This section is from the book "Dart's Treatise On The Law And Practice Relating To Vendors And Purchasers Of Real Estate", by J. Henry Dart . Also available from Amazon: A treatise on the law and practice relating to vendors and purchasers of real estate.
The conditions imposed on the exercise of an option are always strictly construed. All precedent conditions must be fulfilled by the purchaser before the contract for sale binds the vendor .(y). Moreover, time is of the essence of such contracts; hence, if the conditions are not complied with by the day fixed, the option is lost (z).
Options, strictly construed.
If notice of intention to exercise the option is required to be given by a named date, the Court will only relieve against failure to comply with the condition where the purchaser has been prevented from complying by the vendor's fraud (a), or where the vendor has in some other way by his conduct raised an Equity against himself which prevents him from contending that the option has expired (b). Where the contract fixes no date for the exercise of the option, the Court will try to discover from the terms of the agreement and the circumstances of the case the intention of the parties. If the option has not been exercised by the date at which the Court is of opinion that it was intended to be exercised, neither party can enforce it (c). But the Court cannot import a limit where none can be discovered from the terms of the contract (d); and where there is no limit, express or implied, the option will offend the rule against perpetuities (e).
Condition as to notice, when relieved against.
(y) Ranelagh v. Melton, (1864) 2 Dr. & Sm. 278; 34 L. J. Ch. 227; Weston v. Collins, (1865) 11 Jur. N. S. 190; 34 L. J. Ch. 353; Starkey v. Barton, 1909, 1 Ch. 284. As to what is a sufficient exercise of the option, see Powell v. Lovegrove, (1856) 8 D. M. & G. 357; Woods v. Hyde, (1862) 31 L. J. Ch. 295; Austin v. Tawney, (1867) 2 Ch. 143; 36 L. J. Ch. 339; Nicholson v. Smith, (1882) 22 Oh. D. 640; 52 L. J. Ch. 191; and as to notice sent by post, see Bruner v. Moore, 1904, 1 Ch. 305; 73 L.j. Ch. 377.
(z) Dibbins v. D., 1896, 2 Ch. 348; 65 L. J. Ch. 724; and see Radnor v. Shafto, (1805) 11 Ves. 448, 454; Dawson v. D., (1837) 8 Sim. 346.
(a) Spurgeon v. Collier, (1758) 1 Eden, 55; Barrell v. Sabine, (1684)
1 Vera. 268; Joy v. Birch, (1836) 4 Cl. & F. 57; Brooke v. Garrod, (1857) 2 D. & J. at p. 67; 27 L. J. Ch. 226; Dibbins v. D., 1896, 2 Ch. 348; 65 L. J. Ch. 724. A different rule prevails as to covenants for the perpetual renewal of a lease: Ross v. Worsop, (1740) 1 Bro. P. C. 281; Pendred v. Griffith, (1744) ib. 314; Sweet v. Anderson, (1772)
2 ib. 256; but cf. Hussey v. Domville, 1903, 1 I. R. 265.
(b) See Hughes v. Met. R. Co. (1877) 2 A. C. 439; Bruner v. Moore, 1904, 1 Ch. pp. 312, 313.
(c) Wentworth v. Hull & N. N. J. R. Co., (1891) 66 L. T. 190.
A condition requiring payment of the purchase-money on a named day must be complied with, even though no title has .been shown to the land (f). Where a lease contains an option of purchase on a certain length of notice being given and the option is exercised by giving the required notice, upon the expiration of such notice the relation of vendor and purchaser is created; but such a clause does not imply a condition that the purchase should be completed before the period of notice expires (g).
Purchase-money must be paid on day named.
An option contained in a lease granted under a power is invalid if the lease is invalid, unless there is a power to grant an option independently of a lease (h). Where a lease containing an option, granted by an absolute owner, is forfeited, the question whether the option is also destroyed seems to depend on whether, according to the construction of the instrument, the option was intended to be collateral to or an integral part of the lease (i). Where there is an option of purchase and notice is given to exercise it, but the money is not paid on the day named in such notice, the party is not precluded from serving a fresh notioe, provided that it is within the time allowed by the option (k). Nor is an option lost by the land being compulsorily acquired under the L. C. C. Act, before it becomes exercisable: but it is transferred to the proceeds of sale (l). Where the (transaction, though apparently a sale with a right of repurchase, is in reality a mortgage, the right of repurchase is treated as a right of redemption, and is not lost by failure to comply strictly with the conditions annexed thereto (m).
