Pretoria Energy Company (Chittering) Limited v Blankney Estates Limited

The Court of Appeal upheld the judge below that the parties did not enter into a binding agreement for lease in clause 1 of the Heads of Terms signed on 27 November 2013. The court applied the established objective test for contractual intention and certainty, derived from RTS Ltd v Molkerei Alois Muller GmbH & Co KG, and gave significant weight to (i) the parties' stipulation that a formal agreement would be drawn up, (ii) the additional statutory requirements for agreements for lease and contracting out of the Landlord and Tenant Act 1954, and (iii) the absence of certainty as to the commencement date of the 25 year term and many other lease provisions.

Although some parts of the same Heads of Terms (notably the lock-out/exclusivity clause) were treated as legally binding, the cumulative effect of the requirement for a formal agreement, the commercial complexity of a new 25 year lease for an AD plant, and the lack of essential and certain lease terms led the court to conclude clause 1 was not a concluded agreement for lease.

Background and procedural posture: Pretoria and Blankney signed undated Heads of Terms on 27 November 2013 in respect of land at Heath Farm. The document comprised four clauses: a proposed 25 year lease (clause 1) and three commercial arrangements (clauses 2–4). The final clause contained an acceptance provision and a time-limited exclusive negotiating (lock-out) agreement which the parties accepted was binding. Pretoria appealed from the decision of Ms Justice Wicks (sitting as a Deputy High Court Judge) at first instance ([2022] EWHC 1467 (Ch)) that clause 1 did not create a binding agreement for lease.

(i) Nature of the dispute and relief sought: The appellant appealed the judge’s finding that clause 1 of the Heads of Terms did not create an enforceable agreement for a 25 year lease. The sole issue on appeal was whether the signed clause 1 formed a binding agreement for lease.

(ii) Issues framed by the court: The court considered whether (a) objectively the parties intended to create legal relations on the terms in clause 1; (b) the terms were sufficiently certain, taking into account the special requirements for agreements for lease and the Law of Property (Miscellaneous Provisions) Act 1989; and (c) the effect of the parties' agreement that a formal agreement would be drawn up and that the lease would be contracted out of the 1954 Act.

(iii) Reasoning and conclusion: The court applied the principles in RTS and related authorities and emphasised that commercial parties may record binding obligations in summary form but that the more complicated the subject matter the more likely the parties intended a formal written contract to be produced. The judge’s principal reasons, affirmed on appeal, were (a) the presence of an express requirement that a formal agreement be drawn up within one month of planning consent weighed strongly against finding a concluded lease; (b) the lease was to be contracted out of the Landlord and Tenant Act 1954, a procedure which must be completed before a tenant can be bound and which pointed away from an immediate binding commitment; and (c) key lease particulars, in particular the date from which the 25 year term was to run and many other detailed lease provisions, were left uncertain and were matters the parties had expressly recognised as needing resolution. The court also treated the existence of a binding lock-out agreement (limited in time) as inconsistent with an intention to be bound to a 25 year lease at the date of signing. The cumulative weight of these factors led to dismissal of the appeal.

Appeal dismissed. The Court of Appeal agreed with the first-instance judge that clause 1 of the Heads of Terms did not create a binding agreement for lease. The court relied on the objective test of intention and certainty, the parties' requirement that a formal agreement be drawn up, the statutory requirements for agreements for lease, and the lack of an ascertainable commencement date and other essential lease terms.

Appeal to the Court of Appeal from the High Court of Justice, Business and Property Courts (Joanne Wicks KC sitting as a Deputy High Court Judge) whose decision is reported at [2022] EWHC 1467 (Ch).