Construction of shopping centre — Consortium financed by insurance society — Units remaining unlet — Construction of agreement — Whether society can unilaterally insist that reverse premiums paid to attract tenants to take underleases — High Court ruling in favour of society — Court of Appeal reversing decision — House of Lords upholding Court of Appeal’s decision
This appeal concerned a tripartite development of a new shopping centre at Sutton, Surrey, known as the St Nicholas Centre. The freeholders were Sutton London Borough Council. The development was carried out by a consortium of companies (“the developers”) and financed by Norwich Union Life Insurance Society (“the society”). The construction of the centre was completed but due to the recession many units in the development remained unlet. A question arose whether the society, without any further agreement by the developers, could insist that reverse premiums be paid to attract possible tenants to take underleases of unlet units, the cost of the reverse premiums to be borne wholly by the developers.
The payment of a reverse premium was an advantage to all the participants since it would increase the amount of the rent roll. However, the advantage to any one of the parties was largely dependent upon who had to bear the cost of paying the reverse premium. Under the funding agreement, reverse premiums were expressly made part of the development costs. Since the society had paid its maximum commitment the developers would be bound to pay any further development costs incurred. Accordingly, they would have to bear the whole cost of any reverse premiums. The developers were unwilling to agree to such payments, despite the increase in rental income they might produce. The society on the other hand was anxious to increase the rent roll at no additional cost to itself. The trial judge held in favour of the society, but a majority of the Court of Appeal reversed that decision: see [1993] EGCS 69.
