Sale of land – Leasehold property – Rescission of contract – Claimant agreeing to purchase property – Contract incorporating standard conditions of sale – Claimant seeking landlord’s consent to assignment of lease – Claimant subsequently serving notice of rescission – Whether claimant entitled to rescind contract – Whether defendants entitled to specific performance – Claim dismissed – Counter-claim allowed
The defendants were the personal representatives of S, who, at the date of her death, was the registered proprietor of a property held under a lease dated 30 June 1997. The lease included a covenant not to assign, transfer, underlet or part with possession of the demised premises without the landlord’s consent, which was not to be unreasonably withheld.
By a contract dated 15 January 2008, the claimant property development company agreed to purchase the property from the defendants. The contract provided for a completion date of 13 March 2008, or earlier by agreement, and incorporated the standard conditions of sale (4th ed).
Condition 8.3.1 provided that if a consent to assign was required to complete the contract, then, under condition 8.3.2, the seller was to apply for such consent at its own expense and use all reasonable efforts to obtain it. By condition 8.3.2(b), the buyer was obliged to provide all information and references reasonably required. In the absence of any breach of obligation under condition 8.3.2, condition 8.3.3 stipulated that either party could rescind the contract on giving notice to the other if, three working days before completion, consent had not been given or had been given subject to a condition to which a party could reasonably object. The claimant served a notice of rescission on the defendants on 19 May 2008.
The claimant sought the return of the deposit that it had paid on exchange of contracts. The defendants counter-claimed for specific performance of the sale agreement and sought summary judgment.
Held: The claim was dismissed; the counter-claim for summary judgment was allowed.
The claimant had no right to rescind the contract in reliance upon condition 8.3.3, in the light of the way in which it had conducted itself from the date on which the right to rescind arose.
The claimant had not, either in the three-day period leading up to the contractual completion date or within a reasonable time thereafter, purported to exercise the right of rescission and had allowed the defendants to continue working towards completion. It had therefore lost the right to rescind.
The specific objective of condition 8.3.3 was to allow the parties to a sale agreement to assess their respective positions in circumstances where the landlord’s consent had not been obtained at a specific point in time just before the contractual completion date. This enabled them to decide whether they wanted to continue with the agreement once it had become clear that it might be a difficult to obtain such consent. The provision allowed a degree of uncertainty as to how a stranger to the contract (the landlord) might act, which if it was not resolved in the immediate lead up to the contractual completion date, had to be brought to a head by either party opting to treat the contract as having been rescinded. The provision allowed the parties to anticipate the possible non-fulfilment by the contractual completion date of a condition upon which they contemplated their agreement depended. It enabled them to achieve certainty at a particular defined juncture, given by reference to the third working day before the contractual completion date: Aubergine Enterprises Ltd v Lakewood International Ltd [2002] EWCA Civ 177; [2002] 1 WLR 2149 considered.
It was clear that neither the draftsman of the standard conditions nor the parties had intended that the effect of a right to rescind, under standard condition 8.3.3, should continue indefinitely after the contractual completion date, so as to provide each party with the potential to terminate the agreement without warning (no matter how much time, effort and expense the other side might have put into working for the proper completion of the agreement after the contractual completion date had passed, and no matter how near it was to achieving completion).
If the right of rescission under condition 8.3.3 was not exercised, by the contractual completion date or soon thereafter, both parties must be taken to have decided that they wished to proceed with the original allocation of risk set out in their agreement.
Furthermore, the claimant’s actions had given a clear and unequivocal indication after the contractual completion date that it had regarded the contract as being on foot, was seeking to rely upon it and thereby affirmed it.
Edward Francis (instructed by Vizards Tweedie) appeared for the claimant; Martin Hutchings (instructed by Iliffes Booth Bennett, of Uxbridge) appeared for the defendants.
Eileen O’Grady, barrister
