Development agreements tend to be lengthy, complex documents because they regulate the parties’ relationship throughout the life cycle of a project. Consequently, they usually include sophisticated provisions dealing with land acquisition, title, planning and environmental issues, construction and development, insurance, funding, and sales and lettings as well as provisions dealing with the allocation of financial risks and rewards.
However, it is not always possible to foresee every eventuality and circumstances often change as the development progresses. In addition, subsequent discussions between the parties usually take place without reference to the precise terms and conditions contained in the original contract. What then is the status of agreements and understandings that contradict the earlier agreement?
Crest Nicholson (Londinium) Ltd v Akaria Investments Ltd [2010] EWCA Civ 1331; [2010] PLSCS 300 concerned a development agreement that required the parties to calculate a profit payment in respect of units that remained unlet two years after the final practical completion date by reference to the open market rents of the units on that date.
The parties subsequently agreed target rents for the units in an exchange of correspondence. The developer claimed that, as a result, the parties had fixed the open market rents for the units that remained unlet. It asked the court to confirm that the correspondence created an agreement that the profit payment should be calculated by reference to the agreed target rents, which were higher than the open market rental values of the empty units.
The Court of Appeal considered whether an offer had been made that was capable of being accepted. It defined an “offer” as an expression of willingness to contract on specified terms made with the intention that it is to become binding as soon as it is accepted. It was important to ask whether the party to whom the offer was addressed, acting reasonably, would have understood that the offeror was making a proposal that was intended to become contractually binding, if the offer were accepted. Consequently, it rejected the developer’s application. Their Lordships ruled that target rents were not equated with open market rent under the development agreement and that the parties had not agreed that they should be.
The case highlights the dangers of making inadvertent amendments to a contract through an exchange of letters or e-mails during the course of a contractual relationship. Parties can protect themselves against such an eventuality by including provisions in their agreements stipulating how, and possibly even by whom, variations to an agreement must be made.
Where the parties do intend to vary the provisions of an agreement, they should ensure that the new agreement is supported by consideration, namely some new value or benefit for each party, failing which the variation should be documented in a deed. If the original agreement was supported by a guarantee, the recipient of the guarantee should also ensure that the guarantor’s consent to the variation is properly documented, failing which the guarantor will be discharged from liability under the guarantee.
Allyson Colby is a property law consultant
