A developing problem
Author: Gavin LeChat and Peter Williams
Applies to: England and Wales
The High Court awards a landowner £3.7million as compensation for lost profit on a development.
Development agreements require a close degree of co-operation between the parties to ensure that a development can proceed as intended. When that co-operation breaks down, the consequences can be costly. This was illustrated in the recent case of Minerva (Wandsworth) Ltd v Greenland Ram (London) Ltd.
Minerva had secured planning permission for a residential development of an area known as the Ram Brewery in Wandsworth. It sold the development site to Greenland. The sale agreement included overage provisions giving Minerva the right to an additional payment if it could obtain an enhanced planning permission that it was discussing with the local authority. Greenland imposed a tight timetable in the sale agreement for Minerva to obtain that planning permission. The sale agreement obliged Minerva to consult with Greenland about the terms of the planning application, for Minerva to use reasonable endeavours to minimise the requirement for affordable housing and for Greenland to enter into any planning agreement required to secure the grant of planning permission.
Co-operation between the parties broke down over the impact of changes to the development required to secure the enhanced planning permission. Minerva sought consent from Greenland to making the planning application (initially by e-mail) and then by letter. Greenland indicated that it would need at least four weeks to consider the issues. However the sale agreement required Greenland to refuse consent - if it was to do so - within ten days of the request being made. As such, the court held that Minerva was entitled to make the planning application without waiting for Greenland's consent. As a side note, the court said that the initial application for consent by e-mail was a valid consent.
The local authority resolved to grant the enhanced planning permission. But, in order to secure this, a new planning agreement was required. Greenland refused to enter into the planning agreement. As a result, the resolution to grant planning permission lapsed and Minerva lost the opportunity to receive an overage payment of £3.7 million.
Greenland argued that Minerva had breached its obligations to consult with it about the planning agreement and had not used reasonable endeavours to minimise the requirement for affordable housing. In addition, Greenland claimed that the new planning agreement did not satisfy the requirement in the sale agreement of being proportionately no more onerous than the existing planning agreement.
The court rejected Greenland's arguments and awarded Minerva damages of £3.7 million. Considering all of the evidence and, in particular, the expert evidence, the court concluded that Minerva had used reasonable endeavours to minimise the requirement for social housing and that the terms of the new planning agreement were not proportionately more onerous than the existing agreement. Even if Minerva had not consulted as fully with Greenland as it might have done, this did not give Greenland the right to refuse to enter into the planning agreement.
In relation to reasonable endeavours, the court held that the test was what a reasonable and prudent person acting properly in their own commercial interest and applying their minds to their contractual obligations would have done. If evidence showed that a particular action would have been useless, the court should be extremely reluctant to find it was unreasonable for a party not to have taken that action.
In this case, the preponderance of the expert evidence was that Minerva had done all that was reasonable given the tight timetable for obtaining the enhanced planning permission. Greenland could not point to specific alleged breaches of Minerva's obligation to minimise the requirement for affordable housing. In all the circumstances, Greenland had wrongfully prevented Minerva obtaining the overage to which it was entitled and was therefore liable for the £3.7 million lost by Minerva.
This case is unusual in two ways. First, where it has been agreed that overage will be payable if an enhanced planning consent is obtained, it is usually the buyer who makes the application for consent rather than (as in this case) the seller. This could account for the apparent reluctance on the part of the buyer to approve the seller's planning application within a very short period.
Secondly, cases involving development agreements tend to revolve around gaps or ambiguities in the drafting. In this case, the terms of the sale agreement covered all of the issues - and indeed the seller was fortunate to have been able to include the specific provision that a party's failure to respond within ten days was to be treated as a deemed consent.
This document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.