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Options: as Safe as Houses?
Published online by Cambridge University Press: 16 January 2009
Extract
Options over land have formed part of the law of real property for a long time. Their oldest uses are probably in the context of wills, allowing stated persons to purchase part of the testators” property, and in the law of landlord and tenant, giving the tenant the right to call for a renewal of the term or in some cases to purchase the freehold. Options are still used for both of these purposes, although statutory developments in the law of landlord and tenant have rendered the option to renew of less significance than was once the case. In addition, other uses have been found for options by landowners and conveyancers.
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References
1 See, e.g., Huckstep v. Mathews (1685) 1 Vern. 362Google Scholar where a testator gave an option to anyone of his name to purchase land at £200 less than its reasonable value.
2 Chapman v. Dalton (1565) 1 Plowd. 284;Google ScholarIsteed v. Stoneley (1580) 1 And. 82;Google ScholarRichardson v. Sydenham (1703) 2 Vern. 447.Google ScholarPlatt's Law of Leases, Vol. I (1847)Google Scholar states the practice of inserting covenants for renewal to be more common in the West of England and in some districts of the North (p. 703). At p. 706 the same work makes an early use of the word “option.”
3 As was the case in Midland Bank Trust Co. Ltd. v. Green [1981] A.C. 513.Google Scholar
4 Barnsley, , Land Options (1978), p. 7;Google ScholarCawthorne, , Residential Estate Conveyancing, Practice and Precedents (1983), pp. 95–96.Google Scholar
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6 Barnsley, , op. tit., pp. 173–176;Google ScholarCawthorne, , op. cit., pp. 343–344.Google Scholar The best survey is probably that of Allen, Shared Ownership—a stepping stone to home ownership (H.M.S.O. 1982).
7 See s. 104(9) of the Housing Act 1957, as inserted by the 1980 Act, s.91(l); the 1980 Act, s. 94 validates options already granted.
8 A. M. Pritchard (1974) 38 Conv.(N.S.) 8.
9 [1980] Ch. 590, 623.
10 Barnsley, , loc. cit., p. 27.Google Scholar
11 (1982) 35 C.L.P. 151, 163.
12 [1979] C.L.J. 31,33.
13 [1897] 1 Ch. 937.
14 (1878) 7 Ch.D. 858.
15 (1876) 2 Ch.D. 499.
16 [1897] 1 Ch. 937, 943 (italics supplied). The case concerned an attempt by a landowner to gain possession from a builder who had entered on to the land pursuant to a building agreement and had failed to complete the work with due despatch. The builder had exercised an option to purchase and so Romer J. held that, the builder having become owner in equity, the plaintiff could not legitimately seek possession on the pretext of safeguarding the value of the property.
17 (1878) 7 Ch.D. 858, 862.
18 Raynerv. Preston (1881) 18 Ch.D. 1.Google Scholar
19 (1876) 2 Ch.D. 499, 506–507. In fact the case concerned the devolution of property following a contract of sale by the testator.
20 [1949] 1 All E.R. 830. The case is considered in detail later.
21 The grandson of Sir Robert Romer, the judge in Raffety v. Schofield, supra, n.16. The Romer family shared with the Coleridge family the distinction of producing three successive generations of judges: see Dictionary of National Biography 1941–50 (Oxford 1959), p. 736.Google Scholar
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28 (1884) 27 Ch. D. 394, 400.
29 See, e.g., Hanbury, and Maudsley, , Modern Equity, 11th ed. (1981), pp. 335–336;Google ScholarSnell's Principles of Equity, 28th ed. (1982), pp. 486–487.Google Scholar But perhaps there is something to be said for it. The testator in granting an option to X and devising the same property to Y may well have had the attitude that Y could have the property if X did not want it. Would he necessarily have wanted Y to have the proceeds of sale?
