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Writing - s2 of 1989 Act

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Contract

This page includes information on various matters relating to property contracts including the following:
  • Agreements by e-mail.
  • Assignment of benefit of consultant's report on sale of land.
  • Correcting mistakes by construction of documents.
  • Contract signed by agent for non-existent company
  • Rights of third parties.
  • Construction of property contracts in commercial context using common sense.
  • Development agreements.
  • Duty of seller to protect interest of the buyer.
  • Interest on purchase price.
  • Mistake.
  • Stakeholders
See also the page on s2 of the 1989 Act.


Agreement by e-mail - guarantees

Metha v J Pereira Fernandes SA
[2006] EWHC 813 (Ch)

Section 4 of the Statute of Frauds provides that
    "no action shall be brought ... whereby to charge the defendant upon any special promise to answer for the debt default or miscarriage of another person ... unless the agreement upon which such action shall be brought or some memorandum or note thereof shall be in writing and signed by the party to be charged therewith or some other person thereunto by him lawfully authorised".
The effect of a non compliance with Section 4 is that the contract is unenforceable.

In this case the defendant Mr Mehta sent an e-mail to the claimant offering a guarantee. The e-mail was not signed by the defendant but was described in the header as having come from "Nelmehta@aol.com". The judge held that the e-mail could have been capable of constituting a sufficient memorandum of the agreement but that the automatic statement in the header of the source of the e-mail was not a sufficient signature. HH Jg Pelling QC at para 27:
    "Thus, as I have already said, if a party or a party's agent sending an e-mail types his or her or his or her principal's name to the extent required or permitted by existing case law in the body of an e mail, then in my view that would be a sufficient signature for the purposes of Section 4. However that is not this case."

Assignment of benefit of consultant's report on sale of land

Technotrade Ltd v Larkstore Ltd
[2006] EWCA Civ 1079

Summary

Where a landowner assigns the benefit of a consultant's report to a buyer of the land, can the assignee recover damages from the consultant, despite the fact that the assignor has suffered no loss in relation to the report? Answer: yes, provided that the assignor could have recovered damages if it had in fact suffered the loss.

Facts

In this case, a consultant provided a site investigation report to the owner of a development site. The site was subsequently sold to a third party, and the benefit of the report (as well as the right to sue the consultant) was also assigned to the new owner. Although the report had stated that the site was satisfactory, in fact a landslip occurred after the site had been sold to the new owner. An adjoining owner whose properties had been damaged by the landslip sued the site owner, and the site owner joined the consultant to the proceedings on the basis that he had the benefit of the report.

Decision

The Court of Appeal held that the new site owner could recover substantial damages from the consultant in relation to the loss that it had suffered. The fact that the original site owner had suffered no loss in relation to the report (having sold the site to the new owner at full value) was irrelevant - if the original site owner had not sold the site, it could have recovered substantial damages from the consultant, and the new site owner could therefore do the same.

Article: "An end to the disappearing trick" by Laurie Heller, Berwin Leighton Paisner - A consideration of the case law and principles behind the liability of a contract breaker following the transfer of a property and assignment of the relevant contract following the decision in this case (Property Law Journal, 19 February 2007, p 21)


Construction of documents

In addition to the cases in this section see the important decision of the House of Lords in Chartbrook Limited v Persimmon Homes Limited
[2009] UKHL 38 and Arnold v Britton which are dealt with on the Overage page.

Conflict between plan and words of contract - plan prevailed

Smith v Royce Properties Ltd
[2001] EWCA Civ 949

Summary

This case is an example of the application of the modern principles of construction, explained by the House of Lords in Investors Compensation Scheme Ltd v West Bromwich BS (1998), in the context of a property dispute.

Facts

In the case there was a conflict between a plan and the relevant clause of an option agreement. The case concerned two parcels of land: OS 0062 (which was very large) and OS 0052 (which was very thin). The large plot was stuck behind the thin plot. On the ground it was impossible to distinguish between the two. Unless the option included the thin plot there would be no access to the large plot and the option agreement would be useless. However, the option agreement itself only referred to OS 0062.

Decision

The CA nonetheless had regard to the land registry plan which referred to both plots to contradict the clear words of the option clause. (The original plan was missing). To do otherwise would not make commercial sense. Indeed it was "inconceivable that [the parties] intended that the option should only apply to 0062". Tuckey LJ:
    "I do not think the judge's finding about the plan can stand. He should have given greater weight to the filed plan. As the only plan in existence, he should have started with the presumption that it did accurately reflect what was show on the plan attached to the conveyance, not only because it was prepared by the Land Registry, but also because that is what one would have expected it to show.

