Sale of land — Contract — Purchase price — Sale of property for development — Price to be fixed sum less costs of obtaining release or variation of restrictive covenants — No planning permission or agreement with covenantees at completion date — Whether deduction to be made from purchase price — Whether implied term that cost of obtaining release to be estimated subject to subsequent correction once agreement reached — Whether court able to reach interpretation different from those advanced by parties
The defendant agreed to purchase from the claimant the freehold of two houses in Bournemouth with a view to converting them into 14 flats. Such development required a grant of planning permission and the release of restrictive covenants affecting the properties. The sale agreement was conditional upon planning permission being obtained for the development within a contractual timetable, although the defendant could waive that condition by giving notice. Completion was to take place 28 days after the agreement became unconditional. The purchase price was £862,000 “less the amount… required to obtain a deed of release/variation of the covenants… to enable the Development to be implemented”.
The defendant gave notice, under the terms of the contract, waiving the condition concerning planning permission. By the completion date, the defendant had made enquiries of the beneficiaries of the restrictive covenants, who had indicated, without making any commitment, that a charge of £8,000-10,000 per unit might represent an acceptable payment for agreeing to the development. However, the matter had not proceeded to a formal request for release. A dispute arose concerning the purchase price payable by the defendant, and each party sought declaratory relief. The claimant contended that the full £862,000 should be paid on the basis that, as at the completion date, no amount could be said to be required for the release or variation of the restrictive covenants in the absence of any planning permission or any agreement with the covenantees. The defendant argued that a deduction should be made representing the best estimate available of the cost of obtaining a release, subject to adjustment once a more definite figure became available on reaching such an agreement; it submitted that a term should be implied to that effect.
Held: The claim and counter-claim were dismissed. Neither party’s submissions were persuasive. The claimant’s suggested construction made no commercial sense. If the defendant could not obtain planning permission within the contractual timetable, or not |page:97| for the entire 14 units, that could not sensibly have been intended by the parties as a reason why the defendant should pay more for the property than if it had not suffered those setbacks, which actually or potentially depressed the value of the property. Nor was there any good reason why the price should be dependent upon whether the covenantees had agreed a figure for release by the completion date, since that was a matter over which the claimant did not have total control. The contract clearly required a deduction to be made from the figure of £862,000 to arrive at the purchase price. The question was how, in the circumstances, the amount of the deduction was to be determined. The implied term suggested by the defendant in that respect was unwarranted. Had the parties focused upon the question at the time of contracting, they would not necessarily have regarded such a term as being the obvious answer. It also failed to address important matters as to how the estimate was to be made and upon what basis. Furthermore, the contract provided for the purchase price to be paid at the time of completion, which meant that the amount had to be determined at that date and could not depend upon a subsequent event. It was not appropriate for the court to make a declaration setting out a third view as to the correct meaning and effect of the relevant clause. It was doubtful whether the court had jurisdiction to make such a declaration. In a contractual dispute, a declaration should be made only on the basis of a submission advanced by one of the parties, rejected by the other and tested by adversarial argument.
No cases are referred to in this report.
This was the hearing of a claim by the claimant, Anglo-Continental Educational Group (GB) Ltd, and a counter-claim by the defendant, Capital Homes (Southern) Ltd, for declaratory relief as to the meaning of an agreement for the sale of freehold property.
The appearances for this judgment were not available and could not therefore be supplied.
Giving judgment, Mr David Donaldson QC said:
[1] The claimant is the freehold owner of a property consisting of two houses at 10 and 12 Cavendish Place, Bournemouth, Dorset (the property). On 4 January 2006, it entered into a contract (the contract) to sell the property to the defendant. The contract was negotiated and concluded on the basis, reflected in the contractual provisions, that the defendant intended to redevelop the property into residential flats, requiring not only the grant of planning permission but the release of restrictive covenants preventing any such development.
[2] The contract contained the following terms relevant to the dispute that is the subject of this action:
1.1 …
Development: the development of the property as residential flats with not more than 14 two-bedroomed units.
Purchase Price: £862,000 (eight hundred sixty-two thousand pounds less the amount (including covenantees’ fees and costs) required to obtain a deed of release/variation of the covenants contained in entry 1 of the charges register… to enable the Development to be implemented.
2.1 The Seller agrees subject to… the granting of the Planning Permission which shall be deemed a condition precedent to sell and the buyer agrees to buy the Property for the Purchase Price.
…
3.1 On completion the Purchase Price shall be paid by the Buyer to or at the direction of the Seller’s solicitors by a telegraphic or other direct transfer to the Bank Account.
…
14.1 This Agreement is conditional on the Buyer at its own expense obtaining a satisfactory planning permission (as hereinafter defined) for the Development (“the Planning Permission”). For the purposes of this condition the following subclauses shall apply: 14.2 The Buyer shall apply for the Planning Permission within 10 weeks of the Agreement and will use all reasonable endeavours to obtain Planning Permission from the local planning authority. If such application is refused or a permission is granted but not a satisfactory planning permission (as hereinafter defined) then the Buyer shall be entitled but under no obligation to appeal against such refusal of permission.
…
14.5 If a satisfactory planning permission has not been granted by the date nine months after the date of this agreement, then unless there is an outstanding appeal against a refusal or against conditions imposed on the planning application submitted within six months of the date of this agreement made by the buyer hereunder… either party shall on giving written notice to the other prior to… the subsequent grant of a satisfactory planning permission be at liberty to terminate this Agreement…
…
14.7 Once this Agreement has become unconditional under clause 14.1 hereof completion shall take place 28 working days thereafter but if this Agreement has not become unconditional under clause 14.1 hereof by the date nine months after the date of this Agreement… and no notice to terminate has been given under clause 14.5 hereof then completion shall take place 28 working days after receipt by the Buyer of a written copy of a satisfactory planning permission.
