Time was not of the essence for payment of deposit when exercising option to purchase land (High Court)

The recent case of IAA Vehicle Services Ltd v HBC Ltd [2024] EWHC 1 (Ch) looked at whether time was of the essence for paying a deposit when exercising an Option to Purchase.

The facts of the case were that the claimant (C) was the tenant under three separate leases of commercial premises, each of which contained an option for the tenant to purchase the landlord’s reversionary interest.

The options provided that “upon valid exercise of the option” a binding agreement “shall come into existence”. The Standard conditions of sale required the buyer to pay a deposit of 10% of the purchase price “no later than the date of the contract”.

• The parties agreed that the options were validly exercised but the defendant landlord (D) argued that the resultant sale and purchase contracts were not binding because C failed to pay the required 10% deposits by midnight on the date it exercised the options.The High Court was therefore required to determine whether C was obliged to pay the 10% deposits (for each property) on or before the date of exercise of the options, whether non-payment of those deposits constituted a repudiation of the resulting purchase contracts, and whether D was entitled to treat those contracts as terminated.The High Court found in C’s favour holding that C’s failure to pay a deposit did not amount to repudiatory breach of contract, holding that:
• The requirement to pay the deposit could be distinguished from that in Samarenko v Dawn Hill House Ltd [2011] EWCA Civ 1445. The grant of the option fixed the sale price of the land some years ago and it was in C’s commercial interests to exercise the option and D’s to avoid it; C exercising the option clearly meant business, irrespective of payment of the agreed deposits.
• Due to the continued existence of the lease, D was not unduly fettered in its dealings with the properties by C’s failure to pay the deposit on time.
• The wording in the option agreements did not expressly state that time was of the essence in respect of payment of the deposits and the exercise of the option was not conditional on payment of the deposits.

Whilst naturally, each case will turn on its facts, the case once again highlights the need to take early legal advice when negotiating leases and options, to ensure that there is clear drafting as to the intentions or certain circumstances, but also so that you understand your agreements and the requirements placed on you to comply with them.

Our Legal 500 recognised Commercial Property Team have a wealth of experience advising on Leases and Options