JUDGMENT
Multi-Link Leisure Developments Limited
(Appellant) v North Lanarkshire Council
(Respondent) (Scotland)
before
Lord Hope, Deputy President
Lord Rodger
Lady Hale
Lord Clarke
Sir John Dyson, SCJ
JUDGMENT GIVEN ON
17 November 2010
Heard on 12 October 2010
Appellant Respondent
Stuart Gale QC James Mure QC
William Frain-Bell James Findlay
(Instructed by Anderson
Fyfe LLP)
(Instructed by Dundas &
Wilson CS LLP)
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LORD HOPE
1. The issue in this appeal is about the proper construction of an option clause
in a lease of land at Cumbernauld. The lease was entered into between the
appellants, Multi-Link Leisure Developments Limited, (“the tenants”) and the
respondents, North Lanarkshire Council, (“the landlords”). It granted to the tenants
an option to purchase the leased subjects. This was to be at a price to be
determined by the landlords according to an agreed formula if the option to
purchase was exercised subsequent to the first year of let. The tenants have
exercised the option, but they disagree with the landlords as to the price that must
be paid for its exercise according to that formula. They contend that the effect of
the option clause is that the price is to be determined without reference to any
increase in value that may be attributed to the subjects on the ground that it is
likely that planning permission will be granted for housing development. The
landlords, on the other hand, contend that the option clause, properly construed,
does not envisage that there should be any discount of any element attributable to
the potential of the subjects for development.
2. The difference between these two approaches as to the meaning of the
option clause is very substantial. The tenants say that the full market value of the
subjects, for the purposes of the option clause, is £500,000. They seek declarator
that this is the price that is payable for the purchase of the subjects by the tenants
to the landlords. The landlords say that the full market value of the subjects, taking
account of their potential for development, is £5.3 million and that, as the tenants
have exercised the option, this is the price that must be paid. The tenants have
refused to pay any more than £500,000, so the answer to the question which
approach is right will determine whether the option contract remains in force. The
parties are agreed that, if the tenants are right, the contract remains in force and the
landlords will require to value the subjects anew on the basis of the construction of
the clause contended for by the tenants. They are also agreed that, if the landlords
are right, the option is spent and can no longer be exercised during the remaining
term of the lease.
The factual background
3. The case was argued in the Court of Session on the basis of the parties’
pleadings and various documents which had been lodged in process. No oral
evidence was led as to the surrounding circumstances. The only facts that were
before the Lord Ordinary were those that could be ascertained from the parties’
averments. The argument concentrated for the most part on the wording of the
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option clause itself. Reference was also made to some other provisions in the lease
which might assist as to the meaning of the option clause.
4. The lease is dated 18 January and 11 February 2000. It was varied by a
minute of variation of lease dated 13, 24 and 29 November 2001, by which an
error in the extent of the ground leased was corrected and a new plan relative to the
lease was substituted. The subjects comprise an area of ground extending to about
34.32 hectares located at East Waterhead Farm about a mile east of the town centre
of the Cumbernauld. It had previously been in use for agricultural purposes. In
terms of clause 2 of the lease the date of entry was 1 June 1999. The lease was to
endure for 50 years until 31 May 2049.
5. Clause 5 of the lease provided for rent reviews every five years. In the event
of the parties failing to agree, the amount of the revised rent was to be referred to
arbitration. The arbiter was to be instructed to assess the rent on the basis of the
open market rent, no account being taken of works effected by the tenants or on
their behalf. By clause 9 it was provided that the tenants were to occupy and use
the subjects for the development of a pay and play golf course and ancillary
activities incidental to that use, and for no other purpose whatever without the
prior express written consent of the landlords. It was also provided that if the golf
course was not developed within five years of the date of entry, or if the subjects
of lease were to cease to be used for that purpose, the lease was to terminate with
immediate effect. By clause 12 it was provided that the tenants were bound at their
own expense to provide an efficient drainage system for the subjects and to bear
the whole expense of maintaining it in efficient working order. It is agreed that a
golf course was duly developed within five years of the date of entry, and that the
land is still being used as a pay and play golf course.
6. By clause 18.1 the tenants were given an option to purchase the subjects
during the currency of the lease. No period of notice was required if the tenants
decided to exercise the option to purchase during the first year of the period of let.
