Seller entitled to overage payment on housing development
Published: 17 November 2017
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.