Escaping contracts due to trivial breach
The recession has spawned a crop of cases where parties have attempted to escape from contracts to buy overvalued properties, take expensive leases or get out of other types of contracts that have become unfavourable, uneconomic or inconvenient!
Most of these claims have relied on alleged breaches of contract or misrepresentation by the other party.
By and large, most of these brave attempts have failed – the cases show that the courts will not allow one party to get out of a contract for relatively minor or trivial breaches by the other party.
A recent case involved an option to purchase the freehold in favour of a developer with a simultaneous leaseback of the commercial parts of the development. The developer exercised the option together with the grant of the lease back to the freeholder. The freeholder refused to complete because the electrical transformer which was to serve the new development was installed in the opposite chamber to that envisaged at the time the contract was entered into and claimed that vacant possession of the correct premises was not being given. The developer had offered the other chamber (which was empty) and the area in question was a tiny fraction of the commercial part of the development.
The freeholder argued that it was not being given vacant possession of the chamber in which the transformer was then installed resulting in a breach of an essential term. On that basis the freeholder argued that the developer should not be entitled to an order for specific performance – an order by the court to compel a party to perform its contractual obligation. The High Court rejected this argument and ordered the freeholder to complete because the freeholder had not been deprived of the substance of its bargain
This case is interesting because even though the developer did not provide exactly what it had contracted to do, the court still found in its favour. Of course, the best practice must always be to clearly document and agree any deviations before completion. The alternative may be expensive litigation.
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