that Park’s construction makes more sense from a commercial point of view. It is to my mind far more likely from a commercial point of view if clauses 8.2 and 8.3 are linked and that the Break Clause can only be exercised on a sale. As Ms Wicks pointed out, on HFI’s construction the overage might not be payable for many years (or not at all). Furthermore the amount of the Overage would bear no relation to the value at the time the Break Clause was exercised. It is true, as Mr McGhee pointed out that Park’s construction precludes Sprint from developing itself or selling to a developer conditional on the grant of permission. These seem to me to be relatively minor points especially as the clause was designed for the protection of Park.[3]I agree with Ms Wicks that in clause 1 of the Overage Agreements by “value of the Property” a reasonable person would have understood the parties to have meant the New Price of the Property achieved by the landlord on a sale by vacant possession. I agree with Ms Wicks that the use of the phrase “New Price” in clause 1 is significant. I agree that clauses 1 and 2 are linked in the way she submits for the reasons she gives. It is, to my mind highly unlikely that the parties contemplated that there would be both a sale and a valuation of the Property. If, as HFI submits, there is no such linkage it would mean that the Overage payable would be related to the value (as valued by an expert) as opposed to the sale price. This seems a most unlikely interpretation. Equally, contrary to the submission of Mr McGhee, I do not regard the expression “value of the premises” as being clear. Accordingly I can have regard to the business common sense of the transaction.[4]I agree with Mr McGhee that Park’s construction does not deal with the situation where the contract for sale is not completed. However the Overage Agreements are not well drafted and there are, as Ms Wicks pointed out, many matters that are not dealt with.[5]Accordingly I accept Ms Wicks’ submissions on the construction of the Overage Agreements. In my view the Break Clause in clause 8 of the lease can only be exercised if the sale price on a sale with vacant possession exceeds the Price (as defined). I am by no means sure that this falls into the category of cases where the court is correcting a mistake by construction. As I have noted the word “value” is ambiguous. However if it is such a case I do regard it as being clear what the mistake is and how it is to be corrected.[6]I accept, in the light of KPMG, that the Overage Agreements are part of the relevant background to the Deeds of Variation. I also accept that the court must ask whether the changes to the Overage Agreements were a deliberate decision to depart from the earlier wording so as to alter its meaning. I note the caution advocated by Rix LJ in the passage from HIH cited above but also note that in KPMG the terms of the draft lease annexed to the agreement were of considerable importance.[7]I agree with Ms Wicks that many of the changes to the wording are not changes of substance and/or are implicit in the Overage Agreements. Thus I agree with the comments in the first four subparagraphs of her analysis. I disagree with her fifth comment (in relation to Sale Costs). The phrase “reasonable and proper” costs may have been omitted to avoid an expensive argument on costs. However this has no bearing on the construction of clauses 8.2 and 8.3. Equally the other alterations to the definition of Sale Costs are not relevant.[8]The two important changes to the wording are the introduction of clause 8.4 which did not appear in the Overage Agreements at all and the movement of the definition of “New Price” from clause 1 of the Overage Agreements to 8.3 of the Deeds of Variation. The definition has changed from “value of the Property” (in the Overage Agreements) to “the sale price of the Premises” (in the Deeds of Variation). Mr McGhee relies on these changes to show that there is no linkage between clauses 8.2 and 8.3 and because clause 8.4.2 contemplates sales of part of the property and there is no provision for partial exercise of the break clause.[9]Ms Wicks points to the fact that the draftsman has simply gathered up the definitions in the Overage Agreements relevant to overage and placed them in clause 8.3. Clause 8.4 is inserted “for the avoidance of doubt”. She submits it is inconceivable that the draftsman intended to make such a fundamental change to the meaning of clause 1 of the Overage Agreements by these two amendments. She points out that clause 8.4.2 presents as many problems for HFI as it does for Park. In particular she points to the fact that clause 8.3 contains no provision for apportionment of the price and no express provision for a sale of part of the premises. Plainly some words would have to be implied to cater for this. If such a provision is to be implied in clause 8.3 then she asks rhetorically why should not similar words be implied into clause8.1 and 8.2. She submits thus that clause 8.4.2 is mere surplusage. Alternatively she submits that clause 8.1 should be construed as permitting the exercise of the Break Clause in respect of part of the Property. There is to my mind force in these submissions 66. It follows that, as a matter of construction, I accept Ms Wicks’s submissions on clauses8.2 and8.3 of the Deeds of Variation. 3. Rectification.[67]In the light of my views on construction issues of rectification (save in relation to the amendments to the definition of Sale Costs) do not arise. However, as the matters have been fully argued and as my decision on construction may well be the subject of an appeal I propose to deal with the issues. 3.1 The Law[68]There is no material difference between Counsel’s submissions on the relevant law. In those circumstances I can take the law from paragraphs 58 – 60 of Ms Wicks’ skeleton argument[1]The elements of rectification for mutual mistake were summarised in Swainland Builders Ltd v Freehold Properties Ltd [2002] EWCA Civ 560; [2002] 2 EGLR 71 at [33] and approved by Lord Hoffman in Chartbrook v Persimmon, above, at [48]: “The party seeking rectification must show that:(1) the parties had a common continuing intention, whether or not amounting to an agreement, in respect of a particular matter in the instrument to be rectified;(2) there was an outward expression of accord;(3) the intention continued at the time of execution of the instrument sought to be rectified;(4) by mistake, the instrument did not reflect that common intention”.[2]It does not matter that the parties have not agreed the precise form of words to be used: Swainland, above, at [43]-[44]. The Court will fashion an appropriate remedy to give effect to their common intention.[3]It is now clear (at least below the Supreme Court) that the common intention of the parties must be judged objectively, in accordance with Lord Hoffman’s obiter dicta in Chartbrook v Persimmon: Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153, [2012] 1 WLR 1333 at [78], [104]; [179]-[182]; [195]-[196]; Scottish Widows v BGC, above, at [46].[4]However, evidence of subjective intention is admissible, and may be significant where the prior consensus is based wholly or in part on oral exchanges or conduct. In such a case the subjective understanding of the parties throws light on what they are likely to have said to one another in objective communications “crossing the line”: Chartbrook v Persimmon, above, at [64]-[65]; Daventry, above, at [198].