In that event the option price was to be the sum of £130,000. Thereafter the tenants
had to give the landlords not less than twelve months notice in writing prior to the
proposed date of entry for the purchase if they wished to exercise it.
7. The dispute between the parties is as to the effect of clause 18.2, which is in
these terms:
“The price to be paid by Multi-Link in terms of this clause (“the
option price”) shall, if the option to purchase is exercised within the
first year of the period of let, be the sum of ONE HUNDRED AND
THIRTY THOUSAND POUNDS (£130,000) STERLING. The
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option price, if the option to purchase is exercised subsequent to the
first year of let, shall be equal to the full market value of the subjects
hereby let as at the date of entry for the proposed purchase (as
determined by the landlords) of agricultural land or open space
suitable for development as a golf course but, for the avoidance of
doubt, shall be not less than the sum of ONE HUNDRED AND
THIRTY THOUSAND POUNDS (£130,000) STERLING. In
determining the full market value (i) the landlords shall assume (a)
that the subjects hereby let are in good and substantial order and
repair and that all obligations of the landlords and the tenants under
this lease have been complied with, and (b) that the subjects hereby
let are ready for occupation, and (ii) the landlords shall disregard (a)
any improvements carried out by the tenants during the period of this
lease otherwise than in pursuance of an obligation [to] the landlords,
and (b) any damage to or destruction of the subjects hereby let.”
By clause 18.6 it was provided, for the avoidance of doubt, that the option to
purchase was personal to Multi-Link and that it was to be exercisable only so long
as they were tenants under the lease.
8. The tenants first expressed an interest in exercising the option to purchase
in 2005. On 14 March 2005 their solicitors wrote to the landlords seeking to know
the price that they would seek for the subjects. By letter dated 29 June 2005 the
landlords proposed a price of £500,000, subject to the tenants entering into a
minute of agreement, fortified by a standard security, to the effect that an
additional sum, to be agreed, would be payable in the event of a change of use
generating a higher value for the land. The tenants were not willing to agree to this
proposal. In 2006 the prospect of a change of use generating a higher value was
confirmed by the publication in 2006 of the Glasgow and Clyde Valley Joint
Structure Plan which identified as one of three priorities for development in the
South Cumbernauld Community Growth area, within which the subjects of the
lease are situated. In 2008 the North Lanarkshire Finalised Draft Local Plan
identified the area as a potential area for housing-led urban expansion. The
landlords’ position, as explained in their averments, is that it would be
unreasonable for them to fail to have regard to this planning background when
determining the price payable under clause 18.2.
9. By letter dated 8 October 2007 the tenants’ solicitors served on the
landlords notice of their decision to exercise the option, with entry one year later
on 8 October 2008. They invited the landlords to provide them with their views as
to the full market value of the subjects as defined by clause 18.2. By letter dated 4
November 2008 the landlords’ solicitors intimated that they fixed the price at £5.3
million. The tenants made further proposals as to the option price, but they were
rejected by the landlords. By a letter dated 22 January 2009 the landlords served
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formal notice on the tenants requiring them within 28 days to pay £5.3 million in
exchange for a valid marketable title, failing which the landlords would be entitled
to rescind the contract resulting from the exercise of the option in clause 18. The
tenants did not comply with these conditions. So by letter dated 25 February 2009
the landlords served on the tenants a formal notice of rescission of the option
contract and the purchase and sale of the subjects resulting from the notice of 8
October 2007.
10. The tenants then raised the present action in which they seek declarator that
their option to purchase has not validly been rescinded and that on a proper
construction of clause 18.2 the landlords are bound to determine the full market
value of the subjects as agricultural land or open space suitable for a golf course,
without reference to any increase in value which may be attributable to the fact
that is likely that planning permission will be granted for housing development
there. The Lord Ordinary, Lord Glennie, held on 31 July 2009 that the obvious
meaning of the words used in clause 18.2 was that the full market value was to be
assessed by reference only to the use of the subjects as a golf course, and he made
the declarations that the tenants had asked for: [2009] CSOH 114, 2009 SLT 1170.
The landlords reclaimed, and on 30 December 2009 an Extra Division (Lords
Carloway and Hardie and Sir David Edward QC) allowed the reclaiming motion:
[2009] CSIH 96, 2010 SC 302. It held that the words “full market value” were to
be construed as meaning what they said and that considerations that might be
relevant to market value were not to be ignored unless there were express words to
that effect: para 28. Decree was pronounced in terms of the conclusion to the
landlords’ counterclaim. This was to the effect that the contract resulting from the
exercise of the option clause had been rescinded, the option was spent and it could
not be exercised during the remaining term of the lease.