14.8 Notwithstanding the provisions of clause 14.1 hereof the Buyer may at any time before the granting of a satisfactory planning permission waive by notice in writing to the Seller or his Solicitors clause 14.1 hereof whereupon this Agreement shall be completed 28 working days after receipt of such notice or earlier by arrangement.
[3] Applications by the defendant for planning permission for 14 and 13 two-bedroom units were rejected by the planning authority and on appeal. By letter dated 14 February 2007, the defendant gave notice, under clause 14.8, waiving the condition precedent of planning permission. In consequence, the contract fell to be completed on 26 March 2007. At that date, the parties were in disagreement as to the amount that the defendant was required to pay. That dispute turns on the definition of the purchase price contained in clause 1.1; to resolve it, both parties seek in this action declarations as to the meaning and effect of the contract. Although, as I was told by way of background, the defendant has since obtained planning permission for nine units, the contract has still not been completed, but I was assured (without further explanation) that the declaratory relief sought by each of the parties was still of practical significance.
[4] The basis of the dispute was the absence of any agreement with the covenantees at the completion date for the payment of fees for release of the covenants. Enquiry had been made at an early stage by the defendant of the covenantees, who were the trustees of the local estate. They had indicated without commitment a likely charge of £8,000-10,000 per unit, but the matter had not proceeded to a formal request for release, no doubt because of the then absence of planning permission.
[5] The stance adopted by the claimant as at the completion date, and maintained in this action, was that the full £862,000 was payable without deduction. Given that no planning permission had been obtained by the completion date, it was argued that no amount was required for release/variation of the covenants to enable the development to be implemented. The claimant also argued that no such amount could be said to be required in the absence, at the completion date, of an agreement with the covenantees.
[6] The defendant’s contention was that a deduction was to be made for the cost of obtaining the release of the covenants but that, in the absence at the completion date of an agreement with the covenantees, the cost of obtaining the release was to be the best estimate available of such cost subject to adjustment when it was concretised by such an agreement. On this basis, the defendant had, before the completion date, offered to tender a sum equal to the £862,000, with a deduction of £141,762.50. (This was at the upper range of the fee that had been indicated earlier by the covenantees and based upon a maximum of 14 units.) Counsel for the defendant accepted that this result could not be obtained by construction of the agreement, but argued that a term to this effect should be implied.
[7] I am unpersuaded by the submissions of either party.
[8] The contract proceeded on the basis that the cost of clearing the title of the restrictive covenant should be for the account of the seller, achieved mechanically by a deduction from the £862,000. Whether, when and for how many units the buyer could exploit the release by actually developing the property which would depend upon planning permission are quite different questions. If it could not obtain planning |page:98| permission within the contractual timetable, or not for the full 14 units, this could not sensibly have been intended by the parties as a reason why the buyer should pay more for the property than if it had not suffered these commercial misfortunes, which actually or potentially depressed its value. Nor is there any good reason why the price should depend upon whether the covenantees had agreed a figure for release by the date of completion, a matter over which the claimant did not have total control.
[9] The claimant’s suggested construction therefore, in my judgment, makes no commercial sense. The contract clearly requires a deduction to be made from the £862,000 to arrive at the purchase price. The question is how in certain circumstances including those in the present case the amount of the deduction is to be determined.
[10] The defendant is therefore correct to focus upon the subject of ascertainment. Its proposed answer, in the shape of the suggested implied term, is, however, in my judgment, unwarranted.
[11] First, I find it impossible to conclude that the parties, had they focused upon the question at the time of signing the contract, would necessarily have regarded this implied term as the obvious answer. Its complexity (which counsel found necessary to extend in oral argument to cover the question of interest on an over- or under-payment) in itself speaks against such a conclusion. Even then, it fails to address such important matters as to how the estimate is to be made and upon what basis. Although counsel suggested that, in the event of dispute, it could be determined by the court, it was to my mind very far from obvious that the parties would have wanted litigation directed to a merely provisional determination of the price of the property.
[12] Second, the contract provides for the purchase price to be paid at completion. Its amount must accordingly be determined as at that date and cannot therefore depend upon a subsequent event, such as the content of a future agreement with the covenantees. The implied term could have two results, depending upon the estimate. The first would be to require the buyer to make, at completion, a payment in excess of the purchase price, for which there is no glimmer of warrant in the contract. Alternatively, it could lead to payment of part of the purchase price being postponed to a future date, a result in impermissible conflict with the express terms of the contract.
[13] For these reasons, the court cannot, in my view, properly imply the term proposed by the defendant.
[14] I must therefore refuse the declarations sought by both the claimant and the defendant.
[15] When I adverted to this possibility in the course of submissions, counsel for both parties suggested that I should make a declaration setting out my own view as to the correct meaning and effect of clause 1.1 of the contract. However tempting the invitation, I have serious doubts as to whether I have jurisdiction to do so and, in any event, I do not consider such a course to be appropriate. At least in the case of a contractual dispute, a declaration should be made only on the basis of a submission advanced by one of the parties, rejected by the other, and tested by adversarial argument. Moreover, as I indicated in [3] above, the court has not been made aware of the reasons why the action has continued despite some significant events since the completion date, or of the nature of the parties’ current differences.
[16] I therefore intend to order that:
(a) the claim of the claimant be dismissed;
(b) the declaration sought by the counter-claim be refused.
Claim dismissed; counter-claim dismissed.
