Will option: the essence of time?

Sometimes a will contains an option to buy land at the figure agreed between the executors and the Capital Taxes Office as its value for inheritance tax purposes and then specifies a time within which the option must be exercised. In such cases the grantee may have to make up his mind whether to exercise the option before knowing what the purchase price will be or risk losing the option.

One such case was Re Bowles Deceased [2003] Ch 422, where the value of the land was not agreed with the CTO within the specified time limit and the grantee felt unable to exercise the option until the value had been agreed. He brought proceedings for a declaration that time was not of the essence, and that he could exercise the option at any time until the expiry of a reasonable period after the value had been agreed with the CTO and notified to him.

The difficulty facing the claimant was that current textbooks indicate that if a will specifies a time limit for the exercise of an option the time must be strictly observed, and that the option will lapse if the grantee fails to exercise the option in time: see Theobald on Wills, paragraph 25-05; Williams on Wills, paragraph 92.4. The impression given is that there is a rule of construction to this effect.

The authority relied on for this proposition is Re Avard ([1948]), where the option was exercised a few days out of time, the grantee having been unaware that the option had become exercisable, and the lateness of the exercise was of no detriment whatever to anybody, and yet Roxburgh J held that time was of the essence and that the notice exercising the option was therefore invalid.

In Re Bowles the judge (Lawrence Collins J) declined to follow Re Avard. He preferred to follow the cases on gifts subject to a condition (Re Packard [1920] 1 Ch 596; Re Goodwin [1942] 2 Ch 26) which show that where the time limit is not observed the gift will not fail if the will does not specify the consequences of non-compliance and the parties can be restored to the same position as if the condition had been fulfilled.

He pointed out that the two cases on which Roxburgh J relied (namely Brook v Garrod (1857) 3 K & J 608 and Powell v Rawle 1 LR 19 Eq, 243) were cases in which the will specified the consequences of non-compliance with the time limit, and therefore did not support the decision in Re Avard; and, unlike Roxburgh J, he considered that there was no relevant distinction between a gift subject to a condition and the grant of an option.

He therefore concluded that Re Avard was wrongly decided, and that the criticism of it in Jarman on Wills at page 1469 was justified, and he granted the declaration sought.

Nicholas Asprey: Serle Court Quarterly 2004