A developer in breach of an overage agreement was liable for damages on a negotiating basis even though no overage was due.
In Burrows Investments Ltd v Ward Homes Ltd, a dispute arose over an overage agreement made in 2007, which related to land in East Sussex.
Ward, a developer, bought land from Burrows and agreed to make an overage payment to Burrows on completion of the development if the aggregate proceeds of sale exceeded a certain sum per square foot.
No dispositions were permitted during the overage period without the overage requirement being passed on to the buyer. Some specific exceptions were permitted - these being of a nature unlikely to have any adverse effect on the calculation of Burrows' entitlement to overage - and so they could be transferred free of it. One category of 'Permitted Disposal' was of particular significance. This was paragraph (c): 'the transfer/dedication/lease of land for the site of an electricity sub-station gas governor kiosk sewage pumping station and the like or for roads footpaths public open space or other social/community purposes.'
In the later stages of the development, Ward applied for a revised planning consent and this was granted. In return, Ward was required to make five units of affordable housing available to a registered provider.
Ward initially took the view that the sale of those units at cost price would not be a Permitted Disposal and it began negotiations with Burrows about the terms on which Burrows would be prepared to approve the transaction. However, before any agreement was reached, Ward completed the sale of the units to a social housing provider. When Burrows heard of the disposal, it sought a declaration that Ward had acted in breach of contract and sought damages.
The High Court held that the provision of affordable housing achieved an important social purpose and so fell within paragraph (c). Burrows appealed to the Court of Appeal, which disagreed: the sale of the affordable units did not fall within paragraph (c) and so it was not a Permitted Disposal.
The Court of Appeal reasoned that it would be very strange to describe the transfer of a completed dwelling as a transfer of land, particularly taking into account the specific transfers of land which were itemised in paragraph (c) e.g. a transfer of land for a sub-station or a footpath. Land transferred for any of the purposes described in paragraph (c) was unlikely to have any buildings on it at the transfer date and the words 'or other social/community purpose' had to be read in the light of the specified purposes preceding them.
Therefore, the wording of paragraph (c) simply did not cover the disposal of a completed unit of affordable housing to a registered social landlord. Ward should have negotiated with Burrows for the release of the restriction if it wanted to complete the development of the site in accordance with the new planning permission.
Burrows suffered no actual loss in this case because it turned out that no overage payment was due under the sale agreement. However, Burrows was successful in its claim for damages on a 'negotiating basis': it had lost the opportunity to negotiate a price with the developer for permitting it to transfer the five units to the social landlord free of the overage obligation. The court agreed that this was a potentially valuable piece of property and so damages should be available for breach of the agreement. The parties were left to agree the amount of the damages, or to return to the court if necessary.
The court's reasoning demonstrates that it is unlikely to be willing to stretch the meaning of an agreement to cover a situation that might have been within the contemplation of the parties, but which they did not adequately address.
The court employed the well-known principle of construction called eiusdem generis. Essentially, this means that where a general phrase follows a specific list of examples in a contract, the phrase will be interpreted as being limited to other examples of the same type. So the words 'social and community purpose' had to be read in the light of the earlier part of the clause, suggesting in this case, that social and/or community purposes which the parties had in mind were akin to the provision of land for roads, footpaths or public open spaces.
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.