Sale and option to re-purchase: does the option terminate the original buyer’s rights?

In Siu Kai Ming v Lau Sai Hing ([2015] HKEC 211, CFA) D owned a village house. D entered into two contracts with P (a developer). Under the terms of the first contract, P agreed to build a three-storey village house on land owned by D in consideration of the assignment of the second floor and roof of the house (the Property) to P. The second contract granted D an option to purchase the Property from P. P built the house but D did not assign the title to the Property to P. D validly exercised the option but then gave notice that he did not intend to honour the contract thereby created. P accepted this repudiation and now sought transfer of the Property to him. D argued that the exercise of the option brought P’s rights to the Property to an end and that P was only entitled to damages for breach of the contract arising from the exercise of the option.

P succeeded. The first contract gave P an equitable interest in the property. Neither the option nor its exercise brought this to an end; they simply gave rise to another contract. In respect of the first contract, P could elect for specific performance or damages and he had chosen specific performance. He was also entitled to damages for breach of the contract arising from the option but he had suffered no loss in this respect since the market price exceeded the option price.

Michael Lower

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