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Option Agreements – say what you mean and keep litigation at bay

In Fishbourne Developments Limited v Stephens, the Court of Appeal emphasised the importance of applying commercial common sense and considering the relevant factual background to a case when interpreting contracts.

Fishbourne, a developer, had the benefit of an option to acquire a 117 acre farm in West Sussex. Upon obtaining a planning permission, defined as “a planning permission granted by the Local Planning Authority permitting any development of the Property”, Fishbourne was entitled to exercise its option to acquire the farm at a discount from its open market value.

Fishbourne obtained a planning permission to install a new roof on an existing farm building. Fishbourne gave notice to the landowner to exercise its option on the basis that a planning permission had been obtained, but was it sufficient to trigger the option?

The Court found in favour of the landowner; the planning permission was insufficient to trigger the option. It considered the words “any development of the Property” and concluded that an inconsequential planning permission did not amount to “development” and made little commercial sense to justify the discounted purchase price. The discount element, the absence of overage provisions and the fact that the option fee was just £1 indicated that the landowner expected Fishbourne to enhance the overall land value prior to exercising the option. “Development” was construed as meaning the development of the whole or substantially the whole of the farm, including new building(s) and a change of use from agricultural.

This case is a reminder that clear contract drafting to reflect the intention of the parties’ is essential to avoid later disputes. Parties to an option agreement should consider the precise form of development which would trigger an option and whether this should apply to the whole or part of the land that is subject to the option.

Fishbourne Developments Limited v Stephens [2020] EWCA Civ 1704

Disclaimer

This information is for educational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.

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