Time, Ultimatums And Rescission In Land Sale Contracts

Persimmon Homes Limited v Bellway Homes Limited

If a party is in material breach of contract, the "innocent" party is entitled to "rescind" the contract- that is- bring it to an end. However, in some cases, the innocent party should only rescind once the wrong-doer is given an opportunity to cure its breach of contract. This is known as the "ultimatum procedure".

Background

Bellway Homes Limited ("Bellway") sold a site at Broomhouse to Persimmon Homes Limited ("Persimmon"). In terms of the missives Bellway ("the Seller") was to complete the Seller's Works prior to the longstop date which failing Bellway would offer Persimmon an alternative site of a similar value and size as the Broomhouse site.

The Seller's Works were not completed. As such, Bellway offered Persimmon a site in Airdrie, which Persimmon rejected on the basis that it did not meet the agreed criteria.

On 11 February 2009 Persimmon's solicitors wrote to Bellway demanding completion of the Seller's Works by 15th May 2009 under threat of rescission. The Seller's Works not being completed Persimmon rescinded the contract on 12 June 2009 and raised an action for damages for breach.

The court found that the value of the Airdrie site was not comparable to the original Broomhouse site and consequently Bellway were indeed in breach.

However, had the missives been properly rescinded?

Bellway argued that as time was not of the essence in the missives they should have been given another opportunity to propose an alternative site. Separately, they argued that the letter of 12 June 2009 had not rescinded the contract as it only referred to the obligation to complete the Seller's works and not the obligation to offer an alternative site.

In response, Persimmon argued that a rescission notice did not have to be in a specific form and did not have to include reasons for the rescission.

The court agreed with Persimmon and held that the contract was validly rescinded by the letter of 12 June 2009. However, until rescission, Bellway would indeed have had the opportunity to offer a suitable alternative site and cure the breach.

Lord Drummond Young set out three principles which he considered vital when considering the effectiveness of a letter of rescission:

The intention to rescind must be clear. There is no requirement that any reason be...