Developers often enter into collaboration or consortium agreements to spread the risks and costs of developing land. Unfortunately, however, it is difficult to foresee every possible eventuality when drafting such agreements – and all too easy for the parties to disagree if the unexpected occurs.
In Bellway Homes Ltd v Beazer Homes Ltd [2011] EWCA Civ 15; [2011] PLSCS 17, the parties formed a joint venture (jv) company and entered into a shareholders’ agreement that was to govern their relationship while they developed sites in the north of England. The agreement sought to establish equality between the parties and to equalise the cost of infrastructural and remedial work in respect of developable land.
The parties drew down land held by the jv company in stages, as and when required, on the basis that they = any temporary imbalance between them would be adjusted in in subsequent transfers from the jv company to themselves. A dispute arose subsequently when, following a final allocation of land, a local authority unexpectedly refused planning permission, which had been agreed in an exchange of letters, for one of the sites that the parties had hoped todevelop.
The Court of Appeal rejected a claim by the disadvantaged developer and refused to grant an order that would have rectified the imbalance by adjusting the land allocations on another site. It ruled that the parties could have waited to see whether planning permission was granted – or could have reserved their position should it be denied. However, they had chosen to proceed with the intention of achieving finality in respect of the site in question. The shareholders’ agreement did not provide for subsequent reallocations of land elsewhere and the loss must lie where it fell.
The parties agreed that their exchange of letters did not satisfy the requirements of section 2 of the Law Reform (Miscellaneous Provisions) Act 1989, which requires contracts for the sale of land to incorporate in one document all the agreed terms (or, where contracts are exchanged, in each). Consequently, the disadvantaged developer argued that the balancing exercise required by the shareholders’ agreement had yet to be performed. However, Lord Neuberger MR ruled that the parties had implemented the agreement they had reached (except in respect of the land that could be developed because of the refusal of planning permission) and had satisfied the requirements laid down in the shareholders’ agreement.
There was thus no basis for retrospectively factoring the refusal of planning permission into the parties’ valuation process or to revisit the final land allocation in the absence of misrepresentation, fraud, or a common mistake that was so serious that it vitiated the parties’ agreement.
The litigation highlights the difficulties that can arise where parties enter into a single agreement relating to a series of projects and the importance of incorporating into it suitable dispute resolution mechanisms and of agreeing whether they will seek to rectify any imbalances that arise during the course of their relationship – and, if so, how.
Allyson Colby is a property law consultant
