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Definitions, definitions, definitions

Option agreements are a useful tool for landowners, promoters and developers. It allows time for promoters and developers to establish the true potential of the land before being committed to acquire it. Often, option agreements are only exercisable upon the grant of planning permission. The recent case of Fishbourne Developments Ltd v Stephens [2020] demonstrates how “trigger events” such as planning need to be carefully worded in order to initiate the option at the appropriate time.

The land subject to the option was 117 acres of farmland with a few farm buildings still in situ. Mr Saunders (who specialised in acquiring and promoting development land), would be granted the option to buy the land at 70% of the market value ‘if and when [Mr Saunders] obtains a Planning Permission’. Planning permission was defined as ‘a planning permission granted by the Local Planning Authority permitting any development of the Property’. This option agreement was drafted off the back of many previous, informal and overlapping agreements in an attempt to consolidate the terms. The vague definition of Planning Permission led to difficulties when the benefit of the option was sold on, ending up with Fishbourne Developments Ltd. Fishbourne obtained planning permission to install a pitched roof on one of the farm buildings and argued that this was sufficient to trigger the entire option agreement.

At first instance, the trial judge disagreed with Fishbourne stating that ‘development of the Property’ meant development of the whole or substantially the whole of the farm.  On appeal to the Court of Appeal, Fishbourne argued that there was no need to look at the surrounding circumstances or take the commercially sensible view. The words of the option agreement were unambiguous and ‘any development’ included the new roof.  The Court of Appeal upheld the high court. It applied commercial common sense that ‘development’ was a concept to be understood within the context of each agreement rather than the meaning attributed to it in section 55 of the Town and Country Planning Act 1990 (which was argued by Fishbourne). For the court, it made no commercial sense that Fishbourne should be allowed to acquire the farmland on an insubstantial planning permission at a 30% discount with little benefit to the landowner.

The most critical point of an option agreement is to know when it can be exercised. The courts will consider context where vaguely drafted terms would allow for a situation that would not make commercial common sense. Precise and detailed drafting is a must when defining the trigger event for the option. This then leaves little room for commercial context to step in and prevent the exercise of an option agreement.

Fishbourne Developments Ltd v Stephens [2020] EWHC 932 (Ch); Fishbourne Developments Ltd v Stephens [2020] EWCA Civ 1704.

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