Category Archives: Sale and Purchase

Contract: party had effectively waived the requirement for it’s signature

In what circumstances will a contract result when a written offer document states that it is not binding until signed by the offeree and the offeree does not sign but nevertheless performs in the manner contemplated by its terms?

A party’s consent to a contract is by the acceptance of an offer.

That acceptance can be by the conduct of the offeree so long as that conduct, objectively interpreted, is intended to constitute acceptance.

Acceptance can be of an offer on the terms set out in a draft agreement drawn up between the parties but never signed.

If a party has a right to sign a contract before being bound, it is open to it by clear and unequivocal words or conduct to waive that requirement and to conclude the contract without insisting on it’s signature.

If signature is the prescribed mode of acceptance an offeror will be bound by the contract if the offeree waives that requirement and acquiesces in a different mode of acceptance.

It follows that where the requirement to accept a contract by signature is intended for the benefit of the offeree, and the offeree accepts in some other way, that should be treated as effective unless it can be shown that the failure to sign has prejudiced the offeror.

A draft agreement can have contractual force, although the parties do not comply with a requirement that to be binding it must be signed, if all the terms have essentially been agreed and their subsequent conduct indicates this. Though a court may be hard to persuade of this.

The later conduct of the parties is admissible to prove the existence of a contract, and it’s terms, although not as an aid to it’s interpretation.

In the Court of Appeal case of Reveille Independent Llc v Anotech International (UK) Ltd [2016] the provision that the contract would not be binding on Reveille, unless it signed, was obviously for it’s benefit. It was almost certainly Reveille’s standard form contract.

In not signing, Reveille as offeree was waiving a prescribed method of acceptance, set out for it’s benefit. That was effective so long as there was no prejudice to Anotech as offeror.

The only prejudice Anotech could point to was the commercial uncertainty as to whether it was bound by the contract. That was miniscule when Anotech was receiving all the benefit of Reveille’s performance of the contract’s terms.

In fact, viewed objectively Anotech could not have thought that it was prejudiced when from the outset it actively facilitated performance by Reveille of what Reveille was doing under contract in integrating products into the recording of a famous TV show and licensing Anotech to use the programmme’s brand in marketing its cookware products.

In short, Reveille waived the clause that there would be no binding contract in the absence of it’s signature on the contract, and this did not prejudice Anotech.

Reveille accepted the terms of the contract by conduct, leading to a binding contract.

Subsequent conduct by both sides had confirmed the existence of that contract.

Reveille’s failure to sign the contract just meant uncertainty as to the exact date the contract was formed.

However, Reveille had performed all it’s obligations as set out in the contract with Anotech’s participation and to Anotech’s benefit.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Contracts: Duty to use reasonable endeavours can survive cut-off date

Where a sale contract is conditional on one party obtaining an acceptable planning permission and that party agrees to use all reasonable endeavours to fulfill that condition as soon as possible, that party will not be allowed to exercise any right to cancel the contract that arises because the Condition was not fulfilled by a “Cut-off Date”, if the reason for non-fulfillment was that party’s own breach of that obligation.

That principle was reaffirmed by the Court of Appeal in Bristol Rovers (1883) Ltd. -v- Sainsbury’s Supermarkets Limited (2016).

But in that case Sainsbury’s were not guilty of any breach of their contractual obligations and that principle did not prevent them from cancelling the contract.

However the court did make it clear that Sainsbury’s obligation to use all reasonable endeavours survived the “Cut-off Date” and lasted right up to the point where they actually exercised their right of cancellation.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Promissory estoppel could not outflank statutory requirements for variation of land sale contracts

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (the 1989 Act) says:

“(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each

(5) … nothing in this section affects the creation or operation of resulting, implied or constructive trusts.”

In Dudley Muslim Association v Dudley Metropolitan Borough Council [2015] the starting point was that the Dudley Muslim Association (“DMA”) were under an obligation to re-transfer land to the Council in the event of non-completion of a Mosque development by a contractual deadline.

