Option to purchase — Option exercisable on specified events — Whether time of the essence for exercise of option
By two
agreements dated November 17 1989 options were granted to the plaintiff by the
defendants. The options were to purchase half-shares in separate pieces of some
freehold land. The options were exercisable upon, inter alia, the grant
of planning permission for the erection of industrial units; in the event of
the grant of planning permission the options had to be exercised within two
months. The agreements stated that the options were null and void if not
exercised within six years. Planning permission was granted on December 19 1994
and the period for exercising the option therefore ended on February 18 1995.
Option notices were sent on behalf of the plaintiff on February 17 1995, but
were not received until February 20 1995. The judge in the court below decided
that time was of the essence of the option agreements. The plaintiff appealed.
stipulations where there is a contract for the sale and purchase of land. A
contract granting an option to purchase land is not a contract. The rule, that
time is of the essence, is a settled and invariable rule in relation to options
to purchase. The rule is a universal one and applies irrespective of what may
or may not be reasonably thought to have been the needs of the grantor.
The following
cases are referred to in this report.
Dibbins v Dibbins [1896] 2 Ch 348
Hare v Nicoll [1966] 2 QB 130; [1966] 2 WLR 441; [1966] 1 All ER
285, CA
Ranelagh
(Lord) v Melton (1864) 2 Dr & Sm 278
United
Dominions Trust (Commercial) Ltd v Eagle
Aircraft Services Ltd [1968] 1 WLR 74; [1968] 1 All ER 104, CA
United
Scientific Holdings Ltd v Burnley Borough
Council [1978] AC 904; [1977] 2 WLR 806; [1977] 2 All ER 62; (1977) 33
P&CR 220; [1977] 2 EGLR 61; [1977] EGD 195; 243 EG 43 & 127, HL
This was an
appeal by the plaintiff, Benito Di Luca, from the decision of Judge Boggis QC,
sitting as a judge of the High Court in Birmingham District Registry, who had
dismissed an application by the plaintiff in proceedings against the
defendants, Juraise (Springs) Ltd, Adrian Clifford Walter Amess and Kathleen
Frances Amess.
David Stockill
(instructed by Simon Bishop &Partners, of Droitwich) appeared for the
appellant; Simon Clegg (instructed by Morton Fisher, of Bromsgrove) represented
the respondents.
Giving
judgment, NOURSE LJ said: The question here is whether time is of the
essence in relation to the date by which an option to purchase land is
expressed to be exercisable. It comes as something of a surprise to find that
such a question should not be regarded as having been settled well before the
middle of the last century.
By two
agreements under seal dated November 17 1989, options were granted to the
plaintiff, Benito Di Luca, in the first case by the first defendant, Juraise
(Springs) Ltd, and in the second by the second and third defendants, Adrian
Clifford Walter Amess and Kathleen Frances Amess, his wife. The first defendant
is a company controlled by the second and third defendants. The options were to
purchase half-shares in separate pieces of freehold land at the rear of
Sugarbrook Mill, Buntsford Hill, Stoke Pound, Bromsgrove, in Hereford and
Worcester.
The relevant
provisions of the two agreements being identical, it is only necessary to read
from the second. So far as material, clause (1) provides:
Adrian Clifford Walter
Amess and Kathleen Frances Amess
(his wife) … (‘the Grantors’) hereby
grant to Benito Di Luca
… (‘the Grantee’) the option for a period of six
years from the 17th day of November 1989 to purchase at the price of five thousand pounds (£5,000) plus 6%
to be added to the consideration at each anniversary of this agreement one-half
share in the premises described in a Transfer of even date … (‘the Property’)
for an estate in fee simple in possession …
Clause (2)
provides:
The Option is
exercisable on one of the following events occurring: —
(i) one or
both of the Grantors dying; or
(ii) the
Grantors wishing to dispose of the Grantors’ interest in the Property by way of
lease, transfer or assignment; or
(iii) the
Property being granted the benefit of a satisfactory planning permission for
the erection of industrial units
If none of the
events listed above have occurred within the period of six years then this
Option shall be null and void.
Clauses (3) to
(6) contain provisions relating to planning permission. So far as material,
clause (7) provides:
In the event
of one of the matters listed in Paragraph 2 above taking place then the Grantee
shall within two months of such event give notice (‘the Option Notice’) in
writing to the Grantors exercising the option hereby granted and then the
Option Notice shall constitute herewith a contract for the sale and purchase of
the Property …
So far as
material, clause (10) provides:
The option
shall only be valid and enforceable if the Grantee registers within a period of
two (2) months from the date hereof notice thereof against the title of the Property
at HM Land Registry …
No other
provision of the agreement has been treated as being material.
