Does an Option Pass with the Lease?

In 2000, a landlord entered into a lease with its tenant and also gave the tenant an option to buy the freehold of the let property. The option agreement expired at the end of October 2004.

The tenant was a restaurateur whose business was not successful. It therefore surrendered its lease to the landlord in October 2000. It had previously assigned the option to purchase the freehold of the restaurant to another company, which subsequently took a lease over the building.

On 29 October 2004, the new tenant attempted to exercise the option to buy the premises. The owner of the building opposed this, claiming that the option could not be assigned separately from the lease.

The court examined the option agreement. This referred to the 'purchaser' and had nothing in it to indicate that it was in any way connected with the lease, it having been concluded in entirely separate documentation.

There was, therefore, no reason to conclude that the option could not be transferred to the new tenant by the old one.

The landlord also attempted to have the notice of exercise of the option served by the new tenant ruled to be invalid because the option agreement specified that a deposit of £10,000 was to accompany the notice. No deposit was sent. The option, the landlord argued, had therefore lapsed. However, the court ruled that the notice was clearly intended to create contractual relations and the option contract had within it sufficient remedies for non-compliance. The breach of contract created by the failure to enclose the deposit was not therefore fundamental – to be so, the option contract should have been specific on the point.

For Landlord and Tenant advice please contact Clare Magill on 01752 292354.