They alleged that the Council had made representations that they be allowed an extension of time beyond the Scheme getting planning permission and that this amounted to a variation of the contract or was the basis of a promissory estoppel.

The Court of Appeal held that an obligation to re-transfer land to the Council was a contract for the disposition of an interest in land and therefore caught by section 2 (1).

Although the obligation to re-transfer was in the nature of a covenant, it made no difference. It was an executory (and initially conditional) commitment to transfer the freehold to the Council in exchange for a specified sum of money. So the obligation to transfer was within the scope of section 2.

Any variation of a contract that falls within the scope of section 2 must itself comply with the required formalities of that section: McCausland v Duncan Lawrie Ltd [1997]. The DMA could not show that the correspondence from the Council alleged to be the source of the estoppel did comply.

McCausland left open the possibility that estoppel might get round the section, though it would be surprising if one could do by promissory estoppel what one could not do by informal contract.

An “estoppel by convention” arises where parties to a transaction act on an assumed state of facts or law, where that assumption is either shared by both, or, made by one party and acquiesced in by the other party. Here, so long as the assumption is communicated by each party to the other, then each is prevented, or estopped, from denying the assumed facts or law if it would be unjust to allow them to go back on the assumption. Godden v Merthyr Tydfil Housing Association (1997) subsequently held that an allegation of an estoppel by convention could not circumvent section 2.

A “proprietary estoppel” involves something being done by a person which that person believes will give him rights in or over land. For example, putting up a building or making improvements to the land. Here the landowner may be estopped from denying the right or title which that person has assumed to exist. Yaxley v Gotts [2000] held that a proprietary estoppel claim could be brought despite section 2 (1) because such a claim fell within the exception in section 2 (5). But the observations of Lord Scott in Cobbe v Yeoman’s Row Management Ltd [2008] later cast doubt on this:

“The proposition that an owner of land can be estopped from asserting that an agreement is void for want of compliance with the requirements of section 2 is, in my opinion, unacceptable. The assertion is no more than the statute provides. Equity can surely not contradict the statute.”

Though the observations were made as an aside and were not essential to the decision, three other Law Lords in the case had agreed with Lord Scott’s speech.

In the present Dudley case, the Court of Appeal was prepared to assume, for the purposes of argument, that a claim in proprietary estoppel is capable of outflanking section 2. But only because it might fall within the express exception within subsection (5) which was itself part of section 2.

A “promissory estoppel” usually involves a promise, given by one party during the performance of a contract, not to hold the other party to the strict terms of the original contract.

Where, as here, a defence was raised based not on proprietary estoppel but on promissory estoppel there was no question of a constructive trust of land arising. Furthermore since the DMA already owned the land, there was no relevant property which was capable of being held on constructive trust for the DMA.

Unless a case fell within section 2 (5), to admit a defence based on promissory estoppel would be effectively to repeal the section by judicial legislation.

So, even if the DMA had been able to plead and prove a defence of promissory estoppel it would not have overcome the extension of time being void for non compliance with the formalities required under section 2 (1) of the 1989 Act.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Extension beyond deadline: time no longer of essence

In the Court of Appeal case of Buckland v Farmer and Moody [1979] Buckley LJ said of breaches of contract: “If the party who is in the right allows the defaulting party to try to remedy his default after an essential date has passed, he cannot then call the bargain off without first warning the defaulting party by fixing a fresh limit, reasonable in the circumstances.”

He was citing Goulding J in the old case of Luck v White.

Therefore, in such circumstances the claimant could not simply pull the plug on the contract without fixing a new date that was reasonable in the circumstances.

In the High Court case of Hakimzay Ltd v Swailes [2015] the buyer had bought with vacant possession and served a notice to complete when this could not be provided.

This made time of the essence to complete by a certain date which was not complied with.

