Rectification Not Possible Where Document Not Created.

Rectification is the term used when a ruling is made in order to 'put right' an agreement when this contains an error. In practice, such rulings are quite difficult to obtain, the courts generally preferring to enforce agreements as they are, not as one of the parties to the executed agreement thinks they should be.

In a recent case in point, the purchaser of a freehold office building went to court to obtain rectification of the agreement for sale. Part of the purchase documentation was dealt with by side letters, because the purchaser did not want its main lender to know that it had an outstanding loan from the vendor's holding company. The purchaser had previously been the tenant of the vendor and the draft sale documentation contained a number of clauses, one of which stipulated that in the event of the resale of the building at a profit by the purchaser, or if the vendor obtained planning permission for residential development of the building, the purchaser would pay the vendor fifty per cent of the uplift in value. The uplift payment was also agreed, in negotiation, to be subject to abatement if the purchaser paid arrears of rent and settled a legal charge owed to the vendor's parent company within five years of the sale.

In the draft agreement, however, the abatement of the uplift charge was stated to apply if the purchaser made the requisite payment before planning permission was applied for by the vendor. A further letter altered this to provide that the abatement of the uplift was to apply if the payment of the outstanding sum was made within six months of the agreement being executed. However, no side letters were ever executed to give this legal effect.

In the event, no abatement of uplift clause was contained in the final agreement. The purchaser went to court to have the agreement rectified, claiming the omission of the abatement clause was a trick.

In this case, the court had to look carefully at the paper trail and try to understand the motives of the parties to the contract. The uplift abatement clause was initially found in the draft sale agreement but was removed from that at the purchaser's request. The purchaser wished the clause to be inserted into the side letter. The removal of the clause was clear and had been properly communicated to the purchaser. Accordingly, ruled the court, the sale agreement was not subject to rectification, there being no intention that the abatement clause should have been contained in it.

This case appears to have arisen simply because the purchaser failed to ensure that the necessary side letters were put in place before the agreement for purchase was executed. In transactions of this type, taking care to make sure all the details have been agreed and appropriate documentation executed is especially important. Since the side letter never came into existence, the sale agreement could not be rectified and the purchaser was left with no remedy.

Telephone: +44 (0) 1753 486 777 (Slough Office)
Telephone: +44 (0) 1189 596031 (Reading Office)