The litigation in Alchemy Estates Ltd v Astor [2008] EWHC 2675 Ch; [2008] PLSCS 300 was the direct result of falling property prices in the current recession. The litigation was triggered by a buyer’s attempt to take advantage of a delay in obtaining a licence to assign a lease, by renegotiating the price for the property.
The parties’ contract incorporated the Law Society’s standard conditions of sale (4th ed) (SCS), which were designed primarily for use in residential transactions. The SCS enable either party to rescind on giving notice to the other if, three working days before completion, or before a later date on which the parties have agreed to complete the contract, the landlord has not yet consented to the assignment.
The buyer sought to rescind the contract, ostensibly because the seller had failed to obtain a licence to assign before the buyer’s notice of rescission was served. However, the buyer’s notice of rescission was accompanied by an offer to complete, on production of a licence to assign, at a much lower price.
The contractual completion date was 13 March 2008, but the buyer did not attempt to rescind until 19 May 2008. That delay was to prove fatal to the buyer’s right to rescind. The High Court ruled that the buyer should have exercised its right to rescind promptly (either before the contractual completion date, or possibly, within a day or two thereafter). Instead, the buyer had allowed the contract to stand and had encouraged the seller to continue working towards completion. Consequently, the buyer lost the right to rescind.
The judge decided that the SCS were drafted with a specific object in mind. The right to rescind had been included to allow the parties to review their positions if the landlord’s consent had not been obtained at a specific point in time shortly before the contractual completion date. The parties could then decide whether to extend their agreement. The provision did not confer a right to rescind that continued indefinitely after the contractual completion date, enabling either party to terminate the agreement with no warning at all.
Consequently, parties who adopt the SCS should fix another completion date if the landlord has not consented to the assignment by the contractual completion date. Alternatively, if they fail to fix another date, but allow the contract to remain in force, it seems that a party wishing to withdraw must first serve a notice making time of the essence, and must allow that notice to expire, before serving a notice to rescind.
The standard commercial property conditions (2nd ed) (SCPC) were designed for commercial property transactions. If any requisite consent has not been obtained by the contractual completion date, the SCPC postpone the date for completion for up to four months, to enable such consent to be obtained. Both parties will then be free to rescind. This case highlights the important differences between the conditions for sale in relation to contracts for the assignment of leases.
Allyson Colby is a property law consultant