[69]Ms Wicks also referred to the analysis in the judgment of Etherton LJ in paragraphs 85 to 88 of Daventry where he explained the difference between subjective and objective intention. Ms Wicks summarised the analysis in this way:(1) Where the parties are subjectively and objectively in agreement but the formal documentation as executed fails to give effect to that prior agreement. In such a case, rectification should be granted to bring the documentation into line with their prior accord.(2) Where the parties never subjectively had the same intention, but the communications crossing the line show that objectively there was a continuing common intention, and the formal documentation reflected those prior communications. In that situation, rectification should be refused.(3) Where there was objectively a prior accord, but one of the parties subjectively changed their mind, but objectively did not bring that change of mind to the attention of the other party. If the documentation reflects the prior accord, it should not be rectified, but if the documentation reflects the changed but uncommunicated subjective intention it should.(4) Where there was objectively a prior accord (whether or not a subjective common intention) and one of the parties then objectively changed their mind, that is to say, made apparent to the other party that they intended to enter into the transaction on different terms. If the documentation as executed gives effect to the objectively-indicated change of mind, rectification should be refused. 3.2 The short route[70]Ms Wicks puts the case for rectification in 2 ways – the short route and the long route. The short route starts with Ms Wicks’ construction of the Overage Agreements which I have upheld above.[71]The negotiations for the Overage Agreements and the Deeds of Variation principally involved four lay persons and two solicitors. On behalf of Park the lay persons were its two directors Sunil and Balraj Tandon; the solicitor was Sarah Lane of Wansbroughs. On behalf of Sprint the lay persons were Norman Slater of Sprint and Nigel Berney of Nigel Lawrence partnership (who acted for Sprint and had a financial interest in it); the solicitor was Barry Shaw of Wallace LLP.[72]It is by no means clear how far the negotiations were led by the parties or their solicitors. In the course of his evidence Sunil Tandon suggested that some of the proposed amendments were not made as a result of prior authorisation. Some of the correspondence suggests that this may be so.[73]It is not in dispute that there were extensive negotiations between the parties and the solicitors both before the execution of the Overage Agreements and the Deeds of Variation. In the course of his very full and helpful opening Mr McGhee produced a document showing the history of the various drafts passing between the solicitors. I have included that document as Appendix A to this judgment so that details of the proposed amendments can be seen.[74]It will be seen that there were at least four drafts of the Overage Agreements before the final versions were executed in August 2006[75]It will be recalled that under clause 6 of the Overage Agreements the parties agreed to apply to the Land Registry to register a note of the Agreements on their respective freehold and leasehold titles. In the event this caused a problem. It is plain both from the correspondence and from Sunil Tandon’s evidence that the lack of registration was a matter of major concern to him.[76]In any event it is clear that by March 2008 the parties were contemplating amendments to the Overage Agreements. Between 11 March 2008 and 27 March 2008 four further drafts of the amendments were exchanged between the solicitors. The first was sent by Barry Shaw to Sarah Lane; the remaining three were sent by Sarah Lane to Barry Shaw containing amendments proposed by her.[77]In his closing submissions Mr McGhee drew my attention to the fact that Barry Shaw’s amendment on 11 March 2008 introduced a clause in respect of the payment of overage in respect of a disposal of the whole or part of the property. Sarah Lane amended the wording of this clause in her draft of 18 March 2008.[78]On 28 March 2008 Barry Shaw had the idea that the registration difficulties could be overcome by a Deed of Variation. He sent a draft of the Deed of Variation containing some amendments to the overage trigger. Both of the amendments to the break trigger – i.e. the insertion of the phrase “on the date the Break Clause is exercised” and the dropping of “(the New Price)” into the overage trigger clause - were made in this document. In the covering e-mail Barry Shaw said: I would stress that I have not yet obtained my client’s approval … but I am …attaching a fresh draft prepared as a Deed of Variation, which I would ask you to approve so that I can then obtain my client’s instructions. Although the essence of the document is the same the structure is necessarily slightly different[79]In fact, of course, on the assumption that HFI’s construction is correct, this Deed does make a fundamental change to the Overage Agreements. The New Price is now the Sale Price whereas it was “the value”.[80]By 10 April 2008 the matter had become urgent in that Norman Slater was negotiating the sale of three petrol filling stations and did not want the sale to be jeopardised. Accordingly Barry Shaw asked Sarah Lane to agree a simple supplemental agreement for these three sites “to correct the two main areas that depart from the original intention of the parties”. The draft that was sent on that day by Barry Shaw was intended to reflect that position. Although nothing came of this agreement Sarah Lane replied the same day that it was agreed “subject to confirmation by my client”.[81]Between 15 April 2008 and 24 June 2008 Sarah Lane proposed three further drafts to the Deeds of Variation. In the first she added a clause (8.3) whereby before the Break Clause could be exercised the landlord had to serve a notice specifying, amongst other things, the Price and the Sale Costs. Thus she plainly contemplated that there had to have been an agreement for sale at the date of the execution of the Break Clause. In the second she added a provision that the “value” in the Break clause trigger had to increase by 10%. She also added a clause giving Park a right of pre-emption if the landlord wished to make a disposal. In the third she withdrew the pre-condition that the value had to increase by 10%.[82]On 24 June 2008 there was a lunch meeting between Sunil Tandon, Balraj Tandon, Nigel Berney and Norman Slater. In paragraph 15 of his witness statement Sunil Tandon stated that Sprint wished to amend the overage arrangements solely to reflect the agreed position that overage would be payable(a) only if the leases were broken and(b) only once.[83]In paragraph 20 of his witness statement Sunil Tandon explained: This lunch lasted for around a couple of hours. Mr Slater and Mr Berney were not willing to entertain Ms Lane's request for a pre-emption right (and I accepted this given we had negotiated the point at length at the time of the lease grant). It was however agreed during the lunch that the overage arrangements would be amended, with the minimum number of changes possible, to reflect Sprint's two issues on the drafting … and additionally square brackets would be added to the payment calculation formula as a mathematical point.[84]During the lunch Norman Slater telephoned Sarah Lane and spoke with her. She reported the conversation in an e-mail to Barry Shaw that afternoon. The e-mail included as point 2: One of the other things that Norman was raising was his concern over payment of the overage amount. He was concerned that payment was triggered when the break clause was exercised. I do not think that this has ever been the case. If you look at clause 9.4 of the original agreement, this clearly says that overage was payable on the sale of the property by Sprint. In the revised document clause 9.4.1 simply states that no overage is payable upon a sale of the property or any part of it if the break clause has not been exercised which makes the position perfectly clear.[85]The reference to clause 9.4 was to that clause in the draft that Sarah Lane sent on that day. It was not a reference to the Break Clause trigger but to the clause that became clause 8.3. The reference to clause 9.4.1 is a reference to the clause that became clause 8.4.1.[86]On the next day Barry Shaw sent Sarah Lane an e-mail which included the whole of an e-mail he had dictated the previous day:
