The result of a recent case Cohen v Tesco Properties Ltd & Anor (2014) EWHC 2442(Ch) has highlighted the importance of ensuring that a Conditional Contract for the purchase of land subject to obtaining Planning Permission is correctly drafted.
In August 2013, the Claimant landowner (Cohen) entered into an agreement with the Defendant developer for the sale of a property in Finchley North London at the price of £1.3 million. The agreement for the sale of the land was conditional upon the developer securing planning permission for residential redevelopment.
The contract required a deposit of £50,000 to be paid by the Defendant Buyer to the Claimant Landowner and contained a longstop date of 6 January 2014 by which time the Defendant Buyer had to have completed the purchase. There was, however, provision for the longstop date to be extend up to 9 June 2014 but this was conditional upon the Defendant Buyer making an application to the Claimant and paying a further sum of £8,333.33 for each month of any such extension.
The Defendant Buyer had been unable to obtain planning permission by the 6th January 2014, but anticipated that it would secure permission shortly. However the Defendant Buyer did not apply for an extension under the terms of the Conditional Contract prior to the longstop date of the 6th January 2014. On 14th January, the Claimant gave notice that the agreement was terminated.
The following day the Defendant applied for an extension on the basis that the Defendant believed they could do so at any time up to the final long stop date of 9 June 2014. The Claimant argued that there was no right to make a retrospective application and to pay the monthly additional sums at a later date and therefore the agreement terminated automatically on the 6th January.
Planning permission was finally granted in February 2014 and the Claimant stood to gain the full benefit of this permission and to retain the £50,000 deposit previously paid by the Defendant Buyer upon entering into the Agreement.
The Court noted that although the Conditional Contract was professionally prepared it was nevertheless badly drafted. Typically conditional contracts of this nature contain complicated definitions and provisions. In this instance the inter-relationship between the provisions for extensions of time and termination were left unclear. Many provisions used the wrong tense or could be interpreted in variety of ways leading to ambiguity.
This lack of clarity led the Court to attempt to make sense of what the parties had originally intended. In order to do so, the Court departed from a literal interpretation, preferring to interpret the wording with regards to business common sense.
As a result the Court found in favour of the Claimant’s interpretation as this was the only interpretation that gave the certainty that the parties had clearly intended. If the Defendant wanted further time then the Defendant should have requested this in good time and paid the £8,333.33 per month in advance as the price (or consideration) for this additional extension of time. To give any other interpretation and, in particular the Defendant argument that the application for an extension could apply retrospectively, would have meant that the Claimant would have had no idea where he stood after the long-stop date of 6th January and would have been unable to seek alternative buyers until after the 9th June without any compensation for this loss of time.
The Court also held that the deposit should be retained by the Claimant since it is standard practice that a Buyer pays a deposit to secure the right to seek to develop the property and clearly knows there is a risk that it may not secure planning permission in time to do so. Even if the landowner suffers no obvious loss, it has been unable to sell the property in the interim and is therefore entitled to retain all the benefits of the agreement.
In this case the landowner retained the deposit and was released from any further obligations to the developer. Lessons should be learnt from this case, that a well drafted agreement from a reputable firm of lawyers can pay dividends over time.
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