One of the standard triggers for the payment of overage is the grant of planning approval. But most developments require other approvals as well – which caused problems in London and Ilford Ltd v Sovereign Property Holdings Ltd [2018] EWCA (Civ) 1618; [2018] PLSCS 126.
The buyer purchased a building occupied by retail outlets and a restaurant on the ground floor, with offices above. It planned to convert the offices to residential use and, in addition to the purchase price, promised to pay the seller an additional £750,000 if a “first trigger event” occurred during the overage period.
The expression “first trigger event” was defined as the receipt of “prior approval” for not less than sixty “residential units” and the term “prior approval” was defined to mean “written notice from the local planning authority giving its prior approval in respect of the development under the Permitted Development Order”.
The planning authority granted planning permission within the overage period. But, when the seller called for the overage, the buyer denied liability on the ground that the construction of 60 flats would contravene fire safety requirements laid down in building regulations.
It argued that the overage agreement defined “residential units” as “residential dwellings…for residential use for sale or lettings”, signifying that the units should be capable of being constructed because, if they could not be built, they could not be available for sale or lettings.
The seller argued that the regimes for planning consent and building regulations are entirely separate in their purpose, legislation and enforcement. The first trigger event was clearly and expressly concerned solely with planning consent. And once such consent was received, the overage payment fell due.
The Court of Appeal upheld the seller’s claim. The seller, itself an experienced developer, had submitted the planning application for approval. But the plans on which the application was based were exchanged between the parties before they became contractually committed and the buyer, which was part of a group that specialised in office to residential conversion under permitted development rights (owning and managing 1,000 residential units, with a further 500 under construction), had been well able to satisfy itself on the viability of the scheme for 60 residential units before agreeing to it.
Both parties had been advised by experienced solicitors. And the contract between them provided that “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 overage agreement was not expressed to be dependent on compliance with building regulations or with any other requirements that might need to be satisfied before the residential units could be constructed. And, if it had been intended that the first trigger event should be dependent on such approvals, the parties would have said so.
Allyson Colby is a property law consultant