"Further to my email of 19 June 2008, Norman and Nigel have today met for lunch with Sunil and Balraj and agree that the Overage Agreements will be varied by the following amendments: 1. That Overage is only payable on a sale after the break clause has been exercised and not otherwise; 2. Overage is only payable once. 3. The square brackets added to the formula. No other changes will be made... Norman gave me these instructions on the telephone in the presence of Sunil and Balraj and I trust that you will be similarly instructed... I look forward to hearing from you urgently so that we can finally conclude this matter"
. The e-mail continued: I would emphasise again my instructions that the agreement reached was that the three points referred above are the only amendments to be made and on this basis I attach a draft Deed of Variation … This is based on my previous draft Deed dated 28 March 2008.[87]There is an attendance note of a conversation between Sarah Lane and Balraj Tandon on 26 June 2008 in which Sarah Lane was authorised to agree the Deed of Variation subject to a minor (but irrelevant) amendment in relation to registration. Thus, on the same day Sarah Lane e-mailed Barry Shaw that Park agreed that there be a separate Deed of Variation for each property and that the terms were agreed save for the minor amendment. Barry Shaw confirmed the same day that the minor amendment was agreed.[88]By 7 July 2008 Sarah Lane had executed counterpart Deeds of Variation on file. At that late stage she e-mailed Barry Shaw with a substantial further proposed amendment in which she proposed that the Break Clause should lapse if Park assigned the lease. It is not surprising that Sprint did not agree to this amendment. Barry Shaw’s e-mail of 9 July 2008 was very much to the point "My client does not agree to this amendment at this late stage. … As you know, lengthy discussions took place prior to the current form of Deed being negotiated which has now been agreed, engrossed and signed by both parties. There was clear agreement between our respective clients that this Deed was only going to deal with three points, which have been incorporated in the Deed in a manner that will now enable the overage arrangement to be registered against the freehold titles, which was your client’s main concern"[89]After taking further instructions on 10 July 2008 Sarah Lane completed the execution of the Deeds of Variation on 11 July 2008. Shortly before completion she sent an e-mail to Sunil Tandon demonstrating her understanding of when the Break Clause trigger could be executed: We also discussed however due to the arrangement with the overage, Sprint can only sell and break if their new sale price is more than the price they paid.. Ms Wicks’ submissions[90]Ms Wicks accepts that prior to the meeting on 24June 2008 there was objectively no agreement between the parties. This can be seen from the numerous proposed amendments to the Overage Agreements summarised above and set out in more detail in Appendix A to this judgment. However she submits that there is clear and convincing objective evidence of an agreement on 24 June 2008 as set out in Barry Shaw’s e-mail of 26 June 2008. The effect of the agreement was that only 3 changes would be made to the Overage Agreements. None of these changes were designed to affect the Break Clause trigger and thus the clear continuing intention of the parties was that the Break Clause trigger should be exercisable on the same terms as in the Overage Agreements.[91]Ms Wicks accepts that Sarah Lane made an attempt to obtain a further very significant amendment on 7 July 2008. However that attempt was rejected with a reference to the prior agreement. Thus by the time the Deeds of Variation were executed the parties had reverted to the continuing intention that only the 3 changes would be made.[92]If (contrary to her submissions on construction) the Break Clause trigger was exercisable on valuation rather than sale she submits there was a mutual mistake. She points to Barry Shaw’s e-mails of 28 March 2008 and 9 July 2008 both of which indicate that Barry Shaw did not think that the Deeds of Variation changed the effect of the Break Clause trigger.[93]Thus she submits that if the Deeds of Variation did change the effect of the Break Clause it was contrary to the objective agreement/common intention of the parties and accordingly the Deeds of Variation should be rectified. Mr McGhee’s submission.[94]Mr McGhee seeks to meet these powerful submissions in a number of ways. First he challenges the construction of the Overage Agreements. I have dealt with this point already. However Mr McGhee is correct that if my construction of the Overage Agreements is wrong the short route to rectification cannot succeed.[95]Second he submits that the Break Clause trigger was one of the three matters referred to in Barry Shaw’s e-mail of 25 June 2008. Amendment 1 provided that Overage is only payable on a sale after the break clause has been exercised and not otherwise. He submits that this makes it clear (insofar as it was not clear before) that although the Break Clause was exercisable when the value of the property was more than the original price, overage was payable only if and insofar as at a later date the whole or any part of the property was sold. Otherwise he submits Barry Shaw would have said it is payable “on exercise of the break clause and not otherwise”.[96]I cannot accept that submission. The amendment has to be read in the light of point 2 of Sarah Lane’s e-mail of 24 June 2008 setting out her conversation with Norman Slater. I agree with Ms Wicks that Norman Slater’s concern was whether overage was payable on a sale of the reversion where the Break Clause had not been exercised. This amendment was designed to make it clear that in such a situation no overage was payable. It follows that I do not accept that any of the three proposed amendments related to the Break Clause trigger.[97]Third he refers to the fact that point 2 of Sarah Lane’s email of 24 June refers to a sale of part of the property. He developed this by referring me to the various drafts which included a reference to a sale of a part some of which were proposed by Sarah Lane. It is, of course, correct that point 2 does quote from a draft which referred to a sale of a part. However this email was written before Sarah Lane was informed of the agreement reached at the meeting.