The buyer came up with proposals to allow the seller more time but wanted £10,000 off the price as compensation for having its money tied up unproductively with its solicitor.

But now having got the last tenant out, the seller sought to cancel the contract.

The court said the seller could not now just turn round and say, “I require you to complete forthwith. If you cannot, I shall terminate on account of your repudiatory breach, because during this continuing period after expiration of the notice to complete time remains of the essence.”

So the seller was not entitled to serve his notice of rescission of the contract, which was accordingly ineffective to bring the contract to an end.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Lenders had priority over Vendors in “sale and lease back” deals

Homeowners have agreed sale-and-leasebacks deals with investors to overcome debts.

In Scott-v-Southern Pacific Mortgages Ltd (2014), properties were sold to buy to let investors on the understanding the homeowners could remain as the tenants after the sales were completed.

However the sale contracts made no reference to the lease-backs to the sellers.

Some of those landlords had mortgages and failed to maintain mortgage payments.

The lenders were not told about the lease-backs to the sellers. They were informed that the properties were being bought with vacant possession. So they had not consented to the lease-backs.

Did those mortgages take priority over the agreements between the buyers and sellers or were the lenders bound by the agreed lease-back arrangements?

The sellers said they had overriding interests in the houses based on the promised lease-backs which were protected by them being in actual occupation when the sales were completed.

The Supreme Court said the rule that a buyer becomes the equitable owner of the property sold on exchange of contracts “applies only as between the parties to the contract and cannot be extended so as to affect the interests of others” i.e the lenders.

Accordingly the court were unanimous that exchange of contracts had not prior to completion empowered the buyers to confer equitable proprietary rights on the sellers capable of taking priority over the lenders.

So all the sellers had were personal claims against the buyers.

The acquisition of the houses may have been a vital precursor to a mortgage but where a property buyer needs a loan to finance a purchase, the purchase and mortgage form a seamless whole because the buyer would never have got the property without the loan.

The sellers’ claims against the buyers changed from being purely personal claims to being proprietary claims against the properties, capable of binding third parties, when the buyers completed their purchases from them and acquired the legal estates in the houses, but by then it was too late for the sellers to get priority over the mortgages taken by the lenders as an integral part of the house purchase completions.

The decision has important implications for other property transactions where the priority of derivative interests depends on the person granting them already having the legal estate in the property at the key time. The transactions potentially affected include commercial sales and lease-backs.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Sellers’ right to rest of deposit survived rescission of contract

All conveyancers are familiar with the contract clause that says that, if the buyer pays a deposit of less than 10% of the purchase price at exchange of contracts, the seller can require the rest of the 10% to be paid immediately if the buyer defaults at completion.

If the seller has cause to serve a notice to complete on the buyer that will trigger the seller’s entitlement to make that demand.

If the notice to complete is not complied with in time and the seller rescinds the contract under the standard conditions of sale or otherwise will the right to the rest of the 10% survive that rescission of the contract?

In the High Court case of Hardy & Anor v Griffiths & Anor [2014] the Judge ruled the answer to be “yes”.

The right to call for the rest of the 10% had accrued to the sellers on the sellers’ service of the notice to complete and the sellers’ later rescission of the contract had not discharged that entitlement.

So the sellers’ unconditional right to payment of the top up deposit survived the sellers exercising their right to rescind the contract.

The sellers were entitled to:

– sue for the rest of the 10% deposit as an agreed sum, which they could have sought to recover as a debt; or

– as they had, sue for damages for breach of the obligation to pay the further deposit, with the damages being equal to the amount of the further deposit.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Commercial sense of land contract frustrated completion and return of deposit

Under Section 49(2) of the Law of Property Act 1925 (“the 1925 Act”) the court has a wide discretion to order the return of a buyer’s deposit if a land purchase falls through and that discretion generally overrides any contrary provision in the contract.

