Bircham & Co, Nominees (2) Limited & Anor v Worrell Holdings Ltd

A right of first refusal ordinarily imposes a negative restraint on disposal. It does not give its holder an equitable interest in land while the grantor remains free to withdraw an offer before acceptance.

The result may differ where the grantor is positively bound to keep an offer open, so that the arrangement is in substance an option, or where another event makes the holder's right independent of the grantor's volition. A sale agreement reached on terms different from a pre-emption offer is a new agreement and must comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.

The appellants were the lessors of a long lease containing a right of first refusal. The lessee's agents sent a facsimile stating that an offer of £1.7 million had been received. The appellants replied within 21 days, accepting subject to vacant possession and the inclusion of certain fixtures and furnishings.

The Vice-Chancellor held that this was not a clean acceptance. He was nevertheless prepared to infer an agreement on the amended terms from the parties' subsequent conduct. That agreement failed to meet the formal requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. The appellants appealed, seeking specific performance on the basis that the lease clause and the facsimile had already given them an equitable interest analogous to an option.

1. The appeal was dismissed unanimously. Chadwick LJ gave the leading judgment. Sir Christopher Staughton and Schiemann LJ agreed that no contract complying with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 had been concluded.
2. On its wording, the clause restrained the lessee from assigning to a third party without first making an offer to the lessors. The word first fixed the latest time for an offer, but did not impose a positive obligation to offer at an earlier stage. It did not require the lessee to sell, or to offer before it was immediately necessary to do so to make a binding third-party sale.
3. The offer made under this clause could be withdrawn before acceptance if the lessee no longer wished to dispose of the lease. There was no express or implied obligation to keep it open for 21 days. Accordingly, the clause and the facsimile did not create an equitable interest analogous to an option. The court followed the distinction in Pritchard v Briggs, [1980] Ch 338, between a pre-emption right and an option, and applied Tuck v Baker, [1990] 2 EGLR 195.
4. Any agreement inferred from the lessee's conduct after the appellants' letter was an agreement on different terms from the original offer. The appellants' letter was the only document containing all those terms, and it was not signed for the lessee. It therefore had no contractual effect under section 2.
5. Chadwick LJ added that the appeal would fail in any event. Even if the documents had created an option, its terms had been formulated after section 2 came into force and required statutory compliance. Further, the appellants did not purport to exercise the alleged option on its stated terms; their counter-offer could not make a conditional contract unconditional. The reasoning in Spiro v Glencrown Properties Ltd, [1991] Ch 537, concerning a validly granted option did not assist them.

• Court of Appeal (Civil Division) — dismissed the appeal from the Vice-Chancellor: [2001] EWCA Civ 775.
• High Court (Vice-Chancellor) — on 3 November 1999 held that the alleged agreement did not comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 and rejected the asserted proprietary basis for specific performance. A citation is not stated in the judgment.