The requirement to pay a deposit under a contract for sale of land, including the time of payment, is ordinarily a condition of the contract and time is of the essence of the date for payment.
The High Court has considered this issue in IAA Vehicle Services Ltd v HBC Ltd [2024] EWHC 1 (Ch).
The case concerned the exercise of options in three leases of commercial premises, protected by the Landlord and Tenant Act 1954, at Bilsthorpe, Canvey Island and Billingham each for 10 years from 14 June 2013. The options were to purchase the defendant’s reversionary interest in each of the premises and exercisable for the purchase prices of £1.6m, £210k and £2.1m respectively.
Option notices were served on 7 June 2023 but deposits were not paid. The questions for the court were: 1) Was the claimant obliged to pay the 10% deposits on or before the date of exercise of the options?; 2) Did non-payment of the deposits constitute a repudiation of the purchase contracts?; and 3) Was the defendant entitled to treat the contracts as discharged?
It was agreed that the claimant had fulfilled the lease pre-conditions for serving option notices and that binding contracts for the sale and purchase of the freehold interests had arisen. The contracts incorporated the standard commercial property conditions of sale (2nd Edition), which required completion 90 days after expiry of the tenant’s notice and for the tenant to pay deposits of 10% of the purchase price “no later than the date of the contract”, by direct transfer of cleared funds to an account nominated by the seller’s conveyancer.
The contracts came into existence upon valid exercise of the option and the deposits were payable at that time. The contracts were not dependent on the nomination of a bank account to receive them, as the claimant argued. It was the claimant’s responsibility to obtain the necessary payment details to enable it to perform its obligations.
Ordinarily, failure to pay a deposit under a contract for the sale of land is a repudiatory breach of contract entitling the seller to terminate it Samarenko v Dawn Hill House Ltd [2011] EWCA Civ 1445.
However, this was not an ordinary case. First, these were not contracts for the sale and purchase of land but the exercise of options to purchase the landlord’s reversionary interest contained in leases protected by the 1954 Act. Second, on the true interpretation of the option provisions time was not of the essence for paying the deposits. The three options were validly exercised and binding on the defendant.
Louise Clark is a property law consultant and mediator
