The perpetuity period that applies to pre-emption agreements governed by the Perpetuities and Accumulations Act 1964 is still in doubt
A pre-emption right gives the grantee the right to be first in the queue if a landowner decides to dispose of his land. A pre-emption agreement differs from an option because the grantee cannot compel the landowner to sell his land. He must wait until the landowner decides to dispose of it – and this may never happen. Consequently, the agreement creates a “mere hope”, which the landowner can frustrate or fulfil. However, if the landowner were to decide to dispose of the land, he must then offer it to the grantee. The grantee can then choose whether to accept the offer, or to decline it and walk away.
Cosmichome Ltd v Southampton City Council [2013] EWHC 1378 (Ch) concerned land that the BBC acquired from the council in 1989. The transfer contained a right of pre-emption in favour of the council if the BBC decided that it no longer required the site as a broadcasting centre. The BBC sold the freehold in 2004, but took a leaseback for 25 years and still occupies the site.
Did the council lose its right to acquire the freehold because it failed to react when the BBC sold the freehold? The judge decided that it did not, because the BBC was still using the property as a broadcasting centre. This meant that the court had to consider the effect of section 9(2) of the Perpetuities and Accumulations Act 1964, which applies to instruments made between 16 July 1964 and 5 April 2010.
Section 9(2) restricts the life of an option to 21 years from the date of its grant and also contains a proviso that preserves the life of pre-emption rights conferred on public or local authorities in respect of land used for religious purposes. The existence of the proviso suggests that Parliament intended to restrict the lives of both option and pre-emption agreements, but the legislation is unclear.
The freeholders relied on Taylor v Couch [2012] EWHC 1213 (Ch) for confirmation that the pre-emption agreement fell foul of section 9(2) and was void for perpetuity, but the judge took the view that the decision was wrong. He thought that Parliament had wrongly assumed that a right of pre-emption created an immediate interest in land. However, the authorities showed that this was not the case and it made no sense to apply the rule against perpetuities to rights that sound only in contract. Consequently, a pre-emption right is not affected by section 9(2), and the perpetuity period does not start to run, until the right matures into an option. So the Council won its point, but the freeholders may have other grounds – which remain to be considered – for arguing that the pre-emption agreement does not affect them.
The case shows that the law relating to the life of pre–emption agreements made between 16 July 1964 and 5 April 2010 remains in doubt. The issue has troubled practitioners for years and needs to be addressed because a surprising number of agreements remain subject to the law that applied before the Perpetuities and Accumulations Act 2009 relaxed the rules to enable parties to enter into arrangements that subsist for as long as the parties choose.
Allyson Colby is a property law consultant
