Option to purchase land — Formula for calculating price payable — Construction — Whether reference to “consent” of local authority restricted to planning consent — Understanding of reasonable man — Appeal allowed
Under the terms of a planning permission for commercial development, the appellant was required to grant to the respondent football club an option to purchase the land needed for a new football stadium. The appellant was also required to construct a new spine road for use as a public highway. That road would have to cross a public footpath (Milton Lane) and a further area of council-owned land.
Under the terms of the concluded option agreement, the purchase price payable by the respondent for the stadium land was £2m, less the “Milton Lane Allowance” (MLA). The MLA was defined as “such sum (not to be less than nil) calculated according to the formula £1,100,000 -(minus) X”. X was the amount required by the council “for and in consideration of its consent for the Spine Road to cross the roadway known as Milton Lane”.
In the event, the council diverted the footpath and sold the necessary strip of Milton Lane, plus the other area of land, to the appellant for £4.255m. The respondent brought proceedings in which it contended that the value of X, in such circumstances, was nil, so that the MLA was £1.1m, and the overall purchase price was £900,000.
The judge found in favour of the respondent, on the ground that “consent”, in the definition of the MLA, meant a permission given by the council, as the highway authority, for the spine road to cross Milton Lane, and did not cover circumstances where the appellant had instead acquired ownership of the necessary strip from the council. The appellant appealed. It submitted that the judge’s interpretation of “consent” was a practical and legal impossibility, since: (i) so long as the relevant part of Milton Lane remained a public footpath, the council, as the highway authority, could not, in practice or in law, consent to the construction of the spine road across it; (ii) the only course the council could properly take was to divert the footpath and to sell the strip to the appellant, as they had done; (iii) once the path had been diverted, the council ceased to be the highway authority in respect of the strip, and so could not give consent as their highway authority.
Held: The appeal was allowed.
The background knowledge, in the light of which the option agreement was to be construed, had to include a knowledge of the powers exercisable by a local authority with regard to the obstruction and diversion of an existing highway. It also had to include knowledge of the courses open to a local authority in pursuit of a planning objective that required new roadway, open to all traffic, to cross an existing public footpath. The relevant powers were contained in statute, and a reasonable person in the position of the parties would have taken steps to inform him or herself of those powers: Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 applied. On that approach, it would have been obvious that, inter alia: (i) an order would have to have been made by the council, as the local planning authority, diverting the existing footpath; (ii) the council could not properly demand a ransom payment for the exercise of a statutory power; and (iii) the appellant would have had to have purchased an interest in the relevant strip of land from the council. In the light of that, the parties must have intended that, for the purpose of ascertaining the MLA in accordance with the given formula, the cost to the appellant of acquiring from the council whatever interest the council had, as landowners, in that strip of land should be brought into account. To attribute to the parties an intention to take account of a payment that could not properly be demanded or paid (for the exercise of a statutory power), but not a payment that the appellant could, and probably would, be properly required to make for an interest in land, would be to attribute to the parties an intention that would flout business or commercial common sense; the language of the agreement did not require that the parties had to be taken to have intended to make an irrational bargain.
The price properly attributable to the Milton Lane crossing was in excess of £1.1m. Therefore, the figure for figure “X” was equal to, or in excess of, £1.1m. The MLA could not be less than nil. On that basis, the court would declare the MLA to be nil and the price payable by the respondent to the appellant to be £2m.
Michael Barnes QC (instructed by Bircham Dyson Bell) appeared for the appellant; Michael Driscoll QC (instructed by Paris Smith & Randall, of Southampton) appeared for the respondent.
Sally Dobson, barrister
