Sale of land – Purchase price – Price to be fixed sum less costs of obtaining release or variation of restrictive covenants – No planning permission or agreement with covenantees at completion – Respondent seeking to make deduction from purchase price – Whether implied term that cost of obtaining release estimated subject to subsequent correction once agreement reached – Whether judge able to reach different interpretation from those advanced by parties – Appeal and cross-appeal dismissed
The appellant was the freeholder of two houses that the respondent had agreed to purchase with a view to converting them into 14 flats. The agreement was conditional upon planning permission being obtained within a contractual timetable, although the respondent could, by giving notice, waive that condition. Completion was to take place 28 days after the agreement became unconditional. The property was also subject to restrictive covenants that prevented the proposed development; the agreement stated that the purchase price was to be £862,000 “less the amount… required to obtain a deed of release/variation of the covenants… to enable the Development to be implemented”.
The respondent subsequently gave notice, under the terms of the contract, waiving the condition regarding planning permission. By the completion date, the beneficiaries of the restrictive covenants 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, no formal request for release was made.
A dispute arose concerning the purchase price payable by the respondent. The appellant 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 planning permission or an agreement with the covenantees. The respondent argued that a deduction should be made, representing the best estimate available of the cost of obtaining a release and subject to adjustment once a more definite figure became available on reaching agreement. It argued that a term should be implied to that effect. The appellant sought a declaration that its interpretation was correct. The defendant counter-claimed. The High Court rejected both interpretations: see [2008] EWHC 2201 (Ch); [2008] 3 EGLR 96; [2008] 46 EG 116.
The judge also refused an application by the appellant to admit certain documents as evidence on construction. The appellant appealed and the respondent cross-appealed.
Held: The appeal and the cross-appeal were dismissed.
The relevant provisions of the agreement were difficult to interpret, but neither party’s interpretation produced a satisfactory solution. The agreement was not well drafted, but if it could be interpreted in a way that made it enforceable and effective, the court would do so and would seek to produce a result that the parties were likely to have agreed rather than one that was improbable. It was improbable that the parties would have agreed that there should be no discount where the planning condition had been waived.
The definition of “development” referred not to a physical, completed development but to the buyer’s proposal for a development. Further, it introduced a sliding scale into the buyer’s proposal, making it clear that the meaning of development accommodated the possibility of change during the currency of the agreement. That made it necessary to investigate, as a question of fact at the material time, what the buyer’s proposal had been. The court would imply a term as a matter of business efficacy that the buyer should act reasonably in formulating its proposal. The buyer would be bound to act in an appropriate way on the basis of the advice or information provided by the local planning authority and on professional advice. Inserting that meaning of development into the definition of purchase price, the discount was not conditional on planning permission. Since the agreement expressly contemplated that the buyer might waive the planning condition at any time, the definition of purchase price had to work even though planning permission was lacking. Furthermore, the discount was an amount that was reasonably required in order to obtain a release or variation of the applicable restrictive covenants so as to enable the development to take place.
Although the judge had erred in simply indicating that he did not find the evidence helpful, without giving more explicit reasons, the purport of his decision had been clear. He had been persuaded that none of the evidence sought to be excluded advanced the parties’ cases on interpretation. The court should not allow the focus of a case on interpretation to be distorted by a detailed enquiry into minor material.
Caroline Hutton (instructed by Lester Aldridge LLP, of Bournemouth) appeared for the appellant; Michael Norman (instructed by Turners LLP, of Bournemouth) appeared for the respondent.
Eileen O’Grady, barrister