London & Ilford Ltd v Sovereign Property Holdings Ltd
| Jurisdiction | England & Wales |
| Judge | Lady Justice Asplin,Lord Justice David Richards |
| Judgment Date | 10 July 2018 |
| Neutral Citation | [2018] EWCA Civ 1618 |
| Docket Number | Case No: A3/2017/2064 |
| Court | Court of Appeal (Civil Division) |
| Date | 10 July 2018 |
[2018] EWCA Civ 1618
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Mr Justice Warren
[2017] EWHC 1773 (Ch)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice David Richards
and
Lady Justice Asplin
Case No: A3/2017/2064
Gregory Banner QC (instructed by Wallace LLP) for the Appellant
Andrew Myers (instructed by Stephenson Harwood LLP) for the Respondent
Hearing date: 9 May 2018
Judgment Approved
Lincoln & Ilford Limited (L&I) appeals, with permission granted by Gloster LJ, against an order for summary judgment for £750,000 and interest made by Warren J. He held the sum to be due under an overage agreement that formed part of the terms on which L&I purchased a property known as Arodene House, Perth Road, Ilford, London (the Property) from the respondent Sovereign Property Holdings Limited (Sovereign).
The Property comprises a total of eight floors. The ground floor is occupied by retail outlets and a restaurant (Kanchans) which also occupies part of the first floor. The rest of the building had prior to the purchase been used as office space, except for one flat on the seventh floor. The intention of L&I in purchasing the Property was to redevelop the office space as residential units. The consideration for the purchase was a payment of £7,350,000 and the obligations undertaken under the overage agreement. A draft overage agreement was annexed to the sale contract dated 16 March 2016, which provided for the parties to enter into an agreement in that form on completion. The overage agreement was duly made by the parties, but subject to amendments contained in a deed of variation executed on the same day.
The issue before Warren J, and on this appeal, is purely one of construction of the relevant provisions of the overage agreement (the OA) as amended by the deed of variation (the DoV) (together the Amended OA).
Sovereign's claim for the sum of £750,000 arises under clause 3.1 of the OA which provides:
“If a First Trigger Event occurs after the date of this agreement but before the expiry of the Overage Period the Buyer will pay to the Seller the sum of Seven Hundred and Fifty Thousand Pounds (£750,000).”
The definition of the First Trigger Event was changed by the DoV and, as amended, reads, so far as relevant:
“the receipt by the Buyer of a Prior Approval in relation to a proposal for the Development relating to a minimum of sixty (60) Residential Units shown on the plans at Annexure 3 or such other similar scheme submitted by the Seller that delivers a minimum of sixty (60) Residential Units at the Property.”
This definition itself contains important defined terms, the meanings of which are contained in the OA.
“Prior Approval” is defined to mean, so far as relevant, “written notice from the Local Planning Authority giving its prior approval in respect of the Development under the Permitted Development Order”.
“Development” is defined to mean:
“development of the Property comprising of a change of use of any part or parts of the Property or the whole of the Property to a use falling within Class C3 (dwellinghouses) of the Permitted Development Order.”
“Residential Units” are defined to mean:
“residential dwellings to be comprised in a development at the Property for residential use for sale or lettings and “Residential Unit” shall be construed accordingly but excluding any units which are restricted to be used for Affordable Housing.”
The plans annexed at Annexure 3 referred to in the amended definition of “First Trigger Event” were new plans substituted by the DoV. The new plans showed a total of 60 Residential Units, in place of 66 Units, by excluding six Units on that part of the first floor falling within the demise to Kanchans and used as a storage area.
The Permitted Development Order referred to in the definition of Development is the Town and Country Planning (General Permitted Development) Order 2015, made principally pursuant to the Town and Country Planning Act 1990. So far as relevant, article 3(1) provides that “planning permission is hereby granted for the classes of development described as permitted development in Schedule 2”. The relevant part of schedule 2 is Class O headed “Permitted development: Development consisting of a change of use of a building” (emphasis added) from Class B1(a) (offices) to Class C3 (dwellinghouses) (which includes flats, maisonettes and studios). It is important to note that this is concerned only with a change of use, not with external building works.
