Sale of development site — Contamination — Purchaser retaining part of purchase price subject to environmental survey Three-month time limit for obtaining survey — Vendor taking lease of site — Negotiations subject to contract — Verbal agreement extending time for survey — Verbal agreement not put in writing — Whether vendor entitled to sum retained — Claim allowed
The claimant owned a site, which had the potential for redevelopment, which the defendant agreed to buy for £9.350m. The contract for sale was made in writing and was dated 10 May 2004, the date of completion. Concerns had been raised that the site might be contaminated and the defendant therefore retained the sum of £200,000, subject to an agreement that the it would obtain an environmental survey within three months of the claimant giving vacant possession and, if no survey had been obtained by that time, or it disclosed no contamination, the money would be released to the claimant.
The claimant did not vacate the site on completion but retained it on a short lease for the storage of goods. The date for obtaining the survey did not begin to run until November 2004, when the lease was due to run out, but the defendant was concerned that three months would be insufficient since the site first had to be cleared.
The claimant wished to extend its lease but the defendant was unwilling to do so unless the timescale for obtaining a survey was extended to six months from the date of delivery of vacant possession. A letter marked “without prejudice and subject to contract” was sent to the claimant on 2 September 2004 setting out the proposed terms for a new lease up to 28 February 2005. This was followed by a telephone call, during which the defendant maintained that the claimant had acknowledged that the lease extension was to be subject to the survey extension also being agreed.
However, no mention of this agreement was documented when the new lease was drawn up. After vacant possession of the site was given on 1 April 2005, the claimant demanded payment of the retained sum on 2 July 2005 in the absence of any survey being delivered within the original three-month period. The defendant refused to pay and the claimant commenced proceedings. The defendant sought to rely upon the alleged agreement to extend the time for withholding the money.
Held: The claim was allowed.
Where parties started negotiations by marking correspondence “subject to contract”, it was clear that there was no binding agreement until a contract had been exchanged. It showed that the parties did not intend to be contractually bound until another document containing all the terms of their agreement had been executed. The fact that not all the correspondence was headed “subject to contract” did not prevent that qualification continuing to apply throughout the negotiations. Only in very exceptional circumstances would a party be able to enforce an agreement that had not been properly documented in such a case: Edwin Shirley Productions Ltd v Workspace Management Ltd [2001] 2 EGLR 16; [2001] 23 EG 158 considered; Cobbe v Yeoman’s Row Management Ltd (No 1) [2005] EWHC 266 (Ch) distinguished.
On the evidence, although the claimant might have been happy to agree to an extension of the time for obtaining a survey, no concluded agreement had been reached and there was no basis for implying such an agreement. In any event, even if an agreement had been reached, it would have been ineffective since the defendant had made it clear in correspondence that all negotiations were subject to contract.
Allan Johns (instructed by Russell-Cooke) appeared for the claimant; Amanda Tipples (instructed by Nabarro Nathanson) appeared for the defendant.
Eileen O’Grady, barrister
