Cohen v Teseo Properties Limited

 

The Message

Developers can suffer from badly drafted agreements.

The Case

The Court has held that a landowner was entitled to terminate a sale contract and keep all the benefits.

On 8 August 2013, the Claimant landowner entered into an agreement with the Defendant developer for the sale of a property in Finchley North London for a price of £1.3 million. The agreement was conditional on the Defendant securing planning permission for residential redevelopment.

The Defendant paid a deposit of £50,000 and it had until 6 January 2014 to complete the purchase but it could extend this date up to 9 June 2014 if it paid a sum of £8,333.33 for each month of any extension.

By 6 January 2014, the Defendant was close to securing, but had not yet secured, planning permission. Although it had the funds, it took no steps by that date to either complete the purchase or seek an extension of time. It simply let the date pass and, on 14 January 2014, the Claimant gave notice that the agreement was terminated.

On 15 January 2014, the Defendant applied for an extension of time on the basis that it could do so at any time up to the final long stop date of 9 June 2014 but the Claimant argued that there was no right to make a retrospective application and to pay the monthly additional sums at a later date. Absent an application to extend time by 6 January 2014, the Claimant argued the agreement terminated automatically on that date.

As planning permission was granted in February 2014, the Claimant stood to gain the full benefit of this permission, and to forfeit the £50,000 deposit, if it was correct that the agreement was at an end. The Defendant argued this would be unfair and the Court should strive to interpret the agreement to avoid such an outcome or, at least, allow the Defendant to keep its deposit.

The Court noted that, despite being professionally prepared, the sale contract was badly drafted. As is usual in conditional contracts of this nature, it contained complicated definitions and provisions but the inter-relationship between the provisions for extensions of time and termination were not clear and various provisions used the wrong tense or could be interpreted in different ways.

The Court had to try to make sense as to what the parties actually had intended. In this respect, the Court was not helped by there being 2 instances where necessary cross-references were omitted as no one had noticed that the words “Error! Reference source not found” appeared instead.

The Court held that, if the drafting of an agreement is particularly poor, the Court has more freedom to not give the words used a literal meaning but to seek instead to interpret the wording with regard to business common sense.

The Court had no difficulty in finding for the Claimant’s interpretation as this gave the certainty and payment up front the parties had clearly intended. If the Defendant needed and wanted further time, it had to not only ask for this in good time so the parties knew where they stood but pay £8,333.33 per month in advance as the price for this additional time. The Court found that the Defendant’s argument that it could apply retrospectively would mean the Claimant would not know where it stood from 6 January 2014 until the Defendant applied for any extension, and the Defendant could wait to see if it secured planning before seeking and paying for any extension.

The Court also found against the Defendant regarding the deposit. In a contract of this nature, there has to be something exceptional for a deposit to be repayable as the purchaser pays this sum to secure the right to seek to develop the property and clearly knows there is a risk that it may not secure planning permission in time to do so. Even if the landowner suffers no loss, it has been unable to sell the property in the interim and is entitled to retain all the benefits of the agreement.

Summing Up

Developers need to understand time limits and that their deposits are at risk if they miss them.

The Court will seek to give commercial sense to agreements, particularly where they are badly drafted.