Overage – Case review

Commercial Property | 23rd March 2018

Burrows Investments v Ward Homes – Damages for ‘hypothetical bargain’

In this case, a developer in breach of an overage agreement has been held liable for damages on a negotiating basis even though no overage was due.

It was not in dispute that no overage would have fallen to be paid as the price did not exceed the development threshold. Burrows could not have claimed damages for the overage, as there would have been no overage payable. It therefore claimed damages of “negotiation damages” – what Ward would have paid to release the restrictions on disposal.

Ward had transferred 5 properties in breach of an express term of the Agreement. Burrows had a legitimate expectation that Ward would not breach the terms of that agreement. The Court held that Burrows was not seeking to extract a ransom from Ward but merely to be compensated for the loss of the opportunity to negotiate a reasonable price for releasing Ward from its obligations. The benefit of the contractual restriction was a potentially valuable piece of property in its own right and Burrows was deprived of the opportunity to exploit it be Ward’s action.

The actual amount of damages to be paid is still to be determined.

Negotiation damages can be claimed for a release from contractual obligations even where there would be no conventional loss from a breach of those obligations. It is likely that the amount or lack of conventional loss would have a bearing on the appropriate value of damages.

Sparks v Biden – Stating the obvious!

A recent High Court ruling emphasises that courts are usually reluctant to allow developers to escape liability to make an overage payment purely on the basis of a technicality.

Biden obtained planning permission for 8 houses, exercised the option to acquire Sparks’ land and built the houses. Instead of selling them, he let out seven on assured shorthold tenancies and moved into the eighth one himself. Biden claimed he was not obliged to sell any of the houses unless and until he decided to do so.  As a result the obligation to pay overage could be delayed indefinitely.

Sparks argued that a term should be implied into the option agreement requiring Biden to market and sell the houses as soon as was reasonably practicable.

As was demonstrated by the Marks & Spencer Plc case (2015), the court will not usually imply terms if a contract does not provide for what is to happen in particular circumstances. There are, however, cases where the Court will imply a term – where it is necessary to give business efficacy to the contract or it is so obvious that it “goes without saying”.

In this case, the court held in favour of Sparks. The clause was necessary as a matter of business efficacy and without it the option agreement lacked practical or commercial coherence and that the clause was so obvious it “went without saying”.

Every case will turn on its own facts. From a landowner’s perspective, it would be best to put the matter beyond doubt and include an express term to cover the possibility that a developer may try to avoid triggering a sales-based overage payment by the simple expedient of not selling the properties.

This case does indicate that the courts are generally reluctant to allow developers to escape liability purely on the basis of a pure technicality.

Very often there is an imbalance between the parties – on the one hand an experienced developer and on the other a retiree hoping to maximise his pension pot. The courts certainly appear unwilling to support developer’s sharp practices.

 

For more advice on Overage contact the commercial property team at Hart Brown who will be delighted to assist.

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Tamzin Mandelli

Associate, Commercial Property

Prior to joining Hart Brown, Tamzin has worked in a wide variety of firms such as for a local authority, for regional and national firms, as well as r...