Put option - validity of exercise - claimants taking assignment of lease with option to require defendant to take reassignment - whether valid exercise of option in circumstances where not all claimants remaining as tenants - whether option exercisable if lease reassigned to all claimants

BP Oil UK Ltd and others v Lloyds TSB Bank plc: ChD (Michael Brindle QC, sitting as a deputy judge of the division): 8 March 2004

By an agreement dated September 1998, the defendant assigned a 25-year lease of office premises to the three claimant companies.

The contract included a put option, stated to be 'personal and non-assignable', under which the claimants, as the 'purchaser', could require the defendant to take back the property by way of assignment in either September 2004 or September 2010.

In March 2003, the claimants sent a notice to the defendant, purporting to exercise the option as of September 2004.

At that time, not all of the claimants were tenants of the property, as the lease had been assigned to two of the three companies.

The defendant maintained that, in such circumstances, the claimants were not entitled to exercise the option.

The defendant also claimed that it was too late to reassign the property to all three claimants in order to overcome the problem, because the earlier assignment had rendered the option incapable of being exercised, regardless of subsequent events.

The claimants brought proceedings to determine: whether the option had been validly exercised by the March notice; and if not, whether the option could still be validly exercised if the lease were reassigned to all three companies.

Michael Barnes QC and James Ayliffe (instructed by Simmons & Simmons) for the claimants; Kirk Reynolds QC (instructed by Hammonds, Birmingham) for the defendant.

Held: The court ruled in favour of the defendant on the first issue and the claimants on the second.

Considered as a whole, the option agreement made sense only if the 'purchaser' was also the owner of the lease.

Otherwise, it would be hard to see why the option would not continue to be exercisable by the claimants even if they had assigned the lease to a third party wholly unconnected to them.

If that were so, the option could not be said in any real sense to be personal and non-assignable.

The option had not been validly exercised, and the first issue was to be determined in favour of the defendant: Olympia & York Canary Wharf Ltd v Oil Property Investments Ltd [1994] 2 EGLR 48 considered.

In principle, there was no reason why a party should lose the right to exercise an entitlement simply because it had assigned the benefit of the lease, provided that ownership of the right and of the property were reunited at the time of exercise.

There was no question of the option running with the land.

It was personal to the claimants, and they had to be the tenants when they exercised it.

If those requirements were satisfied it would be unjust and uncommercial for the claimants to be denied their rights: Max Factor Ltd v Wesleyan Assurance Society [1996] 2 EGLR 210 and Equinox Industrial (GP2) Ltd v Sketchley Ltd [2003] EWHC 2 (Ch); [2003] NPC 13 distinguished.