A landlord whose lease contains an 'option to buy' clause cannot avoid selling the property if the tenant exercises the option, even if the tenant is behind with the rent.
A recent case saw a landlord, who refused to sell the freehold of a property to a tenant on these grounds, ordered by the court to complete the sale.
The tenant had a five-year lease over the property which contained an option to buy clause. The tenant wrote to the landlord stating that he wished to exercise the option to purchase the property. The landlord refused to accept the notice and issued proceedings for possession of the property because of the arrears of rent. The tenant went to court for an order of specific performance over the property purchase. A specific performance order is used in cases involving breach of contract, where one party to the contract refuses to perform its obligations under it. The order requires them to perform their contractual obligations as set out in the contract. In this case, the performance required under the contract was the sale of the property to the tenant under the option agreement.
The landlord argued that the tenant’s notice was not validly served and that a clause in the option agreement, which stipulated that the purchase must be completed within two years, was not complied with.
The court rejected these arguments ruling that the option notice was validly served by the tenant and that the clause which said the purchase had to be executed within two years was only part of the legal mechanics of the agreement. Furthermore, the arrears of rent were not relevant.
Accordingly, the landlord was ordered to sell the property to the tenant under the option agreement. On appeal, the Court of Appeal confirmed the judgment.