30 E.g., the passing of risk and the accrual of capital benefits to the purchaser.
31 Perpetuities and Accumulations Act 1964, s. 9(2).
32 Hutton v. Walling [1948] Ch. 26.Google Scholar
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34 Op. at., p. 27.Google Scholar
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37 In support of the unilateral contract approach are remarks of Lord Denning M.R. and Diplock L.J. in United Dominions Trust (Commercial) Ltd. v. Eagle Aircraft Services Ltd. [1968] 1 W.L.R. 74, 80, 83, although Lord Denning also referred to it as an offer. See also United Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C. 904, 945,Google Scholarper Simon, Lord, Oakley, , op. cit., p. 162,Google Scholar sees it as a unilateral contract.
38 The following favour the offer view: Helby v. Matthews [1895] A.C. 471, 477, 479–480;Google ScholarBeesley v. Hallwood Estates Ltd. [1960] 1 W.L.R. 549, 555–556:Google ScholarRe Button's Lease [1964] Ch. 263, 270–271;Google ScholarDu Sautoy v. Symes [1967] Ch. 1146;Google ScholarMountford v. Scott [1975] Ch. 259;Google ScholarUnited Scientific Holdings Ltd. v. Burnley Borough Council [1978] A.C. 904, 951;Google ScholarPritchard v. Briggs [1980] Ch. 339;Google ScholarKaraguleski v. Vasil Bros & Co. Pty. Ltd. [1981] 1 N.S. W.L.R. 267.Google ScholarMowbray (1958) 74 L.Q.R. 242,Google Scholar prefers this view as more in accordance with the English cases, but Barnsley, , op. cit., p. 12,Google Scholar points out that an offer is not an altogether happy description.
39 See, e.g., United Dominions Trust (Commercial) Ltd. v. Eagle Aircraft Services Ltd. [1968] 1 W.L.R. 74, 81Google Scholar and Stromdale & Ball Ltd. v. Burden [1952] Ch. 222, 235.Google Scholar
40 As has been said to be normally the case: Laybutt v. Amoco Australia Pty Ltd. (1974) 4 A.L.R. 482, 495, per Gibbs J.Google Scholar
41 The Times, 10 June 1976.
42 (1979) 40 P. & C.R. 223.
43 [1978] Ch. 231.
44 See Shell U.K. Ltd. v. Lostock Garages Ltd. [1976] 1 W.L.R. 1187, 1196–1197.Google Scholar
45 Ibid., p. 1196, per Lord Denning M.R.
46 Ibid., p. 1197. See also Liverpool City Council v. Irwin [1977] A.C. 239.Google Scholar
47 [1942] Ch. 349, followed on this point by Romer, J.. in Re Crosby's Contract [1949] 1 All E.R. 830, 833–834.Google Scholar
48 At p. 352 (italics supplied, and quoting from the version in [1942] 2 All E.R. 85, 87).
49 Compare the similar approach of Lord Denning to solus agreements in Shell U.K. Ltd. v. Lostock Garages Ltd. [1976] 1 W.L.R. 1187, 1197.Google Scholar
30 In Gardner v. Coutts & Company [1968] 1 W.L.R. 173, 179Google Scholar (a case on a right of pre-emption) Cross J. explicitly used the officious bystander test. See also Walton, J. in Pritchard v. Briggs [1980] Ch. 338, 359:Google Scholar “From this I conclude that there is no single generally applicable implied term to be read into all options regardless of the circumstances, and that any implied term must in each case be a matter of regarding all the surrounding circumstances very carefully.”
51 [1968] 1 W.L.R. 173.
52 Ibid., p. 179.
53 Ibid., p. 177.
54 [1980] Ch. 339.
55 Ibid., p. 358. Compare the argument of counsel for the option-holder, Richard Scott Q.C., at p. 359, based upon the view that the high rent was only being paid by the option-holder as tenant because of the existence of the favourable option.
56 Ibid., pp. 359–361. Walton J.'s finding rested upon solicitors' correspondence which assumed a sale under the earlier right of pre-emption to be a possibility, and a statement by the option-holder in the witness-box that “I was to have the land if he still had the land in hand.”
