McGahon v Crest Nicholson Regeneration Ltd

Where a contract is conditional on the grant of a headlease and permits rescission if the headlease is not granted by a specified date, the rescission right ordinarily remains exercisable after that date only while the condition remains unperformed. Once the headlease is granted, the contract becomes unconditional and the right to rescind ends, unless the contract clearly provides otherwise.

The clause must be construed in its commercial context. A construction allowing either party to retain an indefinite right to rescind after the headlease has been granted would create an uncommercial opportunity for either party to speculate on market movements.

The claimants agreed to purchase an apartment off-plan. Clause 4 made the contract conditional on the grant of a headlease and gave either party a right to rescind if the headlease had not been granted by 1 June 2008.

The headlease was granted on 4 September 2008. The claimants served notice of rescission on 29 September, after the grant but without knowing whether the headlease had been granted. They sought repayment of their deposit. His Honour Judge Reid QC decided the case for the defendant in Guildford County Court. The appeal concerned whether clause 4 permitted rescission after the specified date but after the headlease had been granted.

1. Appeal dismissed. Longmore LJ gave the leading judgment, with Sullivan LJ and Sir Mark Waller agreeing.
2. Clause 4 contained three sentences. The first made the contract conditional on the grant of the headlease, without imposing a time limit on that condition. The second gave either party a right to rescind if the headlease had not been granted by 1 June 2008. It did not state that the right could be exercised at any time after that date, nor that it survived the grant of the headlease.
3. The proper construction was that the right to rescind arose after 1 June if the headlease had not then been granted, but remained exercisable only until the headlease was actually granted. The contract then became unconditional. The claimants could have discovered whether the headlease had been granted by checking the register while the right remained available.
4. The alternative construction would produce an uncommercial result. If the right survived the grant, it would have to be reciprocal, allowing either party to wait and decide whether to rescind according to subsequent market movements. The suggested answer based on waiver was unavailable because waiver would require conduct, which the assumed circumstances excluded.
5. Miller’s Wharf Partnership v Corinthia Column Ltd [1991] 1 EGLR 192 was distinguishable because its clause expressly allowed rescission at any time thereafter. Mardorf Peach & Co Ltd v Attica Sea Carriers (The Laconia) [1977] AC 850 did not assist: it concerned a time charterparty, a continuing breach, and a right which survived late payment unless waived. The present case involved no breach by the respondent.

• Court of Appeal (Civil Division): Appeal dismissed on 21 July 2010.
• Guildford County Court: His Honour Judge Reid QC decided the claim in favour of Crest Nicholson Regeneration Ltd.