The option clause
11. The court’s task is to ascertain the intention of the parties by examining the
words they used and giving them their ordinary meaning in their contractual
context. It must start with what it is given by the parties themselves when it is
conducting this exercise. Effect is to be given to every word, so far as possible, in
the order in which they appear in the clause in question. Words should not be
added which are not there, and words which are there should not be changed, taken
out or moved from the place in the clause where they have been put by the parties.
It may be necessary to do some of these things at a later stage to make sense of the
language. But this should not be done until it has become clear that the language
the parties actually used creates an ambiguity which cannot be solved otherwise.
12. The option clause can, for the purposes of analysis, be broken down into the
following parts:
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(1) the opening words, which state that the option price “shall be equal to
the full market value of the subjects hereby let”;
(2) the direction that the option price is to be determined “as at the date of
entry for the proposed purchase”;
(3) the words “as determined the landlords” which then follow in
parenthesis, indicating by whom the option price as at the date of entry is to
be determined;
(4) the direction that the full open market value is to be “of agricultural land
or open space suitable for development as a golf course but, for the
avoidance of doubt shall be not less than the sum of one hundred and thirty
thousand pounds (£130,000) sterling.”
(5) the direction that in determining the full market value the landlords
“shall assume (a) that the subjects hereby let are in good and substantial
order and repair and that all obligations of the landlords and the tenants
under this lease have been complied with, and (b) that the subjects hereby
let are ready for occupation”; and
(6) the direction that in determining the full market value the landlords
“shall disregard (a) any improvements carried out by the tenants during the
period of this lease otherwise than in pursuance of an obligation [to] the
landlords, and (b) any damage to or destruction of the subjects hereby let”.
[The word “to” is inserted to make good an obvious omission from this part
of the clause as printed in the lease.]
The problem
13. The Lord Ordinary said that there were certain parts of the clause that could
safely be disregarded: para 5. He omitted the provision that the option price should
be not less than £130,000. He also omitted the reference to the date of entry. It was
agreed before him that the words “as determined by the landlords” were misplaced
as that they should be in close proximity to the words “full market value”. So he
decided to omit those words too. This left him with the words in parts (1) and (4)
to (6) of the foregoing analysis, less the reference to the figure of £130,000. He
then said, in his summary of counsel for the pursuer’s argument in para 8, that the
valuer was being asked to assume that the purchase was “for development as a golf
course” [the emphasis is mine]. In para 9 he said that he accepted that the option
price was to be equal to the “full market value”, but that when one asked oneself
“of what” the answer was “the full market value of the subjects for the proposed
purchase of land suitable for development as a golf course”. He said that this was a
clear pointer to the sole use to which the valuer must have regard when assessing
the full market value of the subjects. The purpose in inserting in clause 18(2) that
“the proposed purchase was for development as a golf course”, as he saw it, was to
restrict the assumed use by reference to which the subjects were to be valued
[again, the emphasis is mine]. He found support for this approach in the
assumptions set out in part (5) of the foregoing analysis.
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14. I have italicised the words “for development” in my quotations from the
Lord Ordinary’s opinion in the previous paragraph to draw attention to the fact that
when he was construing the option clause he departed from the words that the
parties themselves had used. The words in the relevant part of the clause, which is
part (4) of the foregoing analysis, are “of agricultural land or open space suitable
for development as a golf course” [again, my emphasis]. Taking the words that the
parties themselves used, this is a description of the state of the subjects as they are
to be taken to be in as at the date of entry. It is not a direction about the purpose for
which they are being purchased. If it had been, it would have been an easy step to
conclude that the full market value must be taken to be restricted by the assumed
use. That is how one would construe the words “open market rent” for the
purposes of the rent reviews referred to in clause 5, as the open market rent must
be determined by reference to the use of the subjects that is permitted by the lease.
