Contracts for the sale of land that is ripe for development often contain complex conditions and provisions. The litigation in Anglo-Continental Educational Group (GB) Ltd v Capital Homes (Southern) Ltd [2008] PLSCS 192 underlines the importance of ensuring that payment provisions are foolproof if the purchase price is liable to adjustment before completion can occur.
The contract for sale was conditional on obtaining planning permission for development. It also provided that the purchase price was to be reduced by the amount required to secure a deed of release of restrictive covenants. The buyer had difficulty in obtaining the permission, but decided to waive the benefit of the condition and complete the transaction.
The contract obliged the buyer to complete within 28 days of the contract becoming unconditional. It was unfortunate that the amount payable for the deed of release was not then settled. The buyer had approached the covenantees, which had indicated a likely charge per unit, but matters had not progressed further. Consequently, the seller claimed that the buyer was liable to pay the entire purchase price on completion of the transaction.
The buyer argued that it was entitled to reduce the purchase price by an amount equal to the estimated cost of procuring the deed of release and that the price should be subject to final adjustment when the deed of release was obtained. It accepted that the contract did not include express provisions to this effect, but argued that such provisions should be implied.
The High Court rejected both parties’ claims. The contract clearly required the parties to make a deduction from the purchase price, but the judge felt unable to conclude that the parties would have agreed on the terms that the buyer suggested. The contract required the purchase price to be paid on completion. The buyer’s solution would require the seller to accept an underpayment, or the buyer to make an overpayment, on completion. It was impossible to reconcile either outcome with the express terms of the contract.
The parties must now return to the negotiating table to try to resolve their differences. Practitioners can avoid similar problems by: (i) prescribing a clear and unambiguous method of calculating the purchase price; (ii) specifying the period within which the parties must agree on the amount payable on completion; (iii) addressing what should happen should the parties be unable to agree on a figure; and (iv) specifying what dispute resolution provisions will apply. If the parties agree not to delay completion while any deductions or additions are being ascertained, they will need to consider: (v) the sum actually payable on completion; (vi) whether a maximum or minimum sum is due; (vii) whether they are liable for interest on any overpayment or underpayment; (viii) whether they require security for any subsequent payments that need to be made; and (ix) if so, what form that security should take.
Allyson Colby is a property law consultant
