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Sudbrook Trading Estate Ltd v Eggleton and Others (1982) House of Lords
The lessee plaintiffs rented four industrial properties in Gloucester from the lessor defendants. All four lease agreements contained a provision akin to this one:
…that if the Lessees shall desire to purchase the reversion in fee simple in
the premises hereby demised and…shall give to the Lessor notice in writing
to that effect the Lessees shall be the purchasers of such reversion as from
the date of such notice at such price not being less than twelve thousand
pounds as may be agreed upon by two Valuers one to be nominated by
the Lessor and the other by the Lessees or in default of such agreement by
an Umpire appointed by the said Valuers…
The lessees duly gave notice of their desire to buy the reversions of three of
the leases, but the lessors refused to nominate a valuer and argued that the
agreement to do so was not binding.
Held the agreement was a binding contract (overruling an old line of
authority which had bound the Court of Appeal to find for the lessors).
The court would order an inquiry into a reasonable price, which the lessors
would have to accept. (I) Per Lord Diplock the option clause was a unilateral
contract which gave both parties obligations from the time that the lessees
gave the required written notice. One such obligation was to appoint a
valuer. (II) Per Lord Fraser ‘the clause should be construed as meaning that
the price was to be a fair price’. The machinery for setting the price was
incidental to this purpose and thus not essential to the contract (though it
would have been different for a contract which named a particular person
as valuer). If the chosen method breaks down the court can ‘substitute other
machinery to carry out the main purpose of ascertaining the price in order
that the agreement may be carried out’.
The lessee plaintiffs rented four industrial properties in Gloucester from the lessor defendants. All four lease agreements contained a provision akin to this one:
…that if the Lessees shall desire to purchase the reversion in fee simple in
the premises hereby demised and…shall give to the Lessor notice in writing
to that effect the Lessees shall be the purchasers of such reversion as from
the date of such notice at such price not being less than twelve thousand
pounds as may be agreed upon by two Valuers one to be nominated by
the Lessor and the other by the Lessees or in default of such agreement by
an Umpire appointed by the said Valuers…
The lessees duly gave notice of their desire to buy the reversions of three of
the leases, but the lessors refused to nominate a valuer and argued that the
agreement to do so was not binding.
Held the agreement was a binding contract (overruling an old line of
authority which had bound the Court of Appeal to find for the lessors).
The court would order an inquiry into a reasonable price, which the lessors
would have to accept. (I) Per Lord Diplock the option clause was a unilateral
contract which gave both parties obligations from the time that the lessees
gave the required written notice. One such obligation was to appoint a
valuer. (II) Per Lord Fraser ‘the clause should be construed as meaning that
the price was to be a fair price’. The machinery for setting the price was
incidental to this purpose and thus not essential to the contract (though it
would have been different for a contract which named a particular person
as valuer). If the chosen method breaks down the court can ‘substitute other
machinery to carry out the main purpose of ascertaining the price in order
that the agreement may be carried out’.
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