In Arthur Bell & Sons v Assessor for Fife [1965] RA 535, 540-541 Lord Avonside
said, with reference to the estimation of the annual value of subjects under the
Valuation and Rating (Scotland) Act 1956, that it was notorious that one must take
a building according to its use at the time of the valuation. But the insertion of a
description as to the assumed state of the subjects as at the date of entry for the
proposed purchase under the option clause does not have that effect. It permits
account to be taken of the way land in that state might be expected to be used in
the future, including its being used for development. The Lord Ordinary’s
omission of the words “as at the date of entry for the proposed purchase (as
determined by the landlords)” made it easier for him to conclude, wrongly in my
opinion, that this was a direction about the purpose for which the subjects were
being purchased. These departures from the words the parties themselves used
were crucial to the Lord Ordinary’s reasoning, and I do not think that his
interpretation of the option clause can be accepted.
15. The Extra Division, for its part, based its conclusion as to the meaning of
the option clause on the weight which is said should be given to the words “full
market value”: paras 27, 28. The problem with this approach, however, is that it
pays no regard to the words which follow, especially to the assumptions and
disregards in parts (5) and (6) of the foregoing analysis. Had the words “full
market value” stood alone, it would have been plain that the value was to be
determined by reference to the uses to which the land was reasonably capable of
being put in the future: Raja Vyricherla Narayana Gajapatiraju v The Revenue
Divisional Officer, Vizagapatam [1939] AC 302, 313; see also Griffiths v WE &
DT Cave Ltd (1998) 78 P&CR 8, 14. It is the words which follow that give rise to
difficulty, when an attempt is made to construe the clause as a whole.
16. Parts (1) to (4), taken by themselves and read according to the words used,
tell the valuer what the subjects are to be assumed to be and how they are to be
valued. The subjects are assumed to be agricultural land or open space suitable for
use as a golf course, and they are to be valued at their full market value. This
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approach to the option price makes commercial sense. The assumption describes
the land as it was at the date of entry to the lease. But once the option is exercised
all restrictions on the use of the land fly off. The tenants will become the owners of
the land. They will be free to sell it on to a third party at its full market value or to
use it themselves for any use whatever that will get planning permission. Both
parties to the lease, if they had applied business commonsense, would have been
aware of the advantages that ownership would confer on the tenant in the event of
the option clause being exercised. This suggests that, if it had been their intention
to restrict the option price to the value of the subjects as a golf course and to
exclude any value attributable to their potential for development, they would have
said so.
17. The problem, however, is that they then added the assumptions and
disregards set out in parts (5) and (6). Their function is not hard to understand if
the full market value is to be determined simply on the basis that the subjects are to
be assumed to be agricultural land or open space suitable for development as a golf
course. What they require the valuer to do is to make further assumptions which
tend to indicate that he is to value the subjects strictly according to their actual
state and existing use as at the date of entry for the proposed purchase,
disregarding tenants’ improvements and any damage to or destruction of the
subjects. Yet these assumptions and disregards are introduced by the words “in
determining the full market value”, which in themselves contain no hint of any
restriction on the nature of the market to which the valuer may look when he is
conducting this exercise. This part of the clause looks as if it has been borrowed
from a different lease without regard to the context. But the words are there as
part of the option clause. So it is not possible simply to ignore them.
18. Lord Rodger says that it is helpful to start with the assumptions and
disregards that the landlords are to apply when determining the full market value:
para 28. I do not disagree with this approach, which is both logical and helpful. Of
course, it all depends on what the question is that one is trying to answer. If this
was a case where there was no question of any development value, the
assumptions and disregards would indeed be central to a proper understanding of
the approach to value. Contrary to what the landlord’s valuer in this case thought,
and the parties accepted in the Inner House, they do not indicate that all capital
expenditure by the tenants is to be disregarded. The disregard extends only to
improvements carried out by the tenants otherwise than in pursuance of an
obligation to the landlords. But the inquiry cannot end there. As the valuer himself
said at the end of para 3.0 of his report, use as a golf course might not represent the
full market value in view of the planning assumptions that he addressed in para
4.0. Development value was likely to completely eclipse any value that might be
attributed to the subjects in their existing use. The question whether the planning
assumptions can be taken into account too is the crucial question in this case. The
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assumptions and disregards do not mention this point, so one has to look at the
whole clause to see what it means.
The solution
19. I do not think that it is possible to reconcile the assumptions and disregards
with the earlier parts of the option clause. They seem to me to be approaching the
question of value on different bases. The assumptions and disregards are designed
to settle the basis for a purchase of subjects in their existing use. The earlier parts
of the clause are designed to settle the price for the purchase of subjects that will
have a value in the open market that takes account of their potential for
development. In this situation the solution must be found by recognising the poor
quality of the drafting and trying to give a sensible meaning to the clause as a
whole which takes account of the factual background known to the parties at the
time when the lease was entered into.
