Underlease — Assignment — Agreement that assignee should have same rights and benefits as original underlease — Whether parties had entered into binding agreement entitling assignee to exercise put option — High Court holding that assignee not entitled because no exchange of contracts — Judgment for the plaintiff
On August 15 1986 an underlease, for the term of 25 years less two days from November 1 1982, was made between Milton Keynes Development Corporation (`MK`) and Burton Group plc on unit 3A, Michigan Drive, Tongwell. On the same date Burtons assigned the unexpired residue of the underlease to EHL; and MK covenanted with EHL to take an assignment of the underlease, if EHL gave notice to terminate the underlease at five-yearly intervals after the date of the deed (“the put option”). On November 30 1987 when disputes between MK and EHL were unresolved, Coopind (now Cooper (Great Britain) Ltd) acquired EHL’s business. EHL, with MK’s written licence, assigned the unexpired residue to Coopind on December 8 1988.
By 1991 Coopind decided to leave the Milton Keynes area and wanted MK to reinstate the put option, formerly enjoyed by EHL, in its favour. Following a meeting on January 11 1991, Coopind sent a letter, by facsimile, to MK stating that under any agreement it was important they should be treated as having the same rights and benefits as under the original documentation with EHL. MK responded, by facsimile, agreeing to include in any agreement the carrying over of rights and benefits from EHL to Coopind. On January 16 there was an exchange of letters, by facsimile, confirming their agreement of Coopind’s January 11 letter. An issue arose whether the parties had entered into a binding agreement requiring MK to accept a surrender of the underlease. MK sought a declaration that it was not bound.
Held The plaintiff was not bound to grant a put option or to accept surrender of the underlease.
1. On its true construction the agreement to abide by the terms proposed in the letters of January 11 bound MK to put Coopind in the same position as EHL, under all the original documentation, including the grant of a put option. The question was whether MK was entitled to rectification of that agreement on the basis of its unilateral mistake that the agreement did not include the put option term.
2. Section 2(3) of the Law of Property (Miscellaneous Provisions) Act 1989 provided that the documentation incorporating the terms, or, where contracts were exchanged, one of those documents (but not necessarily the same one) must be signed by or on behalf of each party to the contract. Neither of the facsimiles dated January 16 could, by itself, properly be described as a “contract”. The section itself drew a clear distinction between a situation in which a single document was required and one in which “contracts” were exchanged.
3. “Exchange of contracts” bore a technical meaning as the process in which solicitors were habitually involved — to be contrasted with one in which the parties had engaged in correspondence without assistance or involvement of legal advisers. It was clear beyond doubt that the exchange of facsimiles was not an “exchange of contracts” within section 2 of the 1989 Act. The Act bit on just such an exchange of letters, as took place in this case.
Derek Wood QC and Beverly-Ann Rogers (instructed by Denton Hall Burgin & Warrens) appeared for MK; David Neuberger QC and Jonathan Small (instructed by Baker & McKenzie) appeared for Coopind.
