Coaten v PBS Corporation

Lease — Option — Right of pre-emption — Claimant selling lease through defendant at discounted price — Agreement giving claimant conditional right to purchase on death of individual — Whether agreement conferring option to purchase — Whether claimant entitled to specific performance of agreement — Claim allowed From 1973, the claimant held a short lease of a flat that was worth around £1.5m. When the lease ended, he negotiated a new long lease of 57 years from August 1984 at a discounted price of £105,000 given that he was a protected sitting tenant (the normal price being £150,000). Soon after, the claimant agreed to sell the flat to B, a long-standing friend, at the same discounted price. The flat was acquired in the name of the defendant, an offshore company owned by B. Clause 1(a)(i) of the agreement provided that the defendant would not, during a period of 21 years, sell or assign the lease without first offering it to the claimant for purchase. By clause 1(a)(ii), it was provided that, in the event of B’s death within that period, the defendant would offer to sell the lease to the claimant. B died in January 2005 and the claimant’s solicitor wrote to the defendant, requiring it to make an offer to sell him the property for £105,000, together with legal costs. The defendant returned a letter that contained an offer to sell the property at £that price. That letter was not “signed”, in that the defendant’s name was typed. The claimant wrote on his copy “I consent to this offer”. By letter dated 19 April 2005, the claimant’s solicitor wrote back, accepting the offer and sought details regarding completion. Prior to completion, a dispute arose as to the nature of the 1984 agreement between the parties. The claimant contended that clause 1(a)(ii) created an immediate option in his favour that was exercisable on B’s death; and that, following his death, the exchange of correspondence between the parties’ solicitors constituted an exercise of that option. The defendant argued that the clause created a right of pre-emption that merely obliged the defendant to offer the claimant first refusal on B’s death if it decided to sell the flat; the correspondence between the parties on that basis failed to establish a binding contract. The claimant commenced proceedings for specific performance of the agreement. Held: The claim was allowed. Clause 1(a)(i) created a right of pre-emption so that the claimant had no rights unless the defendant decided to sell the property, in which case it had to give him first refusal. As such, the right to make or receive the first offer did not become an interest in land until it became exercisable: Pritchard v Briggs [1980] Ch 338 considered. Two steps were required in a right of pre-emption, namely the making of an offer and an acceptance, whereas an option required only one step to constitute a buyer/seller relationship, namely the exercise of the option. Clause 1(a)(ii) was an option. In contrast to clause 1(a)(i), the defendant was obliged to sell provided that the machinery was gone through. It would fly in the face of commercial reality to construe the clause as obliging the defendant to make a meaningless non-enforceable offer. The parties had plainly intended that there would be an immediate obligation to sell the flat on B’s death if the claimant wanted to buy it. Therefore it was not a right of pre-emption since the defendant was obliged to make the offer that the claimant could enforce when the condition of B’s death was satisfied. Under the agreement, the defendant had bound itself to make the offer. That was an option because the claimant was not obliged to proceed: Spiro v Glentrown Properties Ltd [1991] 1 EGLR 185; [1991] 02 EG 167 and Bircham & Co Nominees (No 2) Ltd v Worral Holdings Ltd [2001] EWCA Civ 775; [2001] 3 EGLR 83; [2001] 47 EG 149 considered. Mark Dencer (instructed by Oliver Fisher) appeared for the claimant; Timothy Fancourt QC (instructed by Bircham Dyson Bell) appeared for the defendant. Eileen O’Grady, barrister