20. Support for this approach is to be found in the following passage from the
judgment of Lord Bridge of Harwich in Mitsui Construction Co v AttorneyGeneral of Hong Kong (1986) 33 BLR 1, 14, where he said:
“The poorer the quality of the drafting, the less willing any court
should be to be driven by semantic niceties to attribute to the parties
an improbable and un-businesslike intention, if the language used,
whatever it may lack in precision, is reasonably capable of an
interpretation which attributes to the parties an intention to make
provision for contingencies inherent in the work contracted for on a
sensible and businesslike basis.”
In Ravennavi SpA v New Century Shipbuilding Co Ltd [2007] 2 Lloyds Rep 24,
para 12 Moore Bick LJ said:
“Unless the dispute concerns a detailed document of a complex
nature that can properly be assumed to have been carefully drafted to
ensure that its provisions dovetail neatly, detailed linguistic analysis
is unlikely to yield a reliable answer. It is far preferable, in my view,
to read the words in question fairly as a whole in the context of the
document as a whole and in the light of the commercial and factual
background known to both parties in order to ascertain what they
were intending to achieve.”
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21. It has, of course, long been recognised that the commercial or business
object of the provision in question may be relevant: Prenn v Simmonds [1971] 1
WLR 1381, 1385 per Lord Wilberforce; see also Aberdeen City Council v Stewart
Milne Group Ltd [2010] CSIH 81, para 11, although I think that the way this issue
should be approached is less clearly explained in the 19th century Scottish cases
referred to by the Extra Division in that paragraph (Mackenzie v Liddell 1883 10 R
705, Bank of Scotland v Stewart 1891 18 R 957, Jacobs v Scott & Co 1899 2 F
(HL) 70). In Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC
191, 201, Lord Diplock said that if detailed and syntactical analysis of words in a
commercial contract is going to lead to a conclusion that flouts business
commonsense, it must yield to business commonsense; see also Investors
Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896,
913 where Lord Hoffmann included this as the fifth of his common sense
principles. In Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd
[1997] AC 749, 771 Lord Steyn, making the same point, said that words are to be
interpreted in the way in which a reasonable commercial person would construe
them, and that the standard of the reasonable commercial person is hostile to
technical interpretations and undue emphasis on niceties of language; see also
Bank of Scotland v Dunedin Property Investment Co Ltd 1998 SC 657, 661 per
Lord President Rodger. In Deutsche Genossenschaftsbank v Burnhope [1995] 1
WLR 1580, 1587, however, Lord Steyn reminded us that our law of construction is
based on an objective theory, and he emphasised the objective nature of the
exercise of searching for meaning of language in its contractual setting:
“The court must not try to [divine] the purpose of the contract by
speculating about the real intention of the parties. It may only be
inferred from the language used by the parties, judged against the
objective contextual background.”
22. What then of the objective commercial background in this case? The
landlords are a local authority. They were under a statutory duty not to dispose of
land for a consideration less than the best that could reasonably be obtained: Local
Government (Scotland) Act 1973, section 74(2). The tenants are a commercial
organisation. They are in business to make money. They undertook to use the
subjects during the period of the lease for the development of a pay and play golf
course and for no other purpose without the prior express written consent of the
landlords. But a successful exercise of the option would transfer to them all the
rights of ownership, which they could be expected to turn to their financial
advantage if the opportunity of doing so were to present itself. The land itself was
in use as grazing land when the lease was entered into. It was situated about a mile
from the town centre and the lease was entered into for a period of fifty years. It
can be inferred from the price that was agreed for the exercise of the option within
the first twelve months that at that stage there was no evidence that it had any hope
value and that it was thought to be suitable only for recreational activities. But
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much can change within a period of fifty years, and there has been no indication
that there were any planning constraints such as a designation of the land as part of
a green belt that would inhibit its potential for development.
