In Minerva (Wandsworth) Limited v Greenland Ram (London) Limited  EWHC 1457, the court considered whether a former landowner had fulfilled its obligations under a development agreement in order to trigger an overage payment by the developer. The decision includes a useful review of the threshold for meeting an obligation to use “reasonable endeavours” and the evidence required to prove to a court that you have done so.
Minerva sold the former Ram Brewery site in Wandsworth to Greenland for over £135 million, with the benefit of planning permission for residential development. Under the sale contract, Greenland agreed to make a further “overage” payment if Minerva was able to obtain an enhanced planning permission within a strict time limit. Minerva agreed to use reasonable endeavours to minimise the affordable housing contribution required under any enhanced planning permission and to consult with Greenland over the application. Minerva obtained an enhanced planning permission (within the required timescale) which was subject to Greenland entering into a revised section 106 agreement with the local council, obliging Greenland to pay a further affordable housing contribution. Greenland refused to enter into the agreement and the planning permission lapsed.
Minerva issued court proceedings claiming almost £3.8 million from Greenland, representing the overage that would have been payable under the agreement if the enhanced planning permission had been obtained.
2. The court’s decision
The court restated the test of whether a party has used reasonable endeavours as a question of “what would a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligation have done”. They also applied the finding in UBH (Mechanical Services) Limited v Standard Life Assurance Company [1988 - Unreported] that a court is highly unlikely to find that a party was unreasonable in failing to take a step if it is clearly shown that taking the step would have made no difference at all.
Applying those tests, the court decided that Minerva had complied with the sale contract, including the consultation requirements, and was entitled to the damages claimed.
The main factors in the court reaching this decision were:
- The tight deadline set for Minerva to obtain the enhanced planning permission meant that the time that Minerva could spend on negotiations with the planning authority was necessarily limited.
- Greenland had not produced evidence of any specific failures by Minerva in their conduct of the application and subsequent negotiations.
- Overall, there was strong witness and expert evidence supporting Minerva’s claim to have acted reasonably.
3. Practical considerations
The framework of the agreement in this case was unusual, as the developer usually takes on the obligation to obtain a planning permission that satisfies its stated requirements. Minerva, as the seller, took on the obligations in this case and stood to gain financially if they obtained the planning permission – so they were always likely to be open to criticism from the developer that they were more concerned about maximising the overage payment than they were about the financial effect on the developer of the planning permission obtained.
A developer that is considering leaving the conduct of a planning application in the hands of the seller should factor in the risks of doing so when negotiating the terms of the agreement. In particular, they should bear in mind that the natural temptation to set a short deadline for the seller to obtain the planning permission could backfire due to the resulting reduction in the time that the parties will have to consult about the content of the application and the time that the seller will have to negotiate with the planning authority.
Finally, this case is a good example of the importance of strong witness and expert evidence. A lack of specific allegations about failures backed up with good evidence can be fatal if a dispute has to be resolved at court.