BP Oil UK Ltd & Ors v Lloyds Tsb Bank Plc

An option agreement must be construed as a whole and complied with strictly. Where the option holder is defined as several parties and the option is personal, each must exercise it for its own benefit and be the registered proprietor of the relevant lease when notice is given. Personal status imposes a restriction beyond non-assignability.

Assignment of the lease does not necessarily terminate the option permanently. The effect depends on the agreement’s wording and context. If the agreement contains no provision making the right lapse permanently, it may revive when the lease is re-vested in the original option holder. Authorities concerning lease break clauses turn on their particular terms and do not control a differently structured option agreement.

The oil companies acquired a lease and received a no-consideration put option requiring Lloyds to take a reassignment. The option agreement defined the Purchaser as all three companies and made the option personal and non-assignable.

The companies later assigned the lease to the two BP companies. They exercised the option while the lease was not registered in all three names. After re-assignment and registration, they served a further notice.

At trial, Mr Michael Brindle QC held that the first notice was invalid because the companies were not then all registered proprietors, but that the option remained exercisable after a prior assignment if the lease had been re-assigned by the date of exercise. Both sides appealed those conclusions.

Both appeals were dismissed. Arden LJ gave the judgment, with Gage LJ and Kennedy LJ agreeing.

1. Strict compliance. An option must be exercised in accordance with its contractual terms. The agreement defined the Purchaser as all three oil companies, so the option had to be exercised by all three. The court applied the principle of strict compliance stated in (1876) 2 ChD 310.
2. Meaning of personal. The word personal in the non-assignment clause meant more than that the option could not itself be assigned. It excluded exercise at the direction of a third party and made the identity and character of the exercising party material. The natural construction of the agreement therefore required all three companies to be registered proprietors of the lease when notice was given. Although section 110(5) of the Land Registration Act 1925 allowed the agreement to operate through procurement of title, clauses 5.1 and 7.1.2 indicated that the parties contemplated the Purchaser being the current tenant.
3. Assignment and re-assignment. Clause 12 did not make the option permanently lapse when the lease ceased to be vested in the companies. The option was temporarily incapable of exercise while the lease was not vested in them, but became exercisable again when it was re-vested. The agreement contained no provision necessary to prevent that result. The full title guarantee under clause 10.1, operating through section 4 of the Law of Property (Miscellaneous Provisions) Act 1994, also addressed the apparent omission concerning breaches by an assignee.
4. Authorities. The authorities on lease break clauses, including [1994] 2 EGLR 48, [1996] 2 EGLR 210 and [2003] EWHC 2 (Ch), turned on the wording and context of the relevant instruments. Their reasoning did not govern this separate option agreement, where the landlord was not involved and the option holder was described as the Purchaser. [1963] NZLR 206 provided little assistance because its wording was materially different.

The order dismissing both appeals, including the appeal on costs, was confirmed. The defendants were ordered to pay two-thirds of the claimants’ costs of and occasioned by both appeals, subject to detailed assessment on the standard basis if not agreed.

1. Court of Appeal (Civil Division). The court dismissed both appeals, including the appeal on costs: [2004] EWCA Civ 1710.
2. High Court of Justice, Chancery Division. Mr Michael Brindle QC held that the first option notice was invalid because the oil companies were not all registered proprietors at the date of notice, but that a prior assignment did not permanently prevent exercise after re-assignment. An order was made on 8 March 2004.