In Malkinson and others v Secured Orchard Investments Ltd and another [2005] EWCA Civ 1509; [2005] PLSCS 229, the court was called upon to consider the construction of an option agreement.
The claimants owned shares in a football club in addition to the land upon which it was situated. They granted an option to purchase the land, that expired on 31 December 2003, to the defendant property developer. The option could be extended, as set out in clause 8.2:
“If it is a requirement of a resolution to grant the Planning Permission that a Development Obligation shall be completed to lead to the grant of the Planning Permission or if it is a condition or the consequence of a condition of the Planning Permission or otherwise necessary that a Development Obligation shall be completed to enable the Development to be carried out the period within which the Option shall be exercisable shall be extended to such date as shall give the parties a reasonable period of time in which to negotiate the terms or and enter into such Development Obligation.”
The defendant failed to obtain planning permission and embarked upon a series of planning appeals, maintaining that the agreement meant that the option remained open for as long as a prospect existed that planning permission would be granted. The claimants commenced proceedings, on the basis, inter alia, that the option had expired.
The court found against the defendant. It held that the circumstances in which the option could be extended had to have existed at the date that the option would otherwise have terminated, that is, 31 December 2003. The necessary circumstances were as specified: (i) a resolution had been passed to grant planning permission, but there were still matters outstanding; (ii) the planning permission had been granted, subject to conditions that were still to be fulfilled; or (iii) based upon the wording “or otherwise necessary” in the clause, some other obligation was outstanding (although the court was hard-pressed to consider what that obligation might be).
The drafting in clause 8.2 had failed to identify the point at which the option would expire. On the defendant’s argument, the option could have remained valid indefinitely, on the basis that a new planning appeal could have been launched at any time, should new evidence have come to light.
This case highlights the need to draft extension clauses in option agreements with the utmost care. It is imperative that they always reflect the true intentions of the parties.
Gill Castorina is an associate at Paul Hastings Janofsky & Walker (Europe) LLP
In Malkinson and others v Secured Orchard Investments Ltd and another [2005] EWCA Civ 1509; [2005] PLSCS 229, the court was called upon to consider the construction of an option agreement.
The claimants owned shares in a football club in addition to the land upon which it was situated. They granted an option to purchase the land, that expired on 31 December 2003, to the defendant property developer. The option could be extended, as set out in clause 8.2:
“If it is a requirement of a resolution to grant the Planning Permission that a Development Obligation shall be completed to lead to the grant of the Planning Permission or if it is a condition or the consequence of a condition of the Planning Permission or otherwise necessary that a Development Obligation shall be completed to enable the Development to be carried out the period within which the Option shall be exercisable shall be extended to such date as shall give the parties a reasonable period of time in which to negotiate the terms or and enter into such Development Obligation.”
The defendant failed to obtain planning permission and embarked upon a series of planning appeals, maintaining that the agreement meant that the option remained open for as long as a prospect existed that planning permission would be granted. The claimants commenced proceedings, on the basis, inter alia, that the option had expired.
The court found against the defendant. It held that the circumstances in which the option could be extended had to have existed at the date that the option would otherwise have terminated, that is, 31 December 2003. The necessary circumstances were as specified: (i) a resolution had been passed to grant planning permission, but there were still matters outstanding; (ii) the planning permission had been granted, subject to conditions that were still to be fulfilled; or (iii) based upon the wording “or otherwise necessary” in the clause, some other obligation was outstanding (although the court was hard-pressed to consider what that obligation might be).
The drafting in clause 8.2 had failed to identify the point at which the option would expire. On the defendant’s argument, the option could have remained valid indefinitely, on the basis that a new planning appeal could have been launched at any time, should new evidence have come to light.
This case highlights the need to draft extension clauses in option agreements with the utmost care. It is imperative that they always reflect the true intentions of the parties.
Gill Castorina is an associate at Paul Hastings Janofsky & Walker (Europe) LLP