    Having therefore concluded that there was an ambiguity between the wording of the option and the plan, how should the judge have resolved it? He does not appear to have taken account of the commercial context to which I have referred. Common sense compelled the conclusion that the parties intended the option to cover the whole field. If the judge did feel compelled to decide that the wording prevailed over the plan because of the nineteenth century cases which were cited to him, I think he was mistaken. Where there is a conflict of this kind I think the modern approach is well summarised in Lewison: Interpretation of Contracts (2nd ed., 1997) at paragraph 10.07 which says:
      "Whether a plan controls a verbal description or a verbal description controls a plan is a question of construction of the particular conveyance. There is no presumption either way."
Obvious mistake - corrected by construction

Holding & Barnes plc v Hill House Hammond Ltd
[2001] EWCA Civ 1334; [2002] 2 P&CR 11.

The lease was of a whole building whereas a precedent relating to part of a building had obviously been used. This gave rise to an obvious mistake in the repairing covenant that made no sense in the context of the building. A mistake in a written instrument can be corrected as a matter of construction where it clearly is a mistake on the face of the instrument. Deleting the words that had clearly been included in error cured the mistake.

Another example

Portsmouth City Football Club v Sellar Properties (Portsmouth) Limited

[2004] EWCA Civ 760

A case concerning an option agreement where the relevant clause was construed having regard to commercial common sense applying the decision of the HL in Investors Compensation Scheme Ltd v West Bromwich Building Society.


Absence of plans - blank service charge percentage

Westvilla Properties Limited v Dow Properties Limited
[2010] EWHC 30 (Ch)

Facts

The background to the case centres around a claim for specific performance of a contract to sell Westvilla’s freehold interest in premises in Andover to the Defendant. The sale of the property was subject to the grant by the Defendant on completion of a 999 year lease of the upper parts of the property to Westvilla. The sale was also subject to a lease of the ground floor in favour of Cheltenham & Gloucester. The property was placed in an auction and whilst not sold under the hammer, the Defendant signed a contract to purchase the property in the auction room following the auction.

However after the signing of the contract, the parties attempted to renegotiate the contract largely due to the fact that the Defendant realised that the service charge provisions in the lease of the upper floors were reversed in that Westvilla as the intended tenant would be responsible for providing the services and Dow as landlord would be liable for the service charges. No agreement was concluded and Westvilla served Notice to Complete on Dow. Dow in turn purported to rescind the contract. In response to Westvilla’s claim for specific performance of the contract, Dow further sought to argue that the contract was incomplete and void for uncertainty as the intended lease attached did not include the relevant plans referred to therein, or the percentage of service charges payable by Dow.

Issues

The main issues that the court had to determine were:
  • whether the absence of plans attached to the draft intended lease made the contract void for uncertainty;

  • whether the blank service charge percentage in the draft intended lease made the contract void for uncertainty; and

  • whether, in any event, Dow validly rescinded the contract through service of a valid Notice to Complete.
Held

Firstly, in determining whether the intended contract was void for uncertainty, Vos J in his Judgment relied on Lord Hoffman’s comments in the recent case of Chartbrook v Persimmon Homes Limited [2009] in agreeing that the real question is what a reasonable person having all the background knowledge which would have been available to the parties would have understood the language in the contract to mean. The judge held that this was clearly a case where it was appropriate to construe the contract as if the intended lease included the two missing plans and that the test set out in Chartbrook was satisfied. It was clear, so he decided, what correction ought to be made in order to cure the mistake, and it would have been understood that the contract must have been referring to the plans contained in the auction pack and that any reasonable person knowing what the Defendant knew would have known that the plans were in all probability to be found in the available auction pack, as they in fact were. So this was a case where extrinsic evidence was admissible to resolve any uncertainty.

