Caveat Venditor!

Redrow Homes Ltd v Martin Dawn (Leckhampton) Ltd [2016] EWHC 934 (Ch)

Summary

This case concerned land that had been sold for residential development. The buyer made an application to Court for specific performance to compel the seller to comply with the obligation to execute a planning agreement. The application was made despite the seller’s argument that the buyer itself was in breach of its obligations.

The Court found that, although the buyer had failed to perform certain obligations, they were not significant obligations, and damages would be an adequate remedy for the seller. Consequently the buyer’s breaches were no impediment to its ability to seek an order for specific performance.

The key question was whether a claim for breach of contract and damages was a sufficient defence to a claim for specific performance of contractual obligations. The Court had to consider whether the two obligations and connected claims were sufficiently connected so that an order for specific performance in one claim would jeopardise the success of the other claim.

The facts

The buyer purchased land from the seller with a view to constructing a residential development on the plot. The sale contract was subject to a provision to pay overage and to enter into a first legal charge over the property. The legal charge secured the “Secured Amounts”, which included sums payable by the Buyer under the contract and overage deed.

The contract contained a requirement to obtain planning permission for residential development, which required the buyer to enter into a planning agreement with the council under Section 106 Town and Country Planning Act 1990. The seller needed to be a party to this agreement, because it was the mortgagee under the legal charge and so its consent was required. There were no additional obligations for the seller. However, it was likely that any delay in executing the planning agreement would affect the ability of the buyer to obtain planning permission.

The buyer negotiated the planning agreement with the local authority and then approached the Seller to sign it. The Seller refused for several reasons. First, it considered the buyer to be in breach of the requirement in the contract to use “reasonable endeavours” to procure a minimum size development. Secondly, it objected to the terms of the planning agreement that the buyer had agreed with the council, which ultimately meant that it would receive less consideration for the land.

When agreement could not be reached, the buyer issued a claim seeking an order for specific performance to compel the Seller to enter into the planning agreement. Having issued proceedings, the buyer then applied for summary judgment on the basis that the seller had no arguable case and there was no other compelling reason why the matter should be heard at a full trial.

The issues

The key question for the Court was whether the purported breaches by the buyer were sufficiently serious and sufficiently closely connected to the required performance of the seller’s obligation to enter into the planning agreement.

When considering this issue the judge considered the earlier authority of National and Provincial Building Society v British Waterways Board [1992]. In this case, the Court established the principle that, if two claims are closely connected, such that granting relief in respect of one would affect the success of the other, the order for specific performance should be refused. Indeed, in the 1992 case, the order was refused because the claims were too closely connected.

Decision – Summary Judgment

In this case, however, the Court did not agree that the two claims were sufficiently linked for the buyer’s claim for specific performance to have a detrimental effect on the seller’s claim for the buyer’s breaches.

The Court therefore held that the buyer’s application for summary judgment and the order for specific performance should be granted. The Court’s reasoning was that the seller could still pursue a claim in damages against the buyer. It was therefore not inequitable to make an order for specific performance to compel the seller to enter into the planning agreement, leaving it with the option of pursuing a separate claim for the buyer’s breaches.

As this meant that the seller had no real prospect of successfully defending the claim, and there was no other compelling reason why the matter should be heard at a full trial, the order was made at the hearing for the summary judgment application.

Our comments

If you are the seller

The ability to withhold entry into a planning agreement and/or the progression of planning permission can be a useful bargaining chip when seeking to enforce buyer compliance or settle a dispute, especially where the buyer has breached a connected agreement.

Therefore, when seeking to agree wording to comply with any terms that are necessary for planning permission, a seller should try to include an ability to withhold co-operation or consent where the buyer is in breach or where the terms of any agreement are likely to have a negative effect on their financial reward.

If you are the buyer

Where planning permission is dependent on seller consent or co-operation, a buyer should be conscious that any breach of the agreement may affect the enforceability of any obligation of the seller to assist with the attainment of planning permission. Buyers should be particularly careful in the situation where the performance of one obligation is closely connected to another obligation. You may wish to negotiate wording that requires seller co-operation and is not inter-dependent on any other buyer performance.