Most development agreements require the developer to carry out the development work with due diligence and to use their reasonable endeavours to complete the work by a specified date, or as soon as reasonably possible thereafter. It is also common practice to include “force majeure” clauses, excusing the developer for any delay caused by extraneous events beyond its control. However, these provisions do not usually protect developers against delays caused by changing market conditions.
The litigation in Ampurius NU Homes Holdings Ltd v Telford Homes (Creekside) Ltd [2012] EWHC 1820 (Ch) arose following a lengthy delay in completion of a development caused by the crash in the property market, which made it difficult to obtain funding. The parties had agreed that the development would comprise two phases. The target date for completion of the first phase was July 2010 and the target date for completion of the rest of the work was February 2011, but time was not of the essence of either date.
The developer started work promptly, but decided to put part of the development on hold in March 2009 because its funding had dried up. It resumed work in October 2010, just before the buyer terminated the contract on the basis that there had been a repudiatory breach of the development agreement. The case turned on the meaning of the provisions in the contract requiring the developer to carry out the work with due diligence and to use reasonable endeavours to complete the development on time, or as soon after the target dates as was reasonably possible.
Due diligence is a familiar concept in construction contracts and usually connotes both due care and “due assiduity/expedition”. The judge could see no reason to interpret the phrase differently on this occasion, and rejected the developer’s argument that it was not obliged to do anything more than undertake the work “carefully”. The judge accepted that the lack of funding explained the developer’s inaction, but ruled that this did not excuse the lack of progress with the work.
The developer had also failed to use reasonable endeavours to complete the work on time. The judge accepted that the developer had done all that it reasonably could to procure the finance needed. However, the provision requiring “reasonable endeavours” from the developer focused on the physical work itself – and did not extend to antecedent or extraneous matters.
Cases on repudiation tend to turn on their own particular facts. However, the judge decided that the developer’s inaction had become a repudiatory breach of contract by the end of 2009, if not before. The breach was ongoing, and its effects became more serious as time went on. Consequently, the buyer had been entitled to terminate the contract when it did, and to recover its deposit.
The decision highlights the importance of contractual provisions that offer protection against changing market conditions. This can be achieved by extending the scope of “force majeure” clauses in development agreements to include economic downturns. It may also be advisable to qualify obligations to use reasonable endeavours in contracts in general, to ensure that contracting parties do not commit themselves to spending more than they can afford.
Allyson Colby, Property Law Consultant
