What does an obligation to “use reasonable endeavours” entail? It is often tricky to advise on the precise extent of the obligation because the meaning of the phrase will depend on the matrix of facts and context in which it is used.
The question that arose in Gaia Ventures Ltd v Abbeygate Helical (Leisure Plaza) Ltd [2019] EWCA Civ 823; [2019] PLSCS 89 was whether a developer was liable to pay damages in lieu of overage, in the sum of £1.4m, because it had failed to “use reasonable endeavours” to satisfy overage conditions “as soon as reasonably practicable”.
Interlocking agreements
The Leisure Plaza in Milton Keynes housed an ice rink and other attractions, but it was not a commercial success. Abbeygate was a joint venture company which was formed to carry out a £40m redevelopment that involved refurbishing the ice rink, the construction of a superstore and the provision of car parking.
While it was piecing the site together, Abbeygate entered into a series of interlocking but conditional agreements. In particular, it needed: to obtain an acceptable planning permission; to acquire an unencumbered freehold interest in the site or, alternatively, to acquire the existing long leasehold interest, leases of the ice rink and two electricity substations and to vary the terms of the long lease and a service easement connected with one of the substations, to enable the development to take place; and to secure an anchor tenant for the new superstore (“the planning, site assembly and anchor tenant conditions”).
Key point
- A promisor who delayed satisfying overage conditions until it had secured finance for a development was in breach of its undertaking to use reasonable endeavours to fulfil the conditions as soon as reasonably practicable
After acquiring the long leasehold interest in the site, Abbeygate purchased the ice rink leases in return for the payment of £1.525m, the grant of a lease that was excluded from the Landlord and Tenant Act 1954 (so that the ice rink could remain operational until it was refurbished) and an agreement to pay overage in the sum of £1.4m if the planning, site assembly and anchor tenant conditions were satisfied before 4 July 2013. But although Abbeygate secured planning permission for the development and signed a conditional agreement for lease with an anchor tenant before the longstop date, the site assembly condition was not satisfied until shortly after the date had passed.
Unlocking the conditions
The would-be recipient of the overage, who had purchased the right to receive it from the owner of the ice rink, claimed that Abbeygate could have satisfied the overage conditions before the longstop date. But Abbeygate denied liability for the overage payment.
Abbeygate agreed that it had not wanted to pay the overage, but argued that an obligation to “use reasonable endeavours” to satisfy conditions entitles the promisor to have regard to its own commercial interests when deciding what steps to take in order to do so. Finance from a third-party investor had not been available until the planning, site assembly and anchor tenant conditions were all satisfied and Abbeygate claimed that it would have been commercially irresponsible to have committed itself to a development that it could not fund. So it was not unreasonable for it to have adopted a timetable to accommodate its need for funding.
However, none of the agreements that Abbeygate had signed were conditional on it securing back-to-back funding for the development and it had not promised to use reasonable endeavours to satisfy the overage conditions “when convenient”, or “when it suits our fund flows”. It had promised to do so “as soon as reasonably practicable” and the judge at first instance had found that Abbeygate had deliberately manipulated the conditionality of the various agreements, satisfaction of the conditions, and even its access to funding, to suit itself. Therefore, even if the availability of finance was a permissible consideration, Abbeygate was unable to show that it had used reasonable endeavours to satisfy the overage conditions as soon as reasonably practicable.
Counterfactual world
Abbeygate argued that even if it had performed its obligations, it would still have been unable to satisfy the site assembly condition in time. But the Court of Appeal observed that, when Abbeygate finally began negotiating seriously with the relevant parties, there had been little or no difficulty in bringing negotiations to a successful and prompt conclusion. Furthermore, although the anchor tenant did not waive the condition requiring surrenders of the substation leases until 10 July 2013, the waiver demonstrated its confidence that the surrenders were a formality.
The trial judge held that Abbeygate could have had enforceable contracts to acquire the freehold, and the substation leases, in place by June 2013. And, had it done so, Abbeygate could have completed the agreements before 4 July 2013, which would have satisfied the site assembly condition.
The Court of Appeal was unimpressed by Abbeygate’s argument that the freehold title contained a restriction preventing the registration of any disposition of the freehold without a consent from a third party, which was not obtained until 24 July 2013. An application for registration could have been made before 4 July 2013, leaving the Land Registry to raise a requisition regarding the consent. The consent would have been forthcoming and (although neither the High Court nor the Court of Appeal considered registration necessary to satisfy the site assembly condition) the registration would have been backdated to the date of the application.
So Abbeygate could have satisfied the overage conditions before the longstop date, had it used reasonable endeavours to do so as soon as reasonably practicable. Instead, it had devoted its energies to satisfying the site assembly condition after the longstop date had passed, and was therefore liable to pay damages in the sum of £1.4m.
Allyson Colby is a property law consultant
