Few developers are in a position to develop land without recourse to funding. The litigation in Westfields Homes Ltd v Keay Homes (Windrush) Ltd [2020] EWHC 3368 (Ch) concerned a development of land in the Cotswolds. Keay had assigned the benefit of an option to purchase the land to Westfields in return for payments that included a share of any eventual profits from the development.
Westfields had nearly completed the first phase of its development and wanted to press on with the final phase. But it needed funding in order to do so – and the land was charged to Keay as security for the sums payable to it. However, Keay had undertaken to remove its charge temporarily or “enter into such deeds of priority as it considers reasonable” to enable Westfields to fund the development.
Keay had also registered a notice to protect its financial interests and a restriction prohibiting the registration of dispositions without its consent. And – although it had agreed that it would temporarily remove its notice in favour of a funder “provided such finance… is in accordance with the spirit of this agreement, both parties acting reasonably and in good faith”, and to grant consents “to enable sales of completed properties provided the terms of this agreement have been complied with” – it was declining to co-operate with Westfields to enable it to secure the funding that it needed. So Westfields sought an order for specific performance requiring Keay to execute a deed of priority and to provide the requisite consents.
Consequently, the court had to decide whether the funding proposed was within “the spirit” of the parties’ agreement. The judge interpreted this phrase by reference to the parties’ shared aims, which were to undertake a development with a view to maximising the profit to be shared between them, using finance secured by a first legal charge that would have priority over any charge securing Keay’s profit share – and ruled that Keay could only withhold its consent if the funding proposed fell outside “the spirit” of the agreement, so understood, or was in bad faith and/or unreasonable.
There was nothing in the financing proposal that ran counter to the parties’ shared aims. Keay was pressing for a priority cap and a financial audit at the end of the first phase of the development. But these requirements were not in the parties’ agreement. And there was nothing to suggest that Westfields was acting in bad faith in relation to the proposed funding, or the development in general. Keay’s obligations to facilitate funding were not dependent on the provision of monthly accounts throughout the development process – and Keay had not shown that Westfields had failed to comply with its obligations to provide financial information, or that it had been unreasonable.
The question of whether Keay was reasonably refusing to execute a deed of priority in favour of Westfields’ funder fell to be considered on an objective, Wednesbury basis. Had Keay failed to consider something relevant, or taken something irrelevant into account? The judge’s answer to both limbs of this question was “yes”. None of its concerns provided any reasonable justification for its refusal to co-operate with Westfields.
Orders for specific performance are reserved for use in cases where damages would be inadequate. However, the judge was satisfied that damages would not fully compensate Westfields or leave the developer in a position as beneficial as if the parties’ agreement had been specifically performed – and granted Westfields the remedy that it sought.
Allyson Colby is a property law consultant
