It is notoriously difficult to ensure that overage agreements provide for all eventualities. In fact, they rarely do, and if the parties cannot agree, the courts may have to decide how to apply the overage provisions in the particular circumstances of the case.
In Walker v Kenley [2008] EWHC 370 (Ch); [2008] PLSCS 52, the High Court was asked to decide whether a buyer was liable to pay overage on the sale of holiday apartments. The buyer had originally contracted to buy the property on the condition that planning permission was obtained to construct “units of permanent residential occupation”. Following several unsuccessful attempts to obtain such permission, the buyer waived the planning condition in the agreement for sale and purchased the property. He subsequently received planning permission to build holiday apartments.
The case turned on whether the apartments were “residential flats” for the purposes of a separate overage agreement between the parties. Holiday apartments and full-time residential premises fall within the same general use class for the purposes of the Town and Country Planning (Use Classes) Order 1987. However, the judge decided that the parties had used the expression “residential flats” to describe flats that could be sold for use as permanent residences, even though the overage agreement did not expressly limit its meaning in this way.
The judge ruled that “residential flats” meant flats that occupiers would regard as their residences. This was not a natural description of a holiday apartment. The commercial context in which the phrase had been selected for use was also key. The buyer wanted to build units that were not limited to use as holiday apartments; planning permission already existed for the construction of five holiday cottages. This suggested that the parties had been concerned to provide for overage in respect of a different type of development. Consequently, the seller was not entitled to overage on the sale of 17 holiday apartments.
The decision illustrates the importance of ensuring that the events that trigger liability to pay overage are not limited or restricted to those that will yield little or nothing for the seller.
The case also highlights the importance of considering the combined effect of interlocking agreements, especially if they are negotiated at different stages of a transaction, as in Walker. In this case, the overage agreement post-dated the conditional contract for sale. The buyer unilaterally waived the planning condition in the contract when it became clear that planning permission for residential flats would not be forthcoming. With hindsight, the seller might have been in a stronger position had the contract for sale prevented the buyer from waiving the planning condition unless the seller agreed. The seller might then have been able to bargain with the buyer for an amendment to the overage agreement (to ensure that it applied to any alternative development that the buyer was proposing) before being liable to complete the property transfer.
Allyson Colby is a property law consultant
