Option agreements - the court finds a way round the rule that an unregistered option is void against successors in title

The claimants were the tenant of a property owned by a brewery. They had been granted an option to purchase the freehold of the property. After they had exercised the option, but before the sale to them had been completed, the brewery transferred the property to its wholly-owned subsidiary. The sale was at book value, which was substantially less than market value.

The property was unregistered. The option should therefore have been registered as a land charge if it was to bind a purchaser. This was not done. The trustees claimed specific performance of the option agreement against both the brewery and its subsidiary.

Applying established case law, the Court of Appeal held that the sale to the subsidiary was genuine and not a sham. There was no requirement in the land charges legislation that the sale should be to a purchaser acting in good faith. Therefore, the claim for specific performance against the subsidiary failed.

However, the brewery was liable for breach of contract. Since the brewery had parted with the property, usually the only remedy would be in damages. However, it was within the brewery's power to compel its subsidiary to transfer the property to the claimants. Therefore the claimants were awarded specific performance of the option against the brewery.

Coles and others v Samuel Smith Old Brewery (Tadcaster) and another

Things to consider

The court was able to do justice to the claimants in this situation because of the relationship between the defendants. Where the purchaser is not a company which is controlled by the grantor of the option, the grantee of an unregistered option will be left with a remedy in damages.

This analysis was written by Sarah Allen (sarah_allen@wragge.com), associate in Wragge & Co's Real Estate group.

Easements, restrictive covenants, adverse possession, contracts, Landlord and Tenant Act 1954, Contracts (Rights of Third Parties) Act and planning. Wragge & Co's real estate experts bring you the latest property law issues.