Building blocks

The High Court has clarified the principles governing the construction of documents, confirming that the test is entirely objective. It is the background knowledge of the “reasonable observer” which is taken into account, not that of the actual parties. He may be aware of something that the parties are not, including an established legal principle.

In Spencer v Secretary of State for Defence [2012] All ER (D) 120 (Feb), a landlord and tenant entered into a memorandum purportedly adding some land to the existing demise of an agricultural tenancy and recording a corresponding increase in rent. Between agreeing the addition and executing the memorandum, the parties had also embarked on an arbitration to determine the rent under the lease (an increase was determined four years later). Neither the landlord, nor the tenant, realised that the effect of the memorandum was a surrender and re-grant of the original lease.

The tenant accepted that the reviewed rent applied