Tag Archives: sale of land

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.

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.