Sale of two underleases for £385,000 subject to contract – Lock-out agreement precluding negotiations with others for period of seven days following receipt of “documents” – Purchaser refused sight of headlease – Whether start of period deferred until request complied with
The defendant vendors held a flat and garage in London W8, on two underleases granted in 1976 for 150 years less three days. On the plaintiff agreeing to buy the underleases for £385,000, subagents for the defendants sent on March 17 1997 to the plaintiff’s solicitors a faxed memorandum, expressed to be subject to contract, stating “Exclusive contract. 7 working days from receipt of documents, 6 weeks completion.” On March 20 1997 the defendants’ main agent sent a memorandum, stating, “Contracts to be exchanged within 7 days of receipt of draft papers”. On March 25 1997 the plaintiff’s solicitors received from the defendants’ solicitors a draft contract, Land Registry office copy entries pertaining to the underleases, copies of the underleases both of which required the immediate landlord to be indemnified against breaches of the terms of the headlease. Further correspondence between solicitors sought to clarify the start of the seven-day period and gave rise to a difference of opinion over whether the plaintiff should have sight of the headlease. In or about the third week of April the defendants opened negotiations with a third party. By a solicitor’s letter dated April 22 1997 the plaintiff’s solicitors were informed that the sale to the plaintiff would not proceed. On the following day the plaintiff obtained an interim injunction restraining disposal of the underleases until further order. At the trial the plaintiff contended for a seven-day period, during which the defendants could not negotiate with third parties and further claimed that that period could not commence before receipt of the headlease, without which the plaintiff would be unable to check for old restrictive covenants or to gauge potential liability under the indemnity obligations.
Held Judgment was given for the defendants.
1. On a proper construction of the ambiguous early correspondence, the parties had reached a binding “lock-out” agreement which, while not locking the defendants into any transaction, did give the plaintiff an exclusive opportunity to come to terms during the prescribed period: see Walfordv Miles [1992] 1 EGLR 207; Pitt v PHH Asset Management Ltd [1993] 2 EGLR 217.
2. Given the brief time span and limited operation of the agreement, the “documents” thereby contemplated were necessarily of a basic nature. The question whether the plaintiff should have sight of the headlease (a right not given by the general law: see section 44(3) Law of Property Act 1925) was part of the unavoidably protracted task undertaken by solicitors when finalising terms. Accordingly, the headlease was not one of the documents contemplated by the lock-out agreement, which consequently expired well before negotiations were begun with the third party.
3. Absent provisions to the contrary, a lock-out agreement should not found substantial claims for damages (for wasted expenditure) or for long-term injunctive relief.
Paul Morgan QC (instructed by Ashley Wilson) appeared for the plaintiff; Edward Cousins (instructed by Richard Grosse & Co) appeared for the defendants.