Development agreement – Offer and acceptance — Profit payments – Respondent developer to let units in development – Appellant landowner to make profit payment to respondent for any unlet units based on their agreed open market rent – Whether agreement on such rent reached in correspondence – Whether correspondence amounting to offer on that issue capable of acceptance by other party – Judge holding agreement reached – Appeal allowed
By a development agreement dated February 2004, the respondent was to carry out a development on land of which the appellant was the leasehold owner. The respondent was to seek prospective occupational tenants for each of the unlet units at the open market rent reasonably obtainable and was to receive 92% of the profits from the development. If any units remained unlet two years after practical completion, the appellant was to make a profit payment to the respondent representing the aggregate of the open market rent for each unlet unit as agreed between the respondent and “the owner” or, failing that, determined by a rental expert. “The owner” was defined as the asset management company employed by the appellant to act on its behalf in respect of the development.
Practical completion took place in March 2006, with March 2008 being the relevant date for calculating the profit payment for unlet units. The respondent and the asset manager entered into correspondence in mid-2007. A letter from the respondent, dated June 2007, purported to set out an approach to further leasing previously agreed by the parties for four specified purposes; that letter included a revised schedule of target rents that was stated to show the open market rents for the remaining unlet units. By an e-mail dated July 2007, the asset manager indicated that the respondent’s proposals were acceptable and made a further proposal relating to turnover rents. The respondent subsequently confirmed its agreement on that matter.
In proceedings brought by the respondent, a preliminary issue was tried as to whether any agreement had been reached on the open market rent for the unlet units. The judge accepted the respondent’s contention that the rents to be adopted for the unlet units were the target rents in the revised schedule. He held that a contract to that effect had been concluded in correspondence, with the respondent’s letter of June 2007 constituting an offer, the asset manager’s reply of July 2007 a counter-offer and the respondent’s reply an acceptance of that counter-offer, with minor variations being agreed subsequently. The appellant appealed.
Held: The appeal was allowed.
The court’s task, when seeking to ascertain whether a contract had been made, was different from that which it undertook when ascertaining the parties’ intentions under a contract that both accepted had been made. The question was whether there had been a proposal by one party that was capable of being accepted by the other and, if so, whether it had been accepted by that other. The first of those questions was to be answered by asking whether one party in the position of the other, with the knowledge that that party had, and acting reasonably, would understand the first party to be making a proposal to which it intended to be bound in the event of an unequivocal acceptance: Harvey v Facey [1893] AC 552 and Schuldenfrei v Hilton (Inspector of Taxes) [1999] STC 821 applied.
The judge had erred in the instant case in finding that the asset manager’s e-mail of July 2007 had amounted to a counter-offer relating to the open market rents for unlet units. Although it contained an offer concerning the treatment of turnover rents, which offer had been accepted by the respondent in its reply, the e-mail did not contain any other proposal to which the asset manager invited acceptance and, in particular, did not clearly indicate that the asset manager would agree to the proposals in the respondent’s June 2007 letter only if the respondent agreed to the proposal in respect of the treatment of turnover rents.
Nor could the respondent’s letter be regarded as an offer of the necessary kind. Its wording purported to seek confirmation of matters previously agreed and did not invite agreement de novo to matters that had not been agreed. The use of target rents as the open market rents for the unlet units was not one of the four purposes specified in the letter and there was no indication that the respondent had intended to introduce a further purpose by inviting the asset manager to agree something that had not already been agreed. A properly informed reader of the letter would have realised that the statement in the letter, to the effect that the target rents in the revised schedule showed the open market rents for unlet units, was incorrect and had been included by mistake, since target rents and open market rents were distinct concepts, each carefully defined in the development agreement, and were not interchangeable. When that statement was set in the context of the June 2007 letter and the discussions that had preceded it, it would not be understood, by a person in the position of the asset manager, as an invitation to agree to a proposal, advanced for the first time and without any prior discussion, that the target rents shown in the schedule should be taken as the open market rents for the purposes of the profit payments. Accordingly, there had been no offer and acceptance and no binding agreement had been reached as to the open market rents.
Nicholas Dowding QC and Kieran Keller (instructed by Nabarro LLP) appeared for the appellant; John Martin QC and Joanne Wicks QC (instructed by Collyer Bristow LLP) appeared for the respondent.
Sally Dobson, barrister
