Sale of land – Contract – Termination – Specific performance – Defendant contracting to purchase property from claimant for redevelopment – Contractual conditional upon defendant obtaining planning permission – Defendant failing to obtain permission by long stop date – Defendant seeking extension of time after long stop date — Whether claimant entitled to treat contract as terminated – Whether defendant entitled to specific performance of contract — Whether appropriate to order return of deposit under section 49(2) of Law of Property Act 1925 – Claim allowed – Counterclaim dismissed
The first defendant had commenced a successful residential development of property in London NW2 and was looking for other premises in the vicinity. It identified the claimant’s property as potentially suitable for residential development which required planning permission. The first defendant proposed to purchase the property for £1.3m on terms which made its obligation to complete the purchase conditional upon it being successful in obtaining satisfactory planning permission from the local planning authority.
The parties entered into the contract which was drawn up with terms to reflect the conditional basis of the first defendant’s obligation to complete, covering various permutations which might arise in the course of a planning application. By the long stop date of 6 January 2014, the first defendant had not yet obtained satisfactory planning permission in respect of its application submitted in 2013 in accordance with the contract. Under clause 13.5 of the agreement, the first defendant was entitled to extensions of time to complete, requiring written notice for each period, and a monthly payment of £8,333.33 to the claimant.
By email to the claimant dated 13 January 2014, the first defendant stated that it wished to extend the contract and offered to commence making the agreed monthly payments. However, the claimant declined to extend the long stop date and stated that he regarded the contract as terminated with immediate effect from 6 January 2014. In February 2014, the local planning authority granted planning permission for residential development of the property which was not personal to the first defendant, even though it was granted on its application.
The claimant sought a declaration that the contract for sale had terminated, leaving him free to deal with the property as he chose. The first defendant counterclaimed for specific performance of the contract and the sale of the property to itself. If it failed in its claim for specific performance, the first defendant claimed to be relieved under section 49(2) of the Law of Property Act 1925 against forfeiture of the deposit it had paid. The second and third defendants were joined, as they had acted as guarantors for the first defendant.
Held: The claim was allowed. The counterclaim was dismissed
(1) Where a term of a contract was open to more than one interpretation, it was generally appropriate to adopt the interpretation that was most consistent with business common sense. The poorer the quality of the drafting, the less willing the court should be to attribute to the parties an improbable and unbusinesslike intention, if the language used, whatever it might lack in precision, was reasonably capable of an interpretation which attributed to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis. If the drafting of an agreement was generally poor, it would be harder to conclude on an objective approach that the parties really meant the literal meaning of the words they used to govern and override clear conflicting business common sense: Gan Insurance Co. Ltd v Tai Ping Insurance Co. Ltd (No. 2) [2001] 2 All ER (Comm) 299 and Rainy Sky SA v Kookmin Bank [2011] UKSC 50; [2011] 1 WLR 2900 applied.
Since the contract in the present case had been poorly drafted, it was important to have regard to business common sense in drawing inferences as to the parties’ intentions expressed in the contract, construed according to the usual objective approach. In the context of this contract, the commercial objective of the parties had been that they should know with certainty where they stood if one came to the end of the long stop date of 6 January 2014 without any request for an extension of time. A term would only be implied into a contract if it was necessary that the agreement should contain such a term to achieve the parties’ express agreement or their commercial objective. It was not necessary to imply qualifications to clause 13.5 to give proper commercial effect to the contract: Valentines Properties Ltd v Huntco Corporation Ltd [2001] UKPC 14, [2001] 3 NZLR 305 distinguished.
(2) The court rejected the first defendant’s argument that it was impliedly entitled to call for completion within a reasonable time after the termination date. Such an implication would radically undermine the commercial bargain between the parties by leaving the claimant subject to the basic obligation to sell the property according to an open-ended and uncertain “reasonable time” limit, in contrast to the indications in the contract that the parties intended there to be a certain and precisely defined end point for that obligation. Accordingly, the claimant was free from any obligation to proceed with the sale of the property to the first defendant whose claim for specific performance was dismissed.
(3) This was not an appropriate case for the court to exercise its discretion under section 49(2) of the 1925 Act to relieve the first defendant against forfeiture of the deposit and to order its repayment. The just and appropriate result was that the claimant should be entitled to forfeit the entirety of the deposit paid. The contract made clear express provision what should happen to the deposit if the contract did not proceed to completion because of the failure to obtain planning permission within the requisite time and the first defendant did not give notice in proper time to call for completion notwithstanding such failure. There was nothing special or exceptional in the circumstances of the present case to justify ordering the claimant to repay any part of the deposit which was also payment for an option right for the first defendant and to bind the claimant for an uncertain period of time while it sought to obtain planning permission and for a unilateral right to acquire the property in the meantime. There was no basis on which the court should now use its discretion under section 49(2) to undo the bargain which the parties entered into: Midill (97PL) Ltd v Park Lane Estates Ltd [2009] 1 EGLR 65; [2009] 07 EG 92 applied.
Mark Warwick QC (instructed by Jeffrey Green Russell) appeared for the claimant; David Holland QC (instructed by Taylor Wessing LLP) appeared for the defendants.
Eileen O’Grady, barrister
