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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Multi Link Leisure Developments v North Lanarkshire Council  ScotCS CSIH_96 (30 December 2009)
Cite as: 2010 SCLR 306, 2010 SLT 57, 2010 SC 302,  ScotCS CSIH_96,  CSIH 96, 2010 GWD 2-30
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EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Sir David Edward, QC
Mure, Q.C., Findlay; Dundas & Wilson CS
Anderson Fyfe LLP
[Date of Issue]
The Factual and Procedural Context
 The issue in this case concerns the interpretation and effect of a clause in a lease of land at Cumbernauld that grants the tenants an option to purchase. The lessors were the local authority, North Lanarkshire Council ('the landlords') and the lessees were a development company, Multi-Link Leisure Developments Ltd ('the tenants'). Although the Lease is dated 18 January and 11 February 2000, the date of entry was 1 June 1999, and the term of the Lease was 50 years from the date of entry.
 Clause 9 of the lease provided that the tenants were to "occupy and use the subjects for the development of a pay and play golf course and ancillary activities incidental thereto and for no other purpose without the prior express written consent of the Landlords". If the tenants failed to develop the golf course within five years of the date of entry, the lease was to terminate with immediate effect. The golf course was duly developed within five years and we were told that the land is still so used.
Clause 18 granted the tenants an option to purchase the land. Clause 18.2, which is the relevant provision for present purposes, provided that
"The Option Price ... shall be equal to the full market value of the subjects hereby let as at the date of entry for the proposed purchase (as determined by the Landlords) of agricultural land or open space suitable for development as a golf course ...".
It is not in dispute that, in terms of this clause, the landlords are to determine the full market value to be paid by the tenants and that the value is to be fixed as at the date of entry for the proposed purchase under the option. The issue between the parties concerns the meaning and effect of the genitive clause "of agricultural land or open space suitable for development as a golf course".
 The tenants contend that the effect of Clause 18.2 is that the sole use of the land to which the landlords are to have regard in fixing the full market value (apart from use as agricultural land or open space) is development and use as a golf course. The landlords contend that an assessment of 'full market value' must include an assessment of the development potential of the land apart from use as a golf course.
 The underlying reason why this issue is important to the parties is that, in 2006, the Glasgow and Clyde Valley Structure Plan identified the South Cumbernauld Community Growth Area, which includes the subjects of the lease, as one of three priority growth areas. In 2008 the North Lanarkshire Finalised Draft Local Plan identified the area as a potential area for housing-led area expansion.
 In 2005, the tenants' solicitors opened negotiations with the landlords for purchase of the land under the option. The landlords proposed a purchase price of £500,000, subject to the tenants entering into a minute of agreement, fortified by a standard security, to the effect that an additional sum, to be agreed, would be payable in the event of a change of use generating a higher value for the land. The tenants did not accept this proposal. Negotiations were resumed in 2007, but the parties failed to reach agreement.
 By letter dated 8 October 2007, the tenants' solicitors served on the landlords a "Notice to Exercise Option" with entry one year later (8 October 2008), concluding with the words: "Please let us have your views as to the full market value of the Leased Subjects as defined by said Clause [18.2]".
 Following further negotiations, by letter dated 4 November 2008, the landlords' solicitors intimated that the landlords fixed the price at £5.3m. By further letter dated 22 January 2009, they served formal notice on the tenants requiring them within 28 days to pay £5.3m. in exchange for a valid marketable title, failing which the landlords would be entitled to
"rescind (a) the option contract contained in clause 18 of the Lease and (b) the purchase and sale contract of the Subjects resulting from your notice dated 8 October 2007 (the price payable having been determined by [the landlord] and advised to your solicitors ... in our letter ... dated 4 November 2008)".
 The tenants did not comply with these conditions, and by letter dated 25 February 2009, the landlords' solicitors served formal notice of rescission.
