Land – Option to develop – Dispute arising regarding beginning of option period – Whether option period expiring as asserted by claimant – Whether defendant establishing estoppel by convention in defence to assertion of commencement of option period – Claim allowed
The claimant commission, which was the national regeneration agency of England, owned a large area of land that was subject to a regeneration scheme. On 30 May 2001, the claimant entered into an agreement with the defendant developer, granting the defendant an option to develop two parcels of that land for general business use, within class B1 of the Use Classes Order 1987, to construct an office development, a research and development facility, or a high-tech manufacturing facility together with ancillary car parking and associated facilities. The defendant was then to take a lease of the land in question for a price to be agreed or determined in default of agreement by a third-party expert, together with an overage payment.
The option was for three years, but it could not be exercised until the defendant had submitted to the claimant its plans in respect of the building works and the claimant had approved them, obtained outline consent for the development and carried out certain associated works. The option period was to commence on the date upon which the claimant notified the defendant that those conditions had been fulfilled or the date upon which notice ought to have been served, if earlier (the commencement date alternative).
On 5 October 2004, the claimant wrote to the defendant, informing it that the requisite conditions had been satisfied so that the commencement of the option period was triggered. The defendant took the view that, since the claimant did not serve formal notice until 28 March 2007, stating in terms that the 2004 letter was to be treated as the claimant’s notice, the option period had commenced on that later date. The claimant was therefore estopped by convention from asserting that the option period had started earlier.
The claimant applied to the court for a ruling to the effect that the option period had expired so that it was too late for the defendant to exercise it.
Held: The claim was allowed.
On the proper construction of the agreement, the option period was the period of three years from the date upon which the defendant received the claimant’s letter of 5 October 2004, fairly read against the background of what the defendant already knew, notwithstanding that the defendant might not actually have understood that the option period had commenced.
The claimant’s failure to serve a formal notice until 2007 could not, by itself, prevent the option period from running if, as here, the conditions for its commencement (under the commencement date alternative) had been satisfied. It was inherent in the definition of “option period” in the agreement that such a state of affairs might occur.
If the parties to a contract had put a particular interpretation on its terms, on the face of which each of them to the knowledge of the other had acted and conducted their mutual affairs, they were bound by that interpretation just as if the contract had been varied in writing. It was unnecessary to enquire whether their particular interpretation was correct or whether they were mistaken or had in mind the original terms. It was sufficient that they had, by their actions, put their own interpretation on the contract and they could not be allowed to go back on it: Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank Ltd [1982] QB 84 considered.
On the facts of the present case, the defendant had failed to establish an estoppel in defence of the claimant’s reliance on its letter of 2004 as marking the commencement of the option period.
Nicholas Dowding QC (instructed by Eversheds LLP) appeared for the claimant; Christopher Pymont QC (instructed by Clyde & Co LLP, of Guildford) appeared for the defendant.
Eileen O’Grady, barrister
