Contract for sale of land – Deposit – Repudiation – Developer failing to complete apartments within time agreed – Purchasers seeking return of deposits for repudiatory breach of contracts – Whether defendant breaching implied term to complete in reasonable time – Whether defendant completing development with all due diligence – Whether defendant repudiating contracts – Claim allowed – Counterclaim dismissed
In 2007, the defendant developer entered into contracts with the claimants for the off-plan sale and purchase of long leases of apartments to be built by the defendant in Birmingham. At the time the contracts were made, it was anticipated that construction and fitting out of the apartments would be finished by April 2009 so that the claimants might hope to take possession in the spring or early summer of that year. The claimants paid deposits pursuant to their agreements.
Progress with the development stopped in October 2008 when the main contractor went into administration. The building was roofed but the internal fitting works remained to be completed. Enabling works to complete the apartments started in January 2010 but the full enabling works package was not completed until the end of April 2010.
In February and March 2010, the claimants sent letters to the defendant giving notice purporting to accept its repudiatory breach of the contracts, and requiring the return of their deposits. The defendant refused to return the deposits and the development was completed in April 2011, two years later than planned.
In May 2011, the defendant served notices to complete on the claimants and subsequently sought to exercise a contractual right of rescission for their failure to complete and forfeited the deposits. The claimants brought proceedings to recover their deposits. The defendant counterclaimed, seeking to exercise its purported right to retain the deposits and damages for breach of contract.
The court was asked to decide whether: (i) the defendant was in breach of an implied term that it would complete the apartments within a reasonable time; (ii) the defendant was in breach of an express term requiring it to arrange completion of the apartments “with all due diligence”; and (iii) whether the claimants were entitled to treat the defendant as having repudiated the contract.
Held: The claim was allowed. The counterclaim was dismissed.
(1) The defendant had now conceded that the contracts contained the implied term contended for by the claimants but that term added nothing to their case that was not already encompassed by the express terms of the contracts concerning due diligence on completing the development.
It was for the party alleging breach of the obligation to complete within a reasonable time to establish what a reasonable time would be, disregarding delays caused by the other party’s failures. Bearing in mind the failure of the contractor in October 2008 and the fact that the defendant would have to make arrangements before the building works could be restarted, the court could not say precisely that a reasonable time for completing the apartments had expired; though the 30 months or so which the defendant eventually took to continue the works following the administration could hardly have been reasonable: Shawton Engineering Ltd v DPG International Ltd 120051 EWCA Civ 1359; [2006] BLR 1 followed.
The general position was that in a building contract, as in a contract for the sale of land, time was not essential unless it was expressly made essential. In the present case, the contracts only made time essential on service of a notice to complete the sale and purchase of the apartment. However, the fact that the defendant had, by mid-January 2010 and before the sending of the termination letters, put in hand enabling works towards the construction of block was not necessarily destructive of the claimants’ case. If there had been a repudiatory breach of contract by that time, it would still have been open to the claimants to accept that repudiation and to terminate the contracts, unless in the meantime they had, with knowledge of the facts giving rise to the breach, elected to treat the contracts as continuing and had thereby affirmed them.
(2) On the facts, by June 2009, there was nothing which presented any serious obstacle to the starting of the enabling works and the placing of the main contract which could not have been surmounted by due diligence. The financial melt-down of 2008 and early 2009 had undermined the economic foundations on which the original scheme for the development had been based. The viability of the scheme was put in doubt and the defendant had been considering alternative schemes. Instead of putting the construction works in hand by the end of summer, the defendant had procrastinated until December 2009. Accordingly, the defendant was in breach of the express term in the contracts requiring the apartments to be completed with due diligence.
(3) In all the circumstances, the defendant’s breach was repudiatory. A prolonged failure of several months to progress the work would not of itself deprive the claimants of the substance of the apartments which they had contracted to be built and sold to them. At most it would mean that the apartments would not be completed within a reasonable time. Nevertheless, in the circumstances of the present case, that failure was not mere delay and signalled an intention by the defendant not to be bound by the contracts. The defendant was biding its time while deciding whether it would ever build the residential development. On the evidence, the passer-by could reasonably infer that the residential development had been abandoned and it was an open question whether, and if so when, any development would be resumed.
Accordingly, the claimants were entitled, in February and March 2010, to treat the contracts as at an end by reason of the defendant’s repudiation.
Nicholas Yell (instructed by Alisons Legal Practice) appeared for the claimants; Warren N Potts (instructed by Berg Legal) appeared for the defendant.
Eileen O’Grady, barrister