[98]Fourth Mr McGhee submitted that the objective observer would not have concluded that the parties intended to make only three particular changes to the terms of the Overage Agreements. In support of this he drew my attention to the attempt made by Sarah Lane to introduce a last minute amendment on 7 July 2008 and to the actual terms of the Deeds of Variation which (as set out above) contained far more than 3 changes from the Overage Agreements. He reminded me that these were formal documents executed by sophisticated parties with the benefit of apparently competent legal advice.[99]I cannot accept that submission either. I accept that the correct test is whether the objective observer would have concluded that the parties intended to make only the three changes to the Overage Agreements specified in Barry Shaw’s email of 25 June 2008. [See for example paragraphs 206 – 207 of Lord Neuberger MR’s judgment in Daventry]. In my judgment, however, he would have so concluded. First it is plain that Barry Shaw believed that the 28 March version of the Deeds of Variation did not change the effect of the Overage Agreements. Second the Deeds of Variation which were executed were materially in the form sent by Barry Shaw on 25June 2008 as an attachment to the email which emphasised that only three changes would be made. Thus it was plainly not Barry Shaw’s intention to make more than the three changes. I agree that Sarah Lane’s attempt to introduce a significant last minute amendment has to be read in the light of Barry Shaw’s firm reply on 9 July 2008. In my judgment the objective observer would conclude that, as at the date of completion, the prior accord had been restored. Conclusion[100]It follows that I would reject all of Mr McGhee’s submissions. In my view the short route to rectification succeeds. There was in my view a clear agreement that only 3 changes would be made to the Overage Agreements. That agreement was continuing at the time of completion. If, contrary to my view, the Break Clause trigger in the Deeds of Variation required a valuation rather than a sale, Park is entitled to rectification of the Deeds of Variation to give effect to that agreement. 3.3 Sale Costs[101]I have held that, as a matter of construction, the definition of Sale Costs in the Deeds of Variation cannot be taken to be limited to reasonable and proper costs. However the words “reasonable and proper” were included in the definition in clause 2 of the Overage Agreements. The amendment was not one of the amendments referred to in the email of 25 June 2008. It follows, in my view, that Park is entitled to rectification of the definition in clause 8.3 of the Deeds of Variation.[102]It is true, as Mr McGhee pointed out, that there are a number of other amendments which are not the subject of an application for rectification. To my mind that does not affect the position in respect of those amendments in respect of which applications have been made. In the course of her submissions Ms Wicks made it clear that she was not concerned about the other amendments as they do not adversely affect Park. 3.4 The long route Ms Wicks’ case[103]The long route to rectification is relevant if I am wrong in my construction both of the Overage Agreements and the Deeds of Variation. In that event, it is Park’s submission that both the Overage Agreements and the Deeds of Variation failed to reflect a prior accord reached at the outset of the negotiations and which continued up to the date on which the deeds of variation were executed.[104]In their witness statements both Balraj and Sunil Tandon assert that in late 2005 it was part of Nigel Berney’s original proposal that the landlord would have a development break clause, but would agree not to exercise that break clause unless he was selling his interest at a price exceeding the purchase price. In those circumstances Park would be entitled to 25% of the sale proceeds. In cross examination Balraj Tandon said that Mr Berney specifically said that the landlord would only be entitled to exercise the break clause if it sold the property. He added “that was basically the whole idea of the joint venture”. He said that at no time was there any discussion between the parties that Sprint or any subsequent landlord might wish to develop itself.[105]This agreement was reflected in the heads of terms, which envisaged the break clause as a “landlord only development break clause” and which stated that the development break clause would not be invoked “until a higher value has been obtained” than the purchase cost, with any subsequent profit from sale to be shared 75%/25%.[106]There was some discussion between Mr McGhee and Ms Wicks as to this phrase. Both Counsel suggested that it was this use of the word “value” that led to its ultimate use in both the Overage Agreements and the Deeds of Variation. Mr McGhee stressed the use of the word “value”. Ms Wicks stressed the words “had been obtained” which she suggested objectively showed that the parties meant the realisation of a higher value through a sale.[107]I was referred to Sarah Lane’s manuscript comments/amendments on the draft overage agreement sent through by Mr Shaw on 11 May 2006. It is apparent from these amendments that Ms Lane envisaged that what had to exceed “the Price” for the break clause to be operated was a sale price: she considered asking for “evidence of new price to be furnished”. That this was envisaged to be a sale price rather than a valuation is apparent from her reference to “final evidence LR regn [Land Registry registration] on transfer”.[108]On 22May 2006 there was a meeting attended by all relevant parties and their advisors. The notes of the meeting shed little light on the issues before me but it is clear that Sarah Lane was concerned, on behalf of Park, about the wisdom of a three-month landlord’s break clause which she regarded as “onerous”. The notes of the meeting, which refer to the new price and the necessity for evidence of price confirm her view that the “new price” referred to the new price rather than the value. Park asked for a fixed percentage threshold by which the sale price achieved by Sprint would be exceeded before operation of the break clause could take place. Mr Berney expressed concern about agreeing any fixed percentage but assured Park that Sprint was not going to break the lease unless it knew it was going to make a significant profit on the related sale. This discussion is recorded in the notes of the meeting. Ms Wicks submits that the discussion was all about the prospect of a sale and that there was no suggestion that the break clause would be operable on a paper valuation exercise: indeed the concern expressed by Ms Lane about the prospect of a sale at a very small amount over the purchase price would have been entirely misplaced if the trigger for the break clause was a valuation rather than a sale.[109]It is not entirely clear when it first became apparent to Park that the break clause might be exercisable on a sale which was not strictly for the purposes of a development. Balraj Tandon’s evidence was that at the time of the original deal he thought the break clause was exercisable only if there was a development opportunity although in the context of the 22 May meeting he said that the parties were talking in terms of much bigger chains, such as Tesco, turning up and wanting to acquire the portfolio. Sunil Tandon was not asked about his understanding at different points in time in the same way: his evidence was that “as far as we were concerned, if the break was exercised and we get our 25%, that’s fine”. However, much later, in 2008, Norman Slater seems to have thought that Park did not realise that the relevant sale might not be to a developer.