The recent case of Ruven Cohen v Teseo Properties Limited highlights the risks to developer buyers of unclear terms in contracts.
The claimant developer entered into a contract to buy a property, conditional on obtaining planning permission to undertake residential development.
The contract provided for a longstop date of 6 January (when the contract would terminate) if no satisfactory planning had been obtained. However, with drafting that may keep professional support lawyers awake at night, the contract allowed the developer the option of extending the longstop date up to June with the developer paying around £8,000 per month.
By 6 January, no satisfactory planning permission had been obtained and, a couple of weeks later, the developer sought an extension of time. The developer thought the contract would be revived by a request for an extension of time made after 6 January. The court thought otherwise. The seller was entitled to treat the contract as having come to an end, keep the initial deposit and keep the planning permission that was granted shortly after 6 January.
The overwhelming point to be taken from the court’s decision is that the courts will interpret contracts so that they make business commercial sense, taking into account the parties’ intentions at the time of the contract. Even if there is a conflict between the literal language of a contract and a business common sense interpretation, common sense prevails. It would be uncommercial for a contract to leave a seller in a state of limbo, unable to sell a property to a third party in case the developer revived the contract. Conditional contracts by their very nature are complex documents because parties want certainty as to when their obligations will end and therefore, having gone through the effort of creating such a contract would not intend for their obligations to be so open ended.
When looking at conditional contracts with complex provisions, it is essential to stress test clauses to understand how they stand up to certain situations and whether they are commercially viable.
Please click here for the full judgment.
by William Leney, Property Dispute Resolution Team, Trainee Solicitor