57 Ibid., p. 422. But he regarded as more important his characterisation of the option as a “stronger” right than the right of pre-emption.
58 Ibid., p. 421. He also added that once the option was registered it was not open to a purchaser to accept the offer save subject to it.
59 Ibid., p. 358.
60 [1980] Ch. 590.
61 Perhaps because Walter had taken the wise precaution of disposing of his assets.
62 See Midland Bank Trust Co. Ltd. v. Green (No. 2) [1981] 2 W.L.R. 28, reversing [1979] 1 W.L.R. 460.Google Scholar
63 See [1981] A.C. 513, reversing the Court of Appeal decision at [1980] Ch. 590.
64 For an excellent survey of the possible impact of the economic torts on the law of real property, see Smith, R. J. [1977] Conv.(N.S.) 318.Google Scholar
65 [1980J Ch. 590, 611, although it would seem that if the action for specific performance against Evelyne's estate had succeeded, it could be argued that no claim for conspiracy should lie (see infra, pp. 68–69). For futher argument on the conspiracy action, see Midland Bank Trust Co. Ltd. v. Green (No. 3) [1979] Ch. 496; [1981] 2 W.L.R. 1.Google Scholar
66 Other cases being Goffin v. Houlder (1920) 124 L.T. 145;Google ScholarWright v. Dean [1948] 1 Ch. 686;Google ScholarDu Sautoy v. Symes [1967] Ch. 1146.Google Scholar
67 This happened in Pritchard v. Briggs, Midland Bank Trust Co. Ltd. v. Green and in the three cases, supra, n.66, although in Du Sautoy v. Symes the damages claim was eventually abandoned.
68 [1948] 1 Ch. 686.
69 Ibid., p. 695.
70 As in Du Sautoy v. Symes [1967] Ch. 1146.Google Scholar The facts of this case make the decision a very robust one. An option and a right of pre-emption were combined in the same document. The grantors sold the land, having first given the option-holder the opportunity to purchase as required by the right of pre-emption. Cross J. while distinguishing Wright v. Dean as a case where the option contained no reference at all to the possibility of sale, held that the document conferred two separate and independent rights and that the existence of the right of preemption did not excuse the grantors who had sold the land.
71 Goffin v. Houlder (1920) 124 L.T. 145.Google Scholar
72 As seems to have been accepted by Templeman L.J. in Pritchard v. Briggs [1980] Ch. 338, 421.Google Scholar
73 Omnium D'Entreprises v. Sutherland [1919] 1 K.B. 618, 621,Google Scholarper Bankes L.J. There such an argument was rejected where a ship subject to a charterparty had been sold free from any such engagement, on the ground that it involved “substituting a chance for a certainty.”
74 Lovelock v. Franklyn (1846) 8 Q.B. 371;Google ScholarHochster v. De la Tour (1853) 2 E. & B. 678, 688;Google ScholarFrost v. Knight (1872) L.R. 7 Exch. 111;Google ScholarSynge v. Synge [1894] 1 Q. B. 466.Google Scholar Some of these cases quite strikingly show that damages may be recovered even though at the crucial time both the plaintiffs rights and the defendant's liability were contingent. This would appear to be of particular relevance to the case of an option.
75 Or in the case of registered land by the entry of a notice, caution or restriction, unless of course the rights can take effect as an overriding interest where the grantee is in possession (as may often be the case in leasehold options: see Webb v. Pollmount Ltd. [1966] Ch. 584).Google Scholar
76 See also Kitney v. M.E.P.C. Ltd. [1977] 1 W.L.R. 981,Google Scholar where an option to renew a lease, avoided for want of registration, was not revived by later entry on the register of title.
77 [1980] Ch. 338, 421, 424.
78 Ibid., p. 421, per Templeman L.J.
79 Contrast the attitude of Goff L.J. at p. 417, who also proceeded on the basis that the option was specifically enforceable.