[110]In her skeleton argument Ms Wicks makes the point that all of the discussion about the break clause was in the context of its exercise on a sale. Neither Mr Berney, nor anybody else on the Sprint side, sought to suggest that a sale was unnecessary because "the value of the Property" was to be ascertained by a valuation. Indeed it is a striking fact that nowhere in the lengthy correspondence between Sprint and Park, or in the detailed advice given by Park to Sarah Lane, is there ever a mention of "a valuation" or "a valuer", in the context of the break clause.[111]In her closing submissions Ms Wicks referred me to various documents which came into existence after the execution of the Overage Agreements which showed that the parties continued to deal with one another, in communications “crossing the line”, on the basis that the break clause could only be exercised upon a sale. She referred to;[1]Ms Lane’s description in correspondence with Mr Shaw of the way the overage agreements worked:
“the obligation not to invoke the break clause unless the new price is higher than the purchase price is in the overage agreement…”
[2]The exchange between Ms Lane and Mr Slater in April 2008: Ms Lane saying that “the point at which overage arises has never as far as I am concerned been an issue and I have advised my client quite clearly on this – the overage arises when the lease [is] broken” and Mr Slater replying “I am delighted that the point at which overage arises has never been an issue…”[3]Ms Lane’s attempt to introduce into the draft deed of variation a clause requiring the break notice to set out all the information needed to verify the amount of overage paid on the sale of the freehold. Although this provision was never ultimately agreed, it is to be noted that the response from the Sprint side was not that Ms Lane had completely misunderstood the nature of the overage agreements, which required a valuation, rather than a sale, to trigger the break right.[4]The discussion between Mr Slater and Sunil Tandon on or about 11 June 2008, at which Mr Slater raised the prospect that a sale might be otherwise than for development purposes and Ms Lane’s following email to Mr Shaw of 17 June. The discussion between the parties and their solicitors remained about the prospect of a sale, not a valuation, triggering the break right.[5]The conversation between Ms Lane and Mr Slater on 24 June 2008 and recorded in her email of that date to Mr Shaw.[6]The agreement made on 24 June 2008 only to make 3 changes to the overage agreements. This shows that the parties objectively continued to share the common intention on the basis of which they had entered into the overage agreements.[112]In both her skeleton argument and closing submissions Ms Wicks submitted that there was also good subjective evidence that both Park and its solicitors understood that the Break Clause was only operable on a sale. Amongst the matters she identified was advice given on 5February 2008 and 3 April 2008, the June 2008 briefing note and the advice given on the date of completion set out above. Subjective evidence is of value only insofar as it throws light on what the parties are likely to have said in objective communications “crossing the line”.[113]Ms Wicks accordingly submitted that it is objectively clear therefore that right up to the date on which the Deeds of Variation were executed, both parties intended the essence of the deal to be that which had been agreed right at the outset, namely that the Break Clause would only be invoked on a sale for which vacant possession was needed. Mr McGhee’s answer[114]Mr McGhee submits that the reasonable observer would not have concluded that there was any continuing common intention as claimed by Park. He accepts that there are various communications between Sarah Lane and the Tandons which suggest that she had at the forefront of her mind a sale by Sprint with vacant possession so that the exercise of the break clause and payment of overage would happen together.[115]He submits that there are other communications which would indicate in the mind of the reasonable observer that this would not necessarily be the case.[1]He notes that the heads of terms introduce a distinction between value obtained and profit from sale; he submits that two different events are contemplated: the exercise of the break clause which depends on value and the payment of overage which depends on a subsequent sale;[2]He submits that there is nothing in the negotiations for the original overage agreement which indicates that the point was addressed directly in discussions between the parties or their advisers at all; the travelling drafts and the last minute attempt by the landlord to increase the base price by 7% on account of acquisition costs is consistent only with a meeting of minds which occurred only in the terms of the executed overage agreement itself;[3]The discussions post the original deal indicate that despite what Sunil and Balraj Tandon sought to suggest in oral evidence the relationship between the parties was increasingly conducted at arm’s length at least so far as the replacement overage agreement and deed of variation was concerned leading eventually to threats on both sides of court action;[4]Those discussions also indicate an intention on the part of both parties to improve on and amend the terms of the existing overage agreement; including proposals on Park’s part to include a 10% threshold increase in value, a pre-emption right and a provision that the break clause should cease to be exercisable on an assignment by Park;[5]The terms of the overage agreement were something of a bonus for Park; it was not regarded by them as a central part of the deal; they were well aware that the provisions of the overage agreement were onerous, they relied on an informal and non binding assurance that Sprint would not exercise the break for a nominal increase in value although they knew that Sprint could exercise that right even if the value had increased by only £1 or if Sprint sought not to develop but to sell to a rival petrol station operator; they sought to deal with the problem by seeking a pre-emption right but were content to make do with a non-legally binding side letter at the time of the original deal and the attempts (mentioned above) to include a more formal pre-emption right at the time of the deed of variation or a provision to the effect that the break clause ceased on assignment were both rebuffed by Sprint; had it been suggested to them that the landlord should be entitled to break the lease for development without selling it seems the Tandons would have agreed. Discussion[116]In general I again prefer the submissions of Ms Wicks to those of Mr McGhee. I will however deal with the points specifically raised by Mr McGhee:[1]I have to confess I have some difficulty in attaching much weight to the heads of terms. I marginally prefer Ms Wicks’ submission. The use of the phrase “has been obtained” is to my mind a slight indication that it had been obtained by realisation of a higher value.