Overage — Buyer obliged to pay additional amount in event of obtaining residential planning consent — Buyer released from overage obligation on one plot if buildings thereon demolished — Buyer demolishing 35 out of 37 houses on relevant plot — Buyer keeping two houses intact for better compliance with planning requirement for shopping facility — Buyer claiming to be released — Whether literal effect to be given to release provision — Whether buyer able to point to appropriate implied term — Judgment for seller
In October 1996, the claimant ministry sold and transferred to the defendant, for £8m, the 70 acre site of an RAF base in Gloucestershire. The site included an area of land (the hatched land) upon which stood 37 houses. The hatched land was part of a larger area (the overage land). By clause 5.2 of the transfer, the defendant covenanted to make an additional payment (the overage payment) in the event of planning permission relating to the overage land being granted and acted upon. However, clause 5.13.6 provided for the immediate release of the hatched land from the defendant’s overage obligations “following demolition of the buildings on the [hatched land]”. At all times during the prior negotiations, the parties were aware that it was the wish of the planning authority, as expressed in a planning brief, that the hatched land and neighbouring areas should be used for the creation of a community of not more than 300 dwellings served by a local shopping facility.
In July 1998, the defendant obtained and implemented planning permission for the construction of 26 houses on the hatched land, having previously demolished 35 of the 37 houses. The remaining two were left intact with a view to converting them into a shop with living accommodation above, such conversion having been seen as the most practical way of complying with a planning requirement for a neighbourhood shopping facility. The claimant maintained that these events had triggered an overage liability of £819,927.00. The defendant disputed the claim on the grounds that: (i) the buildings on the hatched land had been demolished for the purpose of clause 5.13.6; alternatively (ii) a proviso should be implied into that clause to the effect that the clause was sufficiently complied with where it was necessary or desirable to retain a building for retail purposes.
Held: The claim was allowed.*
Taking into account the physical state of the land at the date of the transfer, a reasonable person attempting to construe clause 5 would deduce, inter alia, that the provisions represented a “trade-off”, whereby the defendant could carry out an overage-free development of 37 new houses subject to demolishing all 37 of the existing ones. However, he would note that there was no obligation upon the defendant to adopt this mode of development and that the terms of any planning permission had yet to be finalised. The problem that flowed from the otherwise sensible decision to leave two of the buildings intact was a self-induced one. There being nothing to require the court to depart from the ordinary meaning of the words “buildings” and “demolition”, the defendant could not contend that release from overage liability was obtained when there came a point where none of the buildings could be described as “houses”. It was not the task of the court to substitute for the bargain made one that the court believed could better have been made: see per Lord Mustill in Charter Reinsurance Co Ltd (in liquidation) v Fagan [1997] AC 313, p388.
Since the planning requirement for a shop and flat could have been achieved by building the same after demolishing all 37 houses, there was no basis for implying the proviso urged by the defendant. This was so whether one applied the business efficacy test, as explained in The Moorcock (1889) 14 PD 64, or the officious bystander test, as explained in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206.
*Editor’s note: An alternative claim by the defendant for rectification of the transfer was rejected for want of evidence of a prior agreement in the terms contended for.
Michael Booth QC and Wilson Horne (instructed by Davitt Jones Bould, of Taunton) appeared for the claimant; Matthew Horton QC and Ben Hubble (instructed by Courts & Co) appeared for the defendant.
Alan Cooklin, barrister