Freehold property – Option agreement – Escheat – Overseas registered company owning freehold of property – Claimant company having option to purchase freehold – Freeholder dissolved – Property reverting to defendant commissioners by escheat – Claimant seeking vesting order — Whether claimant retaining interest in property following escheat — Application granted
A company registered in the British Virgin Islands (API) owned property in England. In 2003, it granted a 499-year lease of the property to two companies related to the claimant company and granted the claimant a 21-year option to purchase the freehold for £1. Under the option agreement, API was prohibited from knowingly encumbering the property without the claimant’s consent, such consent not to be unreasonably withheld.
In 2009, the claimant gave notice to API and its solicitor that it wanted to exercise the purchase option; as a result, it discovered that API had been struck off the register and dissolved. Following the dissolution, and in the absence of any legal heirs or claimants, the property had reverted by escheat to the state and was held by the defendant commissioners.
In 2010, the claimant sought to sell a portfolio of interests, including the leasehold interest in the property. It undertook to use reasonable endeavours to obtain a vesting order in respect of the freehold of the property so that the freehold might be registered and transferred under the Law of Property Act 1925 (LPA) or the Trustee Act 1925 (the 1925 Act). To enable it to do so, the claimant sought a vesting order relating to the freehold interest.
An issue arose as to the nature of any interest arising where the grantor of an option to purchase the freehold of a property situated in England was an overseas registered company that had been dissolved at the time the option was to be exercised. The claimant contended that the unexercised option agreement created a trust under which the claimant was the beneficial owner of the freehold that survived escheat. Accordingly, it decided that the proper course was to apply for a vesting order under section 44 of the Trustee Act 1925.
Held: The application was granted.
The court had seen no authority to suggest that the mere grant of an option to purchase a freehold interest in property would create a beneficial interest in the grantee, with the result that a vesting order under section 44 of the 1925 Act was not justified. In Jerome v Kelly (Inspector of Taxes) [2004] UKHL 25; [2004] 1 WLR 1409, the House of Lords had ruled that it was wrong to treat an uncompleted contract for the sale of land as giving rise to an immediate and irrevocable declaration of trust. A mere option to purchase was even further removed from the possibility of giving rise to such a trust.
From the terms of the option, it could not be said that API had divested itself of the right to deal with the property as its own. Its other rights under the agreement were not unconditional but predicated on obtaining the claimant’s consent, which could not be unreasonably withheld. The effect of that was to preserve API’s rights and it could not therefore be regarded as a trustee within section 44.
However, the process of escheat had resulted in the determination of the freehold in the property and the court had jurisdiction to make a vesting order creating a new freehold in favour of the claimant under section 181(1) of the LPA. The defendants, who held the property pursuant to escheat, did not object to the vesting order. The claimant had complied with all the conditions under the option agreement and had acted in good faith. Had API continued to be the freehold owner of the property, the freehold would have passed to the claimant.
Tamsin Cox (instructed by Olswang LLP) appeared for the claimant; the defendants appeared by their representative.
Eileen O’Grady, barrister
