Cohen v Teseo Properties Limited

Developers often enter into agreements to purchase development land which are conditional upon the grant of planning permission. The case of Cohen v Teseo Properties Limited is a reminder to developers and their advisers that deposits and development opportunities will be lost if agreements are poorly drafted and if time limits are not complied with. Please see below the relevant facts and dates.

On 8th August 2013, the Developer entered into a conditional agreement to purchase a property at 136-144 Granville Road for £1.3m. There were two conditions. The first condition was the receipt of a clear local search. The second condition was the grant of a satisfactory planning permission. A deposit of £50,000 was paid on exchange of contracts and the deposit was non-refundable.

The agreement contained the usual obligations on the part of the developer to

· Submit a planning application
· Use reasonable endeavours to obtain planning permission
· Keep the seller fully informed
· Notify the seller of any planning decisions and planning appeals.

The agreement provided planning permission had to be obtained by the long stop date which was 6th January 2014 failing which either party could terminate the agreement. However, the developer could extend the long stop date up to 9 June 2014 by giving notice before 6th January 2014, and by paying £8333.33 for each month of any extension.

The developer made the planning application and made significant progress towards the grant of planning permission.

On 31 December 2013, the solicitors for the seller sent an email to the developer’s solicitors to ask for an update on the developer’s application for planning permission and to inquire whether completion was likely to take place the following month.

For reasons not explained in the judgement, there was no response.

The following events then took place

6 January 2014
Long stop date
12 January 2014
The Seller’s solicitors emailed developer’s solicitor noting the long stop date had passed without any developer request for an extension
13 January 2014
The Developer contacted seller directly stating developer wished to extend the contract
14 January 2014
The Seller’s solicitor declined to extend the long stop date and stated that the seller regarded the contract as having been terminated
15 January 2014
The Developer gave written notice requesting an extension of time and offering to pay the appropriate sum.

The seller challenged the validity of the notice and claimed the contract had terminated
February 2014
Planning permission was granted.

Since planning permission had been granted, if the seller was right, he stood to gain from the benefit of the planning permission and the forfeited deposit.

The developer in the proceedings sought to argue it was entitled to extend the contract at any time after the long stop date but before the 9th June. The developer also argued it would be unfair to allow the seller to gain this windfall. In the alternative, the developer argued that if he was out of time in extending the contract, the court should award the return of the deposit – not least to cover the costs of obtaining the planning permission.

The court noted that although the agreement was drafted by professionals, the drafting was poor. Consequently, it decided that in the context of a poorly drafted agreement such at this, an interpretation indicated by business common sense would prevail over any contrary literal interpretation.

Using this approach, the court held the contract had terminated on the initial long stop date of 6th January 2014 because the developer had not sought an extension of time before such date. The Court held the parties needed certainty of knowing in the absence of an extension, the contract had terminated on 6th January 2014. Any other approach, said the Court, would radically undermine the commercial bargain, leaving the seller subject to the basic obligation to sell according to an open ended and uncertain “reasonable time” period, and without an obligation on the part of the Developer to pay for that extension.

The court also decided that, in the circumstances, there was no exceptional reason why the seller should not be entitled to retain the deposit.

In conclusion, developers must understand and adhere to time limits and mistakes will not be corrected retrospectively. The Courts will always try to interpret contracts so that they make commercial sense.

Prince Evans Solicitors