Option to purchase land – Contractual mechanism for determination of option price by expert – Appropriate valuation date – Claimant contending for date of expert’s determination – Whether that date or earlier date on which notice to appoint expert given – Claim allowed
An agreement of March 1998 provided the claimant with an option to purchase land from the defendants in the event that planning permission was granted for its development. A notice served pursuant to that agreement triggered the contractual mechanism for determining the option price, which was to be either 75% of the open market value or a particular multiple of the agricultural value, whichever was the greater. The terms of the agreement imposed no obligation to sell or buy at any particular price, or by reference to any particular date, until the price was so ascertained.
The parties failed to agree the option price within the 60-day period specified by the agreement, thereby activating a provision for it to be determined by an experienced member of the RICS, acting in the capacity of an expert or, if he refused so to act, as an arbitrator. The agreement provided for the expert to make his determination on the written representations of the parties within three months from the date of his appointment, save where extensions of time were granted for any representations in reply. Notice requiring the appointment of an expert was given under that provision in April 2008; the chosen RICS member proceeded to act in the capacity of an arbitrator. The process of determination was subject to various delays. Meanwhile, the property market fell.
The claimant sought a declaration as to the appropriate valuation date for determining the option price. It contended for the date of the arbitrator’s determination, arguing that since a contract of sale could not come into being until the price was ascertained, the option price should be that which applied at the closest practicable date to any exercise of the option and resulting contract of sale. The defendants contended that the proper date was April 2008, as the date of the notice requiring the appointment of an expert. They argued that this provided a fixed and certain date, preventing either party from manipulating the dispute resolution process so as to cause a delay that was advantageous to one or the other and avoiding the problem of written submissions being out of date as soon as they were submitted.
Held: The claim was allowed.
Although the relevant contractual clause was silent as to the valuation date, the valuer was asked to determine both the open market and the agricultural value of the land for an option that could be exercised only once those values had been determined. It would be more natural for the parties to have in mind the market value at that time, not a retrospective valuation, and the agreement did not indicate that a retrospective valuation was intended. The person appointed was required to have certain qualifications and was expected to bring his own expertise and experience to the process of determining the relevant values. It would be expected that such an expert could bring his expertise to bear on the situation relatively speedily. Moreover, the contractual timetable for making the determination applied whether the valuer was acting as an expert or an arbitrator. Although a delay could potentially arise because the arbitrator had the power to authorise an extension of time under section 34(3) of the Arbitration Act 1996, which was what had occurred in the instant case, the parties would not at the time of the 1998 agreement have contemplated that eventuality as being likely to occur; the appointment of someone with the relevant expertise, acting subject to a timetable, indicated that the parties had not anticipated such a delay.
Moreover, some assistance could be derived from the analogy of a compulsory purchase, where the price was fixed by reference to the date on which the land was taken. That was the correct approach to an option to purchase land. The option would not be exercised, and no specifically enforceable contract of sale would come into being, until the option price was determined. The intention to be attributed to the parties that the valuation date would be as close to the exercise date as practicable; the closest available date was that of the expert’s determination: Birmingham Corporation v West Midlands Baptist (Trust) Association Inc [1970] AC 874 applied.
Further, there was nothing in the defendants’ point regarding the difficulties of dealing with out-of-date submissions, given that the expert or arbitrator had a particular expertise that the parties were expecting him to bring to bear on his considering the evidence and its application down to the date of his award. In any event, if he thought it likely that values had changed materially, he would be able to hear further evidence on the matter: W&S (Long Eaton) Ltd v Derbyshire County Council (1976) 31 P&CR 99 applied.
John Randall QC and Patrick Darby (instructed by The Wood Glaister Partnership) appeared for the claimant; John Male QC and Katharine Holland (instructed by Hardwick Legal) appeared for the defendants.
Sally Dobson, barrister