80 Wright v. Dean [1948] 1 Ch. 686, 696;Google ScholarDu Sautoy v. Symes [1967] Ch. 1146.Google Scholar
81 See Johnson v. Agnew [1980] A.C. 367Google Scholar and Buckland v. Farmar & Moody [1979] 1 W.L.R. 221,Google Scholaroverruling Horsier v. Zorro [1975] Ch. 302.Google Scholar
82 (1980) 96 L.Q.R. 488, 492 (H.W.R.W.).
83 This finds an echo in the language of Wynn-Parry, J. in Wright v. Dean quoted above at p. 67.Google Scholar But compare Du Sautoy v. Symes, supra, n.70 where the defendant grantors appeared to act quite properly before the sale yet were still held to be liable. See also Templeman, L.J. in Pritchard v. Briggs at p. 421Google Scholar and, in a different context, Dillon, J. in Lyus v. Prowsa Developments Ltd. [1982] 1 W.L.R. 1044, 1051.Google Scholar Such an argument would seem to have considerably more force if the option-holder knew of and raised no objection to the sale. An allied argument might be based upon the grantee's failure to mitigate by pursuing a claim for specific performance against the purchaser. Such an argument would, however, be most unlikely to succeed: see London and South of England Society v. Stone [1983] 1 W.L.R. 1242, 1262–1263.Google Scholar
84 Wright v. Dean [1948] 1 Ch. 686.Google Scholar
10 As in Hollington Brothers Ltd. v. Rhodes [1951] 2 T.L.R. 691.Google Scholar See Wade [1956] C.L.J. 227, n.57 for criticism. But is might be worth bearing in mind that a “subject to” clause may have more than one purpose, and that its purpose may be as much to protect the vendor as anyone else: see Lyus v. Prowsa Developments Ltd. [1982] 1 W.L.R. 1044 and Emery and Smythe (1983) 133 N.L.J. 798, 800.Google Scholar
86 Conceivably it might be argued that the grantor should have guarded against the risk by taking an indemnity from the purchaser; but why should he have to guard against a risk which the grantee could so easily have averted?
87 [1949] All E.R. 830.
88 In Fowler v. Willis [1922] 2 Ch. 514Google Scholar such a term was effective, but that was in relation to a defect existing at the date the option was granted. The current Law Society and National Conditions of Sale (1980 and 1981 respectively) contain no condition which would apply to defects created between the grant and exercise of the option.
89 Pritchard v. Briggs [1980] Ch. 338. 359.Google Scholar
90 See Cook v. Taylor, p. 63, supra, n.48.Google Scholar
91 [1949] 1 All E.R. 830, 836.
92 Ibid., pp. 358–359.
93 It is submitted that the distinction drawn by Walton J. between long- and short-term options (supra, pp. 65–66) may have some force here—a prohibition on leasing and creating any incumbrances could really be said to sterilise the land economically.
94 See Pritchard v. Briggs [1980] Ch. 338, 358.Google Scholar A fixed price may indicate that the state of the property is not to be substantially altered, whereas a mechanism based on market value may indicate the opposite. However, the object of a market value clause today could equally well be providing for the effects of inflation. It should be noted that we are speaking of the price on the option being exercised, as opposed to the price for which the option was granted, which was stated to be irrelevant in Gardner v. Coutts & Company ]1968] 1 W.L.R. 173: see supra, p. 64.Google Scholar
94 By analogy with cases on leases granted by mortgagors, on the assumption that an implied term to give vacant possession is the same in effect as an express term not to grant leases: Rust v. Goodale [1957] Ch. 33;Google ScholarDudley and District Building Society v. Emerson [1949] Ch. 707.Google Scholar
96 [1978] Q. B. 264, 270–271, 272–273, 276, 277.