[2]Mr McGhee’s second point, with respect, ignores the oral evidence of Sunil and Balraj Tandon and the matters referred to by Ms Wicks which I have set out above. Both the Tandons struck me as honest witnesses and Mr McGhee does not suggest that I should reject their evidence. It is, as Ms Wicks points out, a striking feature that nowhere in the correspondence that crosses the line is there any reference to a “valuation” or “valuer”. Mr McGhee is correct that there were many matters that were the subject of negotiation but none of the negotiations seem to have related to the question of the operation of the Break Clause trigger. It always was Sarah Lane’s view that the Break Clause was triggered by a sale. She expressed this view both in advice to Park and in correspondence that crossed the line. It is true, as Mr McGhee pointed out, that neither Nigel Berney nor Norman Slater were called to give evidence. However it was open to either side to call either of them. It would not, in my view be right to draw any inferences from the failure to call them.[3]I do not really understand the significance of the assertion that the negotiations were being carried out at arm’s length. In any event, there is no real evidence that Sunil Tandon or Balraj Tandon (as opposed to Sarah Lane) were considering legal action. Furthermore, as pointed out above, there were no negotiations about the Break Clause trigger.[4]I entirely accept that there were negotiations between the parties and that they (and certainly their solicitors) were not in agreement up to 24 June 2008. For reasons set out above accord was reached following the meeting of 24 June 2008.[5]I do not accept that the overage agreement can be characterised as “a bonus for Park”. It was a profit sharing joint venture. It is true that it is possible that the profit might be very low. Equally it might be very high. It was, as Ms Wicks pointed out a commercial arrangement made between two sophisticated operators.[117]In the result I accept Ms Wicks’s submission that it is objectively clear that from the outset up to the date on which the Deeds of Variation were executed both Park and Sprint intended that the Break Clause would only be invoked on a sale for which vacant possession was needed.[118]It follows that if (contrary to my view) the Overage Agreements and the Deeds of Variation do not have that effect Park is entitled to rectification of the Deeds of Variation. 4. Meaning of valuation[119]In the light of my views on construction and rectification it is not necessary to express any view on the meaning of “valuation” and I prefer not to do so. The issue will only arise if I have misconstrued both the Overage Agreements and the Deeds of Variation. In that event it is unlikely that a higher court would derive much assistance from my views as to whether valuation means valuation with vacant possession or includes an investment valuation. It will not save costs as, in the event of an appeal, it is inevitable that the higher court would be asked to express its own view. 5. Expert evidence[120]The expert valuation evidence dealt with 3 topics – the open market value of the 4 sites as at 13 April 2012 on the basis of a sale with vacant possession; the open market value of the 4 sites valued as an investment as at 13 April 2012; and the amount of mesne profits to be awarded to HFI resulting from Park’s occupation after 16 July 2012.[121]It is evident that none of these issues arise on the basis of the conclusions I have reached on the construction and rectification issues. However it is obviously correct that I should express my views on the values so that the parties will know where they are in the event of a successful appeal.[122]Two experts were called; Ms Amanda Barber – a director/partner of Barber Wadlow on behalf of HFI – and Mr David Hunter – a director of Hunter Property Consultants Ltd on behalf of Park.[123]Both experts were well qualified to give expert evidence on valuations of filling stations but both were the subject of criticisms by Counsel for the opposing side.[124]There were three main criticisms of Ms Barber. First it was claimed she lacked the independence necessary to give expert evidence to the Court. This criticism was based on the involvement of her partner – Mr Adam Wadlow. Mr Wadlow is a friend of Mr Barlow the manager of Heracles. Mr Wadlow was involved on behalf of HFI in the acquisition of the four sites; he prepared a valuation for Heracles in relation to the funding received from Santander; he advised HFI in relation to the exercise of the Break Clauses and expressed the opinion in each case that the value exceeded the price. He advised HFI in relation to the marketing of the sites and introduced HFI to Petrogas. Barber Wadlow has received significant payments from HFI.[125]Second Ms Barber was criticised for not visiting the properties prior to her first report. In answer to that criticism Ms Barber made it clear that she had visited the properties some time before her report and in any event knew them quite well. She satisfied herself that she was basing her opinion on correct facts.[126]Finally she was criticised for the difference between the valuations in her report and those in the report sent to Santander on 4 July 2011 prepared by Mr Wadlow after discussion with her. Ms Barber deals with this criticism in section 10 of her report. She regards the July 2011 report as being “of no relevance”. The market conditions in 2012 are different from 2011 – increased competition and values. There was scant trading information available in 2011. This justified a more cautions approach. The evidence of the Petrogas rents was not available in 2011. These factors lead to a significant increase in value.[127]The criticisms of Mr Hunter are more nuanced. Mr Hunter’s approach has been to consider what the “average competent operator” would offer for the property. Despite the apparent similarity between this expression and the expression “reasonable competent operator” in the relevant guidance note, Mr McGhee suggested that this approach has led him into error in that, as he acknowledged, he has excluded as potential bidders those who operate more than one petrol station and thus would be able to obtain better margins and so offer more for the property.[128]Second Mr McGhee criticised Mr Hunter for completely disregarding the Petrogas transactions as a comparable. Finally Mr McGhee criticised Mr Hunter’s view that there had been a sharp decrease in market rent (22% in respect of Knights Hill) between April and October 2012 despite the lack of any external factors. 5.1 Vacant Possession Valuation.[129]It is perhaps useful to start by setting out the rival figures in tabular form. Farnborough Romsey Wimborne Knights Hill The Price 1,088,000 922,000 1,061,000 950,000 Amanda Barber 1,250,000 1,250,000 1,190,000 1,200,000 David Hunter 685,000 805,000 715,000 820,000 Santander 900,000 1,050,000 1,000,000 900,000 HFI’s purchase 1,125,000 1,470,000 1,075,000 1,250,000[130]A number of points can be made about this table:[1]There is a wide difference between the valuers. In every case Ms Barber’s valuation exceeds the Price. In every case Mr Hunter’s valuation is less than the price. In only one case (Romsey) the Santander vacant possession valuation exceeds the Price.[2]As Ms Wicks pointed out HFI purchased subject to Park’s leases and thus the price paid was an investment value rather than a vacant possession value.