 Against that background, the tenants seek decrees of declarator and reduction, the effect of which would be to require the landlords to sell the subjects for £500,000, or alternatively for a price to be fixed on the basis of "full market value of the subjects, at 9 October 2008, as agricultural land or open space suitable for a golf course".
 The landlords counter-claim for declarator that the option to purchase and the contract resulting from the notice dated 8 October 2007 were validly rescinded by virtue of the notice of 25 February 2009, and that the option is spent and can no longer be exercised by the tenants.
 The events and documents described above could give rise to legal interpretations different from those that underlie the terms of the declarators sought on either side. However, the parties are agreed that, if the issue set out in paragraph  above is decided in favour of the tenants, they are entitled to declarator and reduction in terms of the Conclusions of the Summons. Correspondingly, if that issue is decided in favour of the landlords, they are entitled to declarator in terms of the Conclusion of the Counterclaim.
 The Lord Ordinary, after debate, held that the tenants' interpretation of Clause 18.2 was to be preferred and granted decree accordingly. In this Reclaiming Motion the landlords ask us to prefer their interpretation, to recall the interlocutor of the Lord Ordinary and pronounce decree in their favour.
The terms of the Lease
 As noted above, the Lease envisaged that the tenants would develop the golf course within five years of the date of entry, failing which the Lease would terminate. The Lease contained special provisions as to rent and other matters (including exercise of the option to purchase) which would be operative during the first five years from the date of entry. That period of five years had elapsed by the time of the events giving rise to this action, so it is unnecessary to consider those provisions.
 The tenants are not entitled to assign or sub-let the subjects without the prior written consent of the landlord. They are obliged to provide and maintain an efficient drainage system and are subject to various other obligations during the currency of the Lease.
 The material provisions for present purposes are those relating to the Option Price in the second and third sentences of Clause 18.2. The second sentence provides:
"The Option Price ... shall be equal to the full market value of the subjects hereby let as at the date of entry for the proposed purchase (as determined by the Landlords) of agricultural land or open space suitable for development as a golf course but, for the avoidance of doubt, shall be not less than the sum of ... £130,000."
The third sentence goes on to specify what the Lord Ordinary described as 'assumptions' and 'disregards':
"In determining the full market value (i) the Landlords shall assume (a) that the subjects hereby let are in good and substantial order and repair and that all obligations of the Landlords and Tenants under this Lease have been complied with, and (b) that the subjects hereby let are ready for occupation, and (ii) the Landlords shall disregard (a) any improvements carried out by the Tenants during the period of this Lease otherwise than in pursuance of an obligation [to] the Landlords, and (b) any damage to or destruction of the subjects hereby let."
The Lord Ordinary's decision
 The essence of the Lord Ordinary's reasoning is in paragraph  of his Opinion and reads as follows:
"I accept ... that the Option Price is to be equal to the 'full market value'. But that is not the end of the argument. In every case, one has to ask: the full market value of what? In the present case, the answer provided by clause 18.2 is that it is the full market value of the subjects for the proposed purchase of land suitable for development of a golf course. Suitability for development as a golf course does not, in itself, necessarily mean that that is the only purpose for which the land may be developed and used, or the only future use to be taken into account by the valuer. But in the present case, it seems to me that it is a clear pointer that this is the sole use to which the valuer (in the present case, the [landlords]) must have regard when assessing the full market value of the subjects. I say that for these reasons. The option to purchase is contained in the Lease. In terms of the Lease, the subjects were let to the [tenants] for the purpose of development of a pay and play golf course and ancillary activities incidental thereto "and for no other purpose whatsoever without the prior express written consent of the Landlords"; under penalty, in clause 9, that, if the golf course was not so developed within five years of the date of entry or if the subjects were used for some other purpose, then the lease would terminate with immediate effect. That, of course, was an obligation which persisted only for the duration of the Lease and did not apply once the Lease had come to an end by reason of the [tenants] exercising their option to purchase. Nonetheless, it suggests that the parties contemplated that that would be the use to which the subjects would be put for the foreseeable future. It does not suggest that the parties had in mind the possibility of residential or other development on the site. That being so, one is driven to ask: what was the purpose in inserting, in clause 18.2, the fact that the proposed purchase was for development of the land as a golf course, if it were not to restrict the assumed use by reference to which the subjects were to be valued."
