Pretoria Energy Company (Chittering) Limited v Blankley Estates Limited

A document headed heads of terms may create binding obligations in whole or in part. Its label and the absence of an express subject-to-contract qualification are not conclusive. The question is objective and includes whether the parties agreed terms regarded by them or by law as essential. For a proposed long and complex commercial lease, a requirement for a formal agreement, the contracting-out requirements under the Landlord and Tenant Act 1954, unresolved material terms and an uncertain commencement date may cumulatively show that the parties did not intend to be bound. The commencement of a lease term is legally essential. If its start date is uncertain, there is no binding agreement for lease, even where the parties’ intention to contract appears clear. A rolling term tied to eventual execution lacks certainty.

Blankney Estates owned unused land which Pretoria Energy wished to develop as an anaerobic digestion plant. The parties signed heads of terms containing proposed lease terms and other commercial arrangements. The document included a 25-year term, rent, an annual RPI review, provision for contracting out of the Landlord and Tenant Act 1954, and a requirement for a formal agreement after planning consent. The parties accepted that the lock-out provision was binding, but that other commercial provisions were not.

Planning permission was obtained, but no final lease was executed. Blankney later contracted with a third party. The High Court held that clause 1 did not create a binding agreement for lease: [2022] EWHC 1467 (Ch). The appeal concerned whether the parties intended to be bound and whether the proposed lease contained, or sufficiently identified, all essential terms, particularly its commencement date.

1. The appeal was dismissed. Clause 1 of the heads of terms did not create a binding agreement for lease.
2. The formation question was objective. It depended on what the parties communicated by words or conduct, whether they intended to create legal relations, and whether they had agreed the terms which they regarded, or the law regarded, as essential. Intention and certainty are distinct questions, but uncertainty may inform the objective assessment of intention. The approach in RTS Ltd v Molkerei Alois Muller GmbH & Co KG [2010] UKSC 14 was applied.
3. A requirement for a formal agreement does not necessarily prevent a binding contract where the formal document is only to record a complete bargain. That principle was illustrated by Rossiter v Miller (1878) 3 App Cas 124 and Branca v Cobarro [1947] 1 KB 854. However, a proposed 25-year lease of a new and technically complex facility, with solicitors instructed and a formal document contemplated, was materially different. The draft lease exceeded 40 pages, making it untenable to regard it as merely formalising settled terms. Cheverny Consulting v Whitehead Mann Ltd [2006] EWCA Civ 1303 and Winn v Bull (1877) 7 Ch D 29 supported that conclusion.
4. The limited lock-out period and the general reference to arrangements being negotiated were inconsistent with an immediately binding 25-year lease. The planning expenditure and related conduct did not establish contractual intention.
5. The express agreement to contract out of the Landlord and Tenant Act 1954 was a further weighty pointer against immediate contractual commitment. The statutory procedure was intended to allow the prospective tenant to walk away if the loss of security of tenure was unacceptable. A binding agreement at the earlier stage would frustrate that purpose. The reasoning in Cardiothoracic Institute v Shrewdcrest Ltd [1986] 1 WLR 368 was applied.
6. Important terms concerning construction, repair, insurance, alienation, use, planning and environmental compliance, alterations and forfeiture remained unagreed. The analogy with a sale of freehold land was inappropriate. The cumulative weight of the factors was overwhelming.
7. The commencement of a lease term is an essential term. It must be expressed, incorporated by reference or ascertainable by reasonable inference. If it is uncertain, no binding agreement for lease exists, and that uncertainty is also a powerful indicator against an intention to be bound. The authorities including Harvey v Pratt [1965] 1 WLR 1025, Marshall v Berridge (1881) 19 Ch D 233 and Prudential Assurance Co Ltd v London Residuary Body [1992] AC 386 supported this rule. Liverpool City Council v Walton Group plc [2002] 1 EGLR 149 was distinguishable; if it supported a rolling execution-date term, the court respectfully disagreed with it.

• Court of Appeal (Civil Division): In [2023] EWCA Civ 482, the court dismissed the appeal and upheld the conclusion that clause 1 did not create a binding agreement for lease.
• High Court of Justice, Business and Property Courts, Business List: The deputy judge held in [2022] EWHC 1467 (Ch) that the parties had not entered into a binding agreement for lease.