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Reasonable endeavours


Conditional contract

Reasonable endeavours - s106 agreement

Yewbelle Limited v. London Green Developments Limited
[2007] EWCA Civ 475

Facts

This case concerned a sale contract that contained the following clause:
    "The Seller will use all reasonable endeavours by completion to obtain the completed section 106 agreement and the Buyer will not be bound to complete until the section 106 agreement has been obtained by the Seller..."
The seller failed to obtain the s106 agreement, due in part to the fact that third party land was required. It then sought a declaration that the contract had been discharged because the s106 agreement had not been completed (arguing that a term should be implied into the contract that the contract would be discharged automatically if the s106 agreement could not be obtained within a reasonable time, if the seller had used its reasonable endeavours), whilst the buyer counter-claimed for specific performance of the sale contract.

The decision

Both at first instance, and in the Court of Appeal, it was held that the implied term sought by the seller was not required; the only term needing to be implied was that the seller had to inform the buyer at the end of a reasonable period that the s106 agreement had not been obtained, and give the buyer the opportunity to waive satisfaction of the condition.

At first instance, Lewison J held that the seller had not in fact fulfilled its obligation to use reasonable endeavours, and accordingly granted the buyer specific performance of the contract. By a majority, the Court of Appeal disagreed with this decision, holding that the seller had fulfilled its obligations to use reasonable endeavours, and stating that the contract had come to an end by the time the buyer stated that it was willing to complete notwithstanding the absence of the s106 agreement. The Court of Appeal therefore allowed the appeal to this extent.

Comment

The moral of this case is: Take particular care when drafting complex contracts. If the parties intend that the contract should be subject to a pre-condition, and that the sale and purchase should not be completed unless and until that pre-condition is satisfied, this should be expressly stated in the wording of the contract. A mere obligation on the part of the seller, and a right for the buyer to decline to complete if that obligation is not performed, will not create a conditional contract.

Further, the meaning of "reasonable endeavours" should always be clarified in a contract by setting out detailed obligations with which the relevant party must comply.


Damages claim

Reasonable endeavours to obtain planning permission - overage - trigger date not achieved

Gaia Ventures Limited v Abbeygate Helical (Leisure Plaza) Limited
[2018] EWHC 118 (Ch)

Summary

The trigger date for payment of overage occurred just after the longstop date, so that no overage was payable. The Court awarded damages to the seller’s successor in title, holding that the failure to achieve the trigger date before the longstop date was due to the purchaser not having used reasonable endeavours to achieve various property transactions as soon as reasonably practicable.

Facts

The case concerned an overage clause in a 2003 transfer of a long lease of a commercial property in Milton Keynes which provided that within 10 days of a ‘Trigger Date’ an ‘Additional Payment’ of £1.4M would be due (“the Overage Provision”).

The Trigger Date would occur upon the grant of satisfactory planning permission, subject to Abbeygate having obtained the necessary variations of (or the vesting in itself and merger of) various leases so that the development permitted by the planning permission could take place. The Trigger Date was subject to a 10-year longstop provision.

Abbeygate covenanted to “use its reasonable endeavours to obtain” the planning permission and there was also an obligation on Abbeygate to “as soon as it considers strategically advisable (taking into account the requirement to obtain an Acceptable Planning Permission) commence and thereafter use reasonable endeavours to negotiate and agree with the parties entitled to the reversions…the [necessary] variations…as soon as reasonably practicable”.

The development process for the site was complex, involving two planning permissions, the second of which was amended more than once. Eventually, a satisfactory planning permission was obtained and Abbeygate also reached agreement to acquire the superior leasehold reversion and some further land.

Abbeygate had considerable influence over when and in what order conditions in the various agreements were satisfied so that they could control the onward transactions to ensure that the end transaction (acquisition of the supermarket within the development by an institutional investor) funded all of the transactions. However, there was a tension between the flexibility that Abbeygate had obtained via these conditions and their obligations to use "reasonable endeavours" to achieve particular outcomes "as soon as reasonably practicable” as part of the Overage Provision. In fact, completion of the transactions (and the conditions required to fulfil the Overage Provision) did not occur until 4 days after the Longstop Date.

Issues

Gaia alleged that Abbeygate had failed to use reasonable endeavours, particularly in relation to the last few months leading up to the Longstop Date.

Decision

Norris J identified no fewer than seven issues which he had to determine to see whether Gaia’s claim should succeed, six of which turned on questions of interpretation, particularly as to ‘reasonable endeavours’ and ‘as soon as reasonably practicable’.

He found that Abbeygate did not in the last months leading up to the Longstop Date make reasonable endeavours to achieve as soon as reasonably practicable the variations in the property interests required by the Overage Provision; and that if reasonable steps had been taken as soon as reasonably practicable, all necessary property interests would have been in hand sufficiently early for the Trigger Date to fall before the Longstop Date. He held that Gaia was entitled to damages in the sum of £1.4M (plus interest).
    “The simple truth is that what lay behind this approach was not a desire to take steps as soon as reasonably practicable but a desire to leave things as late as possible to ensure that the [supermarket agreement] remained conditional until funds were released by [the institutional investor]. If matters had been driven by a desire to do things as soon as reasonably practicable it is highly probable that by mid-February a specifically enforceable agreement for a variation (and it is probable that a completed Deed of Variation) would have been in place.
    For these reasons I find and hold that Abbeygate did not after 31 October 2012 make reasonable endeavours to achieve as soon as reasonably practicable the variations in the property interests contemplated by…[the] Overage Provision…. I further find and hold that if reasonable steps had been taken as soon as reasonably practicable all necessary property interests would have been in hand (in accordance with…the Overage Provision) …[so that] the Trigger Date would have fallen at a time that entitled Gaia to claim the overage payment. I therefore hold that Gaia is entitled to damages in the sum of £1.4 million.” (Paras 109 and 110)
Norris J stated that:
    “the "purpose [of the Overage Provision] does not matter. Whatever the reason for entering the overage covenant (and each side may have had a different reason) it is the legal obligation itself ("the Overage Provision") which must be given effect.”
Comment

Although the case turned on its own facts, the long and complex judgment illustrates the difficulty of interpreting what is meant by using reasonable endeavours in a complex development situation. The case also shows the problems that will result where a party which may be required to make an overage payment has substantial control over the achievement (or otherwise) of the trigger for payment of that overage. As Norris J. said in the first paragraph of his judgment: “How hard do you have to work to make yourself liable to pay £1.4 million?”

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