A contract is not conditional merely because it contains obligations which may be termed promissory conditions. The taxpayer company was the prospective tenant under a building agreement. By clause 4 it agreed to build a six-story office block in Reading and clause 4 provided that if the building was completely and satisfactorily finished the landlords would grant a 125-year lease, which the tenant would accept.
Held: Upholding Goff J at first instance, the contract was not, in the relevant sense, conditional.
Buckley LJ read clause 4 and said: ‘Reading that clause in isolation there is something to be said for the view that it is couched in conditional terms and that suggests that the obligation of the landlords to grant a lease is conditional upon the prior performance by the tenants of their obligations under the contract. But when one comes to read the agreement as a whole, it appears to me to be perfectly clear that the tenants’ obligations with regard to clearing the site and putting up the building were part of the consideration which the tenants were giving in exchange for the landlords’ promise to grant them a lease for 125 years at pounds 5,000 a year, and the landlords are not to be expected to perform their part of the contract (that is to say, the granting of the lease) unless and until the tenants have performed their obligations which constitute the consideration for the landlords’ promise. Although clause 4 is couched in conditional language, in my view, it amounts to no more than this: it provides that if the tenants perform their part of the contract, then the landlords will perform their part of the contract; in other words, it is a recognition of the fact that the obligations of the parties are mutual and that the granting of the lease will, in fact, follow completion of performance of the obligations of the tenants. That is not, in my judgment, a condition precedent to the contract at all, it is part of the terms of the contract. You may call it a condition if you please, but it does not make it a condition precedent to the existence of a contract’.
Cairns LJ agreed and the judgment of Russell LJ, which treated it as a short and simple point, reached the same conclusion.
Judges:
Buckley LJ, Cairns LJ, Russell LJ
Citations:
(1971) 46 TC 687, [1971] Ch 871
Statutes:
Jurisdiction:
England and Wales
Cited by:
Cited – Jerome v Kelly (Her Majesty’s Inspector of Taxes) HL 13-May-2004
In 1987, trustees holding land for various beneficiaries in undivided shares entered into a contract to sell it to a purchaser. In 1989 Mr and Mrs Jerome, who were absolutely entitled to interests in the land, assigned part of their beneficial . .
Lists of cited by and citing cases may be incomplete.
Capital Gains Tax, Contract
Updated: 26 November 2022; Ref: scu.196885
