The Supreme Court handed down judgment in the case of Multi-Link Leisure Developments Limited v North Lanarkshire Council [2010] UKSC 47 on 17th November 2010. The case concerned the construction of a term of a lease, specifically whether “hope value” could be taken into account when determining an option price.

The appellant and respondent entered into a lease, which contained an option for the appellant to purchase the leased subjects at a price set according to an agreed formula. On the ground that planning permission was likely for housing development the respondent calculated the option price at £5.3million, which must be paid as the appellant had exercised the option. The appellant argued the correct value was £500,000, £5.3million being far higher than the value of the land as a golf course. The respondent subsequently terminated the option contract.

The dispute related to clause 18.2 of the lease, which stated:

“The option price, if the option to purchase is exercised subsequent to the first year of let, 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”

In addition, the landlords were to assume that the subjects were in good and substantial order and repair, that all obligations of the landlords and the tenants under the lease had been complied with and that they were ready for occupation. Any improvements carried out by the tenants during the period of this lease otherwise than in pursuance of an obligation to the landlords, and any damage to or destruction of the subjects of the lease were to be disregarded.The appellant argued that the contract had not been validly rescinded and should be calculated according to its value as a golf course, ignoring the value of any potential housing development.

Finding for the appellant, the Lord Ordinary calculated full market value assuming the land was to be purchased as a golf course. Allowing the respondent’s appeal, the Extra Division of the Inner House found that the term “full market value” had to be interpreted literally, save where express wording required that relevant considerations be ignored.

Before the Supreme Court, the approach taken by the Extra Division was disputed. Lord Hope, finding that the lower court had placed disproportionate weight on the words “full market value” to the exclusion of subsequent terms, determined that it was impossible to ignore them. The agreement was a commercial contract. Recognising that it was impossible to reconcile the different parts of the clause, the approach of the case of Mitsui Construction Co v Attorney-General of Hong Kong (1986) 33 BLR 1, that a sensible meaning for the whole clause be found taking into account the factual knowledge of parties upon entering the agreement, was followed. Considering that reasonable commercial minds would have viewed full market value to have taken account of any development potential, Lord Hope held that an option price would necessarily include this.

In a separate judgment, Lord Rodger – with whom Lady Hale agreed – also determined the lease to be a commercial agreement. Beginning with the clear parts of the clause – the assumptions and disregards to be applied – the time frame would mean an assumption that a golf course had been constructed. The approach preferred by the appellants, focusing on the term “of agricultural land or open space suitable for development as a golf course" thus ignoring other relevant considerations would be inconsistent with this assumption.

Unanimously dismissing the appeal, the court determined the option to be spent.