The Facts

On 15th January 2008, Alchemy exchanged contracts (the “Contract”) to buy the lease of a house at 27 Walton Street, London, SW3 from the Astors for £1.26m. The Contract provided for completion on 13th March 2008. As long as the parties were not in breach of their relevant contractual obligations, either party had the right to terminate the Contract if the superior landlord’s consent to the sale had not been obtained by three working days before completion (Condition 8.3.3).

The Contract incorporated the standard conditions of sale, together with various special conditions. Each side had assumed it was the other side’s responsibility to obtain the Landlord’s consent to the assignment due to the presence of some obscure special conditions. As a result, the Astors’ solicitor took no steps to obtain consent, until about a week before completion. It then took some time for Alchemy and its solicitor to provide the information required by the superior landlord’s solicitor.

Consent from the superior landlord had not been obtained by 13th March, but neither side attempted to terminate the Contract. On 25th April, the landlord indicated, in principle, that it was prepared to give consent. On 19th May, however, Astor’s solicitors received a notice purporting to rescind the Contract under Condition 8.3.3, on the basis that the landlord’s consent had not yet been obtained. A without prejudice letter accompanied the notice offering to proceed with completion at a reduced price.

The Issue

Sales J had two main issues to decide. First, he had to decide whether the standard condition applied due to the existence of a special condition, as well as the fact that the Contract was not conditional explicitly upon the obtaining of the landlord’s consent. Secondly, Sales J had to decide whether the claimant was prevented from rescinding due to its own breach.

The Decision

The judge concluded that the claimant had been in breach of its obligation to provide information to the landlord on 11th and 13th March (the completion date). Condition 8.3.3 states explicitly that a party cannot rely upon its right in Condition 8.3.3 if it is in breach of its obligation to provide all reasonably required information and references. The judge held that the Contract could not have been rescinded at that stage.

But the claimant was no longer in breach on 19th May, the date of the notice to rescind, as the landlord had been provided with the required information. The judge had to decide whether the contract could be rescinded at this stage.

The judge held that condition 8.3.3 prevents rescission where the party purporting to rescind is in breach; or where it is not in breach, but where the past breach continues to have a disruptive effect. The judge concluded that any right to terminate had to be exercised promptly to let the Astors know where they stood. Otherwise, they were likely to incur further expense in complying with their obligations under the contract, as was the case here. By waiting for more than two months, Alchemy had lost its right to terminate by failing to act sufficiently promptly.

Conclusion

A right to rescind where the landlord’s consent has not been obtained can be lost as a result of an earlier breach. The right to rescind must be exercised by the completion date or a day or two thereafter. The real reason that Alchemy had wanted to terminate the Contract was due to the fall in property prices. Alchemy was not allowed to terminate the Contract because it had failed to act quickly enough and had given the impression that the deal was still on for months after the missed deadline.

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