The court has recently considered whether a term requiring the sale of dwellings subject to overage should be implied into an option agreement.
The seller granted an option to the buyer to purchase the seller’s land. It provided that the buyer should, during the three year option term, use reasonable endeavours to obtain planning permission for 8 dwellings to be constructed on the land. If the buyer was successful in obtaining the planning permission during the option term, the buyer would then be permitted to exercise the option and purchase the land. The option agreement further provided that if the buyer exercised the option they should construct the 8 dwellings as soon as practicable.
The purchase price was subsequently agreed by way of a supplemental agreement to the original option agreement. The purchase price was to be £500,000 plus overage upon the sale of each of the 8 dwellings.
However, the option agreement did not specifically provide an express obligation upon the buyer to sell each of the dwellings as soon as possible or within a reasonable or set amount of time. The buyer therefore let 7 of the dwellings on short term tenancies and resided in one of the dwellings himself. The buyer argued he was not obliged to sell any of the dwellings and so trigger the overage under the terms of the option agreement. Whereas, the seller understandably had thought that the purpose of the option agreement was to lead to the eventual sale of the dwellings and the trigger of the overage payments for each.
The court decided that there must be an implied term in the option agreement that the buyer must sell the dwellings within a reasonable time. Without the term being implied, it would have been difficult to see why the buyer was initially under an obligation to obtain the planning permission and then construct the dwellings as soon as possible. The court applied the principle of business efficacy to the case and determined that without the implied term the agreement would lack practical or commercial coherence.
This is an interesting illustration of the courts implying a term into a document even where both parties were professionally represented, as usually the courts will not rescue a party from a “bad bargain”. However it goes without saying that people should not seek to rely on this case except as a final resort; and properly drafted agreement would have saved all parties much time and cost.
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