The purchase
price payable if the option granted by the first agreement is exercised is
£15,000. For today’s purposes it is agreed that both properties were granted
the benefit of a satisfactory planning permission within clause 2(iii) of each
agreement on December 19 1994, that is to say within the period of six years
from November 17 1989. That meant that the two-month period prescribed by
clause (7) expired on February 18 1995. We are told that the planning
permission did not come to the plaintiff’s notice until January 11. On February
17, a Friday, the plaintiff’s solicitors despatched notices exercising both
options through the Midlands document exchange, but they were not
received by the defendants’ solicitors until Monday, February 20, outside the
two-month period. It is agreed that if time was of the essence of the two-month
period the notices were given too late.
The question
came for decision on a trial of preliminary issues before Judge Boggis QC,
sitting as a judge of the Chancery Division in Birmingham, on June 18 1996. The
other questions he decided are no longer in dispute and need not be referred
to. The judge held that time was of the essence and he dismissed the
plaintiff’s action for specific performance. The plaintiff now appeals to this
court.
Mr David
Stockill, for the plaintiff, while accepting that time is of the essence in
regard to the six-year period in clause (1), submits that that is not so in
regard to the two-month period in clause (7). He relies on the express
provision at the end of clause (2) for the option to become null and void if
none of the three events listed in that clause shall have occurred within the
six-year period. He also relies on clause (10), which expressly provides for
the option to be invalid and unenforceable if it is not registered within a
period of two months from the date of the agreement. Mr Stockill submits that
the absence of any comparable provision in clause (7) shows that time was not
intended to be of the essence in relation to the two-month period.
I think it
clear that the advantage to the plaintiff, if any, in that submission is
neutralised by the consideration that if, for example, a satisfactory planning
permission had not been granted until, say, November 1 1995, the combined
effect of clauses (1), (2) and (7) would have been that the options could have
been exercised up to December 31 1995, even though that date would have fallen
outside the six-year period. So in reality there is only one period, being a
period expiring two months after the occurrence of the specified event,
provided that it occurs during the six-year period. The question is whether
time is of the essence of that period or not.
The question
is a short one. A useful introduction to it will be found in the judgment of
Danckwerts LJ in Hare v Nicoll [1966] 2 QB 130. At p145F, he said
that the law was correctly stated in Halsbury’s Laws of England, vol 8
(1954) 3rd ed, at p165:
‘An option
for the renewal of a lease, or for the purchase or re-purchase of property,
must in all cases be exercised strictly within the time limited for the
purpose, otherwise it will lapse.’
I entirely
agree that that is a correct statement of the law. Danckwerts LJ continued:
The authority
cited for that proposition is a very striking case, Dibbins v Dibbins,
a decision of Chitty J. In that case an option for a surviving partner to
purchase a deceased partner’s share had to be exercised within three months of
his death. A notice within the three months was given by solicitors on behalf
of the surviving partner, but he was of unsound mind, and therefore the notice
was not effective. Under an order in lunacy, a fresh notice was given, but it
was too late in time, and equally ineffective. The rule really is long
established, as Ranelagh (Lord) v Melton (a decision of
Kindersley V-C) and other cases show.
The question
must be approached by acknowledging that in regard to contractual stipulations
time was always of the essence at law. Moreover, equity relieved against them
only in certain cases, in particular where there was a contract for the sale
and purchase of land with a specified date for completion. A contract granting
an option to purchase land is not such a contract. The distinction and its
consequences were clearly stated by Sir Richard Kindersley V-C in Lord
Ranelagh v Melton (1864) 2 Dr & Sm 278, where there was an
option for lessees to purchase the freehold. He said, at p281:
I apprehend
the rule of law applicable to cases like the present is perfectly clear. No
doubt, if an owner of land and an intending purchaser enter into a contract
constituting between them the relation of vendor and purchaser, and there is a
stipulation in the contract that the purchase-money shall be paid and the
contract completed on a certain day, this Court in ordinary cases has
established the principle that time is not of the essence of the contract, and
that the circumstance of the day fixed for the payment of the money and completion
of the purchase being past does not entitle either party to refuse to complete.
On the other hand, it is well settled that where there is a contract between
the owner of land and another person, that if such person shall do a specified
act, then he (the owner) will convey the land to him in fee; the relation of
vendor and purchaser does not exist between the parties unless and until the
act has been done as specified. The Court regards it as the case of a condition
on the performance of which the party performing it is entitled to a certain
benefit; but in order to obtain such benefit he must perform the condition
strictly. Therefore, if there be a day fixed for its performance, the lapse of
that day without its being performed prevents him from claiming the benefit.