23. The land has now been identified as lying within a potential area for
housing-led urban expansion. If the tenants are right, acquiring the land at a price
which ignores its potential for development will provide them with a very
substantial windfall at the expense of the landlords. This was something that the
wording of the option clause might have been expected to guard against. The
tenants, on the other hand, did not ensure that the opportunity to obtain a windfall
in circumstances such as have now arisen was expressly provided for. I do not
think that the assumptions and disregards at the end of the option clause, which sit
uneasily with the clause when read as a whole, carry sufficient weight to overcome
the message conveyed by its opening words by attributing to them the meaning
that the tenants contend for. They indicate that the parties were agreed that the
option price was to be determined by the full market value of the land as described,
taking full account of its potential, if any, for development. That is what
reasonable commercial men would have agreed to when the lease was entered into,
if they had applied their minds to the benefits that would accrue to the tenants if
they were to exercise the option to purchase. I would hold that it must be taken to
be what the parties agreed to in this case.
Conclusion
24. Although I prefer not to endorse the Extra Division’s reasoning, I consider
that it arrived at the right result. I would dismiss the appeal and affirm the Extra
Division’s interlocutor.
LORD RODGER
25. Lord Hope has set out the background and the wording of the clause which
the Court has to interpret. I can accordingly explain my approach very briefly.
26. As their name suggests, Multi-Link Leisure Developments (“Multi-Link”)
are a commercial company operating in the leisure field. They leased land near
Cumbernauld from the North Lanarkshire Council to construct a golf course. This
was a commercial venture: the course was to be a pay and play course. In these
circumstances it is appropriate to treat the lease as a commercial agreement which
is to be construed accordingly. It is therefore noteworthy that Multi-Link’s
interpretation of the disputed clause of the lease produces a result – whether or not
appropriately described as “a windfall” – which it seems unlikely that the parties to
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a commercial agreement would ever have intended: that Multi-Link should be
able to buy the land for a sum that takes no account of its (substantial) hope value.
That result is even more surprising when the clause provides that, in the
circumstances which have occurred, the price is to be “the full market value” of
the subjects.
27. Nevertheless, something has gone wrong with the drafting of the relevant
clause, Clause 18.2. So no construction is ever going to produce perfect harmony
among all its elements. The Lord Ordinary proceeded by stripping out various
pieces of the text, including the reference to the date of entry. As a result he
produced a version which included the phrase “for the proposed purchase … of
agricultural land or open space suitable for development as a golf course”: MultiLink Leisure Developments Ltd v North Lanarkshire Council 2009 SLT 1170,
1172, para 5. But, as Sir John Dyson pointed out in the course of argument, words
in Clause 18.1 (“prior to the proposed date of entry for the purchase”) show that
the words “for the proposed purchase” in Clause 18.2 are actually part of the
description of the date of entry, which the Lord Ordinary had omitted. It is
therefore not easy to use them to construct the phrase to which the Lord Ordinary
attached so much importance.
28. When translating a document written in a foreign language, it often makes
sense to start with the parts whose meaning is clear and then to use those parts to
unravel the meaning of the parts which are more difficult to understand. The same
applies to interpreting contracts or statutes. Here, since their meaning is not really
in doubt, I find it helpful to start with the assumptions and disregards that the
landlords are to apply when determining the full market value.
29. First, the landlords are to assume that the subjects are in good and
substantial order and repair and that all the obligations of the landlords and tenants
under the lease have been complied with. Since more than five years have passed,
this means, in particular, that the landlords are to proceed on the basis that the golf
course, which the tenants were obliged to construct in terms of Clause 9, has
indeed been constructed and is in good order and repair. In fact, the golf course has
been duly created. So Multi-Link are to pay for the golf course on the assumption
that it is in good condition.
30. The Extra Division, who did not refer to this part of Clause 18.2, proceeded
on the basis that, in assessing the full market value, the landlords were to ignore
anything done by the tenants to develop the golf course: Multi-Link Leisure
Developments Ltd v North Lanarkshire Council 2010 SC 302, para 26. This was
understandable, since, curiously enough, it was the basis upon which both parties
proceeded in the Inner House and – in the face of some resistance – in this Court.
Nevertheless, I am quite unable to approach the interpretation of the clause on that
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basis since it is inconsistent with the specific direction in the later part of the
clause.
