IAA Vehicle Services Limited v HBC Limited

A sale contract created by a tenant’s valid exercise of an option arises when the option is exercised, unless the agreement provides otherwise. A contractual requirement to pay a deposit no later than the date of the contract therefore ordinarily requires payment by that date.

However, whether time is of the essence is a question of contractual interpretation. An option granted to an occupational tenant to acquire the landlord’s reversion may fall outside the ordinary rule for land sales where the parties’ continuing landlord-and-tenant relationship means that the deposit does not perform the usual commercial function of freeing the seller to market the property. Failure to pay the deposit is then not necessarily repudiatory. Repudiation requires a clear and unequivocal objective intention to abandon or refuse performance.

The claimant was tenant under three commercial leases containing options to purchase the defendant landlord’s reversionary interests. It validly exercised all three options on 7 June 2023. The resulting contracts incorporated the standard commercial property conditions, including a requirement to pay a deposit of 10 per cent of the purchase price no later than the date of the contract.

No deposits were paid or tendered on the exercise date. The defendant subsequently treated the claimant’s non-payment, and later correspondence, as repudiatory breaches and purported to terminate the contracts. The claimant sought declarations that the options remained binding and specific performance. The central issues were when the contracts arose, whether time was of the essence for deposit payment, whether the claimant had repudiated the contracts, and whether the defendant was entitled to terminate.

1. Formation and timing. The three sale contracts came into existence upon valid exercise of the options. Their formation did not depend on the defendant accepting the notices or nominating a conveyancer’s bank account. Standard condition 2.2.1 required payment of each 10 per cent deposit no later than the date of the contract, namely 7 June 2023.
2. The claimant could not make direct credit without payment details, but it was under a practical necessity to request those details before exercising the options. Had the defendant refused or unreasonably delayed in supplying them, it could not have relied on the resulting non-payment because of the implied duty not to rely on its own wrong.
3. Time of the essence. Samarenko v Dawn Hill House Ltd established that, in the ordinary land-sale case, timely payment of a deposit is a condition and time is of the essence: [2011] EWCA Civ 1445. This case fell outside that ordinary run. The options were granted in leases to an existing tenant, and concerned the landlord’s reversion. The continuing lease and any statutory continuation meant that non-payment did not materially restore the landlord’s freedom to market the property. The option price was historic, making the tenant’s exercise of the option a strong indication of commitment. The option conditions also did not expressly make deposit payment a condition of valid exercise. Time was therefore not of the essence.
4. The claimant’s failure to pay the deposits on 7 June was consequently not repudiatory. The claimant’s letter of 27 June, objectively construed, did not clearly and unequivocally refuse future performance. It disputed the alleged payment obligation and required the defendant to perform the sale contracts, while making no clear refusal to pay if payment details were supplied. The defendant’s purported termination was ineffective.
5. The options were validly exercised and remained binding. Specific performance of the three sale contracts was ordered. Costs followed the event, with the claimant’s costs assessed at £35,930.70 and the defendant’s at £40,000, exclusive of VAT.

First-instance decision. The judgment records no prior decision in the same proceedings.