Property – Option agreement – Specific performance – Claimant seeking specific performance of option agreement when defendants failed to complete sale – Whether arrangements between parties constituting unfair relationship – Claim dismissed
The defendants were the registered owners of the freehold property at 98 New Cut Lane, Southport, comprising a house and surrounding land with development value. The house was valued at £385,000 but, together with the land and planning consent for 26-28 new homes, its value was between £1,500,000 and £1,835,000.
By an agreement dated 9 September 2015, the defendants granted an option to the claimant to acquire the property. The option agreement was part of a suite of written documents between the parties which comprised a facility agreement for the payment of £123,215 to be repaid within 36 calendar months, a legal charge over the property, an option agreement granting the claimant an option to acquire the property, in return for payment of all sums due under the facility agreement and legal charge, and a buy-back agreement which largely mirrored the option agreement.
In October 2015, the claimant exercised the option within the first year of the option period. In November 2017, the claimant sought specific performance of the option agreement and/or an order that the defendants be compelled to execute a transfer in Land Registry Form TR1 to give effect to the option.
The claimant argued that, notwithstanding the exercise of the option, the defendants had failed to complete the sale and sought specific performance of the defendants’ obligations to enable the completion of the disposition of the property by registration of the transfer.
The defendants argued that the various agreements and deeds were not enforceable because there had been no discussion about an option to purchase and they had signed the documents in blank, on trust and under pressure, in order to stop the property being repossessed.
Held: The claim was dismissed.
(1) Section 19 of the Financial Services & Markets Act 2000 contained the general prohibition that no person might carry on a regulated activity in the United Kingdom, or purport to do so, unless he was an authorised person or an exempt person. Section 22 set out the meaning of “regulated activity” as including an activity of a specified kind which was carried on by way of business and related to an investment of a specified kind.
Article 60D(1) of the Financial Services & Markets Act 2000 (Regulated Activities) Order 2001 (the RAO) provided that a credit agreement was an exempt agreement if, at the time it was entered into, any sums due under it were secured by a legal or equitable mortgage on land and the condition in paragraph (2) was satisfied: that condition was that less than 40% of the land was used, or was intended to be used, as or in connection with a dwelling by the borrower or a related person of the borrower (paragraph (2)(a)).
(2) In the present case, the court was satisfied that the facility agreement and legal charge was a regulated mortgage contract for the purpose of the 2000 Act, as defined by article 61 of the RAO; and that it was not exempt because more than 40% of the property was being used “as or in connection with a dwelling”.
Further, on the evidence, the claimant did not enter into the arrangements with the defendants “by way of business” for the purposes of the general prohibition under sections 19 and 22 of the 2000 Act. The claimant was in the business of buying and selling property but he was not in the business of providing secured lending. Accordingly, although this was a regulated mortgage contract, it did not offend the general prohibition.
(3) In determining whether there was an unfair relationship within section 140A of the Consumer Credit Act 1974, the court was required to consider: whether any of the terms of the agreement or any related agreement were unfair; whether the way in which the creditor had exercised or enforced any of his rights under the agreement or any related agreement was unfair; and whether any other thing done (or not done) by, or on behalf of, the creditor (either before or after the making of the agreement or any related agreement) was unfair: Deutsche Bank (Suisse) SA v Gulzar Ahmed Khan & ors [2013] EWHC 482 (Comm) followed.
In the present case, the terms of the arrangements taken as a whole were unfair because, amongst other things, the option agreement operated unfairly as it went well beyond what was intended to be security for the facility. The calculation was premised on the value of the property being only £375,000 but that valuation did not reflect the hope value which might be unlocked by the grant of planning permission. The time for the defendants to exercise the buy-back had now lapsed but there was never any real prospect of them being able to do so.
(4) The court was not persuaded that there were sound commercial reasons for the option agreement or that it represented a legitimate and proportionate attempt by the claimant to protect its position when what the claimant was looking for was simply adequate security. It was difficult to see why the claimant was not adequately protected by the facility letter and legal charge.
Although the defendants were advised to seek independent legal advice, the speed with which matters progressed made that practically impossible. Although the claimant did not exert any pressure on the defendants for the facility to be granted in the first place, there was pressure to reflect the agreed terms in the specific written documents which were adopted, especially the inclusion of the option agreement and buy-back option. That was an unusual and new part of the arrangements which merited proper and careful consideration by the defendants.
(5) It was not possible for the option agreement, buy-back option and the transfers (still held in escrow) to be amended in order to meet the unfairness where the unfairness went to the core purpose of effecting a transfer of ownership from the defendants to the claimant. Therefore, they would be set aside and, if the option agreement was set aside, the exercise of the option by the claimant would necessarily lapse.
However, justice required that the facility agreement and the legal charge be left in place since that provided the secured lending which was the core bargain intended by the parties. But some alteration of those agreements was required to achieve justice between the parties.
Nicholas Jackson (instructed by MSB Solicitors Ltd, of Liverpool) appeared for the claimant; The defendants did not appear and were not represented.
Eileen O’Grady, barrister
Click here to read a transcript of Arthistory Ltd v Campbell and another