Option agreement – Option property including part of property let by first appellant to second appellant – Second appellant agreeing to surrender in event of exercise of option by respondents – Obligation to sell free from encumbrances – Whether agreement to surrender void by virtue of section 38 of Landlord and Tenant Act 1954 – Whether option agreement enforceable – Appeal dismissed
The first appellant owned the freehold of a property, part of which was demised to the second appellant, its subsidiary, for a term of 99 years by a lease dated July 1999. The first appellant granted the respondents an option to purchase, under which the latter were entitled to acquire part of the property on certain terms, which included the grant of a new leasehold interest. By clause 10 of the agreement, the sale was to be free from encumbrances. Since the property subject to the option included part of that let to the second appellant, there was a provision, in clause 4.1, for the second appellant to surrender its leasehold interest in that part in the event that the option was exercised.
When the respondents sought to exercise the option, the first appellant claimed the right to terminate the option agreement and contended that it was not obliged to conclude the sale. In proceedings brought by the appellants, the judge dismissed their application for summary judgment and held that: (i) the second appellant’s lease was a business lease protected by Part II of the Landlord and Tenant Act 1954; (ii) the agreement to surrender contained in clause 4.1 was void and unenforceable by virtue of section 38 of the 1954 Act, since it purported to preclude the second appellant from making an application for a new tenancy under Part II; but (iii) completion of the agreement for sale was not conditional upon the surrender of the second appellant’s leasehold interest. The appellants appealed.
