Contract for sale of land – Construction – Obligation of seller to use best endeavours to secure planning agreement – Buyer not obliged to complete in absence of planning agreement – Whether contract determining if seller unable to obtain agreement within reasonable time – Whether term to be implied as to termination – Appeal allowed
The respondent contracted to purchase a property, consisting of a concrete office block and multi-storey car park, from the appellant’s sister company, K. K’s interest as seller was later transferred to the appellant. Under the agreement, the seller undertook to use “all reasonable endeavours” to obtain a planning agreement with the local council under section 106 of the Town and Country Planning Act 1990. A draft of the proposed agreement was attached to the sale contract. The buyer was not obliged to complete until that agreement had been obtained.
The council had resolved to grant planning permission for a mixed residential, retail and business development on the site, incorporating a public library, subject to a satisfactory section 106 agreement. It was initially expected that that agreement would be completed relatively quickly and without substantial amendment from the draft. However, the council made further demands, one of which was that the library should be transferred to them at a peppercorn rent and without a premium. It also became apparent that part of the library site was owned by a third party.
The appellant informed the respondent that it was unable to procure a section 106 agreement substantially in the draft form. The respondent indicated that it was unwilling to complete without one. The appellant brought proceedings for a declaration that the sale contract had ended. It submitted that a term should be implied into the contract whereby it would automatically determine if, despite the seller using all reasonable endeavours, no section 106 agreement had been entered into within a reasonable time. The respondent counterclaimed for specific performance.
The judge implied a term that the seller could rescind the contract where its reasonable endeavours to secure a section 106 agreement had proved unsuccessful after a reasonable time. However, he held that the appellant had not used all reasonable endeavours to overcome the obstacles to a section 106 agreement presented by the library and the third-party land: see [2006] EWHC 3166 (Ch); [2006] PLSCS 259. The appellant appealed.
Held: The appeal was allowed (Buxton LJ dissenting).
The judge had been right to imply a condition concerning the termination of the contract. With regard to the contract for the sale of the development site, which provided for the buyer to carry out an agreed form of development and to grant to the seller a leaseback of part of the site, and where the land itself was subject to leases that had to be brought to an end to render the development viable, it could not have been intended that an impasse could continue for an indefinite period of 12 months or more once it became clear, after the exercise of all reasonable endeavours by the seller, that the necessary section 106 agreement could not be obtained.
However, the judge was wrong to conclude that the appellant had failed to use all reasonable endeavours to obtain a section 106 agreement. The problem regarding ownership of the third-party land was an insuperable obstacle that made it irrelevant that other obstacles, such as the situation with the library, might have been overcome. The seller’s obligation to secure an agreement was a single obligation. Once the seller could do no more to overcome one problem that stood in the way of achieving the section 106 agreement, it was not required to do more to overcome other problems that might have been resolved individually.
Although it was for the appellant to show that it had exercised all reasonable endeavours, rather than for the respondent to show that it had not, it was difficult to identify anything that the appellant had not done that it ought to have done. The appellant was not obliged to lay out the significant funds required to attempt to buy the land itself, and to adapt the proposed development to fit on the site without the third-party land was not consistent with the contract. Further, the seller was obliged to do whatever was needed, apparently without any reference to the buyer and regardless of what the buyer might wish to do.
Nicholas Dowding QC and Mark Warwick (instructed by Mishcon de Reya) appeared for the appellant; Edward Bannister QC and Oliver Hilton (instructed by Segens) appeared for the respondent.
Eileen O’Grady, barrister