97 See Smith, P. W. [1977] Conv.(n.s.) 197.Google Scholar
98 This would follow from the ordinary law of vendor and purchaser, but reliance could also be placed upon a line of cases on testamentary options. These cases hold that if there is no strong element of bounty in the option so that the grantee is to be regarded as a purchaser rather than a beneficiary, then upon exercising the option the grantee is entitled to a conveyance with any mortgages discharged, regardless of the provisions of Locke King's Acts (now the Administration of Estates Act 1925, s.35). See Re Wilson [1908] Ch. 839, 844–845;Google ScholarRe Fison [1950] Ch. 394, 407, 414;Google ScholarRe Eve [1956] Ch. 479, 482;Google Scholar and c.f. Re Jolley (1901) 17 T.L.R. 244.Google Scholar
99 The possibility of a restrictive covenant being discharged or modified under the provisions of the Law of Property Act 1925, s.84 would seem to be too speculative to alter the position.
1 [1980] Ch. 338, 358.
2 See Re Crosby's Contract [1949] 1 All E.R. 830, 834.Google Scholar
3 “The purchaser shall be deemed to buy with full notice in all respects of the actual state and condition of the property and, save where it is to be constructed or converted by the vendor, shall take the property as it is” 20th ed. (1981). The current Law Society Conditions (1980) have no equivalent clause.
4 Having a contingent interest in the property, he has an insurable interest: Lucena v. Crauford (1806) 2 B. & P.(N.R.) 269;Google ScholarStirling v. Vaughan (1809) 11 East 619.Google Scholar The absence of risk in the technical sense is irrelevant: Inglis v. Stock (1885) 10 App.Cas. 263.Google Scholar
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6 Possibly an exceptionally large sum paid at the outset: Hamlyn & Co. v. Wood & Co. [1891] 2 Q.B. 488, 492–493, 495.Google Scholar
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8 Fordv. White & Co. [1964] 1 W.L.R. 885.Google Scholar
9 Lodge Holes Colliery Co. Ltd. v. Wednesbury Corporation [1908] A.C. 323, 326;Google ScholarDodd Properties (Kent) Ltd. v. Canterbury City Council [1980] 1 W.L.R. 433.Google Scholar
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11 (1874) L.R. 7 H.L. 158.
12 Goffin v. Houlder (1920) 124 L.T. 145.Google Scholar
13 Jonhson v. Agnew [1980] A.C. 397;Google ScholarForster v. Silvermere Golf & Equestrian Centre Ltd. (1981) 42 P. & C.R. 255.Google Scholar
14 Re Daniel [1917] 2 Ch. 405.Google Scholar
15 Cottrill v. Steyning and Littlehampton Building Society [1966] 1 W.L.R. 753.Google Scholar But mere knowledge that the land was ripe for development would not be sufficient: Diamond v. Campbell-Jones [1961] Ch. 22.Google Scholar
16 Anglia Television Ltd. v. Reed [1972] 1 Q.B. 60;Google ScholarC.C.C. Films (London) Ltd. v. Impact Quadrant Films Ltd., The Times, 8 February, 1984.
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20 395 P. 2d. 124, 125–126, per O'Connell J.: “Having repudiated the option and created this element of speculation, the option giver should not be permitted to deprive the option owner of damages on the ground that they are speculative.” However, it is also worth noting the dissenting judgment of Goodwin J., that no action would lie unless the option were exercised, even if the defendant had put it beyond his power to convey: “The optionee … did not buy the right to sue for damages in the absence of any showing that he has suffered damage” (at p. 127).
21 Cockburn v. Alexander (1848) 6 C.B. 791, 814;Google ScholarAbrahams v. Herbert Reiach Ltd. [1922] 1 K.B. 477, 482;Google ScholarWithers v. General Theatre Corporation Ltd. [1933] 2 KB. 536;Google ScholarBeach v. Reed Corrugated Cases Ltd. [1956] 1 W.L.R. 807.Google Scholar The principle has now to some extent been qualified by Paula Lee Ltd. v. Robert Zehill & Co. Ltd. [1983] 2 All E.R. 390.Google Scholar
22 [1953] Ch. 280.
