Contracts for sale are often subject to conditions that must be satisfied before a longstop date in the future, after which the contract will expire. In Cohen v Teseo Properties Ltd [2014] EWHC 2442 (Ch) the High Court had to decide whether a conditional contract had terminated, leaving the seller free to deal with the property as it chose. The dispute arose because the relationship between a provision enabling the buyer to seek an extension of time and the remainder of the contract was unclear.
The long stop date in the contract was 6 January 2014. However, the contract expressly stated that the long stop date was capable of being extended until 9 June 2014 at the buyer’s request. Unfortunately, the contract did not specify when such request(s) should be made, although it did say that the buyer would have to make further payments for every month by which the contract was extended.
The planning authority was still considering the buyer’s application for planning permission on 6 January 2014, but the buyer did not ask for an extension of time until 13 January 2014. The seller declined the request. He took the view that the contract had terminated on 6 January 2014 – and refused to refund the buyer’s deposit.
The planning authority granted planning permission for residential development shortly afterwards and the buyer sought an order for specific performance of the contract. It claimed that it had been entitled to apply to extend the long stop date at any time up until 9 June 2014, but the High Court dismissed the application.
The judge ruled that the buyer’s interpretation of the contract would enable it to wait and see how the planning process unfolded in the period up until 9 June 2014, without incurring any obligation to make any additional payment unless and until it asked to extend the long stop date. This would be at odds with the commercial logic of the parties’ bargain.
Was the seller entitled to retain the deposit? A deposit is an earnest for performance. However, section 49(2) of the Law of Property Act 1925 empowers the court to order a seller to repay a deposit paid by a buyer who fails to complete a contract to purchase land. The jurisdiction is discretionary, and is to be exercised where justice requires it, but Midill (97PL) Ltd v Park Lane Estates Ltd [2008] EWCA Civ 1227 confirmed that, in a situation where a buyer cannot itself perform, the buyer must establish something special or exceptional to justify the return of its deposit.
The buyer argued that it had enhanced the value of the property by obtaining planning permission for development and tried unsuccessfully to persuade the court that it would be unjust to allow the seller to keep its deposit as well. The judge noted that the contract gave the seller the right to retain the deposit if the transaction did not proceed. The buyer had paid the deposit to keep the property off the market for an uncertain period. The payment was not dissimilar to an option fee and it would be unjust to intervene in circumstances where the buyer had been aware of the risks and the seller had kept its side of the bargain.
Allyson Colby is a property law consultant