In dealing with the blank service charge percentage in the draft intended lease, Vos J once again came to the conclusion that there was little doubt from the evidence as to what Westvilla and its solicitors would have included in the draft lease had they remembered to include the figure at all. Again, the judge applied the principles summarised by Lord Hoffman in Chartbrook by concluding that where there was a clear mistake on the face of the intended lease and it was clear what correction ought to be made in order to cure the mistake, then the Court could make the correction as a matter of construction. With further reference to the decision of Neuberger J in Liverpool CC v Walton Group Plc [2001], the judge concluded that it was possible in the unusual factual matrix in Westvilla to say what must be done to correct the parties’ error. He concluded that he could say with reasonable certainty what the reasonable person with the parties knowledge would have thought the parties intended to include by way of a percentage service charge payable by the Defendant, and came to the conclusion that the relevant figure for these purposes was 36%. He concluded that this is what any commercial party would have expected where Dow was to collect the 36% payable to them by Cheltenham & Gloucester and where Westvilla was obviously to pay its share for the upper floors.

The Court therefore came to the conclusion that it was in a position to fill in the blank in the lease. Vos J acknowledged that the situations in which the Court will be able to fulfil this task will undoubtedly be limited and that the facts of this case were unusual, but he was able to state with reasonable certainty on the basis of the remaining terms of the contract and the surrounding factual matrix including the auction pack and the commercial realities of the transaction, that the required correction was clear.

In light of the above, the Court held that the contract was not void of uncertainty as a result of either the omission of the plans or the omission of the service charge percentage. The Court further found in Westvilla’s favour in determining that Dow were not “ready, willing and able to complete” on the terms of the contract signed and the intended lease attached to that contract, and that Dow was not therefore entitled to rescind the contract when it purported to do so.

Comment

The decision in this case again shows the Court’s reluctance to find contracts void for uncertainty where it believes that it is capable to construe what the parties would have understood the position to be in the absence of the missing information from the contract - in this case being the plans and service charge percentage, and consideration of the factual matrix in construing contracts in line with the decision in Chartbrook. The case also shows the need for parties to be ready willing and able to complete when relying on a Notice to Complete a contract.

This case report has kindly been provided by Jeremy Harris, the Head of Property Litigation at Solomon Taylor & Shaw, who were the solicitors for Westvilla Properties Limited.

(See also Mistake below).


Contracts (Rights of Third Parties) Act 1999

Avraamides v Colwill
[2006] EWCA Civ 1533

This is a Court of Appeal case, the first one to be decided under the Contracts (Rights of Third Parties) Act 1999. The respondents entered into a contract for the refurbishment of two bathrooms with a company. The work was not carried out properly, and the respondents sought to hold the appellants liable for the faulty work, as the company itself had no assets. The appellants had purchased the assets of the company, and agreed, in a contract made between the shareholders of the company and the appellants, to complete outstanding customer orders and to pay accrued liabilities of the company. The respondents sought to rely on the provisions of that contract under the 1999 Act, on the basis that they were customers of the company to whom accrued liabilities were owed.

Section 1(3) of the 1999 Act makes it clear that, in order to rely on the Act, a party must be "expressly identified in the contract by name, as a member of a class or as answering a particular description". There was no express identification of the respondents in the contract between the shareholders of the company and the appellants, and accordingly the respondents could not rely on the 1999 Act. (See in particular paras 18 and 19 of the judgment).


Contract signed by agent for (non-existent) company

Braymist Ltd v Wise Finance Co. Ltd
[2002] EWCA Civ 127.

Solicitors acting as agent for a company that had not yet been formed signed a contract to sell a parcel of land. When the purchaser failed to complete they served a notice to complete, subsequently rescinded, forfeited the deposit and claimed damages. The purchaser defended the claim and sought recovery of the deposit on the ground that no valid contract had been made.

By virtue of s36C(1) of the Companies Act 1985 the contract, having been made on behalf of an unincorporated company, took effect as a contract with the agent. The CA held that there was no common law bar to the solicitors enforcing the contract and, for the purposes of s2 of the Law of Property (Miscellaneous) Act 1989, they could be properly treated as having signed the agreement on their own behalf even though they had signed as agents on behalf of the unincorporated entity.


Development agreements

Berkeley Community Villages Ltd v Pullen
[2007] EWHC 1330 (Ch)

Summary

A High Court injunction was granted preventing a land owner from reneging on a deal with a developer by selling the land to a third party after the developer had done a large amount of work. The case demonstrates, yet again, the importance of careful and precise drafting where complex, non-standard agreements are concerned.

