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.