Sale of land – Overage – Residential development – Appellant developer appealing against order for summary judgment in respect of sum due under overage agreement – Whether judge giving insufficient weight to amended overage agreement and words “residential units … for residential use for sale or lettings” when construing “first trigger event” – Appeal dismissed
The appellant purchased a property known as Arodene House, Perth Road, Ilford, London from the respondent. The property comprised eight floors. The ground floor was occupied by retail outlets and a restaurant which also occupied part of the first floor. The rest of the building had been used as office space, except for one flat. The appellant intended to redevelop the office space as residential units. The consideration for the purchase was a payment of £7,350,000 and the obligations undertaken under an overage agreement which provided that the appellant would pay the respondent £750,000 if a “first trigger event” occurred during the overage period, i.e. the appellant’s receipt of prior approval from the local planning authority for the development of 60 residential units at the property. “Development” was defined as “development of the property comprising of a change of use … to a use falling within Class C3 (dwellinghouses) of the permitted development order”. “Residential units” were defined as “residential dwellings … comprised in a development at the property for residential use for sale or lettings”. Prior approval was obtained within the overage period and the respondent claimed the sum of £750,000.
The appellant denied liability. It argued that, while the planning requirements were satisfied, the prior approval was given for 60 flats, not all of which could in fact lawfully be built since the construction of 60 flats would contravene building regulations. It was integral to the first trigger event under the amended overage agreement that the 60 flats should be capable of being constructed. That requirement was made express by the inclusion of the words “residential dwellings…for residential use for sale or lettings” in the definition of residential units. The purpose of the overage agreement as regards the first trigger event was to provide a commercially valuable benefit to the appellant in exchange for the payment of £750,000. Prior approval for a change of use was valuable only if all 60 units could be built. The prior approval did not confer the intended benefit on the appellant.
The court granted the respondent summary judgment: [2017] EWHC 1773 (Ch). The appellant appealed contending, amongst other things, that the judge had given insufficient weight to the amended overage agreement and to the words “residential units … for residential use for sale or lettings” when construing the first trigger event. His decision was tantamount to saying that utility did not matter and had placed the commercial risk on the appellant instead of the respondent owner.
Held: The appeal was dismissed.
The regime for planning and development consent and the regime surrounding building regulations were entirely separate. The trigger events for overage payments under the amended overage agreement were clearly and expressly concerned with planning and development consent. Moreover, the first trigger event was expressly concerned with change of use. The trigger was the receipt of a prior approval, defined by reference solely to prior approval under the permitted development order which was concerned only with change of use for which the order itself gave permission, subject to four requirements none of which were concerned with compliance with building or any other regulations. If it had been intended that the first trigger event should require compliance with building regulations, the parties would have spelt it out. Both parties were experienced developers, advised by experienced solicitors, and the agreements were complex and professionally drafted. Against those considerations, the words “for residential use for sale or letting” in the definition of residential units were an impossibly weak foundation for the appellant’s contention that the respondent had to demonstrate that all 60 residential units were capable of being built, not only by reference to planning requirements but also by reference to building and any other regulations. Not only were those regulations not mentioned, or even hinted at, but no mechanism was provided for determining the scope of that unspoken requirement and whether it had been satisfied. By agreeing the first trigger event by reference to prior approval for the defined proposal, the parties had attached significant value to the receipt of such prior approval. The appellant’s argument that such prior approval had no utility unless it related to residential units that were capable of being built was not a proposition that could be derived from the terms of the agreements, which on an ordinary reading supported the opposite proposition. Nor was it a self-evident proposition on which the court could rely for a different construction of the amended overage agreement. There was much in the factual matrix against the appellant’s construction. The appellant’s submission that the judge’s decision placed the commercial risk on the appellant when it more obviously should rest with respondent, as the owner of the property and as the party, with its knowledge of the property, best placed to draw the necessary plan, ignored that the appellant was a sophisticated developer with its own keen commercial interest in the successful development of the property. That it would put itself in the position of being dependent on the respondent, as the seller, to decide on a viable scheme of development was far-fetched. The plans to be annexed to the agreements were exchanged between the parties before the agreements were made. In answer to pre-contractual enquiries on planning and building regulations, the appellant had been told to rely on its own enquiries of relevant authorities. Clause 27.1 of the sale contract provided: “The buyer acknowledges that, before the date of this agreement, the seller has given the buyer, and others authorised by the buyer, permission and the opportunity to inspect, survey and carry out investigations as to the condition of the property. The buyer has formed its own view as to the condition of the property and the suitability of the property for the buyer’s purposes”. The appellant was well able to satisfy itself on the viability of the scheme for 60 residential units shown in the plan before agreeing to it.
Gregory Banner QC (instructed by Wallace LLP) appeared for the appellant; Andrew Myers (instructed by Stephenson Harwood LLP) appeared for the respondent.
Eileen O’Grady, barrister
Click here to read transcript: London & Ilford Ltd v Sovereign Property Holdings Ltd
