In a situation where one party holds an option agreement over development land, the holder requires to extend the period for triggering the option owing to issues at planning and the contract permits extensions in relation to planning, how many times can the option period be extended and the option remain alive? This was the challenge for the London High Court in the recent case of Denton Homes Limited -v- Cobb & Cobb.
The Option Agreement
The parties entered into an agreement granting an option to purchase land for a fixed price, within a basic four-year option period from 17 March 2016. The agreement permitted extensions to the period, where:
1) a planning application was outstanding at the end of the period 2) an appeal was outstanding at the end of the period or 3) planning permission had been granted so close to the end of the period that the purchaser could not make an informed decision.
The agreement contained a 6-year long stop date for all extensions to the period.
Extending the Option Period
The agreement was varied three times to permit extensions to the period, during which time the developer submitted a planning application, an appeal against non-determination of that application and a further planning application. It was the developer's position that such applications validly extended the period in accordance with the agreement.
On 15 March 2022, the developer served notice to exercise the option to purchase, before the final planning application was determined. The developer subsequently sought an order from the court for specific performance of the contract.
No power to exercise the Option
The issue before the High Court was whether the agreement permitted multiple extensions, by combining the various circumstances in which extensions were granted.
The Court adopted a literal interpretation of the agreement (which did not oppose its commercial purpose) and determined that, had the parties intended to allow the developer more time at planning, to enable it to appeal then make a fresh application where an appeal failed, the parties would have expressly provided for such a situation. Multiple extensions of time were not, therefore, permitted and the option could not be validly exercised by the claimant.
If you are a commercial landlord or developer dealing with options or, you or your business have any concerns or queries about complying with the terms of an option agreement, do not hesitate to get in touch with our Real Estate Disputes team or your usual Brodies' contact.
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