Multi-Link Leisure Developments Ltd v North Lanarkshire Council

JurisdictionScotland
JudgeLORD HOPE,LORD RODGER,LADY HALE,LORD CLARKE,SIR JOHN DYSON SCJ
Judgment Date17 November 2010
Neutral Citation[2010] UKSC 47
CourtSupreme Court (Scotland)
Docket NumberNo 3
Date17 November 2010
Multi-Link Leisure Developments Limited
(Appellant)
and
North Lanarkshire Council
(Respondent) (Scotland)

[2010] UKSC 47

before

Lord Hope, Deputy President

Lord Rodger

Lady Hale

Lord Clarke

Sir John Dyson, SCJ

THE SUPREME COURT

Michaelmas Term

On appeal from: 2009 CSIH 96

Appellant

Stuart Gale QC

William Frain-Bell

(Instructed by Anderson Fyfe LLP)

Respondent

James Mure QC

James Findlay

(Instructed by Dundas & Wilson CS LLP)

LORD HOPE
1

The issue in this appeal is about the proper construction of an option clause in a lease of land at Cumbernauld. The lease was entered into between the appellants, Multi-Link Leisure Developments Limited, ("the tenants") and the respondents, North Lanarkshire Council, ("the landlords"). It granted to the tenants an option to purchase the leased subjects. This was to be at a price to be determined by the landlords according to an agreed formula if the option to purchase was exercised subsequent to the first year of let. The tenants have exercised the option, but they disagree with the landlords as to the price that must be paid for its exercise according to that formula. They contend that the effect of the option clause is that the price is to be determined without reference to any increase in value that may be attributed to the subjects on the ground that it is likely that planning permission will be granted for housing development. The landlords, on the other hand, contend that the option clause, properly construed, does not envisage that there should be any discount of any element attributable to the potential of the subjects for development.

2

The difference between these two approaches as to the meaning of the option clause is very substantial. The tenants say that the full market value of the subjects, for the purposes of the option clause, is £500,000. They seek declarator that this is the price that is payable for the purchase of the subjects by the tenants to the landlords. The landlords say that the full market value of the subjects, taking account of their potential for development, is £5.3 million and that, as the tenants have exercised the option, this is the price that must be paid. The tenants have refused to pay any more than £500,000, so the answer to the question which approach is right will determine whether the option contract remains in force. The parties are agreed that, if the tenants are right, the contract remains in force and the landlords will require to value the subjects anew on the basis of the construction of the clause contended for by the tenants. They are also agreed that, if the landlords are right, the option is spent and can no longer be exercised during the remaining term of the lease.

The factual background

3

The case was argued in the Court of Session on the basis of the parties' pleadings and various documents which had been lodged in process. No oral evidence was led as to the surrounding circumstances. The only facts that were before the Lord Ordinary were those that could be ascertained from the parties' averments. The argument concentrated for the most part on the wording of the option clause itself. Reference was also made to some other provisions in the lease which might assist as to the meaning of the option clause.

4

The lease is dated 18 January and 11 February 2000. It was varied by a minute of variation of lease dated 13, 24 and 29 November 2001, by which an error in the extent of the ground leased was corrected and a new plan relative to the lease was substituted. The subjects comprise an area of ground extending to about 34.32 hectares located at East Waterhead Farm about a mile east of the town centre of the Cumbernauld. It had previously been in use for agricultural purposes. In terms of clause 2 of the lease the date of entry was 1 June 1999. The lease was to endure for 50 years until 31 May 2049.

5

Clause 5 of the lease provided for rent reviews every five years. In the event of the parties failing to agree, the amount of the revised rent was to be referred to arbitration. The arbiter was to be instructed to assess the rent on the basis of the open market rent, no account being taken of works effected by the tenants or on their behalf. By clause 9 it was provided that the tenants were to occupy and use the subjects for the development of a pay and play golf course and ancillary activities incidental to that use, and for no other purpose whatever without the prior express written consent of the landlords. It was also provided that if the golf course was not developed within five years of the date of entry, or if the subjects of lease were to cease to be used for that purpose, the lease was to terminate with immediate effect. By clause 12 it was provided that the tenants were bound at their own expense to provide an efficient drainage system for the subjects and to bear the whole expense of maintaining it in efficient working order. It is agreed that a golf course was duly developed within five years of the date of entry, and that the land is still being used as a pay and play golf course.