In the High Court case of Cohen v Tesco Properties Ltd and others (2014) the defendant developer agreed to buy a site in London from the claimant, conditional on obtaining satisfactory planning permission for residential development.

The contract covered the various factors which might arise during the planning application which would affect the date of completion.

The contract laid down a “long stop date”, which fell in early January 2014.

However, the agreement entitled the defendant to extensions of time on giving written notice for each period and making the claimant a prescribed monthly payment

The defendant failed to get satisfactory planning permission by the long stop date.

A week later, the defendant emailed the claimant, indicating that it wanted to extend the contract and offering to commence the agreed monthly payments.

However, the claimant refused the extension and said he regarded the contract as terminated effective from the long stop date.

In February 2014, the planning permission was granted for residential development of the site. That permission ran with the land and was not personal to the defendant.

In the procedings the claimant sought a declaration that he was no longer bound by the contract. The defendant counterclaimed for the sale of the property to itself OR relief from forfeiture of its deposit under section 49(2) of the 1925 Act.

The court said the contract was badly drafted and open to more than one interpretation so they should go with the interpretation that best fitted business common sense.

The poorer the drafting, the more reluctant the court should be to attribute the parties an improbable and unbusinesslike intention, if the language used was reasonably consistent with the parties intending to make sensible provision for the sort of contingencies that might well occur during the work covered by contract.

If the drafting of an agreement was generally poor, it would be objectively more difficult to conclude that the parties really meant the literal meaning of the words they used, to override clear business common sense.

The court said here, the parties’ commercial objective had been that they should know where they stood if they came to the end of the long stop date without any request for an extension.

No term could be implied that the first defendant was entitled to call for completion within a reasonable time after the termination date. That would radically undermine the parties’ commercial bargain by leaving the claimant subject to the basic obligation to sell the property within an open ended and uncertain “reasonable time” limit. In contrast the contract had indicated an intention on the part of the parties to impose a certain and precisely defined “end point” for that obligation.

So, the claimant had no obligation to sell the property to the defendant, whose claim for specific performance was rejected.

Secondly, the contract had made clear express provision for what should happen to the deposit if the contract failed to be completed due to a failure to obtain planning permission by the long stop date, if the defendant did not give notice within the required time to call for completion. So it was not appropriate for the court to exercise its discretion under section 49(2) of the 1925 Act to relieve the defendant from forfeiture of the deposit and order the claimant to repay it.

This blog has been posted as a matter of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Context & Special Conditions disapplied Property Sale General VAT Payment Condition

Where a property sale is liable to VAT the contract should contain a provision identifying the value of the supply and imposing upon the buyer an obligation to pay the VAT to the seller.

In CLP Holding Company Ltd v Singh & Anor [2014] the claimant exchanged contracts to sell 72 Rolfe Street, Smethwick (“the property”). Completion took place on the same day. Were the defendants liable to pay the claimant the VAT charge on that transaction?

The claimant was registered for VAT and, in 1989, it gave notice to HM Customs & Excise (“HMRC”) that it had opted to waive the exemption from VAT for the property. The claimant having exercised its option to waive the exemption, was liable to pay VAT upon the transaction, and in late 2007 HMRC raised a notice of assessment. In 2008, the claimant informed the defendants of the notice it had received and claimed that, under clause 1.4 of the general conditions, the defendants were liable to pay the claimant the sum it had to pay to HMRC in respect of VAT. They offered a VAT invoice. The defendants refused to pay VAT.

Clauses 1 and 2 of the special conditions covered the inter-relationship of the special and general conditions:

“1. The Seller [the claimant] will sell and the Buyer [the defendants] will buy the Property for the Purchase Price.

2. This Agreement incorporates the Standard Conditions of Sale (4th edition) (“the general conditions”). Where there is a conflict between the general conditions and this Agreement or the general conditions are not consistent with the express terms of this Agreement, this Agreement shall prevail…..”

