Agreement — Obligation to put up building — Obligation to grant and take lease on completion of building — Long lease — Threat of compulsory purchase — Building not completed within time-limit — Owners taking possession — Whether penalty — Whether forfeiture — Whether jurisdiction to grant relief — Terms of relief — Costs — Claim succeeds
By a building agreement dated September 30 1987 the plaintiff company agreed at its own expense to construct a workshop building and ancillary offices on land belonging to the defendant council at Beddington Farm Road, Sutton, Surrey. The company covenanted to complete the works by the beginning of October 1988 and the council agreed that within one month of the date of practical completion to grant to the company a 125-year lease of the land. By clause (6)(a) of the agreement it was agreed that if the company’s works were not completed and fit for occupation within the period specified, at the option of the council the agreement “shall cease and determine and the [council] may re-enter upon and take possession of the … land together with the buildings and erections thereon …”.
By March 1988 the company had spent some £80,000 on carrying out the works; the only work that required completion was the erection of a steel-framed building and landscaping which was estimated to cost £20,000 and could have been completed within two to three weeks. In March 1988 the company were informed that Sutton London Borough Council had resolved to compulsorily purchase the subject land for a new road and, following the advice of that council and later its own professional advisers, the company ceased to carry out further work. By a letter of October 31 1988 Croydon London Borough Council purported to determine the agreement and take possession of the land. The company claimed that the power of termination in clause (6) was penal and further amounted to a forfeiture provision; the court ought to exercise its discretion to grant relief.
Held The claim was allowed and the plaintiff was granted half its costs.
1. Clause (6) is not penal in its effect. The sensible purpose of the clause was no more than an ordinary power of re-entry that one would find in a lease.
2. However, clause (6) was a forfeiture provision: see Clays Lane Housing Co-operative Ltd v Patrick (1984) 49 P & CR 72. The building agreement was to continue until the lease was granted and the clause was intended to enable the council to take possession of the land. As a matter of principle the court had jurisdiction to grant relief; this agreement was distinguishable from an ordinary building contract because, construing the whole document, the company went into occupation of the site with a view to becoming a long leaseholder of it. It had an insurable interest and a right to specific performance of the council’s obligation to grant the lease. It therefore had a “possessory or proprietory interest”. Relief from forfeiture was granted on terms that the building be completed within 10 weeks.
Kim Lewison (instructed by Masons) appeared for the plaintiff; and David Edlin (instructed by the solicitor to Croydon London Borough Council) appeared for the defendants.
