In the recent case of TCG Pubs & Another v The Art or Mystery of the Girdlers of London ("Girdlers") [2017] the High Court considered whether a letter from a tenant to its landlord constituted the grant of an option to purchase the tenant’s interest, as required by the lease.

The lease in question provided that if the tenant wished to assign the lease it "must first grant an option to the Girdlers". If the Girdlers did not choose to buyback the lease the tenant could assign with landlord's consent (not to be unreasonably withheld or delayed).

In September 2015, the tenant went into administration and a generous offer was received from a prospective buyer. In October 2015, the tenant's solicitors wrote to the Girdlers offering them the opportunity to buy the lease for the same amount as the offer received. The following day, the buyer's solicitors wrote direct to the Girdlers requesting permission for the lease to be assigned to their client. The Girdlers considered both letters and decided not to accept the offer to buyback the lease as they could not afford it. Subsequently, the Girdlers' solicitors wrote to the buyer's solicitors and said that they had no objection in principle to the assignment, subject to certain conditions.

The assignment did not progress smoothly and the matter was referred to the Court. The Judge considered that the words "grant an option" in the lease required a more formal process than the mere service of a notice or letter on the landlord. A formal option agreement was held to be required, clearly setting out the pre-requisites for the exercise of the option by the landlord, and therefore the letter purporting to trigger the buyback clause was ineffective. This was regardless of the Girdler's letter agreeing in principle to the assignment, which did not have the effect of waiving their right to have an “effective” option granted to them. The tenant needed to go back to square one and offer a valid option agreement to the landlord before it could assign the lease.

Words to the wise: if an option to buyback is included in a lease, it is essential that the lawyers carefully consider the wording of the grant and ensure that it is followed precisely. It would be advisable to have full option provisions included in the lease with a process for service of notice and acceptance/rejection.