Seller entitled to overage payment on housing development

Published: 17 November 2017

Category: News

Contracts should always specify the precise details of the terms and conditions relating to payments, duties, timescale etc.

However, sometimes the courts can rule that a term is implied in an agreement even though it hasn’t been put in writing, as happened in a recent case involving the sale of land.

The seller gave a property developer an option to buy some land on condition that he used all reasonable endeavours to obtain planning permission for the development of eight houses.

Once obtained, the buyer could exercise the option. If it was exercised and the sale completed, the buyer had to "proceed as soon as practicable" to construct the development. The purchase price was £500,000 plus overage for the sale of each home.

Overage related to the potential increase in value from various factors such as rising property values that might occur in the years between the agreement being signed and development being completed.

The buyer obtained the relevant permissions and built eight houses. He then let seven of them and occupied one himself. He claimed that, in the absence of an express term, he was not obliged to sell any of the new houses until it suited him to do so.

This would have left the seller without the overage payment.

The court found in favour of the seller. The key factor was the agreement whereby the buyer was obliged to use all reasonable endeavours to obtain planning permission and then proceed "as soon as practicable" to construct the development.

These obligations were clearly premised on the need to get on with the development as quickly as possible. It was therefore reasonable to imply a clause in the agreement to the effect that the buyer was obliged to sell each house within a reasonable time of planning permission being obtained.

Please contact Matthew Sigsworth in our Dispute Resolution Team if you would like more information about the issues raised in this article or any aspect of contract law.