Option, when lost.
(d) L. & S. W. R. Co. v. Gomm, (1882) 20 Ch. D. at p. 580; 51 L. J. Ch. 530; and see Rider v. Ford, 1923, 1 Ch. 541, 546.
(e) 8ee inf. p. 252. (f) Brooke v. Garrod, sup. (g) Pegg v. Wisden, (1852) 16 Beav. 239.
(h) Re Hallet to Martin, (1883) 24 Ch. D. 624; 52 L. J. Ch. 804.
(i) Green v. Low, (1856) 22 Beav. 625; cf. Re Adams and Kensington Vestry, (1884) 27 Ch. D. 394; 54 L. J. Ch. 87.
(k) Ward v. Wolverhampton Waterworks Co., (1871) 13 Eq. 243: 41 L. J. Ch. 308.
(l) Re Cant, (1859) 4 D. & J. 503; 29 L. J. Ch. 119; Ex p. Hardy. (1861) 30 Beav. 206.
When the option has been effectually exercised, the ordinary relation of vendor and purchaser is established, subject, of course, to the terms of the contract creating the option. Hence the importance of inserting conditions as to title, etc, in a lease or other instrument creating an option. Thus a purchaser under an option is entitled (in the absence of special stipulation) to the same proof of title as he would be under an open contract (n), and the vendor is entitled by reasonable notice to make time the essence of the contract (o).
Effect of exercise of.
The option must be exercised by the person entitled thereto. Thus, notice required to be given by an "administrator" is of no effect if given by a person before the grant of letters of administration (p). An option to purchase given to a lessee and his assigns is not exercisable by an equitable assign (q). And a covenant in a lease conferring on the lessee an option of purchase is not one which runs with the land under L. P. Act, 1925, s. 142 (1) (r), so as to be binding on an assign of the lessor (s). A notice given by an unauthorised agent of the person entitled to exercise the option is not effectual, though ratified by the latter after the expiration of the time limited (t).
Notice, must be given by the right person;
(m) Secretary of State for India v. British Empire, etc. Life Ass. Co., (1892) 67 L. T. 434; and see Orby v. Trigg, (1722) 9 Mod. 2; 2 Eq. Ca. Abr. 599; Ponsford v. Hankey, (1861) 3 D. F. & J. 544; 6 L. T. 225; notes to Howard v. Harris, 2 Wh. & T. L. C. 9th ed. p. 21 et seq.
(n) Welchman v. Spinks, (1861) 5 L. T. 385.
(o) Crawford v. Toogood, (1879) 13 Ch. D. 153; 49 L. J. Ch. 108.
(p) Holland v. King, (1848) 6 C. B. 727.
(q) Friary Brewery, Ltd. v. Singleton. 1899, 1 Ch. 86; 68 L. J. Ch. 13; reversed on other grounds, 1899, 2 Ch. 261; 68 L. J. Ch. 622.
(r) Taking the place of 32 Hen. 8, c. 34, s. 2. and C. A. 1881, s. 11.
(s) Woodall v. Clifton, 1905, 2 Ch. 257; Re Leeds and Batley Breweries, Ltd. and Bradbury, (1920) 2 Ch. 548, 553 et seq.
(t) Dibbins v. D., 1896, 2 Ch. 348; 65 L. J. Ch. 724.
Notice of intention to exercise the option must be given to the proper persons. 'thus, where notice is required to be given to trustees, notice to one only is not sufficient (u).
And to the right person.
A tenant who remains in possession as yearly tenant after the expiration of a lease containing an option for the renewal of his lease is still entitled to exercise it (x). This does not apply where the option is stated only to be exercisable during the continuance of the lease. Similarly, an option contained in a partnership deed for the survivor to purchase the other's share, has been held still subsisting where the partners had continued their partnership without any express agreement long after the expiration of the partnership term (y). Where a lease containing an option of purchase is assigned, the benefit of the option passes to the assignee (2); but where there is such an option, and an agreement is entered into that the "lease be extended," this does not make the option exercisable during the extended term (a).
