Restrictions are often used to protect overage – and do so by preventing disponees from registering transfers or leases without a certificate confirming that overage has been paid, or that the disponee has covenanted to pay it, or that the disposal falls within the category of permitted disposals for the purposes of the overage agreement. Burrows Investments Ltd v Ward Homes Ltd [2015] EWHC 2287 (Ch); [2015] PLSCS 266 illustrates that the use of such certificates can become highly contentious, even though overage is not due.
The developer had entered into an overage agreement prohibiting it from making any disposals without satisfying certain conditions. The conditions were imposed to ensure that transferees entered into deeds of covenant accepting liability to pay overage – but “permitted disposals” were exempt from the requirements.
The list of permitted disposals included “residential disposals”, which were defined to include sales of one or more individual units to an individual private purchaser or a third party investor in the open market at arm’s length. The provision of sites for utilities or roads footpaths and public open spaces or “other social/community purposes” constituted permitted disposals as well.
The developer transferred five residential units to a registered provider of social housing in order to comply with the affordable housing requirements in a section 106 agreement – and did so without requiring the social housing provider to enter into overage covenants with the company that had the benefit of the overage agreement. Was the developer in breach of contract, or was the disposal a “permitted disposal” for the purposes of the agreement?
The developer had, initially, asked the company that had the benefit of the overage agreement to approve the transaction. However, in due course, it chose to proceed without such approval and gave the social housing provider a certificate stating that the disposal was a “permitted disposal”, which enabled the Land Registry to register the transfer.
The certificate classed the disposal as a “residential disposal” for the purposes of the overage agreement – but the judge was not so sure. He was prepared to accept that the social housing provider was an individual private purchaser or third party investor and that the transaction was made at arm’s length. But the developer had not provided any evidence to show that the properties had been offered for sale to social housing providers in general. Consequently, the judge felt unable to conclude that the transaction was an open market transaction – which was one of the conditions that needed to be met for a disposal to qualify as a “residential disposal”.
However, the disposal did fall within another exempt category. It was obvious that the parties had not intended that the transferee of a few affordable housing units would have to enter into overage covenants and the provisions of the overage agreement must be construed against the background facts and in their contractual context. The parties had not expressly addressed the issue of affordable housing in the overage agreement – but the transfer to the social housing provider was for “social/ community purposes” and, as such, was a permitted disposal for the purposes of the overage agreement.
Allyson Colby is a property law consultant
