What Happens When A Building Is Built To The Wrong Size? Confirmation From The Court Of Appeal

Earlier this year, we blogged on the High Court decision of Mears Limited v Costplan Services. This case concerned whether an agreement for lease for the development of two blocks of student accommodation could be terminated by the intended tenant, Mears, because a number of rooms had been built outside the agreed size tolerances.

The agreement for lease ("AFL") stated that the landlord, Plymouth, could not vary the development so as to materially affect the size of any "distinct area" of the development. The parties had agreed in the AFL that a reduction in size of more than 3 per cent of any distinct area would be deemed to be material.

Unfortunately, when the building was built, 56 rooms within the blocks were in excess of 3 per cent smaller than set out in the original plans.

Mears sought a number of declarations from the High Court including that any breach of the agreed tolerances was a "material and substantial breach" of the AFL entitling Mears to terminate the AFL. However, the High Court disagreed concluding that a material variance in size of a distinct area of the development did not necessarily mean that there had been a material and substantial breach of contract allowing Mears to terminate.

Mears appealed to the Court of Appeal. In dismissing the appeal, the Court of Appeal concluded that:

although the reduction of more than 3% in the size of any room was to be deemed a material reduction in size, this didn't mean the resulting breach of contract itself was "material"; and the 56 separate failures to achieve the 3 per cent tolerance amounted to 56 separate breaches of contract; however, "whether or not those breaches, either singularly or taken together, were material or substantial such as to justify rescission, is a matter of fact and degree, not a matter of construction of the AFL". The Court of Appeal did point out that "the parties to contracts of this sort are entitled...