Option for renewal of lease.
A covenant giving an option to purchase land, unless so framed as only to be enforceable during the life of the covenantor (6), must be restricted so as not to offend the rule against perpetuities (c). But the personal remedy of the covenantee under a covenant giving an option to acquire accommodation works is not subject to the rule against perpetuities (d); nor is such rule applicable to a covenant for perpetual renewal in a lease (e).
When void for perpetuities.
(u) Sutcliffe v. Wardle, (1890) 63 L. T. 329.
(x) Moss v. Barton, (1866) 1 Eq. 474; Buckland v. Papillon. (1866) 1 Eq. 477; 2 Ch. 67; 36 L. J. Ch. 81; and see Pyke v. Northwood, (1838) 1 Beav. 152; cf. Cookson v. C, (1837) 8 Sim. 529; 6 L. J. N. S. Ch. 337.
(y) Essex v. E., (1855) 20 Beav. 442; Cox v. Willoughby, (1880) 13 Ch. D. 863; 49 L. J. Ch. 237.
(z) See Batchelor v. Murphy, 1925, Ch. 220.
(a) Sherwood v. Tucker, 1924, 2 Ch. 440.
(b) See Stocker v. Dean, (1852) 16 Beav. 161.
(c) L. & S. W. R. Co. v. Gomm, (1882) 20 Ch. D. 562; 51 L. J. Ch. 530; Woodall v. Clifton, 1905, 2 Ch. 257; Worthing Corp. v. Heather, 1906, 2 Ch. 532; Rider v. Ford, 1923, 1 Ch. 541.
(d) S. E. R. Co. v. Associated Portland Cement Manufacturers, 1910, 1 Ch. 12.
(e) Hare v. Burges, (1857) 4 K. & J. at p. 57; 27 L. J. Ch. 86;
To satisfy s. 40 of the L. P. Act, 1925 (f), the contract creating the option must either fix, or provide means of ascertaining, the price. Hence it is conceived that the only effect of a contract to give a right of pre-emption or a "first refusal," which provides no means of ascertaining the price, is to oblige the vendor to sell to the owner of the option in preference to a third party. The vendor is under no obligation to sell at all, but if he does, he must first give the owner of the option the opportunity of buying at the same price at which he proposes to sell to the third party. The vendor cannot offer the property to the owner of the option at a price which he has no reasonable expectation of obtaining elsewhere, and then, on refusal of his offer, sell to a third party at a lower price (g). A contract to make a "fair and reasonable offer " without reference to offers made by a third party, is, it is conceived, too vague to be enforced (g).
Contracts of pre-emption.
It has been held that an option to buy lots at prices to be fixed by the vendors, not being higher than those "the public will be asked to pay," does not entitle the purchaser to buy at the reserve prices fixed for an auction (h). Rights of pre-emption affecting a legal estate take effect (after 1925) as equitable interests only (i). Such rights, if created on or after the let January, 1926, or created before that date but assigned after that date, constitute estate contracts within the Land Charges Act, 1925, s. 10, Class "C" (iv). If land charges in respect thereof have not been registered at the date of completion of a purchase, the purchaser takes free therefrom (k).
Moore v. Clench, (1875) 1 Ch. D. 447, 452; 45 L. J. Ch. 80; L. & S. W. R. Co. v. Gomm, sup. at p. 579; Rider v. Ford, sup.
(f) Replacing s. 4 of the Statute of Frauds.
(g) Manchester Ship Canal Co. v. Manchester Racecourse Co., 1900, 2 Ch. 352; 1901, 2 Ch. 37; 69 L. J. Ch. 850; 70 ib. 468. But see Ryan v. Thomas, (1911) 55 Sol. Jo: 364.
(h) Frewen v. Hays, (1912) 106 L. T. 516.
(i) L. P. Act, 1925, s. 186.
(k) L. G. Act, 1925, ss. 13 and 14.