Similarly, in Dibbins
v Dibbins, which was more a decision on ratification than on time being
of the essence, Chitty J said [1896] 2 Ch 348, at p350:
The doctrine
of equity, that time is not of the essence of the contract, is not one of universal
application, and it is settled with reference to options of this kind that
there is no difference as to time between the rule of equity and the rule of
common law; in other words, in exercising an option of this nature where time
is limited the option must be exercised (if at all) within the time for which
it is expressed to be given, both at law and in equity.
A like rule
has since been affirmed in relation to options to acquire other kinds of
property, for example shares in a private company (Hare v Nicoll)
and aircraft (United Dominions Trust (Commercial) Ltd v Eagle
Aircraft Services Ltd [1968] 1 WLR 74). The difficulty, if indeed there is
one, has been caused by some observations of Lord Diplock in United
Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, in
which it was held by the House of Lords that time was not usually of the
essence in relation to timetables specified in rent review provisions in
leases.
At p929C, Lord
Diplock said:
Again I will
refrain from repeating the more elaborate juristic analysis of the distinction
between the two types of contract that I attempted in the United Dominions
Trust case [1968] 1 WLR 74, 83–84. A more practical business explanation
why a stipulation as to the time by which an option to acquire an interest in
property should be exercised by the grantee must be punctually observed, is
that the grantor, so long as the option remains open, thereby submits to being
disabled from disposing of his proprietary interest to anyone other than the
grantee, and this without any guarantee that it will be disposed of to the
grantee. In accepting such a fetter upon his powers of disposition of his
property, the grantor needs to know with certainty the moment when it has come
to an end.
Those
observations clearly affirm a settled and invariable rule in relation to
options to purchase. However, Mr Stockill has relied on them as a basis for
submitting that the rule does not apply where it can be shown that the grantor
does not reasonably need to know with certainty the date when the option period
has come to an end. He has also relied on observations of Winn LJ in Hare
v Nicoll, at p148C–D, although it must be very doubtful whether they
were intended to be anything more than a comment on the circumstances of that
case as opposed to a considered explanation of the rule.
I have no
hesitation in rejecting Mr Stockill’s submission. The rule is a universal one
and, except where the language of the option demonstrates the contrary, it
applies irrespective of what may or may not be reasonably thought to have been
the needs of the grantor. A tentative explanation of the rule which Lord
Diplock thought was helpful in deciding an entirely different case cannot erode
its application. Indeed, at any rate in regard to options to purchase land, the
rule is so well established that it needs no explanation and I apprehend that
no experienced conveyancer would pause to give it one.
Mr Stockill
has made further submissions in relation to the particular provisions of the
agreements in this case. He maintains, first, that under the terms of clause
(2) the option could have become exercisable on more than one occasion. For
example, if the second or third defendant had died early in the six-year
period, the plaintiff could either have exercised the option then or he could
have waited until a satisfactory planning permission had been granted. Although
it is not perhaps clear that that is a correct construction of clause (2), I
will assume that it is. Mr Stockill then says that the choice available to the
plaintiff shows that time was not intended to be of the essence of the
two-month period.
I am unable to
see why that should be so. Supposing that the option was exercisable as Mr
Stockill would have it, the two-month period would still have run from the
event in respect of which it was exercised and time would still have been of
the essence of that period.
Second, Mr
Stockill says, correctly, that the plaintiff might have been unaware of the
death of one of the grantors or that a satisfactory planning permission had
been granted until a very late stage in the two-month period or perhaps not at
all. He says that since there is no provision for notice of the event to be
given to the grantee, the parties must have intended that time should not be of
the essence of that period.
Again I must
reject that submission. I agree with Mr Stockill that it is impossible to imply
a provision for notice of the event to be given to the grantee. But that does
not mean that some laxity which it would not otherwise enjoy can attach to the
two-month period. One answer to the submission may well be that a period of two
months was more generous than it might otherwise have been for the very purpose
of giving the grantee a fuller opportunity to get to know of the occurrence of
the event.
Those have
been Mr Stockill’s principal submissions on this appeal. For the reasons I have
given I would reject them. I think that Judge Boggis’ decision of this question
was correct. I would therefore affirm it and dismiss the appeal.
HUTCHISON and THORPE LJJ agreed and did not add anything.
Appeal
dismissed with costs.
