Landowner defeats Teseo in the High Court over £1.3m conditional contract Ref. Cohen v Teseo Properties Ltd & Anor [2014] EWHC 2442 (Ch)

On 8 August 2013, the Claimant landowner (Cohen) entered into an agreement with the Defendant developer for the sale of a property in Finchley North London at the price of £1.3 million. Inserted into this agreement was the condition that final agreement was dependent on the developer securing planning permission for residential redevelopment.

The parties qualified this condition by requiring a deposit of £50,000 and by stating that the developer had until 6 January 2014 to complete the purchase, with the ability to extend that up to 9 June 2014 if it paid a sum of £8,333.33 for each month of any extension.

By January 6th the Defendant had not yet secured planning permission, but was close to doing so. Instead of applying for an extension under the terms of the agreement, they let the deadline pass. On 14th January, the Claimant then gave notice that the agreement was terminated.

A day later, the Defendant applied for an extension on the basis that they believed they could do so at any time up to the final long stop date of 9 June 2014. 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 the agreement had been extended. At the least, they argued that they should keep their deposit.

The Court noted that, despite being professionally prepared, the sale contract was badly drafted. As is typical 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.        

Lack of clarity led the Court to attempt to make sense of what the parties had originally intended and, with the contract being so poor, it was stated that the Court may depart from literal interpretation in favour of interpreting the wording with regards to business common sense.

The result was that the Court found in favour of the Claimant’s interpretation of the contract. This gave the certainty and payment up front the parties had clearly intended. If the Defendant 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 have meant that the Claimant would have had no idea where he stood after 6th January and would have been unable to seek alternative buyers.

The Court also found against the Defendant regarding the deposit. Ultimately, 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 obvious loss, it has been unable to sell the property in the interim and is entitled to retain all the benefits of the agreement.

As such, the landowner kept the deposit and was released from any further obligations to the developer. Lessons should be learnt from this case, that a well drafted agreement from a reputable firm of solicitors can pay dividends over time.

SRJ                                                                                                                                       06.08.14

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