Pre-emption Rights Not Perpetual, Rules Court

When two plots of land changed hands in 1989, the vendor would not have expected that more than 20 years later an argument would arise over its right to convey the land in question.



When the vendor, an Isle of Man company, had sold a parcel of land in 1984, it had also given the purchaser an option to buy two further plots of land in the event that the vendor had not obtained planning permission with regard to each of the plots within five years from the date of completion or if it offered the land for sale. The latter was in the form of a ‘right of first refusal’, rather than a formal option to buy.



The vendor disposed of the land in 1989, but the holder of the option did not become aware of this until 4 August 2009, when he sought to exercise it.



In general, the Perpetuities and Accumulations Act 1964 prohibited the granting of conditional obligations such as options for more than 21 years. The current owner of the land sought to defeat the claim on the basis that, as the option was more than 21 years old when the action was brought, the rights granted under it were void.



The person seeking to exercise the right to purchase the land argued that the Act only applies to options, not to rights of pre-emption, and in any event the 21-year limitation period under the Act would only start to run once the decision had been made by the original vendor to sell the property (1989), not before. The option was therefore exercised within the applicable perpetuity period.



The High Court rejected this interpretation, finding that the Act did apply to pre-emption rights, treating them as a ‘species’ of option. It contains a specific exemption to the 21-year rule for pre-emption that applies to local councils where the land concerned has been used for religious purposes but no longer is. In the Court’s view, such an exemption makes no sense if the legislation does not apply to pre-emption rights generally.



The Court found that, in the present case, the perpetuity period began to run on the date of the agreement itself and had expired prior to the date of the letter purporting to exercise the option.



The Perpetuities and Accumulations Act 2009, which came into force on 6 April 2010, abolishes the general rule against perpetuities in relation to options. However, it only applies to instruments taking effect on, or after, 6 April 2010.