Sale of land/Options/Specific performance - Coles & Ors v Samuel Smith Old Brewery(Tadcaster) & Anr
[2007] EWCA Civ 1461
The claimants (C) were tenants of first respondent (S). The tenancy agreement contained an option for C to acquire the unregistered freehold reversion. C failed to protect the option by registering a Class C(iv) land charge. In 2002 C gave notice exercising the option. S did not wish to sell the land to C, and so instead sold it to the second respondent (R), which was a wholly owned subsidiary of S, for its book value of just under ?8,000. It was common ground that the open market value of the land was well in excess of ?100,000.
C issued proceedings seeking specific performance of the purchase contract created by the exercise of the option. S and R resisted the claim on the basis that: (1) the effect of section 4(6) of the Land Charges Act 1972 (as also of section 13(2) of the predecessor 1925 Act) was that C's failure to register a (iv) land charge meant that the option was void for want of registration as against R, such that R could not be compelled to transfer the land to C; and (2) S could not itself be the subject of an order for specific performance as it no longer had title to the land, thereby leaving C with only a emedy in damages against S for breach of contract. The trial judge accepted the arguments of and S. In so doing, he rejected an argument by C that the sale by S to R was a sham which ntitled the court to pierce the court veil and so ignore the separate identity of R. C appealed.
The Court of Appeal held that:
(1) Although S and R were connected, and although the sale price had been substantially below open market value, that did not justify a finding that S's sale to R had been a sham. The option was, therefore, void as against R for want of registration.
(2) It did not follow, however, that S was thereby immune from an order for specific performance. Given that R was a wholly owned subsidiary of S, it was within S's power and control to compel R to transfer the land to C. As a consequence, S could properly be made the subject of an order for specific performance: Jones & Anr v Lipman & Anr [1962] 1 WLR 832 applied.
(3) In the light of (2), it was appropriate to direct that S should procure that R transferred the land to C for the purpose of completing S's contract with C.
CommentAlthough the trustees ultimately succeeded in their claim, it took them several years and a good deal of expense to achieve that result, none of which would have been necessary if they had taken the simple expedient of duly registering their estate contract.
As for the reluctant seller, all would have been well (save for the claim in damages, which it was content to endure) if it had transferred the land to an independent third party.
Source: Real Estate Update
