Outer House finds Edinburgh Airport validly exercised option to purchase adjacent land

A property developer that granted an option to purchase land it owned next to Edinburgh Airport in favour of the airport has failed to establish that the option had not been validly exercised.

New Ingliston Ltd granted the option to Edinburgh Airport Ltd in October 2001. The airport served notice that it intended to exercise the option in October 2016, obliging the pursuer to convey the land to the defender in exchange for 65 per cent of the land’s open market value.

The case was heard in the Outer House of the Court of Session by Lord Ericht.

International business district

The option to purchase the land, which consisted of around eight hectares of land between the airport and the M8 motorway, had several conditions attached that required to be met to exercise it. The land was to be conveyed under title restrictions that included a prohibition of use other than airport operational uses as defined in the option agreement.

Prior to the service of an option notice, it was required that the whole or the majority of the land was zoned for a use that was consistent with an agreement between the pursuer and BAA plc, who then operated Edinburgh Airport and were the parent company of the defender’s parent company, in which they agreed to use all reasonable endeavours to achieve the optimum development potential for the land as a whole and maximise its value. These were listed as Objectives (b) and (c).

It was also a key objective, Objective (a), to ensure that the revision to the West Edinburgh Planning Framework established the basis for the future development of the subjects as an international business district prior to the expiry of the Initial Period and the provision of key infrastructure. The pursuer’s position was that this was the first step and that having fulfilled this both parties would go on to fulfil all the other key objectives separately.

The pursuer submitted that the other key objectives were not restricted to an international business district. They were listed from a practical viewpoint, recognising that at the time the option was granted the subjects were zoned as green belt land. Thus, the development potential of the land was unrestricted.

The defender submitted that the other objectives should be read in the context of the objective to establish a basis for the land as an international business district. On that basis, the conditions had been met for the option to be exercised.

Objectives must be read together

In his opinion, Lord Ericht preferred the defender’s construction of the objectives, saying: “It is clear from the use of the word ‘and’, which applies to all of the Key Objectives, that all of the Key Objectives must be read together. They are not alternatives. Further, as (a) is specifically included as an objective, it cannot be said that the real objectives are (b) and (c)and (a) is not truly an objective but merely a mechanical or procedural step on the way to achieving (b) and (c). Key Objective (a) is an objective in its own right.”

He continued: “All the objectives must be read in the context of each other. When (b) and (c) are read in the context of (a), they are restricted to development potential in the context of an international business district and land value in the context of an international business district.”

He went on to say: “The Option is in favour of the defender and not BAA. The contractual documentation shows that the defender has a very different interest in the contractual arrangements from BAA. The interest of the defender is as the operator of an airport. Unlike BAA, the defender does not share in the increase of the value of the Subjects. The only contractual advantage to the defender is that it obtains a small part of the Subjects immediately adjacent to the airport. It obtains the land for airport operational purpose sonly: the land it acquires is subject to a title restriction prohibiting its use other than for airport operational purposes.”

Regarding the requirement that the subjects were zoned for use consistent with the main agreement, he said: “In my opinion the Option Subjects were ‘zoned’ for an international business district. Counsel for the pursuer argued that the Option Subjects had not been so zoned because under the RWELP 2011 Alteration there was at the same time zoning as green belt and also interim zoning as an International Business Gateway. In my opinion, that is an overly technical analysis of the planning position. There was no conflict between the green belt zoning and the International Business Gateway zoning. The 2011 Alteration permitted development of the International Business Gateway as an exception to the green belt. The green belt zoning could not prevent that development.”

On whether maximum development potential had been achieved, he said: “There was support in principle for use as international business development, hotel and conference facilities and uses ancillary to international business development.”

He continued: “These uses were extended to include housing as a component of business-led use. There was no suggestion by either party that any further uses were essential to the development of an international business district. It is entirely appropriate that housing in an international business district should be business-led.”

On whether the value of the land had been maximised at the time the option was exercised, he commented: “The question for the court is whether as at the date of service of the Option Notice, the Subjects were zoned for a use which was consistent with the Main Agreement in accordance with maximising the land value of the Subjects within the context of an international business district. In my opinion they were zoned for such a use. They were zoned […] for an international business development, hotel and ancillary uses. These uses in themselves are sufficient to satisfy Key Objective (c), without any additional housing use.”

For these reasons, Lord Ericht found that the option notice was valid and of legal effect and refused declarator.