[131]Both experts are agreed as to the methodology for a vacant possession open market valuation. Both adopted a profits method of valuation. The RICS Information Paper indicates that The valuation is an assessment of the future genuine sustainable trading potential and future maintainable profits that could be achieved by a reasonably competent operator of the business upon which a potential purchaser would, in the opinion of the valuer be likely to assess an offer.[132]In the case of a petrol station the two principal areas of trade are the fuel sales and the shop sales. There are a number of variables involved in each. To calculate the profit on fuel sales the volume of fuel sold has to be multiplied by the fuel margin. To calculate the shop profit the shop sales must be multiplied by the shop margin. Once the profit is achieved the valuer has to estimate the rental share or percentage which it is appropriate for the reasonably efficient operator to pay by way of rent. Finally he has to capitalise that sum by taking an appropriate figure for the yield.[133]I have included at Appendix B a table showing the different assumptions made by the valuers in reaching their valuations. A number of points can be made about these figures:[1]There is a large subjective element in many of the assumptions. Furthermore relatively small differences in the assumptions can result in large differences in the final figure.[2]With one or two exceptions the figures taken by Ms Barber are in excess of all of the fuel sales figures actually achieved by Park over the period between April 2007 and March 2012. Similarly the shop sales figures are significantly higher than those achieved by Park. Conversely the fuel margins taken by Mr Hunter are significantly lower than those achieved by Park.[134]I do not propose to lengthen this (already long) judgment by setting out in detail Ms Barber’s explanations for her optimistic assumptions or Mr Hunter’s pessimistic assumptions.[135]Although I think there may be some force in the criticisms levelled at the experts I do not think it would be right to reject their evidence either on the basis of lack of independence or on the basis that Mr Hunter in some way applied the wrong test. Both experts have produced detailed reports and I have no reason to doubt their integrity. This is an area with a large subjective element and this is shown by the differences between them.[136]My assessment of the values using the same methodology would have been: Farnborough Knights Hill Romsey Wimborne Fuel Sales 3,450,000 3,950,000 3,000,000 3,000,000 Margin ppl 5 4.6 4.5 4.5 Gross Profit 172,500 181,700 135,000 135,000 Bunker 960 140 Shop Sales 400,000 640,000 600,000 377,000 Shop margin 22.5% 19.9% 23.0% 23.0% 90,000 127,360 138,000 86,710 Valeting 21,250 15,045 32,300 34,000 Total Income 284,710 324,245 305,300 255,710 Rental share 27.5% 26.0% 26.5% 26.5% 78,295 84,304 80,905 67,763 Other 3,000 3,000 2,250 2,000 Total Rent 81,295 87,304 83,155 69,763 Yield 8.0% 8.5% 8.0% 8.0% Value 1,016,191 1,027,102 1,039,431 872,039[137]I would make the following comments on the valuations:[1]I have largely taken the actual trading figures of Park for 2011/2012 as the basis for my calculations. This has applied to the fuel sales and shop sales and fuel margin. I regard Park as a reasonably competent operator within the meaning of the definition.[2]I have taken a percentage in between those selected by Ms Barber and Mr Hunter in relation to shop margin, rental share. I have largely adopted Ms Barber’s yields.[3]I have followed Mr Hunter’s methodology in respect of the smaller items though in some cases adjusted the figures to take account of Ms Barber’s views.[4]I have not deducted anything for tank relining[138]I would accordingly have decided that the open market vacant possession value of Romsey and Knights Hill exceeded “The Price” but that the value of Farnborough and Wimborne did not. 5.2 Investment Values[139]It is conceded that on any view the investment value in respect of Knights Hill and Romsey exceeded the Price. Thus the only debate relates to Farnborough and Wimborne. Mr Hunter has carried out a calculation in section 7 of his report which concludes that the value of Farnborough is £1,063,663 and of £994,141 in respect of Wimborne. These figures are, of course marginally less than the Prices of £1,088,000 and £1,061,000 in the Deeds of Variation.[140]However Mr Hunter has used as market rental figures £62,500 in respect of Farnborough and £64,500 in respect of Winborne. As can be seen from my assessment these figures are substantially too low. Furthermore Mr Hunter has not taken into account the prices paid by HFI or the Petrogas leases. I also think that his figures for the yield are on the high side. When I take these factors into account I conclude that the investment values of both Farnborough and Wimborne did exceed the Price on 12th April 2012. 5.3 Mesne Profits[141]During the course of closing submissions there was an interesting discussion as to the correct measure of damages in the event that HFI succeeded in obtaining an order for possession. Mr McGhee submitted that the correct measure of damages was based on the amount recoverable under the Petrogas leases. Ms Wicks made the point that this was not the pleaded basis of the claim. I indicated that I would be minded to grant permission to amend. I had in mind that I had permitted Park to amend at a late stage and the question of the correct measure of damages could be dealt with (if at all) at the adjourned hearing.[142]In the light of my findings none of this arises. In the event of a successful appeal (and a suitable amendment to the pleadings) the matter can be argued at a later date. However I accept that it may be necessary for me to determine the relevant rate of mesne profits so as to avoid any further argument.[143]I would assess mesne profits at the rates specified in the calculation set out in section 5.1 above. I would not make any further deductions for the current reduced level of trading or for the fact that mesne profits are based on a short term tenancy. I am conscious that Petrogas have agreed higher rents and those figures are significantly less than the rent currently passing. That rent was, however, not calculated on the basis set out above. 6. Conclusion HFI’s claim for possession is dismissed. Park’s claim for rectification of the Deeds of Variation in relation to the definition of Sale Costs is allowed. Appendix A HFI FARNBOROUGH LLP & others v. PARK GARAGE GROUP PLC203. TRAVELLING DRAFTS DATE PAGE DRAFT DESCRIPTION SALE COSTS OTHER 11/05/06 E1/16 F2/B1 Draft overage agmt Shaw to Lane No reference to reasonableness 24/05/06 E1/47 F2/B3 Draft overage agmt Shaw to Lane ‘reasonable and proper’ added before ‘legal costs’ As 11/3 08 version save: Added provision for LR registration 24/07/06 E2/122 F2/B4 Draft overage agmt Shaw to Lane As 24/5/06 version As 24/5/06 version save that purchase price increased 7% for acquisition costs 26/07/06 E2/127 Draft overage agmt Shaw to Lane As 24/7/06 version As 24/5/06 version ie. acquisition costs deleted 11/08/06 D1/2 Executed agmt for lease with attached final version overage agmt As 26/7/06 version As 26/6/06 version 11/03/08 E5/242 F2/C1 Draft new overage agmt Shaw to Lane As 11/8/06 version As 11/8/06 version save that: - amended overage trigger as follows: “If Sprint becomes entitled to exercises the Break Clause in respect of the Property(but not otherwise) it shall upon sellingcompleting the first subsequent sale of the Property pay overage (“Overage”) to Park within seven days of