Multi-Link Leisure Developments Limited v North Lanarkshire Council (Scotland)

A commercial contract must be construed objectively from its language, read as a whole in its contractual and factual context. Every word should receive effect where possible. Altering or omitting words is justified only where an ambiguity cannot otherwise be resolved.

Where poor drafting creates tension between provisions, the court should seek a sensible and businesslike meaning consistent with the objective background. A contractual requirement to pay the full market value of land ordinarily includes any development or hope value unless the agreement clearly directs otherwise. Assumptions about the land’s physical condition or existing improvements do not, without more, restrict the relevant market or exclude development potential.

A local authority granted a commercial tenant a 50-year lease of land for development and use as a pay-and-play golf course. The lease also conferred an option to purchase. If exercised after the first year, the price was to equal the land’s full market value under a formula containing assumptions and disregards concerning its condition and improvements.

After planning documents identified the area as suitable for housing-led expansion, the tenant exercised the option. The authority valued the land at £5.3 million, including its development potential. The tenant contended that the clause required valuation without that potential.

The Lord Ordinary accepted the tenant’s construction: [2009] CSOH 114, 2009 SLT 1170. The Extra Division reversed that decision and held the option spent following rescission: [2009] CSIH 96, 2010 SC 302. The issue before the Supreme Court was whether “full market value” included the land’s hope value for housing development.

1. The appeal was dismissed unanimously. The Extra Division had reached the correct result, although the members of the Supreme Court did not adopt its reasoning without qualification. The landlords were entitled to include the land’s potential development or hope value when determining its full market value. The rescission therefore stood and the option was spent.

2. Lord Hope held that contractual construction begins with the parties’ words, given their ordinary meaning in context. Effect should be given to every word in its original order where possible. Words should not be inserted, removed, changed or rearranged unless the language creates an ambiguity that cannot otherwise be resolved. The Lord Ordinary’s removal and repositioning of language caused him wrongly to treat the description of the land as a restriction upon the purpose of purchase.

3. The clause was poorly drafted. Its opening provisions contemplated full market value, including development potential, while its assumptions and disregards appeared directed to the land’s existing state and use. Lord Hope resolved that tension by reading the clause as a whole against the objective commercial background. A construction excluding development value would confer a substantial windfall upon the tenant and conflict with business common sense. The local authority’s duty under section 74(2) of the Local Government (Scotland) Act 1973 formed part of that objective background.

4. Lord Rodger began with the clause’s clearer assumptions and disregards. The completed golf course had to be valued on the assumption that it was in good order because its construction was an obligation under the lease. Improvements made without an obligation to the landlords had to be disregarded. Those instructions did not, however, require the landlords to ignore other matters affecting market value. The class of potential purchasers included housing developers, so hope value formed part of full market value.

5. Lady Hale adopted Lord Rodger’s route to the result. The assumptions established that the golf course could not be treated as unbuilt, while the disputed words did not clearly limit the ordinary meaning of “full market value”. Lord Clarke held that exclusion of development potential would flout business common sense. Sir John Dyson agreed with dismissal and preferred Lord Rodger’s reasoning insofar as it differed from Lord Hope’s.

1. United Kingdom Supreme Court: Dismissed the tenant’s appeal and affirmed the Extra Division’s interlocutor: [2010] UKSC 47 .
2. Extra Division of the Inner House of the Court of Session: Allowed the landlords’ reclaiming motion, held that relevant considerations affecting full market value were not excluded, and pronounced decree that the option contract had been rescinded and the option spent: [2009] CSIH 96, 2010 SC 302.
3. Outer House of the Court of Session: Lord Glennie held that value was to be assessed by reference only to use as a golf course and granted the tenant’s requested declarators: [2009] CSOH 114, 2009 SLT 1170.