Option to purchase freehold — Valuation of property on exercise of option — Dispute on valuation — High Court making declarations as to method of valuation
A lease of a property known as “Whitehurst”, Church Road, Kenley, Croydon, now known as “Abbey Wood Grange”, was granted by the freeholders (the defendants) for a term of 12 years from September 29 1985 at a rent of £28,000 pa, subject to three yearly reviews. The lease contained covenants to repair, to paint and decorate and not to make alterations or additions without the licence of the landlord. It also provided that the user of the property should remain that of a guest house for the elderly “as at the date hereof” (“the user clause”). It contained reciprocal options under which, at any time after October 19 1988 and, during the residue of the term, the lessors could require the lessees to purchase from them, or the lessees could require the lessors to sell to them, the freehold of the demised property. In either case the option was exercisable by notice in writing and its exercise brought into existence an agreement between the parties for the sale and purchase of the property.
On May 20 1987 the lessees assigned the lease for £25,000 to a company called Little Hayes Nursing Home Ltd (the plaintiffs). By a letter dated October 10 1988 the plaintiffs gave notice to the defendants exercising the option. At the time of the grant of the lease the lessors had carried on at the property the business of providing a guest house for the elderly with 25 beds. They were registered by the Croydon London Borough Council under the Registered Homes Act 1984. It was a condition of their registration that the total number of persons received into the home should not exceed 25.
After the grant of the lease the lessees continued the business for a while, but they were unable to satisfy the requirements of the local authority for registration under the 1984 Act and the home was closed. The plaintiffs wished to reopen it. Subject to completion of certain works the local authority was prepared to allow its reopening as a home with maximum of 17 beds. A question arose as to the open market value of the property for purposes of the purchase and sale under the option agreement. The option provided that in determining the value, the lease was to be disregarded. The valuers appointed by each party were unable to agree a valuation because of differences as to the basis on which they should proceed and the court was asked to make certain declarations as to the factors to be taken into account in the valuation.
Held The court made the declarations sought.
1. The purpose of the valuation was to determine the open market value of the property at the valuation date. In determining that value the real facts about the property at that date should be disregarded only in so far as the terms of the agreement between the parties, on its true construction, required them to be disregarded or required other facts to be assumed.
2. On the construction of the a contract, there was a presumption that a party to the contract was not entitled to take advantage of its own wrong. For the presumption to be rebutted, there had to be a clear express provision to contradict it.
3. In the present case the provision in the lease that, in determining the open market value on the exercise of the option, the lease was to be disregarded, was not such a clear provision. It meant merely that the lease was to be treated as no longer in existence at the valuation date. Thus the open market value of the property was to be determined on the assumption that the property was in the physical condition in which it would have been but for any breach of covenant by the plaintiffs.
4. The natural meaning of the words of the user clause in their context was that it was to be assumed that at the date of the valuation the property was being used as a guest house for the elderly in the same manner as at the date of the lease, ie as a guest house for the elderly providing care such that registration under the 1984 Act in respect of it was required and had been obtained — whether in fact it was so used.
5. However, any assumption as to the number of beds was a matter for the valuers to determine on the basis of what, in the light of the circumstances prevailing at the valuation date, the hypothetical purchaser would expect the local authority to allow.
6. The assumption that the property was actually in use at the valuation date as a guest house for the elderly in respect of which registration was required and had been obtained inherently imported an assumption that any works necessary to enable the property lawfully to be so used had been carried out: Trust House Forte Albany Hotels Ltd v Daejan Investments Ltd (1980) 256 EG 915 distinguished.
7. Accordingly, the open market value of the property was to be determined on the assumption that on the valuation date no works needed to be carried out at the property to comply with any requirements of the local authority for registration under the 1984 Act.
Martin Rodger (instructed by Percy Holt & Co) appeared for the plaintiffs; John Rylance (instructed by Streeter Marshall) appeared for the defendants.
