Large development schemes can be complicated and involve many different legal documents. Additional considerations arise on mixed-use schemes, where the legal structure of the deal may be different on the commercial and residential elements. It is essential that individual phases of the scheme are not negotiated in isolation, and that the legal documents dovetail together.

In Mount Anvil Group Ltd and others v Volans Management Ltd and another, an agreement for the construction and sale of a mixed-use development was comprised in three key documents. Under the commercial agreement, the first defendant had an option to take a lease of each of the commercial units. Under the residential agreement, the second defendant agreed to take long leases in each of the flats that were to be constructed pursuant to the agreement. The final agreement was a share sale and purchase agreement (SPA), under which the first defendant would acquire the freehold of the residential units and also the commercial units. The first defendant and second defendant were related group companies. Accordingly the parties contemplated that the two associated purchasers would, between them, acquire the entire development. The purpose of the commercial agreement was to allow the first defendant to acquire an interest in individual commercial units as and when they were completed, in advance of completion of the share sale. This would enable it to market and let those units at an earlier stage.

Unfortunately the second defendant failed to make a payment required under the residential agreement, and the seller rescinded the residential agreement. The seller sought a declaration that, as a result, the commercial agreement and the SPA were also at an end. Neither the commercial agreement nor the SPA expressly provided for what was to happen in the event of the termination of the residential agreement. The case therefore turned on the interrelationship of a series of definitions used in the documents.

The first defendant conceded that the SPA had come to an end. This was because completion of the SPA was linked to legal completion under the residential agreement, which could no longer occur. However, the first defendant argued that it was still entitled to exercise its option to acquire leases of the commercial units under the commercial agreement.

The option under the commercial agreement could be exercised at any time during the option period. The option period commenced on the date of the commercial agreement and expired on the date of completion of the SPA. The seller argued that, as a result of the termination of the SPA, the option had been rendered unworkable.

The High Court agreed. While there were three separate agreements, the parties clearly saw one overall commercial transaction involving the intended transfer of the entire development. The commercial agreement was properly characterised as a right to early drawdown of the commercial units. In the absence of the SPA, there was no longer anything to draw down early against.

Things to consider

Careful consideration needs to be given at the heads of terms stage as to whether linked elements of a multi-faceted deal are co-dependent. This is particularly so in the current climate, where it is even more crucial for documents to clearly provide for what is to happen in the event of a default by one party.