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 date – Whether deduction to be made from purchase price – Whether implied term that cost of obtaining release to be estimated subject to later correction once agreement reached – Whether judge able to reach interpretation different from those advanced by parties – Claim and counter-claim dismissed
The claimant was the freeholder of two houses that the defendant had agreed to purchase with a view to converting them into 14 flats. The agreement was conditional upon planning permission being obtained for the development within a contractual timetable, although the defendant 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 defendant subsequently gave notice under the terms of the contract, waiving the condition regarding planning permission. By the completion date, the defendant had made enquiries of the beneficiaries of the restrictive covenants, who 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, the matter had not proceeded to a formal request for release.
A dispute arose over the purchase price payable by the defendant. The claimant 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 any planning permission or any agreement with the covenantees. The defendant argued that a deduction should be made representing the best estimate available of the cost of obtaining a release, subject to adjustment once a more definite figure became available on reaching such an agreement; it argued that a term should be implied to that effect. The claimant brought proceedings for a declaration that the interpretation for which it contended was the correct one; the defendant counter-claimed for a declaration in respect of its own preferred interpretation.
Held: The claim and counter-claim were dismissed.
Neither party’s submissions were persuasive. The claimant’s suggested construction made no commercial sense. If the defendant could not obtain planning permission within the contractual timetable, or not for the entire 14 units, that could not sensibly have been intended by the parties as a reason why the defendant should pay more for the property than if it had not suffered those setbacks, which actually or potentially depressed the value of the property. Nor was there any good reason why the price should be dependent upon whether the covenantees had agreed a figure for release by the completion date, since that was a matter over which the parties did not have total control. The contract clearly required a deduction to be made from the figure of £862,000 to arrive at the purchase price; the question was how, in the circumstances, the amount of the deduction was to be determined. However, the implied term suggested by the defendant in that respect was unwarranted. Had the parties focused on the question at the time of contracting, they would not necessarily have regarded such a term as being the obvious answer. Moreover, it failed to address important matters as to how the estimate was to be made and upon what basis. Furthermore, the contract provided for the purchase price to be paid at the time of completion, which meant that the amount had to be determined at that date and could not depend upon a subsequent event.
Having rejected the submissions of both parties, it was not appropriate to make a declaration setting out a third view as to the correct meaning and effect of the relevant clause. It was doubtful whether the court had jurisdiction to make such a declaration. In any event, it would not be appropriate to do so in the instant case. In a contractual dispute, a declaration should be made only on the basis of a submission advanced by one of the parties, rejected by the other and tested by adversarial argument.
Note: Permission to appeal was granted, restricted to the “third view” question as a point of general importance.
Sally Dobson, barrister