31. The suggestion seemed to be that the words “of agricultural land or open
space suitable for development as a golf course” meant that the landlords were to
value the subjects as if the golf course had not been developed and that this was
justified because, otherwise, Multi-Link would be paying twice over for the
development of the course. But that approach is utterly inconsistent with the
assumption that is spelled out in the later part of the clause. And that assumption
itself is entirely consistent with Clause 21, which provides that, at the expiry or
termination of the lease, the tenants are to yield up the subjects “with any buildings
and others thereon well and substantially maintained in accordance with the
obligations hereinbefore specified and that without any compensation being paid
therefor.” Since, on its expiry or termination, Multi-Link are not to be paid for the
buildings etc which they may have constructed in accordance with their
obligations under the lease, it would make no sense whatever if they could buy the
subjects under the option without paying for the same buildings etc. In effect, the
cost of constructing the golf course in terms of Clause 9 is treated as part of the
consideration which Multi-Link provide in return for the lease of the land.
Therefore, as the assumption makes clear, if Multi-Link want to buy a completed
golf course, they have to pay for it.
32. On the other hand, the landlords are to disregard any improvements which
the tenants may have carried out “otherwise than in pursuance of an obligation [to]
the landlords”. Again, this makes sense, since those improvements form no part of
the consideration for the lease. So, having paid to make these improvements which
they were not obliged to make, the tenants should not have to pay again if they buy
the land.
33. In my view the problematical words “of agricultural land or open space
suitable for development as a golf course” cannot be construed in a manner that is
inconsistent with the clear directions as to the assumptions which the landlords are
to adopt in assessing the full market value. In the circumstances of this case they
have to value the golf course which has been laid out and they have to do so on the
basis that it is in good and substantial order and repair. If Multi-Link have carried
out other improvements which they were not obliged to carry out, these are to be
ignored.
34. If the landlords proceed in this way, they will comply with the instructions
in the clause. And, if there were no other elements in the picture, no doubt they
would be able to assess what someone wanting to buy a golf course would pay for
this course in this area. But the instructions in the clause do not tell the landlords to
ignore any other factor which might be relevant to the value of the golf course.
Page 14
And there is indeed a further, very significant, factor: in 2006 the Glasgow and
Clyde Valley Joint Structure Plan identified the area where the land lies as a
community growth area for an indicative capacity of 2,000 houses. In addition, in
2008 the final draft of the relevant Local Plan identified that community growth
area as a suitable location for medium-term housing development.
35. Obviously, these changes mean that the possible purchasers of the golf
course would now include developers who were interested in acquiring the land,
not as a golf course, but as a site for a possible housing development. So the
potential value of the golf course on the open market will have increased
accordingly.
36. Multi-Link contend, however, that the words “of agricultural land or open
space suitable for development as a golf course” show that this factor and this
increase in value are to be ignored. The valuation is to proceed on the basis that the
land is to be used as a golf course and nothing else. Given that – apart from
planning considerations – there is no limit on the use to which the land could be
put if Multi-Link successfully exercised their option to purchase it, that would be a
highly unusual and artificial approach to valuation – far less to determining “the
full market value” of the land. Construing Clause 18.2 as a whole and as part of a
commercial agreement, I am satisfied that the words in question are not to be
interpreted as requiring the landlords to adopt this unusual approach and to ignore
the hope value. Had the parties intended the landlords to assume that the land was
to be used only as a golf course, I would have expected to find that assumption
included among the others at the end of the clause. For these reasons the landlords
are entitled to have regard to the hope value of the golf course when assessing its
full market value.
37. Although my reasoning is different, I agree with the result reached by the
Extra Division. I would accordingly dismiss the appeal. It will be up to the parties
to work out how, if at all, they are to arrange for the lease to be terminated and the
hope value to be unlocked.
LADY HALE
38. We are required to construe the following words:
“The Option price, if the Option to purchase is exercised subsequent
to the first year of let, shall be equal to the full market value of the
subjects hereby let as at the date of entry for the proposed purchase
(as determined by the Landlords) of agricultural land or open space
Page 15
suitable for development as a golf course but, for the avoidance of
doubt, shall be not less than the sum of ONE HUNDRED AND
THIRTY THOUSAND POUNDS (£130,000) STERLING. In
determining the full market value (i) the Landlords shall assume (a)
that the subjects hereby let are in good and substantial order and
repair and that all obligations of the Landlords and the Tenants under
this Lease have been complied with, and (b) that the subjects hereby
let are ready for occupation, and (ii) the Landlords shall disregard (a)
any improvements carried out by the Tenants during the period of
this Lease otherwise than in pursuance of an obligation the
Landlords, and (b) any damage to or destruction of the subjects
hereby let.” (emphasis supplied)
39. The puzzle is what those italicised words are meant to mean. There are at
least four possible meanings of the term taken as a whole: (i) the value of the land
as agricultural land or open space suitable for development as a golf course,
without any hope value; (ii) the same but with any hope value; (iii) the value of the
land with the golf course which has now been constructed on it, without any hope
value; and (iv) the same but with any hope value.