23 British and Benningtons Ltd. v. N. W. Cachar Tea Co. [1923] A.C. 48;Google ScholarThe Mihalis Angelos [1971] 1 Q.B. 164;Google ScholarBremer Handelsgesellschaft m.b.H. v. J. H. Rayner & Co. [1979] 2 Lloyd's Rep. 216.Google Scholar
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25 The content of such obligations is often the same—see Weir, , A Casebook on Ton, 5th ed. (1983), p. 41.Google Scholar And there may be tactical advantages in framing a claim in tort: Coupland v. Arabian Gulf Petroelum Co. [1983] 3 All E.R. 226, 228.Google Scholar
26 [1978] A.C. 729.
27 Ibid., pp. 751–752.
28 Simpson v. Thompson (1873) 3 App.Cas. 279, 289, 290;Google ScholarThe World Harmony [1967] P. 341:Google ScholarElliott Steam Tug Co. Ltd. v. The Shipping Controller [1922] 1 K.B. 127;Google ScholarMargarine Union G.m.b.H. v. Cambray Prince Steamship Co. Ltd. [1969] 1 Q.B. 219;Google ScholarG.U.S. Property Management Ltd. v. Littlewoods Mail Order Stores Ltd., 1982 S.L.T. 533.Google Scholar
29 London & South Western Railway Co. v. Comm (1881) 20 Ch.D. 562, 581;Google ScholarPritchard v. Briggs [1980] Ch. 338, 388–389.Google Scholar
30 Mayfair Property Company v. Johnston [1894] 1 Ch. 508.Google Scholar
31 Jones v. Llanrwst Urban District Council [1911] 1 Ch. 393.Google Scholar
32 Caltex Oil (Australia) Pty. Limited v. The Dredge “Willemstad” (1976) 136 C.L.R. 529;Google ScholarAnns v. Merton London Borough Council [1978] A.C. 729;Google ScholarThe Irene's Success [1982] 1 All E.R. 218.Google Scholar
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36 [1978] A.C. 729.
37 [1978] 1 Q.B. 554.
38 (1976) 136 C.L.R. 529.
39 At n. 33.
40 [1982] 3 W.L.R. 477.
41 Ibid., p. 494, per Lord Roskill. See also p.482, per Lord Fraser.
42 Ibid., pp. 482,484,494.
43 Ibid., pp. 482, 494.
44 [1982] 1 W.L.R. 1410.
45 [1980] Ch. 297.
46 Ibid., p. 309. Furthermore, this person is one who may have made a heavy anterior investment in time, money and resources, which may be an important policy ground in favour of allowing recovery for economic loss: Bishop [1982] 2 O.J.L.S. 1, 18, 25.
47 (1978) 83 D.L.R. 3d. 558.
48 [1982] V.R. 193. Cane (1983) 99 L.Q.R. 346, prefers Ross v. Counters.
49 “Nothing in possession has been removed or impaired. Nothing earned or to be earned has been lost. No interest in property has been touched. Nothing transferable in the eyes of the law has been affected” [1982] V.R. 193, 220, per Murphy J.
50 But such dealings may need to be modified to take account of the grantee's rights. For example, a landowner sells a gravel company an option to extract gravel. Can he then proceed to extract all the gravel himself?
51 See G.U.S. Property Management Ltd. v. Littlewoods Mail Order Stores Ltd., 1982 S.L.T. 533, 537–538, per Lord Keith.Google Scholar
52 [1973] 1 Lloyd's Rep. 345.
53 [1977] 1 W.L.R. 659.
54 [1980] Ch. 297, 321.
55 (1976) 136 C.L.R. 529, 551, 555, 556, 578, 593.
56 See Awad v. Pillai [1982] R.T.R. 266.Google Scholar
57 Street [1983] Conv. 404, 405.
58 Clarke v. Ramuz [1891] 2 Q.B. 456, 459–460, per Lord Coleridge C.J.Google Scholar