Non payout highlights need for lawyer negotiated provision for payout deadline extensions in property Joint Venture Agreements.

If there are circumstances that might justify the extension of a Joint Venture, Option or Conditional Contract Period it is very important that they be spelt out in the Agreement and that these be backed up by appropriate dispute resolution mechanisms.

Nordic Insulated Doors Ltd v Land Resources Ltd [2014] was a dispute between the parties under a Joint Venture Agreement (“the JVA”) of 31st August 2011 for the development of a property at St Lukes Court Willerby Hull (the “Property”). the Claimant wanted £160,000 damages for the Defendant’s failure to pay the amount due under the JVA.

The Claimant’s Mr Finn provided the expertise to renovate and/or improve properties and the Defendant’s Mr Maguire would put in the finance.

The JVA had been drawn up by the parties without legal advice.

Initially there was an dispute about the split of any profits on the sale of the Property with the Defendant claiming the first £600,000 of profit i.e. after repayment of the considerable sums that it had put in to JVA’s expenses.

The Claimant’s case was that the Defendant was entitled to a fixed sum of £600,000 on account of its expenditure after which the profits were to be split 50/50. Thus the Claimant was entitled to £150,000 plus a modest figure in respect of rental income.

clause 6 of the JVA was the major reason for non payment:-

“6. This agreement will finish on 01/08/2012 and after that date [the Claimant] will have no vested interest in the site.”

This passed a high risk to the Claimant. As this case illustrated, it could do a lot towards a sale only then to be denied any entitlement because the £900,000 sale only completed after 1st August 2012. Nevertheless, the Claimant’s Mr Finn had worded this clause and had conceded he knew and understood that, without any extension, the JVA came to an end after 1st August 2012 and that the Claimant would have no claim in respect of the JVA after that.

The sale did not take place until after 1st August 2012. So the Defendant contended that the Claimant was not entitled to anything.

The court found that there had been no point agreeing another 3 months extension in the hope that something might turn up. Neither Mr Finn nor Mr Maguire were willing to put any more money into the project. The Defendant had reached or exceeded the £600,000 allowed for deduction of expenditure. Nor would 3 months have been anything like long enough to obtain necessary planning permissions and building regulation approval.

Although the Defendant’s relationship with the Claimant had broken down, the Defendant was willing to stand by the letter of the JVA but nothing more. It did so.

Completion was 2 days too late for the Claimant to get a share for reasons that were not the Defendant’s fault. Had the Defendant wanted to block the Claimant getting the monies there were any number of things it could have done to slow the progress of exchange and completion whilst avoiding appearing to be thwarting the completion. In fact the sale would have exchanged and completed within the JVA time limit but for the fact that the buyer did not have sufficient funds.

The Claimant’s misfortune here arose from the freely agreed penal nature of clause 6 of the JVA and not from any default on the part of the Defendant.

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.