6

By clause 18.1 the tenants were given an option to purchase the subjects during the currency of the lease. No period of notice was required if the tenants decided to exercise the option to purchase during the first year of the period of let. In that event the option price was to be the sum of £130,000. Thereafter the tenants had to give the landlords not less than twelve months notice in writing prior to the proposed date of entry for the purchase if they wished to exercise it.

7

The dispute between the parties is as to the effect of clause 18.2, which is in these terms:

"The price to be paid by Multi-Link in terms of this clause ("the option price") shall, if the option to purchase is exercised within the first year of the period of let, be the sum of ONE HUNDRED AND THIRTY THOUSAND POUNDS (£130,000) STERLING. The option price, if the option to purchase is exercised subsequent to the first year of let, shall be equal to the full market value of the subjects hereby let as at the date of entry for the proposed purchase (as determined by the landlords) of agricultural land or open space suitable for development as a golf course but, for the avoidance of doubt, shall be not less than the sum of ONE HUNDRED AND THIRTY THOUSAND POUNDS (£130,000) STERLING. In determining the full market value (i) the landlords shall assume (a) that the subjects hereby let are in good and substantial order and repair and that all obligations of the landlords and the tenants under this lease have been complied with, and (b) that the subjects hereby let are ready for occupation, and (ii) the landlords shall disregard (a) any improvements carried out by the tenants during the period of this lease otherwise than in pursuance of an obligation [to] the landlords, and (b) any damage to or destruction of the subjects hereby let."

By clause 18.6 it was provided, for the avoidance of doubt, that the option to purchase was personal to Multi-Link and that it was to be exercisable only so long as they were tenants under the lease.

8

The tenants first expressed an interest in exercising the option to purchase in 2005. On 14 March 2005 their solicitors wrote to the landlords seeking to know the price that they would seek for the subjects. By letter dated 29 June 2005 the landlords proposed a price of £500,000, subject to the tenants entering into a minute of agreement, fortified by a standard security, to the effect that an additional sum, to be agreed, would be payable in the event of a change of use generating a higher value for the land. The tenants were not willing to agree to this proposal. In 2006 the prospect of a change of use generating a higher value was confirmed by the publication in 2006 of the Glasgow and Clyde Valley Joint Structure Plan which identified as one of three priorities for development in the South Cumbernauld Community Growth area, within which the subjects of the lease are situated. In 2008 the North Lanarkshire Finalised Draft Local Plan identified the area as a potential area for housing-led urban expansion. The landlords' position, as explained in their averments, is that it would be unreasonable for them to fail to have regard to this planning background when determining the price payable under clause 18.2.

9

By letter dated 8 October 2007 the tenants' solicitors served on the landlords notice of their decision to exercise the option, with entry one year later on 8 October 2008. They invited the landlords to provide them with their views as to the full market value of the subjects as defined by clause 18.2. By letter dated 4 November 2008 the landlords' solicitors intimated that they fixed the price at £5.3 million. The tenants made further proposals as to the option price, but they were rejected by the landlords. By a letter dated 22 January 2009 the landlords served formal notice on the tenants requiring them within 28 days to pay £5.3 million in exchange for a valid marketable title, failing which the landlords would be entitled to rescind the contract resulting from the exercise of the option in clause 18. The tenants did not comply with these conditions. So by letter dated 25 February 2009 the landlords served on the tenants a formal notice of rescission of the option contract and the purchase and sale of the subjects resulting from the notice of 8 October 2007.

10

The tenants then raised the present action in which they seek declarator that their option to purchase has not validly been rescinded and that on a proper construction of clause 18.2 the landlords are bound to determine the full market value of the subjects as agricultural land or open space suitable for a golf course, without reference to any increase in value which may be attributable to the fact that is likely that planning permission will be granted for housing development...

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