PP 2007/38

It is always difficult to draft a conditional contract that caters for all eventualities. Draftsmen must specify: what needs to be done, by whom, at whose expense, with what degree of effort, within what timeframe and before what deadline. They should also make appropriate provision for mutual co-operation, and for sharing information, where this is important. Finally, if the desired outcome cannot be achieved, or cannot be achieved by the agreed deadline, there must be a mechanism for terminating the contract.   In Yewbelle Ltd v London Green Developments Ltd  [2007] EWCA Civ 475; [2007] PLSCS 111, the parties asked the court to determine how a conditional contract worked when the condition remained unsatisfied on the date fixed for completion, because the agreement did not cater for this eventuality.  The Court of Appeal decided that it was necessary to imply a term to give business efficacy to the contract – to make it work. The appropriate term to imply was that the seller would inform the buyer that the condition remained unsatisfied, and would then give the buyer an opportunity to waive compliance with the condition.   Ultimately, the case turned on whether the seller had complied with its contractual obligation to use all reasonable endeavours to satisfy the condition, so that the contract could become unconditional. The Court of Appeal decided that it had, which meant that the seller could then terminate the contract when compliance with the condition – to complete a section 106 agreement substantially in the form of a draft annexed to the contract – became impossible.   There was an insuperable obstacle to completion of the agreement. It had become clear that a third party owned part of the site. The obligation to use all reasonable endeavours to complete the section 106 agreement did not oblige the seller to buy the land or to pay substantial sums to induce the landowner to sign the agreement.  Additionally, if the seller had made a planning application that excluded the land, the resulting section 106 agreement would not have been in substantially the same form as the agreement attached to the parties’ contract. Consequently, if that was the solution to the problem, the seller need not try to solve it in that way.   The court ruled that when it became clear that no reasonable endeavours could produce a compliant section 106 agreement, the seller should have allowed the buyer reasonable time to decide what to do. If, at that point, the buyer had indicated that it was negotiating with the adjoining landowner (as it was), the seller may have been obliged to allow further time for that to happen, to comply with its obligation to use reasonable endeavours to complete the section 106 agreement. Unfortunately, no suggestion of that kind was ever made and the buyer delayed too long before electing to waive the condition, by which time the contract had come to an end.   Allyson Colby, Property Law Consultant