On that basis the Lord Ordinary granted decree de plano as sought by the tenants.
The submissions of the parties
 Before us, as before the Lord Ordinary, the landlords contended that the starting point should be the use of the expression 'full market value'. They relied, for a statement of general principle, on the judgment of the Judicial Committee of the Privy Council, delivered by Lord Romer, in Gajapatiraju v Revenue Divisional Officer, Vizagapatam  AC 302, at page 313:
"[L]and is not to be valued merely by reference to the use to which it is being put at the time at which its value has to be determined ..., but also by reference to the uses to which it is reasonably capable of being put in the future. No authority is required for this proposition. It is a self-evident one."
Where parties direct that an option price should be 'the full market value', clear words are required before the court should attribute any intention to strip away any element of value - Little Hayes Nursing Home Limited v Marshall (1993) 66 P&CR 90 (a judgment of Warner J. in the Chancery Division); Griffiths v W.E. and D.T. Cave Limited (1999) 78 P&CR 8 (a decision of the Court of Appeal in England). In both cases, the words used were 'open market value' but that is not a material difference - Transport for London (formerly London Underground Limited) v Spirerose Limited (in administration)  1 WLR 1797; Johnson, Davies and Shapiro Modern Methods of Valuation (9th edition), pages 2-4, 279-80 and 403‑406.
 'Full market value' should be distinguished from 'existing use value' and includes development value in the absence of express provision to the contrary. This construction fits the plain meaning of clause 18.2, and avoids using the word 'sole' inserted by the Lord Ordinary in the fifth sentence of the passage quoted above (paragraph ). This is consistent with the Lease when read as a whole.
 Starting with the value of the subjects as "agricultural land or open space suitable for development as a golf course" but then taking into account other aspects of development value makes commercial sense. The context is one where, on the one hand, the tenant is to incur the development costs of creating the golf course; but on the other hand, if the option to purchase is exercised, there will be no restriction on the use to which the purchaser may put the land. This ensures that the tenant does not pay twice, but also ensures that the local authority has the benefit of any development value or 'hope value' in accordance with their statutory obligation under Section 74 of the Local Government (Scotland) Act 1973 to achieve the best consideration that can reasonably be obtained.
 Counsel for the landlords also referred, for the principles of interpretation, to the speech of Lord Hoffmann in Investors' Compensation Scheme Limited v West Bromwich Building Society  1 WLR 896, at pages 912-913.
 Before us, the tenants were not unnaturally content to rely on the reasoning of the Lord Ordinary. In answer to the landlords' reliance on the Lord Hoffmann's dicta in Investors Compensation Scheme (supra), they referred to the opinions of the First Division in Bank of Scotland v Dunedin Properties Investment Company Limited 1998 SC 657. They distinguished Griffiths (supra), as the Lord Ordinary had done, on the ground that both the circumstances and the provisions to be applied were quite different. Although not a commercial contract, this contract should be construed according to the same principles of interpretation.
 Section 74 of the 1973 Act could be relevant only if the parties were aware (or should have been aware) that a contract concluded on the basis of the tenants' construction of clause 18.2 would have constituted a breach of statutory duty on the part of the local authority. There were, in any event, no averments to that effect.
 We should say at the outset that we do not see the relevance for the present case of the observations of Lord Hoffmann in Investors Compensation Scheme Limited (supra) and Bank of Credit and Commerce International SA v Ali  1 AC 251, which seem to be invoked - almost as a matter of ritual - in all cases involving construction of contracts. For our part, we have considerable sympathy with Professor McBryde's discussion of the problems that 'the Hoffmann approach' (in so far as it truly innovates on the previous law) may create for lawyers and clients (see McBryde The Law of Contract in Scotland, 3rd edition, paragraphs 8-25 - 8-27).
