Introduction

The issue before the Court of Appeal in Warner Brothers Records Inc v Rollgreen Ltd was whether an assignee of an option could validly exercise that option, in its own name, before having served a notice of assignment on the grantor of the option, in accordance with s136 of the Law of Property Act 1925. Section 136 provides:

'Any… assignment by writing under the hand of the assignor… of any… thing in action, of which express notice in writing has been given to the… person from whom the assignor would have been entitled to claim such… thing in action, is effectual in law… to pass and transfer from the date of such notice:

• the legal right to such… thing in action;
• all legal and other remedies for the same…'

The Court of Appeal decided that the assignee did not have a contractual relationship with the grantor, and was not entitled to exercise the option, until it had notified the grantor of the assignment of the benefit of the contract.

The Court of Appeal had to consider a different, but related, point in Freund v Charles Scott Developments (South Devon) Ltd. Had the assignee of a contract validly exercised an option in circumstances where it had delayed giving a notice of assignment until after it had applied for, and obtained, permission for development?

Facts

A landowner entered into an agreement, which was conditional on the grant of planning permission for residential development within ten years of the date of that agreement. The obligation to complete the sale was to be triggered in one of two ways:

• by the landowner before planning permission was granted, in return for a payment based on the open market value of the land without permission for development; or
• by the buyer after planning permission was granted, in return for a payment based on the open market value of the property with the benefit of planning permission for residential development.

The landowner extracted a non-returnable deposit of £20,000 and undertook not to apply for planning permission, or to oppose any application for planning permission submitted by the buyer. The landowner also undertook to execute any planning agreements that were required, in return for an indemnity against costs.

Some years later, the buyer assigned the benefit of the contract to a third party, who submitted an application for, and subsequently obtained, planning permission for development. The assignee of the contract notified the landowner that it had taken an assignment of the benefit of the contract and that it had obtained planning permission for development shortly before the agreement was due to expire. The landowner issued proceedings to establish whether he was bound by the original agreement, soon after the agreement expired.

Issue

The landowner did not try to argue that the agreement was incapable of assignment, but focused instead on the fact that the planning application had been made by, and that permission had been granted to, a third party, who was not 'the purchaser' for the purposes of that agreement.

Decision

Lord Justice Schiemann based his decision on the meaning of the expression 'the purchaser' as used in connection with any application for and any planning permission granted for the purposes of the agreement. He took the view that the parties had never intended to bar the landowner from opposing applications for planning permission made by a third party of whose identity the landowner was completely unaware. The buyer had given, and remained bound by, an undertaking to meet the costs of any planning agreement, but had divested itself of the very asset in relation to which the indemnity was given and which might provide the source of any funds that were necessary to meet that indemnity.

Lord Justice Chadwick based his decision in part on the fact that the assignee had failed to comply with s136 of the Law of Property Act 1925. The assignee had not perfected the deed of assignment, because it had neglected to notify the landowner that it had taken an assignment of the agreement. It was plain, from the agreement as a whole, that the landowner needed to know the identity of 'the purchaser' at all relevant times. The most obvious pointer to this conclusion was the put option, which gave the landowner the right to call for completion before the grant of planning permission for development. This made it essential for the landowner to know who the buyer was. It was also essential:

• to enable the landowner to comply with his obligation not to oppose any application for planning permission made by 'the purchaser' under the agreement; and
• in relation to the indemnity for costs in connection with any planning agreement executed by the landowner.

Sir Christopher Staughton observed that the question asked in this case was different from the one that the court had to answer in Warner. This dispute was not about whether the assignee could exercise its rights under the contract. It was about whether there were any rights left for the assignee to exercise. The planning permission was defined by reference to an application made by 'the purchaser'. The meaning of that provision did not change because the original purchaser had assigned the benefit of the agreement to someone else. The assignee of the contract became entitled to enforce the rights of 'the original purchaser' under the agreement, but those rights did not have any substance because the condition had not been fulfilled.

Comment

Draftsmen should check - and, where appropriate, amend - the wording of agreements to ensure that the expression 'the purchaser' is capable of including any subsequent assignees, for each and every purpose set out in those agreements.

Practitioners acting for assignees of agreements and options should:

• check whether the prospective assignee will be entitled to exercise the rights set out in the document, before their client enters into any assignment of that agreement;
• consider whether it would be appropriate to arrange for the assignor to apply for and obtain planning permission for development, to satisfy any conditions laid down in that agreement; and
• comply with s136 of the Law of Property Act immediately after completion of an assignment.

Case references

Freund v Charles Scott Developments (South Devon) Ltd [2002] EWCA Civ 106

Warner Brothers Records Inc v Rollgreen Ltd [1976] 1 QB 430

Source: Wragge & Co April 2002

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