Option to buy agricultural land in expectation of permission to develop for residential purposes- Agreement making numerous references to planning permission – No specific requirement that such permission be obtained before option exercisable – Whether corresponding pre-condition to be implied – Buyer purporting to exercise option without obtaining planning permission – Whether such conduct amounted to repudiatory breach of option agreement
By an agreement made on 28 January 1996, which largely renewed an earlier agreement between the parties (the 1991 agreement), the claimant farmers gave to the defendant development company a five year option to purchase an area of land in Shawbury, Shropshire. The agreement required the defendant to apply to the planning authority for a change to residential use, and distinguished, for price-fixing purposes, between those parts which had the benefit of such permission and those which did not. Clause 4.2 allowed for an extension of the option period in the event of the period expiring while the defendant was awaiting the outcome of any appeal it may have made against refusal of any planning application. Pending such outcome, whether during the option period or following such extension, the defendant was expressly permitted by clause 4.3 to exercise the option.
On 24 March 1998 the defendant, having obtained permission only in respect of a small part of the land, purported to exercise the option. By letter dated 14 April 1998 , the claimants’ solicitors stated that the notice of exercise had not been served in accordance with the 1996 agreement. In a subsequent letter, dated 28 April 1998, the same solicitors observed that: (i) as a matter of construction, an application for planning permission was a condition precedent to valid exercise; (ii) the purported exercise amounted to a repudiatory breach on the defendant’s part, which the claimants were entitled to accept, thus putting the option agreement to an end. In proceedings commenced by the claimants, the defendant disputed the correctness of both points.
Held: The claimants succeeded on point (i), but not on point (ii).
1. On a true construction of the agreement, in particular the limited circumstances in which clause 4.3 was intended to operate, an application for and the granting of planning permission was intended to be a condition precedent to the exercise of the option. Applying the principles of construction of commercial contracts laid down by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society (No 1) [1998] 1 WLR 896 at pp912-913 and by Lord Wilberforce in Reardon Smith Line Ltd v Yngvar Hansen-Tangen [1976] 1 WLR 989 at pp995-996, the court had to know the purpose of the agreement, which presupposed knowledge of the genesis of the transaction, the background, the context and the relevant market. It was accordingly material that the parties were renewing the 1991 agreement, that the defendant’s business involved the speculative acquisition of land for development, that it was expected at all material times that the option land would be included in the local plan, and that the benefit of planning permission would significantly enhance the value of any land to which the permission applied.
2. The purported exercise of the option without fulfilling the condition precedent was not a breach of the option and certainly not a repudiatory breach, if only because the defendant was not obliged to exercise it.
Christopher Stoner (instructed by Eversheds, of Birmingham) appeared for the claimants; Gary Cowen (instructed by Wansbroughs Willey Hargrave, of Leeds) appeared for the defendant.
Alan Cooklin, barrister