Turning to the general conditions, clause 1.1.4 of the general conditions made it clear that they applied except as varied or excluded by the special conditions.

General condition clause 1.4 dealt with VAT as follows:

“1.4.1 An obligation to pay money includes an obligation to pay any value added tax chargeable in respect of that payment.

1.4.2 All sums made payable by the contract are exclusive of value added tax.”

General condition clause 7.4 provided:

“Completion does not cancel liability to perform any outstanding obligation under this contract.”

The Court of Appeal said the following points were material:

1. It had never been suggested that the claimant ever told the defendants that it had exercised the option to tax.

2. The defendants were individuals. Whilst the property comprised commercial premises, there had never been any suggestion that the defendants were aware, or had any reason to suppose, that the transaction might be subject to a VAT charge.

3. The purchase price for the property was agreed in principle a considerable time before completion. Moreover, the whole purchase price of £130,000 had been paid over by the defendants to the claimant by, at the latest, 2005. There was never any suggestion that VAT might be payable, still less that the defendants would be liable for it. Quite the opposite. In advance of the sale, the claimant’s solicitor’s letter expressly acknowledged that the claimant had received “all of the sale monies of £130,000 on this matter, subject to contract”. Apparently they were repaid to the defendants and then paid again to the claimant at exchange and completion.

4. The standard requisitions requested details of the exact amount payable on completion. The reply was: “Balance of purchase monies”, that is to say £130,000. No hint was given that VAT was or might be payable.

5. The special conditions specified that the “Purchase Price” was £130,000. They contained no indication that that price was exclusive of VAT. Additionally, the special conditions provided, in clause 2, and, implicitly, the general conditions in clause 1.1.4, that where there was any conflict with the general conditions (e.g. general condition clause 1.4 above), the special conditions were to prevail.

Taking all these factors into account and considering, the position from the standpoint of the reasonable person who had all the background knowledge which would reasonably have been available to the parties, placed as they were at the time of the contract, the Court of Appeal thought that person would almost certainly have inferred the parties to have intended that the defendants should not have had to pay the claimant anything over and above the specified purchase price of £130,000.

Here it was impossible to interpret “purchase price” as the price exclusive of VAT.

Or, putting it slightly differently, the reasonable person would think that the special conditions could not be reconciled with clause 1.4 of the general conditions and that the parties had, therefore, intended special condition clause 2 and general condition clause 1.1.4 to apply. So the special conditions would prevail i.e. without reference to VAT being paid additionally to the purchase price.

Therefore the court unanimously dismissed the appeal and left the claimant having to pay the VAT assessment.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

No prospects of planning so negligence did not cause application expense losses

Where a claim for breach of contract is successful, the first set of principles concerns the date of assessment of damages:

1. The overriding principle is that contractual damages are compensatory. The damages should represent the value of the contractual benefit the claimant has been deprived of by the breach of contract.

2. Prima facie damages are to be assessed as at the date of breach without regard to later events.

3. You can depart from that rule where it is necessary to ensure that the claimant is not over-compensated or under-compensated having regard to events which have occurred since the date of breach, in particular where matters which were contingencies at the date of breach have become faits accomplis later.

4. Where this is necessary, one way of departing from the rule is to assess the damages as at a later date. Another approach is to assess damages as at the date of breach, but in the light of later events.

In claims for professional negligence against solicitors and barristers where the lawyer’s negligence has resulted in their client losing the chance to bring a claim against a third party, a second set of principles apply to the quantification of damages. Here, the court must value the chance which has been lost. That means the court must assess the client’s prospects of success. If the underlying claim was certain to fail anyway, it will have had no value and the claimant will have no loss as a result of the lawyer’s negligence.