Facts

The Defendants owned an 840 acre farm in Ashford. In 2003, they entered into an agreement with a developer (the Claimant) whereby the Claimant would seek to obtain planning permission for the development of 520 acres of the farm and, following the grant of such planning permission and on a subsequent sale of the farm, the Claimant would receive a substantial sum of money.

The agreement continued until 2016 unless determined by the Claimant on notice, or unless otherwise terminated in certain specified circumstances. It did not contain an express clause preventing the Defendants from selling the land whilst the agreement was still in force despite the fact that the agreement was not binding on successors in title to the Defendants' interest. However, it did contain a good faith clause, as well as obligations on the Defendants to co-operate and use reasonable endeavours to promote the land so as to achieve planning consent, to assist the Claimant, and not to do anything that could directly prejudice the Claimant from obtaining planning consent.

After the Claimant had done a great deal of work in relation to the land and its planning potential, the Defendants wanted to sell to a buyer who had offered a price of £35M. The Claimant sought (and was granted) an interim injunction, preventing the sale of the land.

The decision

Morgan J. held that the agreement would not bind a purchaser of the land from the Defendants. The prospects of obtaining planning permission would be reduced if the Defendants were not in a position to enter into Section 106 agreements, as provided for in the agreement. The Defendants would therefore be placed in breach of their obligations to co-operate with the Claimant, and in breach of their good faith obligation. Accordingly, he held that the proposed sale of the land would be a breach of the Defendants' obligations in the agreement. The judge also found powerful arguments in favour of an implied term that the Defendants would not sell their land until the provisions of the agreement had been satisfied.


Duty of seller to protect interest of the buyer

Englewood Properties Ltd v Patel
[2005] EWHC 128

It is well established that after contract, and until completion, the vendor becomes in equity a trustee for the purchaser of the property (para 40). The duty is to look after the property and covers such things as (eg) a duty to take reasonable care of the property and to see that its condition does not deteriorate between contract and completion. In the case of leasehold property the duty extends to a requirement to take care not to take steps that may result in forfeiture (paras 48 and 51). All the cases can be regarded as falling into the category of imposing a duty to preserve the property in its state as at the time of the contract. The reason is that equity imposes duties upon the vendor to protect, pending completion, the interest that the purchaser has acquired under the contract (para 54).

In this case the purchaser sought to argue that the vendor was under a duty to impose restrictive covenants on purchasers of adjoining properties. The argument was rejected. Such a duty will only arise if it imposed by the contract of sale of the property in question.


Fixtures

Article: "When you're getting less than you bargained for" by Laurie Heller - A very useful article explaining the difference between fixtures and chattels. (Property Law Journal, 30 May 2006, p19).


Interest on purchase price

P&O Overseas Holdings Ltd v Rhys Braintree Ltd
[2002] EWCA Civ 296.

Interest on the balance of the purchase price accrued in the vendors favour from the contractual date for completion even though it had not yet been registered as proprietor of the land. This was because it was capable of transferring the title pursuant to s37 of the Land Registration Act 1925.


Mistake

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd
[2002] EWCA Civ 1407

In this case the CA abolished the equitable doctrine of common mistake. Solle v Butcher [1950] 1 KB 671, one of Lord Dennings great forays into justice, was overturned as being inconsistent with Bell v Lever Brothers Ltd [1932] AC 161. Where a contract is valid and enforceable on ordinary principles of contract law there is no jurisdiction to rescind the contract on the ground of common mistake.


Stakeholders

Gribbon v Lutton
[2001] EWCA Civ 1956

A decision in in which the vendor threatened to break off negotiations unless the purchaser paid a deposit of £21,600. The basic position was explained by Laddie at para 12:
    "Since the tripartite contract does not define entitlement between vendor and purchaser but responds to an entitlement determined elsewhere, what happens in a case where the deposit is paid by the purchaser to the stakeholder in advance of there being any enforceable contract between him and the vendor? Prima facie, since it is the purchaser's money and the vendor has no legal entitlement to it, the purchaser can demand its return to him at any time in advance of an enforceable vendor/purchaser contract being put in place. Thus if there is an unenforceable promise by the purchaser to pay a sum of money to the vendor, the vendor acquires no legal entitlement to it and the fact that the sum may have been paid to a stakeholder does not create an entitlement to it. The stakeholder can and must respond to a demand for repayment by the purchaser. The tripartite agreement does not alter who is and who is not entitled to the deposit."
See also para 14 of the judgment.

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