Supreme Court emphasises importance of both text and context in the proper interpretation of property documentation

The Supreme Court, in Stapleyside Company v Carraig Donn Retail Limited [2015] IESC 60, re-emphasised the importance of both text and context in the proper interpretation of commercial and property documents. 

Clarke J. (MacMenamin J. and Laffoy J. concurring) held that a term in an agreement that the landlord "have an option to take surrender of the Unit 25X lease subject to 90 days' notice" could only be interpreted as meaning that the landlord could serve a notice placing a legal obligation on the tenant to surrender the lease at the expiry of 90 days. It could not be interpreted as meaning that the landlord could terminate the lease on 90 days' notice.  As the tenant did not surrender, and the landlord had abandoned any claim for specific performance of the Agreement, thus abandoning any claim for an order requiring the tenant to surrender, the Supreme Court found that the Lease remained in existence.

The Facts
The tenant entered into a 25 year lease with the landlord for a retail unit at a shopping centre, which commenced on 7 September 2001. The initial rent was IR £120,000, subject to a rent review every five years. On that basis, on 7 September 2006, a rent review was conducted with the annual rent being set at €309,500. In early 2009, due to financial difficulties, the tenant sought a rent reduction. In May 2009, the landlord offered a reduction of 67% for 2009, subject to a term that it would "have an option to take surrender of the Unit 25X lease subject to 90 days' notice". The tenant accepted.  In November 2009, the landlord issued a notice to the tenant purporting to terminate the lease, with 90 days' notice.

The tenant claimed that the effect of the notice was that the lease was terminated by the landlord, but that it was entitled to apply to the Circuit Court for the grant of a new lease, pursuant to the Landlord and Tenant (Amendment) Act 1980 (the 1980 Act). On the other hand, the landlord claimed that it was entitled to an order of specific performance requiring the tenant to surrender the lease in question. However, when the case came to hearing, the landlord amended its claim and simply argued that the original lease continued in existence.

The tenant succeeded at the High Court.  The trial judge held that term in the 2009 Agreement could not be interpreted as providing the landlord with any legal entitlement to terminate the tenancy. However, he found that the tenant had accepted that the notice had terminated the Lease, and that the combination of the service of the notice and its acceptance by the tenant brought the Lease to an end.   The trial judge therefore held that the tenant could apply to the Circuit Court for a new lease under the 1980. Without prejudice to the appeal brought by the landlord to the Supreme Court, the Circuit Court fixed the terms of a new lease at an annual rent of €230,000.

In its appeal to the Supreme Court, the landlord argued that the High Court had incorrectly concluded that the lease was terminated, and that the original lease remained in effect. 

Whilst it was common case between the parties that the tenant was entitled to continue to occupy the relevant premises, the Lease under which that entitlement arose was subject to dispute, and the rent payable was also disputed.  If the tenant was right, the rent payable was €230,000 per annum (on the basis of the Circuit Court order), whilst if the landlord was correct, the rent payable was the sum of €309,500 (as a result of the original lease and the 2006 review).

The Decision
The Supreme Court held that the text of the 2009 Agreement must be interpreted within the context in which it was agreed. Clarke J. stated "the parties, for better or worse, used the term "surrender"…The only workable meaning of the language used is that the intention of the parties was that the landlord (by serving the relevant notice) placed on the lessee an obligation to surrender at the end of 90 days."

The proper construction of the 2009 Agreement was that it entitled the landlord to serve a notice to surrender which would require the tenant to surrender the Lease on the expiry of 90 days. As the landlord did not serve notice to surrender, and as the tenant did not surrender the lease, the question for the court was whether the notice could give rise to a termination of the Lease outside the scope of the 2009 Agreement. The Court was not persuaded that the notice could be said to have that legal effect even if accepted by the tenant. The Court held that the landlord had no right to terminate by a simple service of notice. Therefore the original Lease remained in existence. The Circuit Court application was not valid, and the rent remained at €309,500 as fixed on the last review.

Clarke J stated: "a court is required to do the best it can with the language used by the parties (the text) to be construed in the light of all of the circumstances in which the agreement was entered into (the context). But it is important to acknowledge that both text and context are relevant in the proper interpretation of commercial documents. Those principles of interpretation (the "text in context" method) apply to no lesser extent in the field of property documentation. To ignore context is to ignore the well accepted fact that words used in agreements would be seen by any reasonable person having knowledge of the surrounding circumstances as being potentially affected as to their meaning by the context in which the agreement was entered into in the first place. But equally, the text must be given all appropriate weight, for it is in the terms of that text that the parties have settled on their arrangement."

Comment
This decision serves as a useful reminder of the court's approach to interpretation of commercial and property documents.  It is well-established that the provisions of an agreement have to be interpreted objectively in accordance with the meaning of the words that the parties have used. (Marlan Holmes Ltd v Wash & Anor [2012] IESC 23).  The court will focus on the meaning of relevant words in their documentary, factual and commercial context. 

For further information please contact Davinia Brennan at dbrennan@algoodbody.com

Date Published: 21 July 2015