The litigation in Multi-Link Leisure Developments Ltd v North Lanarkshire Council [2010] UKSC 47; [2010] PLSCS 294 turned on the meaning and effect of a lease clause that granted the tenant an option to buy land used as a pay-and-play golf course. The land lay within an area that was subsequently designated for residential development and, when the tenant exercised the option, the parties were unable to agree a price.
The option agreement required the payment of “the full market value” for “the proposed purchase… of agricultural land or open space suitable for development as a golf course”. The tenant argued that the price should be fixed without reference to an increase in value that was attributable to any development potential attached to the land.
The Supreme Court ruled that it must find a sensible meaning for the clause, which took account of the factual background when the lease was granted. It noted that no limit had been placed on the use to which the land could be put if the tenant successfully exercised its option to purchase. Moreover, if it were correct, the tenant would be entitled to acquire the land at a price that would produce a substantial windfall at the landlord’s expense (even though the landlord was under a statutory duty not to dispose of the land for less than the best price that could reasonably be obtained). Consequently, it seemed unlikely that the parties could have intended the tenant to ignore the substantial hope value attached to the land.
The court ruled that the tenant’s interpretation of the valuation provisions would flout business common sense. It was highly unusual and artificial and would not result in a price that reflected “the full market value” of the land. The court would have expected the option agreement to provide that the land must be valued on the assumption that it was to be used only as a golf course, if this was the parties’ intention, and was satisfied that the reference to “agricultural land or open space suitable for development as a golf course” could not be interpreted as an instruction to ignore hope value or any other factor that might be relevant to the value of the golf course.
Drafting valuation provisions is never easy. The words used have a significant effect on price and circumstances are liable to change, often in unforeseeable ways. In the instant case, the tenant was hoping to acquire the land, which had huge development potential, for less than 10% of the value placed on it by the landlord.
The parties’ dispute highlights the importance of: (i) ascertaining precisely what the parties want; (ii) drafting in clear and unambiguous language; (iii) using carefully articulated assumptions and disregards; (iv) involving valuers, where possible, to check that the language used accomplishes the parties’ objectives; and (v) advising to the parties of any implications to ensure that they understand the agreement they are making. Any additional professional fees and expenses incurred as a result will be well spent and should help to prevent lengthy and expensive litigation that might otherwise have been avoided.
Allyson Colby is a property law consultant