 In any event, Lord Hoffmann's observations were made in the context of commercial contracts, whereas this case is about a Scottish lease of heritable property. The man on the Jubilee line on his way to Canary Wharf has less to say to us in this context than the Scots conveyancer with whose mindset we are more familiar.
 In our opinion, it is sufficient in this case to follow the approach recommended by Lord Mustill in Charter Reinsurance Co v Fagan  AC 313 (quoted with approval by Lord President Rodger in Bank of Scotland v Dunedin Property Investment Company, supra at page 661). Our inquiry should start (and will finish) by asking what is the ordinary meaning of the words used.
 The critical sentence of clause 18.2 shows all the signs of having been modified in the course of negotiations without taking full account of the effect on the text read as a whole. Nevertheless, it is, in our opinion, clear that the parties intended, first, that the subjects should be valued by the landlords as at the date of entry on purchase and not as at the date of entry under the lease, but second, that the subjects should be valued as if they were still (as they were in 1999) "agricultural land or open space suitable for development as a golf course" - that is to say, ignoring anything done by the tenants to develop the golf course in the meantime. Put another way, the valuer is instructed to go back, for the state of the land, to the tenant's original date of entry but to value the land as at the purchaser's date of entry under the option. We understood the parties to agree that this is the proper starting point for assessment.
 The issue is whether, as the Lord Ordinary held, this was to be, not just the starting point, but the sole basis for assessment of value, or whether, as the landlords contend, the assessment should also take account of development value. The critical passage in the Lord Ordinary's reasoning is where he says that:
"Suitability for development as a golf course does not, in itself, necessarily mean that that is the only purpose for which the land may be developed and used, or the only future use to be taken into account by the valuer. But in the present case, it seems to me that it is a clear pointer that this is the sole use to which the valuer ... must have regard when assessing the full market value of the subjects."
With respect, the transition from the first sentence to the second seems to us to involve a non sequitur. The question is not whether there are 'pointers' this way or that, but what is the weight to be attached to the expression 'full market value'.
 In our opinion, 'full market value' should be construed as meaning what it says. Considerations that may be relevant to market value (which may be many) are not to be ignored unless there are express words to that effect - Gajapatiraju, Little Hayes Nursing Home and Griffiths (supra).
 We do not know - and the deed does not reveal - whether, in 1999, the subjects had any foreseeable development potential other than for development as a golf course. It is possible that, at that time, they had no other predictable use. But we should bear in mind that the lease was for a period of fifty years and that, in the nature of things, much might happen in that relatively long time frame to alter the value of the subjects. (The attractions of playing Augusta indoors with Wii may render some golf courses redundant on the slopes of Cumbernauld and elsewhere.) Why should it be assumed that the parties intended that all uses other than agriculture or open space that might become possible or desirable in the space of fifty years were to be left out of account?
 That does not mean, however, that, because of the provisions of the Structure and Local Plans, the subjects were now to be valued as ripe for residential development. Those Plans do not confer any right on the owner to develop for residential purposes, and it is, for example, conceivable that the planning authority would take the view that the pay and play golf course should be retained as a valuable amenity in a residential area.
 There were many imponderables that might have had to be taken into account in assessing full market value and it cannot be assumed that the landlords were justified in valuing the subjects at £5.3m. However, the tenants have fought the case on the basis, not that the landlords' valuation was excessive, but that the subjects must be valued solely as agricultural land or open space suitable for development as a golf course. For the reasons given above, the tenants must fail on that issue.
 We shall therefore recall the interlocutor of the Lord Ordinary, sustain the second and third pleas-in-law for the defenders in the main action and assoilzie them from the Conclusions of the Summons, and thereafter sustain the pleas-in-law for the defenders in the Counterclaim and pronounce decree of declarator as there concluded for.