In Ridgewood Properties Group Ltd & Anor v Kilpatrick Stockton Llp & Ors [2014] the First Claimant (“RPG”) entered into a series of 9 contracts with Texaco Ltd (in its then and later names) (“Texaco”), known as the Airspace Agreements. Here RPG acquired conditional options to buy sites used by Texaco that were or included petrol filling station shops. RPG would apply for planning permission for redevelopment to become a shop with flats above. On planning permission, RPG would take a building lease of the site and carry out the development, and then, RPG would either acquire the freehold or a long lease of the site, subject to Texaco retaining the shop.

In apparent repudiatory breach of the options Texaco sold the 9 sites, to Somerfield Stores Ltd (“Somerfield”) and Azure Properties LLP (“Azure”), without reserving to RPG the power to compel Somerfield or Azure to perform Texaco’s obligations to RPG under the Airspace Agreements.

RPG claimed that their solicitors had negligently failed to advise RPG about their right to terminate the Airspace Agreements prior to March 2006. RPG said that, if the solicitors had advised that Texaco’s apparent repudiatory breach of the Airspace Agreements enabled RPG to terminate the Agreements and claim damages for loss of opportunity to perform them, RPG would have done so, and would not have continued to seek planning permissions.

The court concluded that irrespective of any repudiation of the Agreements by Texaco, RPG had never had a real prospect of successfully obtaining the planning permissions anyway, so any claim for wasted costs would fail. Going ahead with something which (independently of any Texaco breach or solicitor’s negligence) they had no chance of getting had broken the causal link between any Texaco breach of contract/solicitor’s negligence and their loss incurred in wasting expenditure on planning applications: as that loss was always bound to occur if they went ahead with applications which had no prospects of success – regardless of the status of the Airspace Agreements.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Property loss would have occurred regardless of alleged negligence

It’s not enough to have a negligence claim against solicitors or other property professionals. Claimants need to be able to show that the negligence caused the loss claimed and to overcome any defence that the loss was too remote from the negligence.

In AW Group Ltd v Taylor Walton (a firm) [2014] the claimant’s case was that, had the defendants given adequate advice about the existing planning consents at the site, the lack of planning permission to park HGVs at the rear, and the prospects of getting satisfactory planning permission later, the claimant would have pulled out of buying the property (“Packhorse Place”) and would, if necessary, have resigned itself to the loss of the deposit, it had paid. and would have looked for somewhere else to buy.

The first instance judge had assessed the open market value of Packhorse Place on 2nd November 2005 with the benefit of its actual planning consents at £2.07 million, so that the claimant had overpaid £730,000 relative to it’s worth at the time.

The court found that the devendant’s negligence was not the effective cause of its loss as the claimant would have gone ahead anyway. The claimant was already too committed to the purchase of Packhorse Place to be able to back out by the time the defendants ought to have warned of the planning difficulties. :

1. it would have been too late to find and purchase an alternative site. At best, a temporary alternative might have been leased.

2. The deposit of £140,000 would have been forfeited to the Seller of Packhorse Place.

3. The claimant would have suffered a penalty of up to £500,000 if it did not vacate its existing site, Chaul End.

4. On past experience, even after getting competent advice from the defendants, the claimant’s managing director would have taken the pragmatic view that enforcement action at Packhorse Place was unlikely, and nothing seriously to worry about.

5. The businesses of the claimant’s associated companies AWT and AWCR, housed at Chaul End, lost money. The claimant’s main reason for relocating to Packhorse Place was the obtaining of roll-over relief, rather than ensuring their long term survival.

6. The claimant could take the risk of enforcement action, because it would be unlikely to have become effective early enough to prevent the claimant getting full roll-over relief from Capital Gains Tax by moving to Packhorse Place. In fact, both companies went into insolvency procedings before effective enforcement action was taken against them.

7. There was insufficient evidence provided to support the claimant’s allegation that their bank would have withdrawn or reduced funding for the purchase had they been properly notified and advised by the defendants about the planning position.

So the claim failed on causation grounds alone and the appeal against dismissal of the claimant’s claim against the defendant was dismissed.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.