19 August 2010
Option agreements in land transactions are normally straightforward. Where the option is exercisable over a period of time, or the planning status of the land is subject to change, the agreement will normally have a mechanism which triggers a valuation for the purposes of the exercise of the option.
In a recent case, such an agreement was created. The prospective buyer held an option to buy once planning permission had been granted over the land. Once permission was granted, the valuation mechanism would be set in train for ascertaining the amount of the option payment.
If the amount could not be agreed within 60 days, the sum was to be calculated by an independent expert valuer. Regrettably, the agreement actually appointed the valuer as an arbitrator, not an expert. This meant that each side had the right to make representations, which necessitated a delay in the proceedings. The agreement also failed to specify the appropriate date for calculating the value of the property – was it the date on which the notice that the valuation was necessary was served or the date on which the valuer reached his decision? As the value of the property was falling, the vendor favoured the first interpretation. The purchaser, on the other hand, preferred the second, as that date was inevitably later and so the valuation was lower.
The High Court held that the buyer's approach was right: the vendor's contention would make the valuation retrospective.
This is another case in which a complex document which was not carefully drafted caused a dispute. Contact Sue Deacon, senior associate in the commercial property team, for expert help in the negotiation of option agreements or for advice on any other property law matter.
Contact 01753 279018, complete the online enquiry form or email comproperty@bpcollins.co.uk.
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