The relevant paragraph under Class O is O.2 which provides:
“(1) Development under Class O is permitted subject to the condition that before beginning the development, the developer must apply to the local planning authority for a determination as to whether the prior approval of the authority will be required as to
(a) transport and highways impacts of the development,
(b) contamination risks on the site,
(c) flooding risks on the site, and
(d) impacts of noise from commercial premises on the intended occupiers of the development,
and the provisions of paragraph W (prior approval) apply in relation to that application.
(2) Development under Class O is permitted subject to the condition that it must be completed within a period of 3 years starting with the prior approval date.”
The relevant effect of the Permitted Development Order is therefore to grant consent for a change of use from office to residential subject to prior approval (if required) on the four specific subjects listed in para O.2(1). The requirements of paragraph W are, so far as material, to provide with the application to the local planning authority a written description of the proposed development, a plan indicating the site and showing the proposed development, and a statement of the net increase in dwellinghouses proposed by the development: para W(2). Where prior approval is required, the development must be carried out in accordance with the details approved by the local planning authority, unless it and the developer agree otherwise in writing: para W(12).
The requirement in para O.2(2) that the development must be completed within a period of three years starting with the prior approval was introduced by an amendment order that was made on 10 March 2016 and laid before Parliament on 11 March 2016, coming into force on 6 April 2016. It was therefore made and laid shortly before the sale agreement for the Property was made and came into force shortly before the date of completion and the date of the OA and DoV. It replaced an earlier requirement that the development be commenced within the same period of three years. As will later appear, L&I relies on this change as a factor relevant to the proper construction of the Amended OA.
On 28 April 2016, Sovereign submitted an application for prior approval under para O.2 accompanied by the plans annexed to the DoV, a description of the development and a statement that the net increase in dwellinghouses would be 60. Prior approval was on that basis granted by the local planning authority on 4 July 2016 and received by L&I on or about the same date, well within the Overage Period (as defined in the OA). The conditions imposed by the local planning authority arose in relation to the transport and highways impacts of the change of use.
Sovereign's case is that, on that basis, the First Trigger Event occurred within the Overage Period and that therefore under clause 3.1 the sum of £750,000 became payable with payment due to be made on 30 August 2016. L&I ignored three demands for payment made in August and September 2016 and responded, denying liability, only when a statutory demand was served on it in October 2016.
L&I's case, shortly stated, is that while the planning requirements were satisfied, the prior approval was given for 60 flats, not all of which could in fact lawfully be built. The construction of the full number of 60 flats would contravene provisions of the Building Regulations. It was integral to the occurrence of the First Trigger Event under the terms of the Amended OA that the 60 flats should be capable of being constructed. This requirement was made express by the inclusion of the words “residential dwellings…for residential use for sale or lettings” in the definition of Residential Units.
L&I's case has proceeded purely on the basis of the construction of the express terms of the Amended OA, with no reliance on implied terms or a claim for rectification.
The fundamental position taken by L&I was that the purpose of the OA as regards the First Trigger Event was to provide a commercially valuable benefit to L&I in exchange for the payment of £750,000. Prior approval for a change of use to permit the construction of 60 Residential Units was valuable only if those 60 Units could be built. As, it claimed, not all the 60 Units permitted by the Prior Approval granted on 4 July 2016 could be built, by reason of incompatibility with the fire escape provisions of the Building Regulations, the Prior Approval did not confer the intended benefit on L&I. The submissions of Sovereign, and the decision of the judge, was tantamount to saying that utility did not matter.
Ground 1 of the grounds of appeal is that the judge gave insufficient weight to the reference in the definition of Residential Units to the words “residential units…for residential use for sale or lettings”. Even at the level of a purely textual analysis, Mr Banner QC, appearing for L&I, submitted that the judge had wrongly construed the relevant provisions of the Amended OA. He submitted that the two key elements in the definition of First Trigger Event were...
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Overage – be careful with those triggers!
...& Ilford Limited v. Sovereign Property Holdings Limited [2018] EWCA Civ 1618 is another salutary reminder to any party negotiating overage provisions of the need to spell out clearly and expressly all the conditions that will trigger the payment of additional London & Ilford Limited (L&I) p......
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Overage Be Careful With Those Triggers!
...& Ilford Limited v. Sovereign Property Holdings Limited [2018] EWCA Civ 1618 is another salutary reminder to any party negotiating overage provisions of the need to spell out clearly and expressly all the conditions that will trigger the payment of additional London & Ilford Limited......