such sale being completed…” - added that no overage payable “upon a sale of the Property (or any part thereof) if the Break Clause has not been exercised” - added that no overage payable “in respect of the whole or any part of the Property in respect of which Overage has already been paid such that the Overage is only payable once in respect of the whole or any part of the Property” 18/03/08 E5/253 F2/C2 Draft overage agmt Lane to S Tandon As 11/8/06 version save that ‘other costs’ amended to ‘other reasonable costs’ As 11/3/08 version save that: - amended overage trigger from 11/3/08 version as follows: “If Sprint exercises the Break Clause in respect of whole or part of the Property (but not otherwise) it shall upon completing the first subsequent sale ofa disposal or of creation of an overriding leasehold interest of the whole or part of the Property in respect of which the break clause has been invoked pay overage (“Overage”) to Park within seven days of such sale disposal or lease being completed …” - amended formula so as to apportion original price on sales of part - replaced 11/3/08 provision re payment of overage once only to read as follows: “Overage shall only be payable once in respect of the whole or any part of the Property however a payment of Overage in respect of part of the Property shall only release that part of the Property from the provisions of the Replacement Agreement and the remainder of the Property shall continue to be subject to Overage under this Replacement Agreement” - amended registration provision 20/03/08 E5/260 F2/C5 Draft overage agmt Lane to Shaw As 18/3/08 version As 18/3/08 save for further amendment to registration provision 27/03/08 E5/270 F2/C4 Draft overage agmt Lane to Shaw As 20/3/08 version As 20/3/08 version save that: - amended overage trigger from 20/3/08 version as follows: “If Sprint exercises the Break Clause in respect of whole or part of the Property (but not otherwise) it shall upon completing a disposal of or creation of anyoverriding leasehold interest which intervenes between Sprint’s freehold interest and Park’s leasehold interest overof the whole or part of the Property in respect of which the break clause has been invoked pay overage (“Overage”) to Park within seven days of such disposal or lease being completed …” - added square brackets to formula 28/03/08 E5/275 F2/D1 Draft deed of variation Shaw to Lane As 11/5/06 version (ie. no reference to reasonableness) save that: - added “preparing, submitting and obtaining planning permission” - added extensive further list of costs As 27/3/08 version save that: - added ‘on the date the Break Clause is exercised’ after ‘the value of the Premises’ in break trigger - amended overage trigger from 27/3/08 version as follows: “If the Landlord exercises the Break Clause (but not otherwise) then (subject to clauses 8.3 and 8.5 below) it shall upon completing a disposal of or creation of any leasehold interest which intervenes between Sprint’s freehold interest and Park’s leasehold interest oversale of the whole of part of the Property in respect of which the break clause has been invoked pay overage (“Overage”) to Park within seven days of such disposal or lease being completed …” - amended formula to take account of previous overage paid on earlier sales of part - added new definition of ‘New Price’ to mean sale price of whole or part 10/04/08 E5/308 F2/C6 Draft overage agmt Shaw to Lane As 11/05/06 version (ie no reference to reasonableness) As 28/3/08 version save that: - break trigger as 28/3/08 version amended as follows: “The LandlordThe Parties hereby agree that Sprint will not invoke the break clause referred to in clause 8.1 above “the Break Clause”)in the Lease unless the value of the PremisesPropertyon the date the Break Clause is exercised exceeds the Price (as defined below)of that Property.” - overage trigger as 28/3/08 version amended as follows: “If the LandlordSprint exercises the Break Clause (but not otherwise) it shall upon completing a sale of the whole or part of selling the Property pay overage (“Overage”) to Park within seven days of such disposal being completed …” - formula amended to remove references to sales of part - provision that “overage shall only be payable once in respect of the Property” amended to remove references to sales of part 15/04/08 E5/319 F2/D2 Draft deed of variation Lane to Shaw As 28/3/08 version save that - extensive list of further costs deleted (but words “preparing, submitting and obtaining planning permission” remain) - also deleted “to develop the Premises” from 11/8/06 version As per 28/3/08 version save as follows: - added provision for details of sale to be provided on serving break notice - amended overage trigger from 28/3/08 version as follows: “If the Landlord exercises the Break Clause (but not otherwise) it shall upon selling the Premisesthen (subject to clause 8.4 3 and 8.6 5 below) it shall upon completing a sale of the whole or part of the Premises pay overage (“Overage”) to the Tenant within seven days of such disposalsale being completed …” - reference to sales of part deleted from formula and from provision that overage payable only once (as per 10/4/08 version) 17/06/08 E6/374 F2/D6 Draft deed of variation Lane to Shaw As 15/4/08 version save ‘other costs’ amended to ‘reasonable and proper costs’ As 15/4/08 version save: - amended break clause trigger to add pre-condition of 10% increase in value - added obligation to L on sale to provide T with copy TR1 to tenant as proof of sale price - added new provision re sale of part: “… If the Break Clause is exercised and the Landlord sells only a part of the Property then the Tenant shall be entitled to a further Overage on the balance of the property until the whole of the Property is sold” - added tenant pre-emption right when L wishes to make a disposal 24/06/08 E6/376 E6/376 Draft deed of variation Lane to Shaw As 17/6/08 version As 17/6/08 save - pre-condition of 10% increase in value deleted - provision that overage payable only once deleted 25/06/08 E6/377 F2/D7 Draft deed of variation Shaw to Lane As 15/4/08 version As 28/3/08 version save that - overage trigger as 28/3/08 version save “If the Landlord exerciseshas exercised the Break Clause (but not otherwise) then (subject to clause 8.3 4 and 8.5 6 below) it shall upon completing a sale of the whole or part of the Premises pay overage …” - formula as 15/4/08 version 26/06/08 E6/383 F2/D8 Draft deed of variation Lane to Shaw As 25/6/08 version As 25/6/08 version save for amendment to registration provision 11/07/08 D2/3 Executed deeds of variation As 26/6/08 version As 26/6/08 version Appendix B204. Schedule showing differences in the variables taken by the experts in the vacant possession valuation Property Fuel Sales Margin Bunker Sales Shop Sales Shop Margin ATM Rent Valet Sales Rental Share Yield Other Income Tank end allowance ppl £ £ £ £ Farnborough Hill Ms Barber 3,500,000 5.25 510,000 23% 3,000 26,000 30% 8% 300 Mr Hunter 3,450,000 3.75 120,000 400,000 22% 2,500 25,000 25% 8.75% 250 30,000 Knights Hill Ms Barber 4,000,000 5.5 700,000 18% 2,025 18,000 27% 8.5% 1,250 Mr Hunter 3,950,000 3.5 17,500 640,000 22% 2,500 17,700 25% 9% 500 30,000 Romsey Ms Barber 3,500,000 4.5 700,000 22% 2,100 45,000 28% 8% Mr Hunter 2,750,000 4 600,000 23% 2,500 38,000 25% 8.75% 25,000 Wimborne Ms Barber 3,200,000 4.5 550,000 23% 1,400 42,000 28% 8% 7,500 Mr Hunter 2,950,000 4.5 50,000 370,000 23% 40,000 25% 8.75% 1,733 25,000