When times are hard, parties to unprofitable contracts may try to take advantage of provisions enabling them to terminate an agreement if conditions have not been satisfied by a specified date. The litigation in BDW Trading Ltd (t/a Barratt North London) v JM Rowe (Investments) Ltd [2011] EWCA Civ 548; [2011] PLSCS 127 concerned a contract that was terminated for commercial reasons unconnected with any breach of the agreement.
The parties entered into a contract for sale and purchase that could be rescinded by either party unless certain specified conditions had been met by an agreed longstop date. One of the conditions required the seller to exercise a break clause in a lease of part of the land and to compensate the tenant for having done so. Importantly, the right to rescind the contract for the sale of the land was not exercisable if the party trying to withdraw was in breach of its obligations to take such steps as were necessary to satisfy the conditions.
The seller accepted that it had not paid the tenant before the longstop date, even though it had successfully terminated the lease. This was because it had arranged for the tenant to remain in occupation as a tenant at will while the parties resolved other outstanding issues. The buyer had approved the arrangement but was not informed of and had not approved the delay in paying the tenant until vacant possession was given.
The seller claimed that the buyer had caused the delay that led to the grant of the tenancy at will and relied on the legal principle that unless a contract clearly states otherwise, the court will not allow a party to rely on its own breaches of contract to terminate an agreement. The court found in favour of the buyer.
The Court of Appeal decided that the parties had specifically agreed when they would be prevented from rescinding; this displaced the application of any wider legal principle. The buyer had not been responsible for the seller’s failure to pay the tenant before the longstop date and was not in breach of its obligations to the seller when it served its notice to rescind. Consequently, it was entitled to terminate the agreement.
In addition, the fact that it continued to deal with the seller for several months after the longstop date did not prevent the buyer from ending the agreement. The right to rescind was exercisable at any time after the longstop date. Consequently, the buyer had not been obliged to make an immediate decision and was entitled to continue to perform its obligations under the contract until it chose to rescind.
It is impossible to draft for every eventuality where a contract depends on a series of contingencies. This decision illustrates the need to consider how changes in one contractual relationship will affect another and the importance of paying close attention to detail when seeking approval for any departure from the terms of a contract where properties are being down-valued.
Allyson Colby is a property law consultant
