A right of pre-emption gives the grantee the right to be first in the queue if a landowner decides to dispose of his land. A pre-emption agreement differs from an option because the grantee of a right of pre-emption cannot compel the landowner to sell his land. He must wait until the landowner decides to dispose of it – and this may never happen.
Consequently, the agreement creates a “mere hope”, which the landowner can frustrate or fulfil. However, if the landowner were to decide to dispose of the land, he must then offer it to the grantee. The grantee can then choose whether to accept the offer, or to decline it and walk away.
Following the enactment of the Perpetuities and Accumulations Act 2009, landowners can grant options and pre-emptions that will subsist for as long as the parties choose. However, the law relating to transactions that were entered into before 6 April 2010 still stands. Consequently, the rules laid down in the Perpetuities and Accumulations Act 1964 apply to instruments made between 16 July 1964 and 5 April 2010, and the common law rules still apply to instruments that pre-date 16 July 1964.
Taylor v Couch [2012] EWHC 1213 (Ch) raises a novel and interesting question of law involving the application of the rule against perpetuities to a pre-emption right that was granted while the Perpetuities and Accumulations Act 1964 was still in force.
It answers a question that has puzzled practitioners for years. Do the provisions in section 9(2), which restrict the life of an option to 21 years from the date of the grant of the option, limit the lifetime of pre-emption rights as well?
Section 9(2) includes a proviso that preserves pre-emption rights conferred on public or local authorities in respect of land used for religious purposes where the right of pre-emption becomes exercisable if the land ceases to be used for such purposes. The existence of the proviso suggests that parliament intended to restrict the lives of both option and pre-emption agreements – but the legislation is unclear.
The high court decided that the words used in the statute suggested that the draftsman regarded a right of pre-emption as a species, or sub-class, of an option. If this were not the case, the proviso in section 9(2) would make no sense at all. Consequently, the rule against perpetuities enacted in 1964 applies to both options and pre-emptions made between 16 July 1964 and 5 April 2010.
The judge dismissed the suggestion that the perpetuity period did not start running until the landowner had taken a positive decision to sell the land (which transforms the rights granted from a mere hope into a right to call for a transfer of the land). The judge refused to accept that the 21-year period ran from a point in time that might be difficult to determine. The 1964 Act sought to achieve clarity.
Consequently, the only sensible way of measuring the 21-year period was from the date on which the pre-emption right was granted. Therefore, subject to the outcome of any appeal, the rights that the grantee was claiming were void for perpetuity, having been granted more than 21 years previously.
Allyson Colby
Property law consultant
