First Principles of Business Law

2.1. Interpreting the terms of a contract

2.4. Taking account of commercial realism

On the same facts again, consider a third argument raised by B.

A, an architect, leases office space in B's building for three years. One clause in the lease says: '"At any time during the lease, B will, at his own cost, carry out any interior alterations that are reasonably necessary for the conduct of A's business'. Another clause gives either party the right to terminate the lease by giving six months notice. After a year, A gives B notice that he is terminating the lease in six months time. A also asks B to install extra office partitions in the leased offices because he has now employed more staff.

B argues that to require alterations when the lease has only six months to go is commercially unrealistic. He says the contract should be interpreted to mean that no alterations can be requested in the last six months of a lease. Is a court likely to interpret the contract in this way?

(a) If there is any ambiguity as to the meaning of contractual terms, the courts may choose to interpret the terms in a way that is commercially realistic. Otherwise, the courts will enforce the agreed terms.

(b) Whether or not there is any ambiguity as to the meaning of agreed terms, the courts may choose to interpret contractual terms in a way that is commercially realistic.