Sudbrook Trading Estate Ltd v Eggleton
House of Lords
Citations: [1983] 1 AC 444; [1982] 3 WLR 315; [1982] 3 All ER 1; (1982) 44 P & CR 153; (1983) 265 EG 215; (1982) 79 LSG 1175; (1982) 126 SJ 512; [1982] CLY 1776.
Facts
The litigants were parties to four separate leases of four adjacent industrial properties. One of the leases granted the lessees an option to ‘to purchase the reversion in fee simple in the premises hereby demised…at such price not being less than £12,000 as may be agreed upon by two valuers one to be nominated by the lessor and the other by the lessee and in default of such agreement by an umpire appointed by the… valuers’. The other leases had similar clauses, though the minimum price varied.
When the lessees tried to exercise the options, the landlords refused to appoint a valuer. The lessees sued for specific performance of their options. The landlords claimed that the option clauses were void because they were too uncertain: they failed to specify an exact price.
Issue(s)
- Were the option clauses sufficiently certain to be valid?
Decision
The House of Lords held in favour of the lessees. The clauses specified an objective mechanism to work out the price – the agreement of two valuers. It was implicit in the term that the valuers would agree on whatever price was fair and reasonable. This rendered the option sufficiently certain. It was therefore a valid option, and the lessees had used it to create a binding contract of sale.
Because the contractual mechanism for determining the price had broken down as a result of the landlords refusing to appoint a valuer, the court could step in. The Lords therefore held that the court was entitled to set a fair and reasonable price and grant an order for specific performance.
This Case is Authority For…
A contract is complete once the parties have agreed on all its essential terms. If the parties agree on an objective mechanism for determining the contract price, it will not be void for uncertainty. If that mechanism breaks down, for example because one party refuses to comply with the mechanism, the court may step in and set the price.
Lord Fraser thought that in this kind of contract, the ‘mode of ascertaining the value’ of the land was not necessarily an essential term of the contract. This turned on factors such as whether any method would do or a particular method was the only reasonable way of ascertaining the price. He implied that it was possible for an agreement to sell at a ‘fair and reasonable price’ to be sufficiently certain on its own.
Other
Options are unilateral offers, which the other party can accept by giving notice in accordance with the terms of the option. Doing so creates an immediate bilateral contract of sale.
Lord Russell of Killowen dissented. He did not think it proper to imply that the parties intended the price agreed to be ‘fair’ – each side would want the best deal. He also did not think the court should be able to substitute their own valuations if the contractual machinery broke down.
