The sellers of a £13m development site in the Cotswolds have triumphed in a claim that a care home that formed part of the ultimate scheme constituted additional residential development triggering lucrative overage provisions in the contract.
Morgan J ruled that overage is payable on the 60 care home units at a figure of £55,000 per unit, a total of £3.3m, but he said that provision is made in the contract for indexing the £55,000 in relation to the period between the time when the contract was entered into, in 2007, and the date the calculation is carried out.
In a decision made earlier this month, the transcript for which has just been released, the judge said that there was no reason why the words permitted units of residential development, under the terms of the contract, should not bear their ordinary meaning. As a result, they included the 60 units of extra care accommodation (Use Class C2) permitted by Cotswold District Council in November 2009.
Under the September 2007 contract, the Berkeley group of developers paid £13m for a land parcel at North Home And Kingshill, near Cirencester, with an overage provision triggered by development of in excess of 290 units.
Under three planning permissions granted in 2009 and 2011, Berkeley developed the site with a total of 290 of what the developer considered residential units – 15 of which were covered by the November 2011 permission – plus the additional 60 extra care units also included in that permission.
The sellers, Michael and Mary Harris, claimed that this triggered the overage provision.
However, Berkeley maintained that the care home, which comprises 60 flats with communal facilities including a café, lounge and hairdressing facilities, did not constitute permitted units of residential accommodation under the contract.
The judge said that there is “no obvious distinction” between the physical layout of the care home units – known as C units – and the 15 other flats, known as S units. As a result, he said that looking first purely at the physical makeup of that which is permitted by the planning permission, he considered the C units would be units of residential accommodation.
Turning to the effect of them being designated Class C2, he found that this did not change his provisional conclusion. He said: “The units therefore can be used for the provision of residential accommodation. They cannot be used for the provision of residential accommodation absent the provision of care. Residential accommodation must be provided as part of a composite. The composite provision has two elements: one is residential accommodation, the other is care.
“Against that background one comes really to the ultimate question. Having appraised the physical thing permitted by the permission, having considered the range of permitted uses that may be made of the physical thing, one has to ask whether the relevant planning permission permits a number of units of residential accommodation. Are the C units units of residential accommodation within the contractual terms, or are they not?”
He said that the definition of permitted units in the contract did not adopt the classification of C2 or C3, while the words “units” and “residential accommodation” are both general and wide.
He concluded: “What the contract does not do is distinguish between the type of residential accommodation (a phrase used in class C2 itself) which comes within class C2 and other types of residential accommodation. It seems to me the language of the contract is perfectly apt to include residential accommodation provided in accordance with class C2.
He added: “Mr Small would contend that giving the words their ordinary English meaning produces a sensible commercial result and that is a reason, if he needs it, in his favour. Mr Mould when I asked him did not contend that giving the words their ordinary English meaning, as I see it, was in any way nonsensical or uncommercial, or that there was any reason here for the Court to look critically at the ordinary meaning of the words with a view to avoiding what must have been an unintended commercial result.
“In those circumstances I do give the words what I regard as their ordinary English meaning.”
Harris and anr v Berkeley (Strategic Land) Ltd and anr Chancery (Morgan J) 2 October 2014
Jonathan Small QC (instructed by Burges Salmon) appeared on behalf of the claimants
Tim Mould QC (instructed by Blake Morgan) appeared on behalf of the defendants
