In North Eastern Properties Ltd v Coleman (1) and Quinn (2), an investor entered into contracts to buy 11 flats in the course of construction. The seller covenanted to build the flats "with all due dispatch". Completion was to occur within 10 working days of the seller serving notice that the relevant flat was complete.
The seller had estimated that the flats would be ready by December 2007. By May 2008 the flats were still not ready. On 23 May the buyer served notices to complete, requiring completion within 10 working days. The flats were not ready by the time the notices to complete expired. The buyer argued that it had therefore rescinded the contracts.
The seller disagreed. The flats were completed at the end of June, and on 1 July 2008 the seller served notice that the flats were finished, and requiring completion within 10 working days. The buyer failed to complete and the seller sought specific performance of the contracts.
The court found that the buyer was not entitled to serve a notice to complete. The contract incorporated the Standard Conditions of Sale (4th edition). These provide that a notice to complete can only be served "on or after the completion date". The completion date under the contract was triggered by the seller serving a notice that the flats were ready. Since the seller had not done this as at 23 May, the buyer's notices to complete were invalid.
This did not allow the seller to frustrate the contract, because it was still obliged to construct the flats with all due dispatch. The court found that the seller had breached this obligation by not completing the flats by 23 May. The court ruled however that this breach was not repudiatory, in the sense that it did not entitle the buyer to terminate the contract. Prior to 21 May the buyer had not complained about the delay, and on 21 May the seller made it clear that the flats would be completed within four weeks.
The buyer then argued that the contracts were void and unenforceable. This argument was based on section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which provides that a contract for the sale of land must (among other things) incorporate all the terms which the parties have expressly agreed in one document.
The parties had agreed that the buyer would receive a 10% discount, since it was purchasing 11 flats. However, the buyer requested that a discount of only 8% be shown on the face of the contracts. The other 2% would be invoiced separately by the buyer to the seller. On that basis the buyer argued that the written contract did not incorporate all of the terms and was therefore void.
The court thought this was an "unattractive submission". There was no reason to believe that the seller was not prepared to include the full 10% discount in the contracts. It was not included at the buyer's express request.
Furthermore, the contract contained a clause which stated that it contained the entire agreement between the parties. The effect of this was that any other promises or assurances made in the course of negotiations (sometimes referred to as "collateral warranties") had no legal effect.
The court ruled that the arrangement in relation to the 2% element of the discount did not form part of the contract at all. On that basis the main contracts were not void under section 2, and the seller was entitled to specific performance.
The court did not express a view as to whether the additional discount arrangement was, as a matter of law, enforceable, although it noted that the buyer could "face considerable difficulties" in enforcing it.
Things to consider
Several points of interest arise from this case.
In the April 2008 edition of Property update, we considered the case of Oun v Ahmad. In that case the parties had signed two separate documents on the same day. The first was a normal contract for sale. The second was a short form document which set out how the purchase price was to be apportioned.
The court found that the first document did not create a valid contract for sale under section 2, as it did not include the appointment provisions. The question was therefore whether the contract could be rectified so as to include those provisions, and make it valid. The court held that rectification was about setting the record straight where a mistake in the drafting meant the document did not reflect the parties' common intention. However, the express agreement to omit the apportionment provisions meant that there was no mistake in the recording of the agreement. On that basis the court refused to order rectification.
At first sight, it is hard to see why the contract should have been void in Oun v Ahmad, but enforceable in North Eastern Properties Ltd v Coleman (1) and Quinn (2). In both cases the agreement intentionally did not incorporate one of the commercial terms. Perhaps the difference can be accounted for by the presence of an entire agreement clause in North Eastern Properties. The only safe way to proceed is to ensure that the written contract between the parties incorporates all the terms which they have agreed, particularly where the contract contains an "entire agreement" clause.
The second point to come out of the case is that, where the trigger for completion of a contract is a notice served by the seller/developer that the property is substantially complete, the buyer will be unable to serve a notice to complete until this has occurred. Although the buyer may be able to rescind the contract if there is delay in construction, this will depend on whether the delay amounts to a "repudiatory breach" of contract by the seller. Ultimately this is a question for the court to decide, which leaves buyers under such contracts with unwelcome uncertainty about how and when they may bring the contract to an end.
Finally, it is interesting to note that the court ordered specific performance of the sale contracts. Specific performance is an equitable remedy and is granted at the discretion of the court. Although commonly available in favour of a buyer against the seller to compel the transfer of the property to the buyer, the court is often reluctant to force a buyer to purchase a property, usually preferring instead to award damages to the seller.