40. The appellant tenants argued primarily for (i) but would accept (iii) as
second best. Their point was that it is otherwise difficult to ascribe any meaning at
all to the italicised words and that (iii) would mean that they had to pay twice for
the golf course. But their main aim was to avoid having to pay any hope value. The
Lord Ordinary opted for (iii) on the basis that the assumptions required the valuer
to assume that the golf course had indeed been constructed but the italicised words
restricted the possible uses to which the valuer had to have regard. The respondent
landlords argued for (ii) before the Inner House and the Inner House agreed with
them. The reality is that it made no difference whether the right answer was (ii) or
(iv) because in either case the contract to purchase had been validly rescinded and
the option was now spent.
41. I do not regard the tenants’ position as quite as fanciful as others might.
Local authorities are not commercial organisations. They are there to serve the
local population, not to make money. In 1999, it appears that no-one was thinking
about the potential for residential development. The Council, no doubt conscious
of their responsibility to provide facilities for healthy recreation for the inhabitants
of Cumbernauld, wanted a pay and play golf course which all could enjoy. The
tenants were prepared to take the commercial risk of developing the land as a golf
course. The Council were happy to tie up the land for that purpose for fifty years.
On the Lord Ordinary’s view of the matter, if the option were exercised they
would not only have had the course built but would also have been paid for it. Had
it not been for the possibilities opened up by the regional development plan, that
might have seemed a good deal to them. As things now stand, unless the parties
Page 16
can come to some sensible agreement to unlock both the land and its development
value, the Council are going to be no better off than they were at the outset.
42. All of that is by the by. We have to try and make sense of the words the
parties used. The problem with the italicised words is that they begin with “of”
with no clear indication of what they belong to. It would be ungrammatical to link
them to “full market value” as that is already followed by another genitive. It
appears, therefore, that they must be linked to “the proposed purchase” but there is
no need for them there and indeed they are now inaccurate as a statement of fact.
Faced with that conundrum, I have found comfort in Lord Rodger’s approach:
construe the words you can understand and see where that takes you. Even here we
have to insert the word “to” between “obligation” and “Landlords” in disregard
(ii)(a). But after that the assumptions clearly take us at least as far as solution (iii).
The valuer is to assume that the Tenant has complied with the obligation to build
the golf course: assumption (i)(a). That improvement is not to be disregarded: cf
disregard (ii)(a).
43. By itself, that does not tell us whether the answer is (iii) or (iv). But it does
tell us that the italicised words do not mean that the land is to be valued as if the
golf course had never been built. This also suggests that they are not meant to limit
the ordinary meaning of “full market value”. This is reinforced by their
grammatical ineptitude: if they were meant to limit it, they would have come
immediately after “full market value” and been preceded by “as” rather than “of”.
Finally, if the parties had meant anything other than the ordinary sense of “full
market value” they could so easily have used a different phrase.
44. Thus, by a route mapped out by Lord Rodger, I too arrive at the conclusion
that this appeal should be dismissed.
LORD CLARKE
45. I agree that this appeal should be dismissed. I detect no difference between
the principles applicable to the construction of a lease in Scotland and in England.
The true construction of clause 18.2 of the lease depends upon the language of the
clause construed in the context of the lease as a whole, which must in turn be
considered having regard to its surrounding circumstances or factual matrix. I do
not think that the parties can have given express consideration to the question that
has arisen in this case. If they had, they would surely have expressly provided that,
if the tenants exercised the option to purchase in clause 18 of the lease, they must
pay the full market value of the land as described, taking full account of its
potential, if any, for development. Any other conclusion would flout business
Page 17
commonsense because it would give the tenants an unwarranted windfall.
Applying the principles stated by Lord Hope in his para 20, I would construe the
reference to “full market value” in clause 18.2 of the lease as meaning the full
market value of the land, including its potential development value.
SIR JOHN DYSON SCJ
46. I agree that this appeal should be dismissed. To the extent that there is any
difference between the reasoning of Lord Hope and Lord Rodger, I prefer that of
Lord Rodger.
