Contracts for the sale of commercial property often contain complex conditions and provisions and the draftsman cannot always provide for every eventuality. However, if the agreement can be interpreted in such a way as to make it enforceable and effective, the court will prefer that interpretation to avoid having to declare the contract void.
The Court of Appeal put this principle into practice in Anglo-Continental Educational Group (GB) Ltd v Capital Homes (Southern) Ltd [2009] EWCA Civ 218; [2009] PLSCS 96. The litigation concerned a contract for sale that was conditional on the grant of planning permission for residential development. The contract provided that the purchase price was to be reduced by the amount required to secure a deed of release of restrictive covenants against development.
The buyer had difficulty in obtaining planning permission, but decided to complete the transaction regardless. Unfortunately, however, the amount payable for the deed of release was not then settled because the adjoining landowner refused to release the covenants until planning permission had been obtained.
The seller claimed that the buyer was liable to pay the entirety of the purchase price on completion. The buyer argued that the purchase price should be reduced 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 actually obtained. The High Court rejected both parties’ claims. The judge ruled that it was impossible to reconcile either interpretation with the terms of the contract.
The parties asked the Court of Appeal to resolve their differences. It agreed that it was difficult to apply the provisions of the agreement to the events that had occurred. It also agreed that neither party’s interpretation was correct. The seller’s argument that the amount must actually have been paid before completion was unwarranted – the contract referred only to the amount “required” to secure a deed of release. In addition, however, the implied term suggested by the buyer was not required to give business efficacy to the agreement.
None the less, the amount required to complete the purchase must be fixed to enable completion to take place. The discount was not conditional on planning permission and, since the buyer was entitled to waive the planning condition at any time, the definition of the purchase price must be made to work even though planning permission had not been obtained.
Their lordships ruled that the discount was the amount reasonably required to obtain a release or variation of the restrictive covenants to enable the development proposed at that particular point in time to proceed. If the adjoining landowner was unwilling to specify the sum required, the parties would have to agree on an amount, failing which the court would have to fix it for them – leaving the buyer to bear the risk that the amount required to release the restrictive covenants might increase while it sought planning permission to enable its proposed development to proceed.
Allyson Colby is a property law consultant
